Introduction to Finance

Chapter 3, Banks and Other Financial Institutions,
 
covers 
the types and roles of fi nancial institutions. During the 2007–09 
period, falling housing prices, mortgage loan defaults, and 
declining values on mortgage-backed securities that resulted 
in many fi nancial institutions not having adequate equity cap-
ital to continue to operate, and, thus, needing to merge or be 
“bailed out.” The ability of banks to maintain sound balance 
sheets, including adequate capital ratios, continues to be of 
concern to regulators, politicians, and others.
Chapter 4, Federal Reserve System,
describes the current 
structure and operations of the Federal Reserve (the Fed). 
The Fed’s response to the recent fi nancial crisis and economic 
downturn as well as its eff orts to stimulate economic growth 
through quantitative easing and other means is covered. The 
Fed used quantitative easing, among other things, to stimulate 
economic growth and is fi nding it diffi
cult to move towards 
more-traditional interest rate levels. Janet Yellen, the current 
chair of the Fed’s board of governors, is faced with the diffi
cult 
task of simultaneously maintaining economic growth raising 
interest rates that are near zero. 
Chapter 5, Policy Makers and the Money Supply,
describes 
how the four policy maker groups (Federal Reserve System, 
the president, Congress, and the U.S. Treasury) are respons-
ible for carrying out the national economic policy objectives 
of economic growth, high employment, and price stability. We 
cover the U.S. government’s response to the perfect fi nancial 
storm involving the fi nancial crisis and the subsequent Great 
Recession. New material on the current size of the national 
debt and the eff orts of the U.S. Treasury to manage the national 
debt are presented.