Money & Banking

Econ 212

Dr. A. Al-Mejrin
Department of Economics
Faculty of Business
Kuwait University

Fall 2017
Instructor: Dr. Abbas Almejrin
Office: Department of Economics
Office Hours: Monday & Wednesday 12:30 1:50
or by Appointment
Office T: 2498-8491
Sec. T: 2498-8425
Email:
cbakukw@gmail.com
Class Time: Days 2, 4
Section 53: 11:00 am 12:15 pm. Room: 312
Section 02: 2:00 3:15 pm Room 308
College: CBA Shuwaikh Campus
Money & Banking
Econ 212
This course provides the basic
concepts and analytical tools
concerning: money, financial
markets, financial institutions &
instruments, interest &
exchange rates, demand &
supply of money, and monetary
policy.
The
Text-
book
Attendance
Regular attendance is
required
You are responsible for
information in class
Attendance earns extra
credit.
Respect the time of your classmates
Attend on time
Be in the classroom
not in the corridor if I
am not there yet
Do not exchange
conversation or talk to
your classmate during
lecture
Do not look at or use
your mobile during
lectures or exams
Tips for success
Write
lecture notes
during
lectures

Read from your text book

Solve relevant questions and problems
Ask questions if there something unclear during lecture
Ask whenever you need help
Do not leave things to the last minute
Evaluation
Econ 212
Exam Date Time Room Grade

Assignments TBA In-class 10 - 15 %

& Quizzes
Midterm 1 Mon 6/11/2017 TBA TBA 15 - 25 %

Midterm 2 Wed 6/12/2017 TBA TBA 15 - 25 %

Final Tue 26/12/2017 2:00 4:00 TBA 40 - 50 %

Grading Scale
Letter grades will be
assigned as follows:
94 100 % A
90 93.99 % A-
86 89.99 % B+
83 85.99 % B
80 82.99 % B-
78 79.99 % C+
73 77.99 % C
70 72.99 % C-
66 69.99 % D+
60 65.99 % D
59.99 or below F
Makeup's
No makeup exams
or makeup quizzes
Fair weight will be
assigned in case of
emergency.
Emergency absence
must be documented and assessed on case-by-case
basis
calculators
Simple calculator, not
scientific or geometric or
advanced calculator, is
needed in the exams.
Devices with advanced
scientific features, memory,
translation capacity or
dictionary capabilities is
not allowed during quizzes
and exams.
 Why Study Money & Banking?

Individuals financial decisions

Importance of money, banking
and financial institutions in
modern societies
Functioning of the economy
Well Focus On
What is money?
Financial markets: bonds markets, stock
exchanges, and foreign exchanges.
Financial Institutions: banks, other financial
institutions, etc.
What are macroeconomic implications of
money, financial markets and financial
institutions?
Monetary policy and control.
Money & Banking
Econ 212
Lecture 1
What is Money?
A Comparative Approach to
Measuring Money
Meaning of Money
Money is any asset that is generally
accepted as payment for goods and
services or repayment of debt.
- It is not the same as
Wealth or Income
* Money and Wealth are Stocks
* But Income is Flow (per period of time)
Functions of Money
Medium of Exchange

Unit of Account
(single price for each good)

Store of Value
(during hyperinflation money lose this function)
Before Money: Barter System

* Depends upon the Double Coincidence of

Wants
- Barter involves only two people; each has
something the other wants.
- Example of Barter Limitation:
If (A) wants (good Y) from (B), but (A) has
nothing that (B) wants, there can be no barter
trade.
 In Barter System Many Prices are Needed for
One Good

How many
price does
one need in
a Barter
Economy?
In Barter System Many Prices are Needed for
One Good

* How many price does one need in a Barter

Economy?
N ( N -1) / 2
* Double Coincidence of Wants and Multi
Prices leads to High Transactions Costs
 Exercise

* How many price does one need in a Barter

economy if there are 10 products?
 Answer

* How many price does one need in a Barter

economy if there are 10 products?
N ( N -1) / 2
= 10 (10 1) / 2
= 10 (9) / 2 = 45 prices
Evolution of Money & Payments System

1- Commodity Money
* Camels
Cattle
Tobacco
Sugar
Grains
Shells
Furs
Metals
Precious metals like gold and silver
A private 1 dollar note, issued by the
"Delaware Bridge Company" of New
Jersey 1836-1841.
2. Paper currency
a- Packed by Metal
b- Packed by Law
Fiat Money

3. Checks
(IOU Money)
4. Electronic means of
payment: phone,
telex, wire transfer.

5. Electronic money:
Debit cards, Stored-
value cards, Smart
cards, E-cash (money
that exists only in electronic
form)
Liquidity
a measure of
the ease an asset
can be turned into
a means of
payment (Money).
Measuring Money (Monetary Aggregates)
* M1:
Currency, coins, travelers checks ,
demand deposits in banks

* M2:
M1 + savings, money market accounts ,
small time deposits.

* M3
M2 + large time deposits, money
market mutual funds.

One may find some differences in definition from

one region to another.
What is the Most Accurate Monetary Aggregates
Which of these measures of money should be
controlled by a Central Bank in order to affect
macroeconomic variables like GDP growth.
If these measures move together in the same
direction, then, it does not matter which one of them
should be controlled.
Between 1999 and 2006, in the Euro area, M1 and
M3 were more or less moving together, but after, they
have been moving in opposite direction.
It is advisable, as many central banks do, to
watch closely all these measures to intervene and
correct directions when necessary.
Euro Monetary Aggregates Annual Growth Rates
Denmark Annual Growth in Monetary Aggregates1992 - 2006
Key Terms
Money Electronic Money
Wealth Unit of Account
Income Medium of Exchange
Stock vs. Flow Store of Value
Commodity Money Hyperinflation,
Paper Money Double Coincidence of
Fiat Money Wants
Federal Reserve Currency
System Monetary Aggregates
Electronic Means of (M1, M2, M3)
Payment