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Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 15
Chapter 2
An Overview of the Financial System
Chapter 2 is an introductory chapter that contains the background information on the structure
and operation of financial markets that is needed in later chapters of the book. This chapter
allows the instructor to branch out to various choices of later chapters, thus allowing different
degrees of coverage of financial markets and institutions.
The most important point to transmit to the student is that financial markets and financial
intermediaries are crucial to a well-functioning economy because they channel funds from those
who do not have a productive use for them to those who do. Professors who emphasize financial
markets and institutions in their course will want to teach this chapter in detail, and those who
focus on international issues will want to spend some time on the section “Internationalization of
Financial Markets.” However, those who slant their course to monetary theory and policy may
want to give this chapter a more cursory treatment. No matter how much class time is devoted to
this chapter, I have found that it is a good reference chapter for students. You might want to tell
them that if in later chapters they do not recall what some financial instrument is or who
regulates whom, they can refer back to this chapter, especially to summary tables, such as Tables
3 and 5.
The chapter introduces Global boxes, which are sprinkled throughout the text, to get students to
recognize the growing importance of the global economy. The Global box in this chapter gets
students to think about how the financial system in the United States is both similar to and
different from financial systems in other countries.
