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Financial Markets And Institutions

by ;
Edition:
6th
ISBN13:

9780321280299

ISBN10:
0321280296
Format:
Hardcover
Pub. Date:
1/1/2009
Publisher(s):
Addison Wesley
List Price: $194.00
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Summary

Recognizing that students need more than an abstract description of financial markets and institutions as they train to become managers successfully working in, or interacting with, the financial service industry, Mishkin and Eakins examine models and concepts through the eyes of a practicing financial manager to see not onlywhy they matter, but also how they are used in the real world. In this way, students learn to place themselves in the role of decision-maker and envision how they might respond to problems and situations that will arise in their future careers.This Fifth Edition boasts expanded coverage of valuation concepts, more quantitative material, and a streamlined, finance-focused presentation. A careful examination of conflicts of interest, a concentration on the impact of new technologies, new data, and refreshing examples all serve to enhance and illuminate important concepts.

Table of Contents

Preface xxix
About the Authors xxxix
PART ONE INTRODUCTION
1(38)
Why Study Financial Markets and Institutions?
3(14)
Preview
3(1)
Why Study Financial Markets?
3(4)
Debt Markets and Interest Rates
4(1)
The Stock Market
5(1)
The Foreign Exchange Market
6(1)
Why Study Financial Institutions?
7(2)
Central Banks and the Conduct of Monetary Policy
8(1)
Structure of the Financial System
8(1)
Banks and Other Financial Institutions
8(1)
Financial Innovation
9(1)
Managing Risk in Financial Institutions
9(1)
Applied Managerial Perspective
9(1)
How We Will Study Financial Markets and Institutions
10(3)
Exploring the Web
11(1)
Web Exercise
11(2)
Concluding Remarks
13(1)
Summary
14(1)
Key Terms
14(1)
Questions
14(1)
Quantitative Problems
15(2)
Overview of the Financial System
17(22)
Preview
17(1)
Function of Financial Markets
18(2)
Structure of Financial Markets
20(2)
Debt and Equity Markets
20(1)
Primary and Secondary Markets
20(1)
Exchanges and Over-the-Counter Markets
21(1)
Money and Capital Markets
22(1)
Internationalization of Financial Markets
22(1)
International Bond Market, Eurobonds, and Eurocurrencies
22(1)
World Stock Markets
23(1)
Function of Financial Intermediaries
23(1)
The Wall Street Journal: Following the News Foreign Stock Market Indexes
24(1)
Global The Importance of Financial Intermediaries to Securities Markets: An International Comparison
25(3)
Transaction Costs
25(1)
Risk Sharing
26(1)
Asymmetric Information: Adverse Selection and Moral Hazard
26(2)
Financial Intermediaries
28(4)
Depository Institutions
29(1)
Contractual Savings Institutions
30(1)
Investment Intermediaries
31(1)
Regulation of the Financial System
32(3)
Increasing Information Available to Investors
32(1)
Ensuring the Soundness of Financial Intermediaries
33(2)
Improving Control of Monetary Policy
35(1)
Financial Regulation Abroad
35(1)
Summary
35(1)
Key Terms
36(1)
Questions
36(1)
Web Exercises: Overview of the Financial System
37(2)
PART TWO FUNDAMENTALS OF FINANCIAL MARKETS
39(110)
What Do Interest Rates Mean and What Is Their Role in Valuation?
41(30)
Preview
41(1)
Measuring Interest Rates
42(10)
Present Value
42(2)
Four Types of Credit Market Instruments
44(1)
Yield to Maturity
45(7)
Global Negative T-Bill Rates? Japan Shows the Way
52(1)
The Distinction Between Real and Nominal Interest Rates
52(3)
The Distinction Between Interest Rates and Returns
55(1)
Mini-Case With TIPS, Real Interest Rates Have Become Observable in the United States
56(3)
Maturity and the Volatility of Bond Returns: Interest-Rate Risk
59(1)
Mini-Case Helping Investors Select Desired Interest-Rate Risk
59(2)
Reinvestment Risk
60(1)
Summary
60(1)
The Practicing Manager Calculating Duration to Measure Interest-Rate Risk
61(7)
Summary
68(1)
Key Terms
68(1)
Questions
68(1)
Quantitative Problems
69(1)
Web Exercises: Understanding Interest Rates
70(1)
Why Do Interest Rates Change?
