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Financial Markets and Institutions Conflicts of Interest Edition

by ;
Edition:
4th
ISBN13:

9780321285492

ISBN10:
0321285492
Format:
Package
Pub. Date:
1/1/2003
Publisher(s):
Addison Wesley
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Table of Contents

Preface xxvii
About the Authors xxxv
Part 1 INTRODUCTION
1(34)
Why Study Financial Markets and Institutions?
3(12)
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
8(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
10(1)
Web Exercise
11(2)
Concluding Remarks
13(2)
Summary
13(1)
Key Terms
14(1)
Questions and Problems
14(1)
Overview of the Financial System
15(20)
Preview
15(1)
Function of Financial Markets
16(2)
Structure of Financial Markets
18(2)
Debt and Equity Markets
18(1)
Primary and Secondary Markets
18(1)
Exchanges and Over-the-Counter Markets
19(1)
Money and Capital Markets
20(1)
Internationalization of Financial Markets
20(1)
International Bond Market, Eurobonds, and Eurocurrencies
20(1)
World Stock Markets
21(1)
Function of Financial Intermediaries
21(1)
Following the Financial News Foreign Stock Market Indexes
22(4)
Transaction Costs
22(1)
Box 1: Global The Importance Of Financial Intermediaries to Securities Markets: An International Comparison
23(1)
Asymmetric Information: Adverse Selection and Moral Hazard
24(2)
Financial Intermediaries
26(3)
Depository Institutions
26(2)
Contractual Savings Institutions
28(1)
Investment Intermediaries
28(1)
Regulation of the Financial System
29(6)
Increasing Information Available to Investors
29(1)
Ensuring the Soundness of Financial Intermediaries
30(2)
Improving Control of Monetary Policy
32(1)
Financial Regulation Abroad
32(1)
Summary
33(1)
Key Terms
33(1)
Questions and Problems
34(1)
Web Exercises
34(1)
Part 2 FUNDAMENTALS OF INTEREST RATES
35(79)
Understanding Interest Rates
37(38)
Preview
37(1)
Measuring Interest Rates
38(3)
Present Value
39(2)
Application Cost of the S&L Bailout: Was It Really $500 Billion?
41(8)
Yield to Maturity
41(8)
Box 1: Global Negative T-Bill Rates? Japan Shows the Way
49(1)
Other Measures of Interest Rates
49(4)
Current Yield
50(1)
Yield on a Discount Basis
51(2)
Application Reading the Wall Street Journal: The Bond Page
53(1)
Following the Financial News Treasury Bonds and Notes
54(1)
Following the Financial News Treasury Bills
55(1)
Following the Financial News Corporate Bonds
56(1)
The Distinction Between Real and Nominal Interest Rates
56(3)
Box 2 With Tips, Real Interest Rates Have Become Observable in the United States
59(1)
The Distinction Between Interest Rates and Returns
59(5)
Maturity and the Volatility of Bond Returns: Interest-Rate Risk
62(1)
Box 3 Helping Investors Select Desired Interest-Rate Risk
63(1)
Reinvestment Risk
63(1)
Summary
64(1)
Application Should Retirees Invest in ``Gilt-Edged'' Long-Term Bonds?
64(1)
The Practicing Financial Institution Manager Calculating Duration to Measure Interest-Rate Risk
65(10)
Calculating Duration
66(3)
Duration and Interest-Rate Risk
69(2)
Summary
71(1)
Key Terms
72(1)
Questions and Problems
72(1)
Web Exercises
73(2)
The Behavior of Interest Rates
75(39)
Preview
75(1)
Determinants of Asset Demand
75(4)
Wealth
76(1)
Expected Returns
76(1)
Risk
77(1)
Liquidity
78(1)
Summary
79(1)
Benefits of Diversification
79(2)
Loanable Funds Framework: Supply and Demand in the Bond Market
81(5)
Demand Curve
81(2)
Supply Curve
83(1)
Market Equilibrium
83(1)
Supply and Demand Analysis
84(2)
Changes in Equilibrium Interest Rates
86(5)
Shifts in the Demand for Bonds
86(3)
Shifts in the Supply of Bonds
89(2)
Application Changes in the Equilibrium Interest Rate Due to Expected Inflation or Business Cycle Expansions
91(3)
Changes in Expected Inflation: The Fisher Effect
92(1)
Business Cycle Expansion
93(1)
Application Explaining Low Japanese Interest Rates
94(1)
Application Reading the Wall Street Journal: The ``Credit, Markets'' Column
95(1)
Application Have Negative Savings Rates in the United States Led to Higher Interest Rates?
