Essentials of Money, Banking and Financial Institutions

With Applications to the Developing World

Samuel K. Andoh - With Benjamin A. Abugri and John Oluseyi Kuforiji

The study of money, banking and financial markets is a required or very popular elective in most undergraduate and graduate programs in economics and finance in Africa. However, the textbooks used are those written primarily for the developed world such as the United States or the U.K. The result is that students graduate with excellent theoretical knowledge about the subject matter as it pertains to the developed economies, but lack the ability to apply the same knowledge to less developed economies.

Although the subject matter of money and banking can be treated at a theoretical level, it is best done with institutions in mind. As an application oriented course, references and applications should, as much as possible, be to the conditions and institutions present in the environment where the subject is being studied and where the knowledge will be used, rather than to institutions that exist elsewhere in developed economies.

The primary purpose of Essentials of Money, Banking and Financial Institutions is to provide a text in money, banking, and financial institutions in the context of the developing economies, especially Africa. Throughout the book, a deliberate effort will be made to focus the students’ attention on the need to develop the existing institutions so they can help to accelerate economic development.

Lexington Books

Pages: 276 • Trim: 7½ x 10¼

978-0-7391-8953-5 • Hardback • October 2014 • $150.00 • (£115.00)

978-0-7391-8954-2 • eBook • October 2014 • $142.50 • (£110.00)

Subjects: Business & Economics / Banks & Banking, Business & Economics / Investments & Securities / Commodities / General, Business & Economics / Finance / General, Political Science / Developing Nations, Social Science / World / Africa

Essentials of Money, Banking and Financial Institutions

With Applications to the Developing World

Hardback

eBook

Summary

The study of money, banking and financial markets is a required or very popular elective in most undergraduate and graduate programs in economics and finance in Africa. However, the textbooks used are those written primarily for the developed world such as the United States or the U.K. The result is that students graduate with excellent theoretical knowledge about the subject matter as it pertains to the developed economies, but lack the ability to apply the same knowledge to less developed economies.

Although the subject matter of money and banking can be treated at a theoretical level, it is best done with institutions in mind. As an application oriented course, references and applications should, as much as possible, be to the conditions and institutions present in the environment where the subject is being studied and where the knowledge will be used, rather than to institutions that exist elsewhere in developed economies.

The primary purpose of Essentials of Money, Banking and Financial Institutions is to provide a text in money, banking, and financial institutions in the context of the developing economies, especially Africa. Throughout the book, a deliberate effort will be made to focus the students’ attention on the need to develop the existing institutions so they can help to accelerate economic development.

Details

Lexington Books

Pages: 276 • Trim: 7½ x 10¼

978-0-7391-8953-5 • Hardback • October 2014 • $150.00 • (£115.00)

978-0-7391-8954-2 • eBook • October 2014 • $142.50 • (£110.00)

Subjects: Business & Economics / Banks & Banking, Business & Economics / Investments & Securities / Commodities / General, Business & Economics / Finance / General, Political Science / Developing Nations, Social Science / World / Africa

Author

Samuel K. Andoh is a professor in the Economics and Finance Department at the School of Business at Southern Connecticut State University.