71(30)
Preview
71(1)
Determinants of Asset Demand
71(4)
Wealth
72(1)
Expected Returns
72(1)
Risk
73(2)
Liquidity
75(1)
Summary
75(1)
Supply and Demand in the Bond Market
75(6)
Demand Curve
76(2)
Supply Curve
78(1)
Market Equilibrium
78(1)
Supply and Demand Analysis
79(1)
Loanable Funds Framework
79(2)
Changes in Equilibrium Interest Rates
81(6)
Shifts in the Demand for Bonds
81(4)
Shifts in the Supply of Bonds
85(2)
Case Changes in the Equilibrium Interest Rate Due to Expected Inflation or Business Cycle Expansions
87(4)
Case Explaining Low Japanese Interest Rates
91(1)
Case: The Wall Street Journal The ``Credit Markets'' Column
92(1)
The Wall Street Journal: Following the News The ``Credit Markets'' Column
93(1)
The Practicing Manager Profiting from Interest-Rate Forecasts
94(1)
The Wall Street Journal: Following the News Forecasting Interest Rates
95(1)
Summary
96(1)
Key Terms
97(1)
Questions
97(1)
Quantitative Problems
98(1)
Web Exercises: The Behavior of Interest Rates
99
Appendix 1: Models of Asset Pricing
13(10)
Appendix 2: Applying the Asset Market Approach to a Commodity Market: The Case of Gold
23(4)
Appendix 3: Supply and Demand in the Market for Money: The Liquidity Preference Framework
27(74)
How Do Risk and Term Structure Affect Interest Rates?
101(30)
Preview
101(1)
Risk Structure of Interest Rates
101(4)
Default Risk
102(3)
Case The Enron Bankruptcy and the Baa-Aaa Spread
105(1)
Case What If Treasury Securities Were No Longer Default-Free?
106(4)
Liquidity
106(1)
Income Tax Considerations
107(2)
Summary
109(1)
Case Effects of the Bush Tax Cut on Bond Interest Rates
110(1)
Term Structure of Interest Rates
110(1)
The Wall Street Journal: Following the News Yield Curves
111(11)
Pure Expectations Theory
111(5)
Market Segmentation Theory
116(1)
Liquidity Premium Theory
117(3)
Evidence on the Term Structure
120(1)
Summary
121(1)
Case Interpreting Yield Curves, 1980--2004
122(1)
The Practicing Manager Using the Term Structure to Forecast Interest Rates
123(3)
Summary
126(1)
Key Terms
127(1)
Questions
127(1)
Quantitative Problems
128(1)
Web Exercises: The Risk and Term Structure of Interest Rates
129(2)
Are Financial Markets Efficient?
131(18)
Preview
131(1)
The Efficient Market Hypothesis
132(3)
Rationale Behind the Hypothesis
134(1)
Stronger Version of the Efficient Market Hypothesis
135(1)
Evidence on the Efficient Market Hypothesis
135(2)
Evidence in Favor of Market Efficiency
135(2)
Mini-Case An Exception That Proves the Rule: Ivan Boesky
137(2)
Case Should Foreign Exchange Rates Follow a Random Walk?
139(3)
Evidence Against Market Efficiency
139(2)
Overview of the Evidence on the Efficient Market Hypothesis
141(1)
The Practicing Manager Practical Guide to Investing in the Stock Market
142(1)
Mini-Case Should You Hire an Ape as Your Investment Adviser?
142(3)
Case What Do the Black Monday Crash of 1987 and the Tech Crash of 2000 Tell Us About the Efficient Market Hypothesis?
145(1)
Behavioral Finance
146(1)
Summary
147(1)
Key Terms
147(1)
Questions
147(1)
Quantitative Problems
148(1)
Web Exercises: The Efficient Market Hypothesis
148(1)
PART THREE CENTRAL BANKING AND THE CONDUCT OF MONETARY POLICY
149(68)
Structure of Central Banks and the Federal Reserve System
151(24)
Preview
151(1)
Origins of the Federal Reserve System
151(1)
Inside the Fed The Political Genius of the Founders of the Federal Reserve System
152(1)
Formal Structure of the Federal Reserve System
153(2)
Federal Reserve Banks
154(1)
Inside the Fed Special Role of the Federal Reserve Bank of New York
155(3)
Member Banks
156(1)
Board of Governors of the Federal Reserve System
157(1)
Inside the Fed Role of the Research Staff
158(2)
Federal Open Market Committee (FOMC)
158(1)
The FOMC Meeting
159(1)
Inside the Fed Green, Blue, and Beige: What Do These Colors Mean at the Fed?
160(1)
Informal Structure of the Federal Reserve System
161(1)
Inside the Fed Role of Member Banks in the Federal Reserve System
162(1)
How Independent Is the Fed?
163(2)
Structure and Independence of Foreign Central Banks
165(3)
Bank of Canada
165(1)
Bank of England
166(1)
Bank of Japan
166(1)
European Central Bank
167(1)
The Trend Toward Greater Independence
167(1)
Explaining Central Bank Behavior
168(1)
Inside the Fed Federal Reserve Transparency
168(1)
Should the Fed Be Independent?