96(1)
Liquidity Preference Framework: Supply and Demand in the Market for Money
96(1)
Following The Financial News The ``Credit Markets'' Column
97(3)
Changes in Equilibrium Interest Rates
100(1)
Shifts in the Demand for Money
101(1)
Shifts in the Supply of Money
101(1)
Application Changes in the Equilibrium Interest Rate Due to Changes in Income, the Price Level, or the Money Supply
101(2)
Changes in Income
101(1)
Changes in the Price Level
102(1)
Changes in the Money Supply
102(1)
Application Money and Interest Rates
103(6)
Does a Higher Rate of Growth of the Money Supply Lower Interest Rates?
106(3)
The Practicing Financial Institution Manager Profiting from Interest-Rate Forecasts
109(1)
Following The Financial News Forecasting Interest Rates
110(4)
Summary
111(1)
Key Terms
112(1)
Questions and Problems
112(1)
Web Exercises
113(1)
Appendix to Chapter 4 Applying the Asset Market Approach to a Commodity Market: The Case of Gold
114(33)
Supply and Demand in the Gold Market
114(2)
Demand Curve
114(1)
Supply Curve
115(1)
Market Equilibrium
116(1)
Changes in the Equilibrium Price of Gold
116(1)
Shift in the Demand Curve for Gold
116(1)
Shifts in the Supply Curve for Gold
116(1)
Application Changes in the Equilibrium Price of Gold Due to a Rise in Expected Inflation
117(1)
Application Reading the Wall Street Journal The ``Commodities'' Column
117(1)
Following the Financial News The ``Commodities'' Column
118(1)
The Risk and Term Structure of Interest Rates
119(28)
Preview
119(1)
Risk Structure of Interest Rates
119(4)
Default Risk
120(3)
Application The Stock Market Crash of 1987 and the Junk Bond-Treasury Spread
123(1)
Application What If Treasury Securities Were No Longer Default-Free?
123(4)
Liquidity
124(1)
Income Tax Considerations
124(3)
Application Effects of the Bush Tax Cut on Bond Interest Rates
127(1)
Term Structure of Interest Rates
127(1)
Following the Financial News Yield Curves
128(11)
Pure Expectations Theory
129(4)
Market Segmentation Theory
133(2)
Liquidity Premium Theory
135(2)
Evidence on the Term Structure
137(2)
Summary
139(1)
Application Interpreting Yield Curves, 1980--2002
139(1)
The Practicing Financial Institution Manager Using the Term Structure to Forecast Interest Rates
140(7)
Summary
143(1)
Key Terms
144(1)
Questions and Problems
144(1)
Web Exercises
145(2)
Part 3 CENTRAL BANKING AND THE CONDUCT OF MONETARY POLICY
147(66)
Structure of Central Banks and the Federal Reserve System
149(22)
Preview
149(1)
Origins of the Federal Reserve System
149(1)
Formal Structure of the Federal Reserve System
150(8)
Box 1: Inside the Fed The Political Genius of the Founders of the Federal Reserve System
150(1)
Federal Reserve Banks
151(2)
Box 2: Inside the Fed Special Role of the Federal Reserve Bank of New York
153(1)
Member Banks
154(1)
Board of Governors of the Federal Reserve System
154(1)
Federal Open Market Committee (FOMC)
155(1)
Box 3: Inside the Fed Role of the Research Staff
156(1)
The FOMC Meeting
156(1)
Box 4: Inside the Fed Green, Blue, and Beige: What Do These Colors Mean at the Fed?
157(1)
Informal Structure of the Federal Reserve System
158(3)
Box 5: Inside the Fed Role of Member Banks in the Federal Reserve System
159(2)
How Independent Is the Fed?
161(1)
Structure and Independence of Foreign Central Banks
162(2)
Bank of Canada
162(1)
Bank of England
163(1)
Bank of Japan
163(1)
European Central Bank
164(1)
The Trend Toward Greater Independence
164(1)
Explaining Central Bank Behavior
164(2)
Box 6: Inside the Fed Games the Fed Plays
165(1)
Should the Fed Be Independent?
166(2)
The Case for Independence
166(1)
The Case Against Independence
167(1)
Central Bank Independence and Macroeconomic Performance in Seventeen Countries
168(3)
Summary
169(1)
Key Terms
169(1)
Questions and Problems
169(1)
Web Exercises
170(1)
Conduct of Monetary Policy: Tools, Goals, and Targets
171(42)
Preview
171(1)
The Federal Reserve's Balance Sheet
171(3)
Liabilities
171(1)
Assets
172(1)
Open Market Operations
173(1)
Discount Lending
174(1)
The Market for Reserves and the Federal Funds Rate
174(3)
Supply and Demand in the Market for Reserves
175(1)
How Changes in the Tools of Monetary Policy Affect the Federal Funds Rate
176(1)
Tools of Monetary Policy
177(8)
Open Market Operations
178(1)
A Day at the Trading Desk
178(2)
Discount Policy
180(1)
Operation of the Discount Window
180(1)
Lender of Last Resort
181(1)
Box 1: Inside the Fed Why Has Adjustment Credit Borrowing Shrunk to Such Low Levels?
