EC 223 - Thu Sep 10, 2026 - Lecture 01

Before class

• First class - nothing to prepare

In class

Brief Overview of the Course

• Interest rates directly connected to price of financial asset
• Banks connect savers to borrowers which mean they have an important role in how funds are allocated
  • Which firms are chosen to be lent money?
  • How risk is managed
• How the government can use its ability to interfere in markets to make them more reliable and resilient

Intro to Course Concepts

• Financial markets transfer funds from people and institutions with excess funds to people and firms with a shortage of funds
  • Example: When you put your money in a chequing account, banks will use to lend to another firm
  • They affect economic activity and improve allocation of resources
• Main financial markets: bond and stock markets

Bond markets:

• A security is a tradable financial instrument that represents a claim on the issuer's future income or assets
  • Example: if you lend money to the government and they promise to pay you back a certain amount of money in a certain amount of time
• A bond is a debt security that promises to make payments periodically for a specified period of time
• Interest rate is the cost of borrowing or the promised return earned on lending funds
  • It's extremely important
  • If it goes really high, you'll spend less because it costs more to lend money and thus save more

Stock market:

• A stock is a share of a ownership in a corporation
• Stock pries reflect company asset's and the future cash flow / outlook of cash flow businesses are expected to make
• It's one way for corporations to raise funds
• Stock prices affect business decisions by affect the amount the company raises when issuing additional shares

Financial Crises:

• Major disruptions in financial markets
• Characterized by sharp declines in asset prices and the failures of many financial and non-financial firms
• Can be followed by severe business cycle downturns

Foreign exchange market is the market where funds are converted from one currency to another
Lecture notes

After class

• Upload the syllabus to Course Info/ so future lectures get it (done 2026-09-13)