169(2)
The Case for Independence
169(1)
The Case Against Independence
170(1)
Central Bank Independence and Macroeconomic Performance Throughout the World
171(1)
Summary
172(1)
Key Terms
172(1)
Questions
172(1)
Web Exercises: Structure of Central Banks and the Federal Reserve System
173(2)
Conduct of Monetary Policy: Tools, Goals, and Targets
175(42)
Preview
175(1)
The Federal Reserve's Balance Sheet
175(4)
Liabilities
175(2)
Assets
177(1)
Open Market Operations
177(1)
Discount Lending
178(1)
The Market for Reserves and the Federal Funds Rate
179(4)
Supply and Demand in the Market for Reserves
179(1)
How Changes in the Tools of Monetary Policy Affect the Federal Funds Rate
180(3)
Tools of Monetary Policy
183(6)
Open Market Operations
183(1)
A Day at the Trading Desk
184(1)
Discount Policy
185(1)
Operation of the Discount Window
185(2)
Lender of Last Resort
187(1)
Reserve Requirements
188(1)
Advantages of Open Market Operations Over the Other Tools
188(1)
Inside the Fed Discounting to Prevent a Financial Panic: The Black Monday Stock Market Crash of October 1987 and the Terrorist Destruction of the World Trade Center in September 2001
189(1)
Goals of Monetary Policy
190(2)
High Employment
190(1)
Economic Growth
191(1)
Price Stability
191(1)
Global The Growing European Commitment to Price Stability
192(1)
Interest-Rate Stability
192(1)
Stability of Financial Markets
192(1)
Stability in Foreign Exchange Markets
193(1)
Conflict Among Goals
193(1)
Central Bank Strategy: Use of Targets
193(2)
Choosing the Targets
195(3)
Criteria for Choosing Intermediate Targets
197(1)
Criteria for Choosing Operating Targets
198(1)
Fed Policy Procedures: Historical Perspective
198(3)
The Early Years: Discount Policy as the Primary Tool
199(1)
Discovery of Open Market Operations
199(1)
The Great Depression
200(1)
War Finance and the Pegging of Interest Rates: 1942--1951
200(1)
Inside the Fed Bank Panics of 1930--1933: Why Did the Fed Let Them Happen?
201(4)
Targeting Monetary Market Conditions: The 1950s and 1960s
201(1)
Targeting Monetary Aggregates: The 1970s
201(2)
New Fed Operating Procedures: October 1979--October 1982
203(1)
Deemphasis of Monetary Aggregates: October 1982--Early 1990s
204(1)
Federal Funds Targeting Again: Early 1990s and Beyond
204(1)
International Considerations
205(1)
Global International Policy Coordination: The Plaza Agreement and the Louvre Accord
206(1)
Monetary Targeting in Other Countries
206(3)
United Kingdom
207(1)
Canada
207(1)
Germany
208(1)
Japan
208(1)
Lessons from Monetary Targeting Experiences
209(1)
The New International Trend in Monetary Policy Strategy: Inflation Targeting
209(3)
New Zealand
210(1)
Canada
210(1)
United Kingdom
211(1)
Lessons from Inflation Targeting Experience
211(1)
The Practicing Manager Using a Fed Watcher
212(1)
Summary
213(1)
Key Terms
214(1)
Questions
214(1)
Quantitative Problems
215(1)
Web Exercises: Conduct of Monetary Policy: Tools, Goals, and Targets
215
Appendix: The Fed's Balance Sheet and the Monetary Base
39(178)
PART FOUR FINANCIAL MARKETS
217(152)
The Money Markets
219(26)
Preview
219(1)
The Money Markets Defined
219(1)
Why Do We Need the Money Markets?
220(1)
Money Market Cost Advantages
221(1)
The Purpose of the Money Markets
221(1)
Who Participates in the Money Markets?