181(1)
Box 2: Inside the Fed Discounting to Troubled Banks: Franklin National and Continental Illinois
182(1)
Announcement Effect
183(1)
Box 3: 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
184(1)
Reserve Requirements
184(1)
Advantages of Open Market Operations over the Other Tools
185(1)
Goals of Monetary Policy
185(4)
High Employment
186(1)
Economic Growth
186(1)
Price Stability
187(1)
Box 4: Global The Growing European Commitment to Price Stability
187(1)
Interest-Rate Stability
188(1)
Stability of Financial Markets
188(1)
Stability in Foreign Exchange Markets
188(1)
Conflict Among Goals
188(1)
Central Bank Strategy: Use of Targets
189(1)
Choosing the Targets
190(4)
Criteria for Choosing Intermediate Targets
192(2)
Criteria for Choosing Operating Targets
194(1)
Fed Policy Procedures: Historical Perspective
194(8)
The Early Years: Discount Policy as the Primary Tool
194(1)
Discovery of Open Market Operations
195(1)
The Great Depression
195(1)
Box 5: Bank Panics of 1930--1933: Why Did the Fed Let Them Happen?
196(1)
War Finance and the Pegging of Interest Rates: 1942--1951
196(1)
Targeting Money Market Conditions: The 1950s and 1960s
197(1)
Targeting Monetary Aggregates: The 1970s
197(1)
New Fed Operating Procedures: October 1979--October 1982
198(2)
Deemphasis of Monetary Aggregates: October 1982--Early 1990s
200(1)
Federal Funds Targeting Again: Early 1990s and Beyond
201(1)
International Considerations
202(1)
Monetary Targeting in Other Countries
202(4)
Box 6: Global International Policy Coordination: The Plaza Agreement and the Louvre Accord
203(1)
United Kingdom
203(1)
Canada
204(1)
Germany
204(1)
Japan
205(1)
Lessons from the Monetary Targeting Experiences
205(1)
The New International Trend in Monetary Policy Strategy: Inflation Targeting
206(2)
New Zealand
206(1)
Canada
207(1)
United Kingdom
207(1)
Lessons from Inflation Targeting Experiences
208(1)
The Practicing Financial Institution Manager Using a Fed Watcher
208(5)
Summary
209(1)
Key Terms
210(1)
Questions and Problems
210(1)
Web Exercises
211(2)
Part 4 FINANCIAL MARKETS
213(156)
The Money Markets
215(26)
Preview
215(1)
The Money Markets Defined
215(2)
Why Do We Need the Money Markets?
216(1)
Cost Advantages
217(1)
The Purpose of the Money Markets
217(1)
Who Participates in the Money Markets?
218(3)
U.S. Treasury Department
218(1)
Federal Reserve System
218(1)
Commercial Banks
219(1)
Businesses
219(1)
Investment and Securities Firms
219(1)
Individuals
220(1)
Money Market Instruments
221(1)
Treasury Bills
221(1)
Application Discounting the Price of Treasury Securities to Pay the Interest
221(12)
Federal Funds
224(1)
Box I Treasury Bill Auctions Go Haywire
224(2)
Repurchase Agreements
226(1)
Negotiable Certificates of Deposit
227(1)
Commercial Paper
228(2)
Banker's Acceptances
230(2)
Eurodollars
232(1)
Box 2: Global Ironic Birth of the Eurodollar Market
232(1)
Comparing Money Market Securities
233(2)
Interest Rates
234(1)
Liquidity
234(1)
Money Market Mutual Funds
235(1)
History of Money Market Mutual Funds
235(1)
Following the Financial News Money Market Rates
236(5)
Description of Money Market Mutual Funds
237(1)
MMMF Risk
238(1)
Current Trends in MMMFs
239(1)
Summary
239(1)
Key Terms
239(1)
Questions and Problems
240(1)
Web Exercises
240(1)
The Capital Markets
241(26)
Preview
241(1)
Purpose of the Capital Market
241(1)
Capital Market Participants
242(1)
Capital Market Trading
242(3)
Organized Securities Exchanges
243(1)
Box 1 The Most Expensive Seat in Town
243(1)
Over-the-Counter Markets
244(1)
Capital Market Securities: Bonds
245(1)
