For Week One, the focus will be on introducing the functions of money, key components of the financial system, and the determination of interest rates. The major questions that will be discussed include:
What is money and what does it do for us?
How does the payments system work?
What is the price of money? Hint: interest rates. How are interest rates determined?
What is the relationship between interest rates, rates of return, risk, bond prices, and time value of money?
Money and Its Functions
Discuss how the money supply is measured and the four key functions of money discussed in the text Chapter 2 and in the Feducation: Money and Inflation video. Use examples from everyday life (e.g. saving, spending, accounting) in your post.
Bond Prices and Interest Rates
Explain why there is an inverse relationship between the price of bonds and the relevant interest rate. Explain the effect of each of the following upon interest rates and upon the price of bonds:
-Maturity
-Risk
-Inflation