222(3)
U.S. Treasury Department
223(1)
Federal Reserve System
223(1)
Commercial Banks
224(1)
Businesses
224(1)
Investment and Securities Firms
224(1)
Individuals
225(1)
Money Market Instruments
225(1)
Treasury Bills
225(1)
Case Discounting the Price of Treasury Securities to Pay the Interest
226(2)
Mini-Case Treasury Bill Auctions Go Haywire
228(9)
Federal Funds
229(1)
Repurchase Agreements
230(1)
Negotiable Certificates of Deposit
231(1)
Commercial Paper
232(3)
Banker's Acceptances
235(2)
Eurodollars
237(1)
Global Ironic Birth of the Eurodollar Market
237(1)
Comparing Money Market Securities
238(2)
Interest Rates
238(1)
Liquidity
239(1)
How Money Market Securities Are Valued
239(1)
The Wall Street Journal: Following The News Money Market Rates
240(1)
Summary
241(1)
Key Terms
242(1)
Questions
242(1)
Quantitative Problems
242(1)
Web Exercises: The Money Markets
243(2)
The Bond Market
245(28)
Preview
245(1)
Purpose of the Capital Market
245(1)
Capital Market Participants
246(1)
Capital Market Trading
246(1)
Types of Bonds
247(1)
Treasury Bonds
247(4)
Treasury Bond Interest Rates
248(1)
Treasury Inflation-Indexed Securities
248(2)
Treasury Strips
250(1)
Agency Bonds
250(1)
Municipal Bonds
251(1)
Risk in the Municipal Bond Market
252(1)
Corporate Bonds
252(6)
Characteristics of Corporate Bonds
253(2)
Types of Corporate Bonds
255(3)
Financial Guarantees for Bonds
258(1)
Bond Yield Calculations
258(3)
Current Yield
258(2)
Yield on a Discount Basis
260(1)
Case: The Wall Street Journal The Bond Page
261(1)
The Wall Street Journal: Following the News Treasury Bonds and Notes
262(1)
The Wall Street Journal: Following the News Treasury Bills
263(1)
The Wall Street Journal: Following the News Corporate Bonds
264(1)
Finding the Value of Coupon Bonds
265(3)
Finding the Price of Semiannual Bonds
265(3)
Investing in Bonds
268(1)
Summary
269(1)
Key Terms
269(1)
Questions
269(1)
Quantitative Problems
270(1)
Web Exercise: The Bond Market
271(2)
The Stock Market
273(22)
Preview
273(1)
Investing in Stocks
273(2)
Common Stock Versus Preferred Stock
274(1)
How Stocks Are Sold
275(1)
Mini-Case The Most Expensive Seat in Town
275(3)
Computing the Price of Common Stock
278(1)
Mini-Case Nasdaq: Fighting for Its Life Against ECNs
279(1)
The One-Period Valuation Model
279(1)
The Wall Street Journal: Following the News Stock Prices
280(4)
The Generalized Dividend Valuation Model
281(1)
The Gordon Growth Model
281(2)
Price Earnings Valuation Method
283(1)
How the Market Sets Security Prices
284(1)
Errors in Valuation
285(2)
Problems with Estimating Growth
285(1)
Problems with Estimating Risk
286(1)
Problems with Forecasting Dividends
286(1)
Case The September 11 Terrorist Attack, the Enron Scandal, and the Stock Market
287(1)
Stock Market Indexes
287(1)
Mini-Case History of the Dow Jones Industrial Average
288(1)
Buying Foreign Stocks
288(2)
Regulation of the Stock Market
290(1)
The Securities and Exchange Commission
290(1)
Summary
291(1)
Key Terms
292(1)
Questions
292(1)
Quantitative Problems
292(1)
Web Exercises: The Stock Market
293(2)
The Mortgage Markets
295(22)
Preview
295(1)
What Are Mortgages?
296(1)
Characteristics of the Residential Mortgage
297(1)
Mortgage Interest Rates
297(1)
Case The Discount Point Decision
298(3)
Loan Terms
299(2)
Mortgage Loan Amortization
301(1)
Case Computing the Payment on Mortgage Loans
301(2)
Types of Mortgage Loans
303(3)
Insured and Conventional Mortgages
303(1)
Fixed- and Adjustable-Rate Mortgages
304(1)
Other Types of Mortgages
304(2)
Mortgage-Lending Institutions
306(1)
Loan Servicing
307(1)
E-Finance Borrowers Shop the Web for Mortgages
308(1)
Secondary Mortgage Market
308(1)
Securitization of Mortgages
309(1)
What Is a Mortgage-Backed Security?
309(1)
Mini-Case Are Fannie Mae and Freddie Mac Getting Too Big for Their Britches?
310(2)
Types of Pass-Through Securities
310(2)
Mortgage-Backed Securities Clearing Corporation
312(1)
The Impact of Securitized Mortgages on the Mortgage Market
312(1)
Summary
313(1)
Key Terms
313(1)
Questions
314(1)
Quantitative Problems
314(2)
Web Exercises: The Mortgage Markets
316(1)
The Foreign Exchange Market
317(30)
Preview
317(1)
Foreign Exchange Market
318(2)
What Are Foreign Exchange Rates?
319(1)
Why Are Exchange Rates Important?
319(1)
The Wall Street Journal: Following the News Foreign Exchange Rates
320(1)
How Is Foreign Exchange Traded?
321(1)
Exchange Rates in the Long Run
321(4)
Law of One Price
321(1)
Theory of Purchasing Power Parity
322(1)
Why the Theory of Purchasing Power Parity Cannot Fully Explain Exchange Rates
323(1)
Factors That Affect Exchange Rates in the Long Run
323(2)
Exchange Rates in the Short Run
325(6)
Comparing Expected Returns on Domestic and Foreign Deposits
326(2)
Interest Parity Condition
328(1)
Equilibrium in the Foreign Exchange Market
329(2)
Explaining Changes in Exchange Rates
331(3)
Shifts in the Expected-Return Schedule for Foreign Deposits
331(2)
Shifts in the Expected-Return Schedule for Domestic Deposits
333(1)
Case Changes in the Equilibrium Exchange Rate: Two Examples
334(4)
Changes in the Money Supply
336(1)
Exchange Rate Overshooting
337(1)
Case Why Are Exchange Rates So Volatile?