Treasury Bonds
246(1)
Application Interest-Rate Risk in Bond Investment
247(3)
Treasury Bond Interest Rates
247(1)
Treasury Inflation-Indexed Securities
248(1)
Treasury Strips
248(1)
Agency Bonds
249(1)
Municipal Bonds
250(2)
Risk in the Municipal Bond Market
252(1)
Corporate Bonds
252(5)
Characteristics of Corporate Bonds
253(1)
Types of Corporate Bonds
254(3)
Financial Guarantees for Bonds
257(1)
Trends in the Bond Market
257(1)
Capital Market Securities: Stock
258(2)
Common Stock Versus Preferred Stock
259(1)
Stock Value
260(1)
Following the Financial News Stock Prices
260(4)
Stock Market Indexes
261(1)
Box 2 History of the Dow Jones Industrial Average
261(1)
Buying Foreign Stocks
262(2)
Public Issues of Stocks and Bonds
264(3)
Summary
264(1)
Key Terms
264(1)
Questions and Problems
265(1)
Web Exercises
265(2)
The Efficient Market Hypothesis
267(24)
Preview
267(1)
Computing the Price of Common Stock
267(5)
The One-Period Valuation Model
268(1)
The Generalized Dividend Valuation Model
269(1)
The Gordon Growth Model
270(1)
Price Earnings Valuation Method
271(1)
How the Market Sets Security Prices
272(1)
Errors in Valuation
273(2)
Problems with Estimating Growth
273(1)
Problems with Estimating Risk
274(1)
Problems with Forecasting Dividends
274(1)
The Efficient Market Hypothesis
275(3)
Rationale Behind the Hypothesis
277(1)
Stronger Version of Efficient Market Hypothesis
278(1)
Evidence on the Efficient Market Hypothesis
278(3)
Evidence in Favor of Market Efficiency
278(1)
Box I An Exception That Proves the Rule: Ivan Boesky
279(2)
Application Should Foreign Exchange Rates Follow a Random Walk?
281(3)
Evidence Against Market Efficiency
282(2)
Overview of the Evidence on the Efficient Market Hypothesis
284(1)
The Practicing Financial Institution Manager Practical Guide to Investing in the Stock Market
284(1)
How Valuable Are Published Reports by Investment Advisors?
284(2)
Box 3 Should You Hire an Ape as Your Investment Adviser?
285(1)
Should You Be Skeptical of Hot Tips?
286(1)
Do Stock Prices Always Rise When There is Good News?
286(1)
Efficient Markets Prescription for the Investor
286(1)
Application What Does the Stock Market Crash of 1987 Tell Us About the Efficient Market Hypothesis?
287(4)
Summary
288(1)
Key Terms
289(1)
Questions and Problems
289(1)
Web Exercises
290(1)
The Mortgage Markets
291(20)
Preview
291(1)
What Are Mortgages?
292(1)
Characteristics of the Residential Mortgage
293(1)
Mortgage Interest Rates
293(1)
Application The Discount Point Decision
294(3)
Loan Terms
295(1)
Mortgage Loan Amortization
296(1)
Application Computing the Payment on Mortgage Loans
297(2)
Types of Mortgage Loans
299(3)
Insured and Conventional Mortgages
299(1)
Fixed- and Adjustable-Rate Mortgages
299(1)
Other Types of Mortgages
300(2)
Mortgage-Lending Institutions
302(1)
Loan Servicing
303(1)
Box 1: E-Finance Borrowers Shop the Web for Mortgages
303(1)
Secondary Mortgage Market
304(1)
Securitization of Mortgages
304(3)
What Is a Mortgage-Backed Security?
304(1)
Types of Pass-Through Securities
305(2)
Mortgage-Backed Securities Clearing Corporation
307(1)
Following the Financial News Mortgage-Backed Securities
307(1)
The Impact of Securitized Mortgages on the Mortgage Market
308(3)
Summary
308(1)
Key Terms
309(1)
Questions and Problems
309(1)
Web Exercises
309(2)
The Foreign Exchange Market
311(28)
Preview
311(2)
Foreign Exchange Market
313(1)
What Are Foreign Exchange Rates?
313(1)
Why Are Exchange Rates Important?
313(1)
Following the Financial News Foreign Exchange Rates
314(2)
How Is Foreign Exchange Traded?
