Published: September 2017
Page Count: 360
ISBN (Digital): 978-1-4533-8709-2

Money and Banking

Version 3.0
By Robert E. Wright

Key Features

Learning Objectives to introduce each chapter.
“Stop and Think” boxes to better extend concepts to new areas.
Practice exercises on mathematical concepts.
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This textbook is suitable for the following courses: Money and Banking and Financial Firms and Markets.

Wright discusses the subject of Money and Banking in a succinct and clear format for students. Leaving the more difficult mathematics for your classroom, the textbook covers all of the major topics and recent coverage. Version 3.0 features a new section that describes and assesses Islamic banking and insurance and includes up-to-date graphs to the latest available month or quarter.

New in This Version

New section on Islamic Banking and Financial Stability.
Updated time-series graphs through the end of 2016.
Added discussions of regulations and central banking practices.

1.1 Dreams Dashed

1.2 Hope Springs

1.3 Suggested Browsing

1.4 Suggested Reading

Chapter 2: The Financial System

2.1 Evil and Brilliant Financiers?

2.2 Financial Systems

2.3 Asymmetric Information: The Real Evil

2.4 Financial Instruments

2.5 Financial Markets

2.6 Financial Intermediaries

2.7 Competition Between Markets and Intermediaries

2.8 Regulation

2.9 Suggested Reading

Chapter 3: Money

3.1 Of Love, Money, and Transactional Efficiency

3.2 Better to Have Had Money and Lost It Than to Have Never Had Money at All

3.3 A Short History of Moolah

3.4 Commodity and Credit Monies

3.5 Measuring Money

3.6 Suggested Reading

Chapter 4: Interest Rates

4.1 The Interest of Interest

4.2 Present and Future Value

4.3 Compounding Periods

4.4 Pricing Debt Instruments

4.5 What’s the Yield on That?

4.6 Calculating Returns

4.7 Inflation and Interest Rates

4.8 Suggested Reading

Chapter 5: The Economics of Interest Rate Fluctuations

5.1 Interest Rate Fluctuations

5.2 Shifts in Supply and Demand for Bonds

5.3 Predictions and Effects

5.4 Suggested Reading

Chapter 6: The Economics of Interest-Rate Spreads and Yield Curves

6.1 Interest-Rate Determinants I: The Risk Structure

6.2 The Determinants of Interest Rates II: The Term Structure

6.3 Suggested Reading

Chapter 7: Rational Expectations, Efficient Markets, and the Valuation of Corporate Equities