338(1)
Case Explaining the Rise and Fall of the Dollar in the 1980s
339(2)
Case The Euro's First Six Years
341(1)
Case: The Wall Street Journal The ``Currency Trading'' Column
341(1)
The Practicing Manager Profiting from Foreign Exchange Forecasts
342(1)
The Wall Street Journal: Following the News The ``Currency Trading'' Column
343(1)
Summary
344(1)
Key Terms
344(1)
Questions
344(1)
Quantitative Problems
345(1)
Web Exercises: The Foreign Exchange Market
346(1)
The International Financial System
347(22)
Preview
347(1)
Intervention in the Foreign Exchange Market
347(1)
Foreign Exchange Intervention and the Money Supply
347(1)
Inside the Fed A Day at the Federal Reserve Bank of New York's Foreign Exchange Desk
348(4)
Unsterilized Intervention
350(1)
Sterilized Intervention
351(1)
Balance of Payments
352(1)
Exchange Rate Regimes in the International Financial System
353(1)
Fixed Exchange Rate Regimes
353(1)
Global The Euro's Challenge to the Dollar
354(2)
Case The Foreign Exchange Crisis of September 1992
356(1)
Global Argentina's Currency Board
357(1)
Global Dollarization
358(1)
The Practicing Manager Profiting from a Foreign Exchange Crisis
359(1)
Case Recent Foreign Exchange Crises in Emerging Market Countries: Mexico 1994, East Asia 1997, Brazil 1999, and Argentina 2002
360(2)
Managed Float
361(1)
Capital Controls
362(1)
Controls on Capital Outflows
362(1)
Controls on Capital Inflows
363(1)
The Role of the IMF
363(3)
Should the IMF Be an International Lender of Last Resort?
364(2)
Summary
366(1)
Key Terms
367(1)
Questions
367(1)
Quantitative Problems
368(1)
Web Exercises: The International Financial System
368
Appendix: Balance of Payments
45(324)
PART FIVE FUNDAMENTALS OF FINANCIAL INSTITUTIONS
369(54)
Why Do Financial Institutions Exist?
371(32)
Preview
371(1)
Basic Facts About Financial Structure Throughout the World
371(4)
Transaction Costs
375(1)
How Transaction Costs Influence Financial Structure
375(1)
How Financial Intermediaries Reduce Transaction Costs
375(1)
Asymmetric Information: Adverse Selection and Moral Hazard
376(1)
The Lemons Problem: How Adverse Selection Influences Financial Structure
377(3)
Lemons in the Stock and Bond Markets
378(1)
Tools to Help Solve Adverse Selection Problems
378(2)
Conflicts of Interest The Enron Implosion
380(3)
How Moral Hazard Affects the Choice Between Debt and Equity Contracts
383(1)
Moral Hazard in Equity Contracts: The Principal-Agent Problem
383(1)
Tools to Help Solve the Principal-Agent Problem
384(1)
Conflicts of Interest ``Hollywood Accounting'': Was Forrest Gump a Money Loser?
384(2)
How Moral Hazard Influences Financial Structure in Debt Markets
386(4)
Tools to Help Solve Moral Hazard in Debt Contracts
387(2)
Summary
389(1)
Case Financial Development and Economic Growth
390(1)
Financial Crises and Aggregate Economic Activity
391(3)
Factors Causing Financial Crises
391(3)
Case Financial Crises in the United States
394(2)
Mini-Case Case Study of a Financial Crisis: The Great Depression
396(1)
Case Financial Crises in Emerging Market Countries: Mexico, 1994--1995, East Asia, 1997--1998, and Argentina, 2001--2002
396(4)
Summary
400(1)
Key Terms
401(1)
Questions
401(1)
Quantitative Problems
401(1)
Web Exercises: Why Do Financial Institutions Exist?
402(1)
What Should Be Done About Conflicts of Interest in the Financial Industry?
403(20)
Preview
403(1)
What Are Conflicts of Interest and Why Are They Important?
404(1)
Ethics and Conflicts of Interest
405(1)
Types of Conflicts of Interest
405(1)
Underwriting and Research in Investment Banking
405(1)
Conflicts of Interest The King, Queen, and Jack of the Internet
406(1)
Conflicts of Interest Frank Quattrone and Spinning
407(1)
Auditing and Consulting in Accounting Firms
407(1)
Credit Assessment and Consulting in Credit-Rating Agencies
407(1)
Conflicts of Interest The Demise of Arthur Andersen
408(1)
Universal Banking
408(1)
Mini-Case Why Do Issuers of Securities Pay to Have Their Securities Rated?