315(1)
Exchange Rates in the Long Run
316(4)
Law of One Price
316(1)
Theory of Purchasing Power Parity
316(1)
Why the Theory of Purchasing Power Parity Cannot Fully Explain Exchange Rates
317(1)
Factors That Affect Exchange Rates in the Long Run
318(2)
Exchange Rates in the Short Run
320(5)
Comparing Expected Returns on Domestic and Foreign Deposits
320(2)
Interest Parity Condition
322(1)
Equilibrium in the Foreign Exchange Market
323(2)
Explaining Changes in Exchange Rates
325(3)
Shifts in the Expected-Return Schedule for Foreign Deposits
326(1)
Shifts in the Expected-Return Schedule for Domestic Deposits
327(1)
Application Changes in the Equilibrium Exchange Rate: Two Examples
328(4)
Changes in Domestic Interest Rates
328(3)
Changes in the Money Supply
331(1)
Exchange Rate Overshooting
332(1)
Application Why Are Exchange Rates So Volatile?
332(1)
Application Explaining the Rise and Fall of the Dollar in the 1980s
333(1)
Application Reading the Wall Street Journal: The Euro's First Three Years
334(1)
Application Reading the Wall Street Journal: The ``Foreign Exchange'' Column
335(1)
The Practicing Financial Institution Manager Profiting from Foreign Exchange Forecasts
335(1)
Following the Financial News The ``Foreign Exchange'' Column
336(3)
Summary
337(1)
Key Terms
337(1)
Questions and Problems
338(1)
Web Exercises
338(1)
The International Financial System
339(30)
Preview
339(1)
Intervention in the Foreign Exchange Market
339(5)
Foreign Exchange Intervention and the Money Supply
339(1)
Box 1: Global A Day at the Federal Reserve Bank of New York's Foreign Exchange Desk
340(2)
Unsterilized Intervention
342(1)
Sterilized Intervention
343(1)
Balance of Payments
344(1)
Current Account
344(1)
Following the Financial News The Balance of Payments
345(2)
Capital Account
346(1)
Official Reserve Transactions Balance
346(1)
Methods of Financing the Balance of Payments
347(1)
Evolution of the International Financial System
347(8)
Gold Standard
347(1)
Bretton Woods System and the IMF
348(1)
Box 2: Global The Euro's Challenge to the Dollar
349(3)
Box 3: Global Argentina's Currency Board
352(1)
Box 4: Global Dollarization
353(1)
Managed Float
353(1)
European Monetary System (EMS)
354(1)
Application The Foreign Exchange Crisis of September 1992
355(1)
The Practicing Financial Institution Manager Profiting from a Foreign Exchange Crisis
356(1)
Application The Mexican Peso Crisis of December 1994
357(1)
Application The East Asian Currency Crisis of 1997
358(1)
European Monetary Union (EMU)
359(1)
Capital Controls
359(1)
Controls on Capital Outflows
359(1)
Controls on Capital Inflows
360(1)
The Role of the IMF
360(3)
Should the IMF Be an International Lender of Last Resort?
361(2)
International Considerations and Monetary Policy
363(6)
Direct Effects of the Foreign Exchange Market on the Money Supply
363(1)
Balance-of-Payments Considerations
364(1)
Exchange Rate Considerations
364(1)
Summary
365(1)
Key Terms
366(1)
Questions and Problems
366(1)
Web Exercises
367(2)
Part 5 THE FINANCIAL INSTITUTIONS INDUSTRY
369(226)
Theory of Financial Structure
371(30)
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(5)
Lemons in the Stock and Bond Markets
378(1)
Tools to Help Solve Adverse Selection Problems
378(2)
Box 1 The Enron Implosion
380(2)
How Moral Hazard Affects the Choice Between Debt and Equity Contracts
382(4)
Moral Hazard in Equity Contracts: The Principal-Agent Problem
383(1)
Box 2 ``Hollywood Accounting'': Was Forrest Gump a Money Loser?
384(1)
Tools to Help Solve the Principal-Agent Problem
384(2)
How Moral Hazard Influences Financial Structure in Debt Markets
386(2)
Tools to Help Solve Moral Hazard in Debt Contracts
386(2)
Summary
388(1)
Application Financial Development and Economic Growth
388(2)
Financial Crises and Aggregate Economic Activity
390(2)
Factors Causing Financial Crises
390(2)
Application Financial Crises in the United States
392(3)
Box 3 Case Study of a Financial Crisis: The Great Depression
394(1)
Application Financial Crises in Emerging-Market Countries: Mexico, 1994--1995, and East Asia, 1997--1998
395(6)
Summary
398(1)
Key Terms
399(1)
Questions and Problems
399(1)
Web Exercises
400(1)
The Banking Firm and Bank Management
401(36)
Preview
401(1)
The Bank Balance Sheet
401(5)
Liabilities
402(2)
Assets
404(1)
Box I Understanding Loan Loss Reserves
404(2)
Basic Operation of a Bank
406(2)
General Principles of Bank Management
408(7)
Liquidity Management and the Role of Reserves
409(2)
Asset Management
411(1)
Liability Management
412(1)
Capital Adequacy Management
413(2)
The Practicing Financial Institution Manager Strategies for Managing Bank Capital
415(1)
Application Did the Capital Crunch Cause a Credit Crunch in the Early 1990s?
