Chapter 1 Introduction to Money, Banking, and Financial Markets

Money and banking are two critical components that drive our economy. Money allows people to make transactions, whereas banks play a vital role in circulating the money supply in the marketplace.

Consider Helen Miller, a student at the University of Wisconsin who encounters money and banking daily. At the university bookstore, she purchases supplies by making her payment in cash. She then goes to the university cashier’s office and pays tuition and fees by writing a personal check. Later that day, she visits a local restaurant and swipes her Mastercard to pay for lunch. Helen also drops by the local office of U.S. Bank, where she deposits funds in her savings account that earns her interest. She finds it safe to save money at her bank because it is insured by the Federal Deposit Insurance Corporation. Helen’s savings deposit is used by the bank to make loans to individuals and businesses, as well as to buy interest-earning government securities. Indeed, money and banking are important parts of our lives.

This chapter introduces money, banking, and financial markets. As you will learn, money plays a major role in the operation of the economy. Banks serve as caretakers of the economy’s money supply and, along with other financial institutions, provide an essential source of funds for households and businesses.