Table of Contents

Table of Contents
INTRODUCTION
Chapter 1
Money, Banking and Financial Markets
The Financial System: Markets & Institutions
The Scope of Book
Financial System: Markets
The Importance of Financial Markets to Economic Development
Financial Intermediaries
Some Facts about the Financial System across the World
The Special Role of Money in Financial Markets
Chapter Summary
Key Concepts
Problems and Applications
MONEY
Chapter 2
The Concept of Money
Functions of Money
Medium of Exchange
Store of Value
Unit of Account
What Constitutes Money
Separability of the Functions of Money
Measuring Money
Debit and Credit Cards
The Special Role of Money in the Economy
Chapter Summary
Key Concepts
Problems and Applications
INTEREST RATE
Chapter 3
The Concept of Interest Rates
Measuring Interest Rate: Preliminary Ideas
Measuring the interest rate
Simple Interest Loans
Fixed-Payment Loans
Coupons
Discount Bonds
The Rate of Return
Chapter Summary
Key Concepts
Problems and Applications
Chapter 4
Determination of Interest Rate
Loanable Funds Approach/Demand and Supply of Bonds
Demand for Bonds: Factors
Wealth
Expected Returns on bonds and other assets
Expected inflation
Expected risk-of default
Liquidity
Summary
Supply of Bonds
Government Budget Deficit/Surplus
Business Expected Profitability
Business Taxation or Subsidies
Expected Inflation
Summary
Liquidity Preference Approach
Demand for Money
Income
Wealth
The Price Level
Money Supply and its effects on Interest Rate
Chapter Summary
Key Concepts
Problems and Applications
Chapter 5
Risk & Term Structures of Interest Rates
Risk Structure of Interest Rates
Default Risk
Liquidity
Tax Implications
Term Structure of Interest Rates
Explaining the Shape of the Yield Curve
Expectations Hypothesis Liquidity
Premium Hypothesis
Segmented markets hypothesis
Preferred habitat hypothesis
Information Content of the Yield Curve
Chapter Summary
Key Concepts
Problems and Applications
FINANCIAL INSTITUTIONS
Chapter 6
Financial Markets and Institutions
Financial Markets
Broad functions of Financial Markets
Types of Financial Markets
Debt verses Equity Markets
Physical verses Financial Asset Markets
Money verses Capital Markets
Primary verses Secondary markets
Private verses Public Markets
Organized exchanges verses over-the counter (OTC)
Trading in Financial Markets
The Equity Market
Stock Exchanges
Objectives of the Exchange
The bond market
The Derivative Market
Role of Financial Institutions
Depository Financial Institutions
Savings and Loans Associations (S&Ls)
Credit Unions
Commercial Banks
The Commercial Banking Sector Non-depository Financial Institutions
Finance Companies
Insurance Companies
Term Life Insurance
Whole Life Insurance
Universal Life Insurance
Variable Life Insurance
Group Life Insurance
Nonlife or Property and Casualty insurance
Regulation of Financial Markets and Institutions
Chapter Summary
Key Concepts
Problems and Applications
Chapter 7
Depository Institutions: The Business of Banking
The Business of Banking
Structure of the Industry
Types of Banks
Functions of Banks
Accepting Deposits
Giving out Loans
Collecting and settling payments of behalf of customers
Providing safety deposits
Buying and selling foreign currency
Providing international trade services: bills of exchange
Banks and the Creation of Money
Fractional Reserve Banking
Chapter Summary
Key Concepts
Problems and Applications
Chapter 8
Managing Depository Institutions
The Balance Sheet
Liabilities and Net Worth
Assets
Making Profits
Minimizing the cost of acquiring funds
Maximizing revenue
Managing risk
Liquidity risk
Liability and capital management
Capital
Interest rate risks
Duration
Chapter Summary
Key Concepts
Problems and Applications
Chapter 9
Regulating Depository Institutions
Why Regulate Banks
Bank Panics
Financial and economic stability
To protect depositors
To prevent fraudulent activities
To control macroeconomic activity
How to Regulate Banks
Deposit Insurance
Screening
Investor Protection Regulation
Credit Allocation Regulation
Prohibition of certain types of assets
Capital Requirements
The Basel Accords
CAMELS Ratings
Capital
Asset Quality
Management
Earnings
Liquidity
Sensitivity to market risks
Chapter Summary
Key Concepts
Problems and Applications
MONEY CREATION, CONTROL & POLICY
Chapter 10
Currency Boards and Central Banks
Currency Boards
Functions of Currency Boards
Costs and Benefits of Currency Boards
Central Banks
Ownership and Control of Central Banks
Functions of Central Banks
Conduct Monetary Policy
Regulate the Financial System
Lender of Last Resort
Government’s Banker
Manage External Reserves
Operate the Clearing Mechanism
Issue Domestic Currency
Other Functions
The Balance Sheet of Central Banks
The Balance Sheet
Chapter Summary
Key Concepts
Problems and Applications
Chapter 11
The Money Supply Process
The Money Supply
The Depository Institutions/Banks
The Money Supply and the Actors in its Creation
Creating Money
Deriving the Formula for Money Supply
Chapter Summary
Key Concepts
Problems and Applications
Chapter 12
Demand for Money
Demand for Money, What does it Mean
Theories of Money Demand
Quantity Theory of Money
Transactions Demand for Money Theories
Inventory Theoretic Model
Milton Friedman’s Model
Empirical Estimation of Money Demand
MONETARY POLICY
Chapter 13
The Goals and Tools of Monetary Policy
Deploying the Tools
Required Reserve Ratio (r)
Open Market Operations and the Monetary Base MB
Discount Rate
Complications
Chapter Summary
Key Concepts
Problems and Applications
Chapter 14
Conducting Monetary Policy
The Economy
The Goods Market
Consumer Expenditure
The Demand for Goods and Services
Investment Expenditure
Government Expenditure
The IS Curve
The LM Curve
General Equilibrium
Chapter Summary
Key Concepts
Problems and Applications
Chapter 15
Aggregate Demand and the Monetary Transmission Mechanism
Deriving the Aggregate Demand Curve
The Aggregate Demand and Monetary Policy
Monetary Transmission Mechanism
Interest rate effect
Exchange rate effect
Asset price effect
Credit channel effect
Expectations effect
The Transmission mechanism in developing countries
Chapter 16
Money, Inflation and Output
Inflation Defined
Causes of Inflation
Cost-Push and Demand Pull Inflation
Root cause of inflation: Seigniorage and Expectations
Consequences of Inflation
Unanticipated inflation
Anticipated inflation
Inflation and Output
Chapter Summary
Key Concepts
Problems and Applications
Chapter 17
Foreign Exchange Market
Functions of the Exchange Market
The Market for foreign currency
The nominal and real exchange rates
The Real Exchange Rate: Determinants
Savings and investment
Net Exports
Purchasing Power Parity (PPP)
Monetary policy in an open economy
Chapter Summary
Key Concepts
Problems and Applications
ISLAMIC BANKING
Chapter 18
Islamic Banking
Principles of Islamic Banking System
Sharia-compliancy and capital markets
Operation and Regulation of Islamic Banking
Islamic Banking and the global financial crisis of 2007 - 2009
Chapter Summary
Key Concepts
Problems and Applications

Reviews

Essentials of Money, Banking and Financial Institutions: With Applications to the Developing World presents an integrated perspective of issues in money, monetary policy, and institutions. There is something unique in the book for different audiences, whether in developed or developing countries, and it offers comparative elements of financial institutions. The treatment of Islamic Banking is an added value of the book.
— E. Olawale Ogunkola, University of Ibadan

Essentials of Money, Banking and Financial Institutions

With Applications to the Developing World

Samuel K. Andoh - With Benjamin A. Abugri and John Oluseyi Kuforiji

Essentials of Money, Banking and Financial Institutions

With Applications to the Developing World

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