416(1)
Off-Balance-Sheet Activities
417(2)
Loan Sales
417(1)
Generation of Fee Income
417(1)
Trading Activities and Risk Management Techniques
418(1)
Box 2 Barings, Daiwa, and Sumitomo: Rogue Traders and the Principal-Agent Problem
419(1)
Measuring Bank Performance
419(4)
Bank's Income Statement
420(1)
Measures of Bank Performance
421(1)
Recent Trends in Bank Performance Measures
422(1)
Financial Innovation
423(9)
Responses to Changes in Demand Conditions'
424(1)
Responses to Changes in Supply Conditions
425(2)
Box 3: E-Finance Will ``Clicks'' Dominate ``Bricks'' in the Banking Industry?
427(1)
Box 4: E-Finance Why Are Scandinavians So Far Ahead of Americans in Using Electronic Payments and On-line Banking?
428(1)
Box 5: E-Finance Are We Headed for a Cashless Society?
429(1)
Avoidance of Existing Regulations
429(3)
The Practicing Financial Institution Manager Profiting from a New Financial Product: A Case Study of Treasury Strips
432(5)
Summary
434(1)
Key Terms
434(1)
Questions and Problems
435(1)
Web Exercises
436(1)
Commercial Banking Industry: Structure and Competition
437(28)
Preview
437(1)
Historical Development of the Banking System
437(3)
Multiple Regulatory Agencies
439(1)
Structure of the U.S. Commercial Banking Industry
440(3)
Restrictions on Branching
441(1)
Response to Branching Restrictions
442(1)
Bank Consolidation and Nationwide Banking
443(4)
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
444(1)
What Will the Structure of the U.S. Banking Industry Look Like in the Future?
445(1)
Box 1: Global Comparison of Banking Structures in the United States and Abroad
446(1)
Are Bank Consolidation and Nationwide Banking Good Things?
446(1)
Separation of the Banking and Other Financial Service Industries
447(3)
Box 2: E-Finance Technology and Bank Consolidation
447(1)
Erosion of Glass-Steagall
448(1)
The Gramm-Leach-Bliley Financial Services Modernization Act of 1999: Repeal of Glass-Steagall
448(1)
Implications for Financial Consolidation
448(1)
Box 3 The Citicorp-Travelers Merger
449(1)
Separation of Banking and Other Financial Services Industries Throughout the World
449(1)
International Banking
450(3)
Eurodollar Market
450(1)
Structure of U.S. Banking Overseas
451(1)
Foreign Banks in the United States
452(1)
Financial Innovation and the Decline of Traditional Banking
453(12)
Behind the Decline: Four Financial Innovations
453(3)
Decline of Traditional Banking
456(2)
Reasons for the Decline
458(2)
Banks' Responses
460(1)
Decline of Traditional Banking in Other Industrialized Countries
461(1)
Summary
462(1)
Key Terms
463(1)
Questions and Problems
463(1)
Web Exercises
464(1)
Savings Associations and Credit Unions
465(26)
Preview
465(1)
Mutual Savings Banks
466(1)
Savings and Loan Associations
467(1)
Mutual Saving Banks and Savings and Loans Compared
467(1)
Savings and Loans in Trouble: The Thrift Crisis
468(2)
Later Stages of the Crisis: Regulatory Forbearance
469(1)
Competitive Equality in Banking Act of 1987
470(1)
Political Economy of the Savings and Loan Crisis
470(2)
Principal-Agent Problem for Regulators and Politicians
471(1)
Application Principal-Agent Problem in Action: Charles Keating and the Lincoln Savings and Loan Scandal
472(1)
Savings and Loan Bailout: Financial Institutions Reform, Recovery, and Enforcement Act of 1989
473(2)
The Savings and Loan Industry Today
475(5)
Number of Institutions
475(1)
S&L Size
475(1)
S&L Assets
476(1)
S&L Liabilities and Net Worth
477(1)
Capital
478(1)
Profitability and Health
478(1)
The Future of the Savings and Loan Industry
478(2)
Credit Unions
480(11)
History and Organization
481(4)
Sources of Funds
485(1)
Uses of Funds
486(1)
Advantages and Disadvantages of Credit Unions
487(1)
The Future of Credit Unions
488(1)
Summary
489(1)
Key Terms
489(1)
Questions and Problems
490(1)
Web Exercises
490(1)
Banking Regulation
491(28)
Preview
491(1)
Asymmetric Information and Bank Regulation
491(12)
Government Safety Net: Deposit Insurance and the FDIC
491(2)
Box 1: Global The Spread of Government Deposit Insurance Throughout the World: Is This a Good Thing?