7.1 The Theory of Rational Expectations

7.2 Valuing Corporate Equities

7.3 Financial Market Efficiency

7.4 Evidence of Market Efficiency

7.5 Suggested Reading

Chapter 8: Financial Structure, Transaction Costs, and Asymmetric Information

8.1 The Sources of External Finance

8.2 Transaction Costs, Asymmetric Information, and the Free-Rider Problem

8.3 Adverse Selection

8.4 Moral Hazard

8.5 Agency Problems

8.6 Suggested Reading

Chapter 9: Bank Management

9.1 The Balance Sheet

9.2 Assets, Liabilities, and T-Accounts

9.3 Bank Management Principles

9.4 Credit Risk

9.5 Interest-Rate Risk

9.6 Off the Balance Sheet

9.7 Suggested Reading

Chapter 10: Innovation and Structure in Banking and Finance

10.1 Early Financial Innovations

10.2 Innovations Galore

10.3 Loophole Mining and Lobbying

10.4 Banking on Technology

10.5 Banking Industry Profitability and Structure

10.6 Suggested Reading

Chapter 11: The Economics of Financial Regulation

11.1 Market Failures and Public Choice

11.2 The Great Depression as Regulatory Failure

11.3 The Savings and Loan Regulatory Debacle

11.4 Better but Still Not Good: U.S. Regulatory Reforms

11.5 Basel II, Basel III, and Dodd-Frank

11.6 Suggested Reading

Chapter 12: Financial Derivatives

12.1 Derivatives and Their Functions

12.2 Forwards and Futures

12.3 Options and Swaps

12.4 Suggested Reading

Chapter 13: Financial Crises: Causes and Consequences

13.1 Financial Crisis Taxonomies

13.2 Asset Bubbles

13.3 Financial Panics

13.4 Lender of Last Resort (LLR)

13.5 Bailouts and Resolutions

13.6 The Crisis of 2007–2009

13.7 Islamic Banking and Financial Stability

13.8 Suggested Reading

Chapter 14: Central Bank Form and Function

14.1 America’s Central Banks

14.2 The Federal Reserve System’s Structure

14.3 Other Important Central Banks

14.4 Central Bank Independence

14.5 Suggested Reading

Chapter 15: The Money Supply Process and the Money Multipliers

15.1 The Central Bank’s Balance Sheet

15.2 Open Market Operations

15.3 A Simple Model of Multiple Deposit Creation

15.4 A More Sophisticated Money Multiplier for M1

15.5 The M2 Money Multiplier

15.6 Summary and Explanation

15.7 Suggested Reading

Chapter 16: Monetary Policy Tools

16.1 The Federal Funds Market and Reserves

16.2 Open Market Operations and the Discount Window

16.3 Additional Policy Tools

16.4 Suggested Reading

Chapter 17: Monetary Policy Targets and Goals

17.1 A Short History of Fed Blunders

17.2 Central Bank Goal Trade-offs

17.3 Central Bank Targets

17.4 The Taylor Rule

17.5 Suggested Reading

Chapter 18: Foreign Exchange

18.1 The Economic Importance of Currency Markets

18.2 Determining the Exchange Rate

18.3 Long-Run Determinants of Exchange Rates

18.4 Short-Run Determinants of Exchange Rates

18.5 Modeling the Market for Foreign Exchange

18.6 Suggested Reading

Chapter 19: International Monetary Regimes

19.1 The Trilemma, or Impossible Trinity

19.2 Two Systems of Fixed Exchange Rates

19.3 The Managed or Dirty Float

19.4 The Choice of International Policy Regime

19.5 Suggested Reading

Chapter 20: Money Demand

20.1 The Simple Quantity Theory and the Liquidity Preference Theory of Keynes

20.2 Friedman’s Modern Quantity Theory of Money

20.3 The Policy Failure of the Modern Quantity Theory of Money

20.4 Suggested Reading

Chapter 21: IS-LM

21.1 Aggregate Output and Keynesian Cross Diagrams

21.2 The IS-LM Model

21.3 Suggested Reading

Chapter 22: IS-LM in Action

22.1 Shifting Curves: Causes and Effects

22.2 Implications for Monetary Policy

22.3 Aggregate Demand Curve

22.4 Suggested Reading

Chapter 23: Aggregate Supply and Demand and the Growth Diamond

23.1 Aggregate Demand

23.2 Aggregate Supply

23.3 Equilibrium Analysis

23.4 The Growth Diamond

23.5 Suggested Reading

Chapter 24: Monetary Policy Transmission Mechanisms

24.1 Modeling Reality

24.2 How Important Is Monetary Policy?

24.3 Transmission Mechanisms

24.4 Suggested Reading

Chapter 25: Inflation and Money

25.1 Empirical Evidence of a Money-Inflation Link

25.2 Why Have Central Bankers So Often Gotten It Wrong?

25.3 Suggested Reading

Chapter 26: Rational Expectations Redux: Monetary Policy Implications

26.1 Rational Expectations

26.2 New Keynesians

26.3 Inflation Busting

26.4 Suggested Reading

Robert E. Wright

Augustana College

Robert E. Wright accepted the Nef Family Chair of Political Economy at Augustana University in 2009 after a decade of teaching economics at the University of Virginia and New York University’s Stern School. He received his Ph.D. in Economic History from SUNY, Buffalo and is the co-author and co-editor of almost forty books, including Wall Street Journal’s Guide to the 50 Economic Indicators and Guide to the U.S. Economic Policy.