Economics 3701

Money and Banking

Fall 2003

General information

  • Time and place: 06:00pm-08:30pm T (09/02/03-12/12/03), BlegH 145
  • Instructor: Florin Bidian
  • E-mail:
  • Phone: (612) 625-7837
  • Office: Heller Hall 1274
  • Office hours: TBA

Prerequisite: Econ 1101, Econ 1102

Course objectives and synopsis:

This course will present in detail the financial system of a modern economy. It is important to debunk misconceptions about the financial system, put forward even by people in key positions. Theodore Roosevelt claimed that there was no moral difference between gambling on cards or horses and gambling on the stockmarket. Jacques Chirac refers to currency speculation as the "AIDS of the worlds economy". Many others regard the financial system as the playground of teenager traders able to bankrupt economies or the battleground of "irrational exuberance" - just think that before the collapse of the Japanese bubble, the few hundred acres around the Imperial Palace in Tokyo were valued as much as the state of California or Canada. In this class we will see that a diversified and developed financial system helps to cushion an economy in times of stress (Alan Greenspan) and promotes growth (Levine-Zervos). A financial system is composed of finacial markets and intermediaries, that perform several crucial functions: clearing and settling payments, pooling of savings, transfers across time and space, pooling of risk, reducing information costs. Finance has existed since the dawn of civilization, credit was used in Mesopotamia in 3000 BC, banks existed in Egypt in 200BC, even derivatives were traded in Amsterdam in the 17-th century. But the financial system is constantly evolving and we will keep current with the latest evolutions and even talk about the future of finance. We will start by studying financial markets (debt, equity, foreign exchange  markets) and  the go-betweens, financial institutions. Then we will talk about the watchdog of the financial system, the U.S. Central bank (FED). This enables us to understand the money supply process. To close the model of the economy, we will model the money demand and the joint determination of real variables and price level.



Money, Banking,and Financial Markets -7th edition, Mishkin F. (Addison Wesley, Pearson Education, 2001)

WWW Homepage

The URL for this class is

A copy of this syllabus is available online. Material from lectures will also be posted following (or before)  the lectures. The homeworks will be available for downloading on the class homepage. The homepage also provides links to some web sites related to macroeconomics.


  Homework Assignments        25% 
  Midterm                    30%
  Final                      45%

Grading scale:

92%-100% A
90%-91% A-
88%-89% B+
82%-87% B
80%-81% B-
78%-79% C+
72%-77% C
70%-71% C-
68%-69% D+
60%-67% D
-59% F
I reserve the right to lower the cutoffs but not to raise them.

There will be 4 homeworks. Each assignment is due at the beginning of next class, unless otherwise stated. No late assignments are accepted. The homeworks must be typed (except graphs and formulas). The penalty for not typing is 25% (of the points at stake), i.e a perfect homework, but not typed will bring you only 75% of the potential score. The final is cumulative. If the midterm must be missed for a documented excuse, the final will carry the extra weight. The final must be taken at the scheduled time. Nevertheless, if you have examination conflicts or three exams within a 16-hour period, you must contact me at least 2 weeks before the examination period starts (December 15).

Tentative Class Schedule

I will attempt to follow the schedule outlined below. It is advisable to do the readings before the lecture.





T 2 Sep


Ch 1-3


T 9 Sep

Financial Markets I

Ch 4


T 16 Sep

Financial Markets II

Ch 5-6

HW 1 distributed

T 23 Sep

Financial Markets III

Ch 7

HW 1 due

T 30 Sep

Financial Institutions I

Ch 8-9

HW 2 distributed

T 7 Oct

Financial Institutions II

Ch 10-11


T 14 Oct

Financial Institutions III

Ch 12-13

HW 2 due

T 21 Oct




T 28 Oct

MID solved



T 4 Nov




T 11 Nov

Central Banking and Monetary Policy

Ch 14-18


T 18 Nov

Forex market

Ch 19

HW 3 distributed

T 25 Nov

Monetary Theory I

Ch 22-23

HW3 due//HW4 distributed

T 2 Dec

Monetary Theory II

Ch 24-25

HW 4 due

T 9 Dec


Prepare questions to ask me


T 16 Dec

Final Exam Dec 16 (6-8pm, BlegH 145)

Read all the stuff



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