493(2)
Restrictions on Asset Holding and Bank Capital Requirements
495(1)
Box 2 A Tale of Two Bank Collapses: Bank of New England and Freedom National Bank
496(1)
Bank Supervision: Chartering and Examination
497(1)
Box 3: Global Basel 2: Is It Spinning Out of Control?
498(1)
A New Trend in Bank Supervision: Assessment of Risk Management
499(1)
Disclosure Requirements
500(1)
Consumer Protection
501(1)
Box 4: Global New Zealand's Disclosure-Based Experiment in Bank Regulation
501(1)
Restrictions on Competition
502(1)
Box 5: Global Political Hot Button: The Community Reinvestment Act
502(1)
Box 6: E-Finance Electronic Banking: New Challenges for Bank Regulation
503(1)
International Banking Regulation
503(3)
Problems in Regulating International Banking
505(1)
Box 7: Global The BCCI Scandal
505(1)
Summary
506(1)
The 1980s U.S. Banking Crisis
506(1)
Federal Deposit Insurance Corporation Improvement Act of 1991
507(2)
Application Evaluating FDICIA and Other Proposed Reforms of the Banking Regulatory System
509(4)
Limits on the Scope of Deposit Insurance
509(1)
Prompt Corrective Action
510(1)
Risk-Based Insurance Premiums
511(1)
Other FDICIA Provisions
511(1)
Other Proposed Changes in Banking Regulations
511(2)
Overall Evaluation
513(1)
Banking Crises Throughout the World
513(6)
Scandinavia
513(1)
Latin America
513(2)
Russia and Eastern Europe
515(1)
Japan
515(2)
East Asia
517(1)
``Deja Vu All Over Again''
517(1)
Summary
517(1)
Key Terms
518(1)
Questions and Problems
518(1)
Web Exercises
518(1)
Insurance Companies and Pension Funds
519(28)
Preview
519(1)
Insurance Companies
520(1)
Fundamentals of Insurance
521(2)
Adverse Selection and Moral Hazard in Insurance
521(1)
Selling Insurance
522(1)
Growth and Organization of Insurance Companies
523(1)
Box 1 Insurance Agent: The Customer's Ally
523(1)
Types of Insurance
524(9)
Box 2: Global The Woes of Lloyd's of London
524(1)
Life Insurance
525(4)
Health Insurance
529(1)
Property and Casualty Insurance
530(2)
Insurance Regulation
532(1)
The Practicing Financial Institution Manager Insurance Management
533(3)
Screening
533(1)
Risk-Based Premium
534(1)
Restrictive Provisions
534(1)
Prevention of Fraud
534(1)
Cancellation of Insurance
534(1)
Deductibles
535(1)
Coinsurance
535(1)
Limits on the Amount of Insurance
535(1)
Summary
535(1)
Pensions
536(1)
Types of Pensions
536(6)
Defined-Benefit Pension Plans
536(1)
Defined-Contribution Pension Plans
537(1)
Private and Public Pension Plans
537(2)
Box 3 Power to the Pensions
539(3)
Regulation of Pension Plans
542(1)
Employee Retirement Income Security Act
542(1)
Individual Retirement Plans
543(1)
The Future of Pension Funds
543(4)
Summary
543(1)
Key Terms
544(1)
Questions and Problems
544(1)
Web Exercises
545(2)
Venture Capital Firms, Finance Companies, and Financial Conglomerates
547(20)
Preview
547(1)
Venture Capital Firms
548(4)
Description of Industry
548(1)
Venture Capitalists Reduce Asymmetric Information
548(1)
Origins of Venture Capital
549(1)
Structure of Venture Capital Firms
550(1)
The Life of a Deal
550(2)
History of Finance Companies
552(1)
Box 1: E-Finance Venture Capitalists Lose Focus with Internet Companies
553(1)
Purpose of Finance Companies
553(1)
Risk in Finance Companies
554(1)
Types of Finance Companies
555(5)
Business (Commercial) Finance Companies
555(3)
Consumer Finance Companies
558(1)
Sales Finance Companies
559(1)
Box 2 The Expansion of Ford Motor Credit
560(1)
Regulation of Finance Companies
560(1)
Finance Company Balance Sheet
561(1)
Assets
561(1)
Liabilities
562(1)
Income
562(1)
Finance Company Growth
562(1)
Financial Conglomerates
562(5)
Summary
565(1)
Key Terms
566(1)
Questions and Problems
566(1)
Web Exercises
566(1)
