2026
Monetary Economics - 2026
ECS3701 Notes
, CHAPTER 1 - WHY STUDY MONEY, BANKING AND FINANCIAL MARKETS.
WHY STUDY FINANCIAL MARKETS
Financial markets, for example bond and stock markets are crucial to promoting greater economic
efficiency by channeling funds from people who do not have a proper use to people who do.
Well-functioning financial markets are a key to producing high economic growth and have direct
effects on personal wealth, behavior on business consumers and the cyclical performance of the
economy.
The Bond Market and Interest Rates
A security, also called a financial instrument is a claim on the issuer’s future income or assets.
The bond market is important because it enables corporations and governments to borrow to
finance their activities and because it is where interest rates are determined.
A bond is a debt that promises to make payments periodically for a specific period.
An interest rate is the cost of borrowing or the price paid for the rental of funds.
Interest rates are important because:
Higher rates could deter one from borrowing e.g., to buy a house or car.
Conversely, higher rates could encourage one to save money as cost of borrowing is higher.
They impact the general health of the economy as they affect consumers and business’s
willingness to spend, save or make investment decisions.
The Stock Market
A common stock represents a share of ownership in a corporation.
It is a security claim on the earnings and assets of the corporation.
Issuing stock and selling it to the public is a way for corporations to raise funds to finance their
activities.
The market is a place where people can get rich or poor quickly.
The stock market is important as the price of the shares affects the amount of funds that can be
raised be selling newly issued stock to finance spending, a higher price means more funds.
1
Monetary Economics - 2026
ECS3701 Notes
, CHAPTER 1 - WHY STUDY MONEY, BANKING AND FINANCIAL MARKETS.
WHY STUDY FINANCIAL MARKETS
Financial markets, for example bond and stock markets are crucial to promoting greater economic
efficiency by channeling funds from people who do not have a proper use to people who do.
Well-functioning financial markets are a key to producing high economic growth and have direct
effects on personal wealth, behavior on business consumers and the cyclical performance of the
economy.
The Bond Market and Interest Rates
A security, also called a financial instrument is a claim on the issuer’s future income or assets.
The bond market is important because it enables corporations and governments to borrow to
finance their activities and because it is where interest rates are determined.
A bond is a debt that promises to make payments periodically for a specific period.
An interest rate is the cost of borrowing or the price paid for the rental of funds.
Interest rates are important because:
Higher rates could deter one from borrowing e.g., to buy a house or car.
Conversely, higher rates could encourage one to save money as cost of borrowing is higher.
They impact the general health of the economy as they affect consumers and business’s
willingness to spend, save or make investment decisions.
The Stock Market
A common stock represents a share of ownership in a corporation.
It is a security claim on the earnings and assets of the corporation.
Issuing stock and selling it to the public is a way for corporations to raise funds to finance their
activities.
The market is a place where people can get rich or poor quickly.
The stock market is important as the price of the shares affects the amount of funds that can be
raised be selling newly issued stock to finance spending, a higher price means more funds.
1