409(1)
When Are Conflicts of Interest a Serious Problem?
409(1)
Conflicts of Interest Banksters
410(2)
What Has Been Done to Remedy Conflicts of Interest?
412(2)
Sarbanes-Oxley Act of 2002
413(1)
Global Legal Settlement of 2002
413(1)
A Framework for Evaluating Policies to Remedy Conflicts of Interest
414(3)
Approaches to Remedying Conflicts of Interest
415(2)
Case Evaluating Sarbanes-Oxley and the Global Settlement
417(2)
Summary
419(1)
Key Terms
420(1)
Questions
420(1)
Quantitative Problems
420(1)
Web Exercises: What Should Be Done About Conflicts of Interest in the Financial Industry?
421(2)
PART SIX THE FINANCIAL INSTITUTIONS INDUSTRY
423(192)
Banking and the Management of Financial Institutions
425(26)
Preview
425(1)
The Bank Balance Sheet
425(4)
Liabilities
426(2)
Assets
428(1)
Basics of Banking
429(2)
General Principles of Bank Management
431(7)
Liquidity Management and the Role of Reserves
432(2)
Asset Management
434(1)
Liability Management
435(1)
Capital Adequacy Management
436(2)
The Practicing Manager Strategies for Managing Bank Capital
438(1)
Case Did the Capital Crunch Cause a Credit Crunch in the Early 1990s?
439(1)
Off-Balance-Sheet Activities
440(2)
Loan Sales
440(1)
Generation of Fee Income
440(1)
Trading Activities and Risk Management Techniques
441(1)
Conflicts of Interest Barings, Daiwa, and Sumitomo: Rogue Traders and the Principal-Agent Problem
442(1)
Measuring Bank Performance
443(4)
Bank's Income Statement
443(2)
Measures of Bank Performance
445(1)
Recent Trends in Bank Performance Measures
446(1)
Summary
447(1)
Key Terms
448(1)
Questions
448(1)
Quantitative Problems
449(1)
Web Exercises: Banking and the Management of Financial Institutions
450(1)
Commercial Banking Industry: Structure and Competition
451(34)
Preview
451(1)
Historical Development of the Banking System
451(3)
Multiple Regulatory Agencies
453(1)
Financial Innovation and the Evolution of the Banking Industry
454(4)
Responses to Changes in Demand Conditions
455(1)
Responses to Changes in Supply Conditions
456(2)
E-Finance Will ``Clicks'' Dominate ``Bricks'' in the Banking Industry?
458(1)
E-Finance Why Are Scandinavians so Far Ahead of Americans in Using Electronic Payments and On-Line Banking?
459(1)
E-Finance Are We Headed for a Cashless Society?
460(4)
Avoidance of Existing Regulations
461(3)
The Practicing Manager Profiting from a New Financial Product: A Case Study of Treasury Strips
464(5)
Financial Innovation and the Decline of Traditional Banking
466(3)
Structure of the U.S. Commercial Banking Industry
469(3)
Restrictions on Branching
470(1)
Response to Branching Restrictions
471(1)
Bank Consolidation and Nationwide Banking
472(2)
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
474(1)
E-Finance Information Technology and Bank Consolidation
474(2)
What Will the Structure of the U.S. Banking Industry Look Like in the Future?
475(1)
Are Bank Consolidation and Nationwide Banking Good Things?
475(1)
Global Comparison of Banking Structures in the United States and Abroad
476(1)
Separation of Banking and Other Financial Service Industries
477(2)
Erosion of Glass-Steagall
477(1)
The Gramm-Leach-Bliley Financial Services Modernization Act of 1999: Repeal of Glass-Steagall
477(1)
Implications for Financial Consolidation
478(1)
Separation of Banking and Other Financial Services Industries Throughout the World
478(1)
International Banking
479(3)
Eurodollar Market
479(1)
Structure of U.S. Banking Overseas
480(1)
Foreign Banks in the United States
481(1)
Summary
482(1)
Key Terms
483(1)
Questions
483(1)
Web Exercises: Commercial Banking Industry: Structure and Competition
484(1)
Savings Associations and Credit Unions
485(28)
Preview
485(1)
Mutual Savings Banks
485(1)
Savings and Loan Associations
486(2)
Mutual Savings Banks and Savings and Loans Compared
488(1)
Savings and Loans in Trouble: The Thrift Crisis
488(2)
Later Stages of the Crisis: Regulatory Forbearance
489(1)
Competitive Equality in Banking Act of 1987
490(1)
Political Economy of the Savings and Loan Crisis
490(2)
Principal-Agent Problem for Regulators and Politicians
491(1)
Case Principal-Agent Problem in Action: Charles Keating and the Lincoln Savings and Loan Scandal
492(1)
Savings and Loan Bailout: Financial Institutions Reform, Recovery, and Enforcement Act of 1989
493(1)
The Savings and Loan Industry Today
494(7)
Number of Institutions
494(2)
S&L Size
496(1)
S&L Assets
497(1)
S&L Liabilities and Net Worth
497(1)
Capital
498(1)
Profitability and Health
498(2)
The Future of the Savings and Loan Industry
500(1)
Credit Unions
501(9)
History and Organization
501(5)
Sources of Funds
506(1)
Uses of Funds
507(1)
Advantages and Disadvantages of Credit Unions
508(1)
The Future of Credit Unions
509(1)
Summary
510(1)
Key Terms
510(1)
Questions
510(1)
Web Exercises: Savings Associations and Credit Unions
511(2)
Banking Regulation
513(24)
Preview
513(1)
Asymmetric Information and Bank Regulation
513(2)
Government Safety Net: Deposit Insurance and the FDIC
513(2)
Global The Spread of Government Deposit Insurance Throughout the World: Is This a Good Thing?
