Midterm Syllabus and Study Guide: Money, Banking, and Interest Rates

Midterm Exam Overview

Exam Details

• Date & Time: Saturday, October 03, 2025, 8:30 a.m. – 10:00 a.m.

• Location: Waterloo (BA 101A – Lu, BA 102 Lucz – Z), Brantford (RCE 217)

Exam Format

• Multiple Choice (MC): 30 questions, 1 mark each

• Short Answer (SA): 5 questions, 4 marks each (students answer any 4)

• Total Marks: 50 (MC = 30, SA = 20)

• Cheat sheets: Not allowed

• Calculator: Non-programmable only

Question Breakdown by Chapter

CHAPTER	MC # OF QUESTIONS	SA # OF QUESTIONS
1	3	1
2	4	1
3	5	1
4	6	1
5	6	1
6	6	1

Midterm Reading Guide

Chapter 1 – Why Study Money and Banking?

This chapter introduces the importance of money and banking in the financial system, focusing on their roles in the economy.

• Key Points:

  • Definition of money and its functions: medium of exchange, unit of account, store of value.

  • Role of banks in facilitating payments and credit.

  • Impact of money and banking on inflation and economic stability.

• Comments: Omit reading pages 8-10 (money and inflation).

Chapter 2 – An Overview of the Financial System

This chapter provides a broad overview of the financial system, including its structure and key participants.

• Key Points:

  • Definition of financial system: network of markets and institutions that facilitate the flow of funds.

  • Types of financial markets: capital markets (stocks, bonds) and money markets (short-term debt).

  • Role of financial intermediaries: banks, insurance companies, mutual funds.

• Comments: Read the entire chapter.

Chapter 3 – What is Money?

This chapter explores the concept of money, its characteristics, and its role in the economy.

• Key Points:

  • Characteristics of money: durability, portability, divisibility, uniformity, acceptability.

  • Types of money: commodity money, fiat money, electronic money.

  • Measurement of money supply: M1, M2, etc.

• Comments: Omit reading page 62 ('money as a weighted aggregate').

Chapter 4 – Understanding Interest Rates

This chapter examines the concept of interest rates, their determination, and their significance in financial markets.

• Key Points:

  • Definition of interest rate: the cost of borrowing money, usually expressed as a percentage.

  • Types of interest rates: nominal, real, effective.

  • Factors affecting interest rates: inflation, risk, liquidity, time preference.

  • Formula for real interest rate: $\text{Real Interest Rate} = \text{Nominal Interest Rate} - \text{Inflation Rate}$

Chapter 5 – The Behaviour of Interest Rates

This chapter analyzes how interest rates behave in response to changes in economic conditions and policy.

• Key Points:

  • Supply and demand for bonds and their effect on interest rates.

  • Role of central banks in influencing interest rates through monetary policy.

  • Expectations theory, liquidity preference theory, and market segmentation theory.

• Comments: Read the entire chapter.

Chapter 6 – The Risk and Term Structure of Interest Rates

This chapter discusses the risk and term structure of interest rates, including how rates vary with time and risk.

• Key Points:

  • Definition of term structure of interest rates: relationship between interest rates and the maturity of debt.

  • Yield curve: graphical representation of term structure.

  • Risk premiums: compensation for default risk, liquidity risk, and other factors.

  • Formula for yield to maturity (YTM): $\text{YTM} = \frac{C + \frac{F - P}{n}}{\frac{F + P}{2}}$ where $C$ = annual coupon payment, $F$ = face value, $P$ = price, $n$ = years to maturity.

• Comments: Read pages 118-137 only.

Study Tips

• Review study tips on pages 12-13 of the course outline.

• Use the Practice Mid-term quiz under the Quizzes tab for additional preparation.

• Review feedback on MyLearningSpace quizzes as described in the instructions.

• Bring a pencil, non-programmable calculator, and photo ID to the exam.

Additional info:

• This syllabus is for a Money and Banking/Financial System course, not Financial Accounting.

• Topics covered are relevant to economics and finance, not accounting.