515(4)
Restrictions on Asset Holdings and Bank Capital Requirements
517(2)
Mini-Case Basel 2: Is It Spinning Out of Control?
519(4)
Bank Supervision: Chartering and Examination
519(1)
A New Trend in Bank Supervision: Assessment of Risk Management
520(1)
Disclosure Requirements
521(1)
Consumer Protection
522(1)
Restrictions on Competition
522(1)
E-Finance Electronic Banking: New Challenges for Bank Regulation
523(1)
International Banking Regulation
523(3)
Problems in Regulating International Banking
525(1)
Summary
525(1)
The 1980s U.S. Banking Crisis
526(1)
Federal Deposit Insurance Corporation Improvement Act of 1991
527(1)
Banking Crises Throughout the World
528(6)
Scandinavia
529(1)
Latin America
530(1)
Russia and Eastern Europe
531(1)
Japan
531(2)
China
533(1)
East Asia
533(1)
``Deja Vu All Over Again''
534(1)
Summary
534(1)
Key Terms
534(1)
Questions
535(1)
Quantitative Problems
535(1)
Web Exercises: Banking Regulation
536
Appendix: Evaluating FDICIA and Other Proposed Reforms of the Banking Regulatory System
49(488)
The Mutual Fund Industry
537(24)
Preview
537(1)
The Growth of Mutual Funds
537(4)
The First Mutual Funds
538(1)
Benefits of Mutual Funds
538(1)
Ownership of Mutual Funds
539(2)
Mutual Fund Structure
541(2)
Open- Versus Closed-End Funds
542(1)
Organizational Structure
542(1)
Case Calculating a Mutual Fund's Net Asset Value
543(1)
Investment Objective Classes
544(5)
Equity Funds
544(1)
Bond Funds
545(1)
Hybrid Funds
546(1)
Money Market Funds
546(2)
Index Funds
548(1)
Fee Structure of Investment Funds
549(1)
Regulation of Mutual Funds
550(1)
Hedge Funds
551(2)
Mini-Case The Long Term Capital Debacle
553(1)
Conflicts of Interest in the Mutual Fund Industry
554(1)
Sources of Conflicts of Interest
554(1)
Mutual Fund Abuses
554(1)
Conflicts of Interest Many Mutual Funds Are Caught Ignoring Ethical Standards
555(2)
Government Response to Abuses
556(1)
Conflicts of Interest SEC Survey Reports Mutual Fund Abuses Widespread
557(1)
Summary
558(1)
Key Terms
558(1)
Questions
558(1)
Quantitative Problems
559(1)
Web Exercises: Investment Banks, Brokerage Firms, and Mutual Funds
560(1)
Insurance Companies and Pension Funds
561(30)
Preview
561(1)
Insurance Companies
562(1)
Fundamentals of Insurance
563(2)
Adverse Selection and Moral Hazard in Insurance
563(1)
Selling Insurance
564(1)
Growth and Organization of Insurance Companies
565(1)
Types of Insurance
565(1)
Mini-Case Insurance Agent: The Customer's Ally
565(2)
Life Insurance
566(1)
Global The Woes of Lloyd's of London
567(8)
Health Insurance
571(1)
Property and Casualty Insurance
572(2)
Insurance Regulation
574(1)
Conflicts of Interest Insurance Behemoth Charged with Conflicts of Interest Violations
575(1)
The Practicing Manager Insurance Management
575(4)
Pensions
579(1)
Types of Pensions
579(3)
Defined-Benefit Pension Plans
579(1)
Defined-Contribution Pension Plans
580(1)
Private and Public Pension Plans
581(1)
Mini-Case Power to the Pensions
582(3)
Regulation of Pension Plans
585(2)
Employee Retirement Income Security Act
585(2)
Individual Retirement Plans
587(1)
The Future of Pension Funds
587(1)
Summary
587(1)
Key Terms
588(1)
Questions
588(1)
Quantitative Problems
588(1)
Web Exercises: Insurance Companies and Pension Funds
589(2)
Investment Banks, Security Brokers and Dealers, and Venture Capital Firms
591(24)
Preview
591(1)
Investment Banks
592(5)
Background
592(1)
Underwriting Stocks and Bonds
593(4)
The Wall Street Journal: Following the News New Securities Issues
597(3)
Equity Sales
598(1)
Mergers and Acquisitions
599(1)
Securities Brokers and Dealers
600(3)
Brokerage Services
600(3)
Mini-Case Example of Using the Limit-Order Book
603(1)
Securities Dealers
604(1)
Regulation of Securities Firms
604(1)
Relationship Between Securities Firms and Commercial Banks
605(1)
Venture Capital Firms
606(5)
Description of Industry
606(1)
Venture Capitalists Reduce Asymmetric Information
607(1)
Origins of Venture Capital
608(1)
Structure of Venture Capital Firms
609(1)
The Life of a Deal
609(2)
E-Finance Venture Capitalists Lose Focus with Internet Companies
611(1)
Summary
611(1)
Key Terms
611(1)
Questions
612(1)
Quantitative Problems
612(1)
Web Exercises: Investment Banks, Security Brokers and Dealers, and Venture Capital Firms
613(2)
PART SEVEN THE MANAGEMENT OF FINANCIAL INSTITUTIONS
615
Risk Management in Financial Institutions
617(22)
Preview
617(1)
Managing Credit Risk
617(5)
Screening and Monitoring
618(1)
Long-Term Customer Relationships
619(1)
Loan Commitments
620(1)
Collateral
620(1)
Compensating Balances
620(1)
Credit Rationing
621(1)
Managing Interest-Rate Risk
622(10)
Income Gap Analysis
623(2)
Duration Gap Analysis
625(4)
Example of a Nonbanking Financial Institution
629(2)
Some Problems with Income and Duration Gap Analysis
631(1)
The Practicing Manager Strategies for Managing Interest-Rate Risk
632(2)
Summary
634(1)
Key Terms
634(1)
Questions
634(1)
Quantitative Problems
634(3)
Web Exercises: Risk Management in Financial Institutions
637(2)
Hedging with Financial Derivatives
639
Preview
639(1)
Hedging
639(1)
Forward Markets
640(1)
Interest-Rate Forward Contracts
640(1)
The Practicing Manager Hedging Interest-Rate Risk with Forward Contracts
640(2)
Pros and Cons of Forward Contracts
641(1)
Financial Futures Markets
642(1)
Financial Futures Contracts
642(1)
The Wall Street Journal: Following the News Financial Futures
643(1)
The Practicing Manager Hedging with Financial Futures
644(5)
Organization of Trading in Financial Futures Markets
646(1)
Globalization of Financial Futures Markets
646(2)
Explaining the Success of Futures Markets
648(1)
Mini-Case The Hunt Brothers and the Silver Crash
649(1)
The Practicing Manager Hedging Foreign Exchange Risk with Forward and Futures Contracts
650(2)
Stock Index Futures
652(1)
Stock Index Futures Contracts
652(1)
Mini-Case Program Trading and Portfolio Insurance: Were They to Blame for the Stock Market Crash of 1987?
653(1)
The Wall Street Journal: Following The News Stock Index Futures
654(1)
The Practicing Manager Hedging with Stock Index Futures
654(1)
Options
655(1)
The Wall Street Journal: Following The News Futures Options
656(6)
Options Contracts
657(1)
Profits and Losses on Option and Futures Contracts
657(3)
Factors Affecting the Prices of Option Premiums
660(1)
Summary
661(1)
The Practicing Manager Hedging with Futures Options
662(1)
Interest-Rate Swaps
663(1)
Interest-Rate Swap Contracts
663(1)
The Practicing Manager Hedging with Interest-Rate Swaps
664(3)
Advantages of Interest-Rate Swaps
665(1)
Disadvantages of Interest-Rate Swaps
666(1)
Financial Intermediaries in Interest-Rate Swaps
666(1)
Case Are Financial Derivatives a Worldwide Time Bomb?
667(1)
Conflicts of Interest The Orange County Bankruptcy
668(1)
Summary
669(1)
Key Terms
670(1)
Questions
670(1)
Quantitative Problems
670(2)
Web Exercises: Hedging with Financial Derivatives
672
Appendix: More on Hedging with Financial Derivatives
55
Finance Companies
1(1)
Glossary 1(1)
Index 1


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