Investment Banks, Brokerage Firms, and Mutual Funds
567(28)
Preview
567(1)
Investment Banks
568(5)
Background
568(1)
Underwriting Stocks and Bonds
569(4)
Following the Financial News New Securities Issues
573(4)
Equity Sales
575(1)
Mergers and Acquisitions
576(1)
Securities Brokers and Dealers
577(4)
Brokerage Services
577(2)
Box I Using the Limit-Order Book
579(1)
Securities Dealers
580(1)
Regulation of Securities Firms
581(1)
Relationship Between Securities Firms and Commercial Banks
582(1)
Mutual Funds
582(5)
Types of Investment Funds
584(1)
Ownership of Mutual Funds
585(1)
Fee Structure of Investment Funds
586(1)
Box 2: E-Finance Mutual Funds and the Internet
586(1)
Application Calculating a Mutual Fund's Net Asset Value
587(8)
Regulation of Mutual Funds
589(1)
Mutual Funds and the Retirement Market
590(1)
Hedge Funds
590(2)
Box 3 The Long Term Capital Debacle
592(1)
Summary
593(1)
Key Terms
593(1)
Questions and Problems
594(1)
Web Exercises
594(1)
Part 6 THE MANAGEMENT OF FINANCIAL INSTITUTIONS
595(54)
Risk Management in Financial Institutions
597(20)
Preview
597(1)
Managing Credit Risk
597(5)
Screening and Monitoring
598(1)
Long-Term Customer Relationships
599(1)
Loan Commitments
600(1)
Collateral
600(1)
Compensating Balances
600(1)
Credit Rationing
601(1)
Managing Interest-Rate Risk
602(10)
Income Gap Analysis
603(2)
Duration Gap Analysis
605(4)
Example of a Nonbanking Financial Institution
609(2)
Some Problems with Income and Duration Gap Analysis
611(1)
The Practicing Financial Institution Manager Strategies for Managing Interest-Rate Risk
612(5)
Summary
614(1)
Key Terms
614(1)
Questions and Problems
614(1)
Web Exercises
615(2)
Hedging with Financial Derivatives
617(32)
Preview
617(1)
Hedging
617(1)
Forward Markets
618(1)
Interest-Rate Forward Contracts
618(1)
The Practicing Financial Institution Manager Hedging Interest-Rate with Forward Contracts
618(2)
Pros and Cons of Forward Contracts
619(1)
Financial Futures Markets
620(1)
Financial Futures Contracts
620(1)
Following the Financial News Financial Futures
621(1)
The Practicing Financial Institution Manager Hedging with Financial Futures
622(5)
Organization of Trading in Financial Futures Markets
623(1)
Globalization of Financial Futures Markets
624(1)
Explaining the Success of Futures Markets
624(3)
Box I The Hunt Brothers and the Silver Crash
627(1)
The Practicing Financial Institution Manager Hedging Foreign Exchange Risk with Forward and Futures Contracts
627(2)
Hedging Foreign Exchange Risk with Forward Contracts
628(1)
Hedging Foreign Exchange Risk with Futures Contracts
628(1)
Stock Index Futures
629(2)
Stock Index Futures Contracts
629(1)
Box 2 Program Trading and Portfolio Insurance: Were They to Blame for the Stock Market Crash of 1987?
630(1)
Following the Financial News Stock Index Futures
631(1)
The Practicing Financial Institution Manager Hedging with Stock Index Futures
631(1)
Options
632(1)
Following the Financial News Futures Options
633(5)
Option Contracts
633(1)
Profits and Losses on Option and Futures Contracts
634(3)
Factors Affecting the Prices of Option Premiums
637(1)
Summary
638(1)
The Practicing Financial Institution Manager Hedging with Futures Options
638(2)
Interest-Rate Swaps
640(1)
Interest-Rate Swap Contracts
640(1)
The Practicing Financial Institution Manager Hedging with Interest-Rate Swaps
641(2)
Advantages of Interest-Rate Swaps
641(1)
Disadvantages of Interest-Rate Swaps
642(1)
Financial Intermediaries in Interest-Rate Swaps
643(1)
Application Are Financial Derivatives a Worldwide Time Bomb?
643(6)
Box 3 The Orange County Bankruptcy
644(1)
Summary
645(1)
Key Terms
646(1)
Questions and Problems
646(1)
Web Exercises
647(2)
Glossary 649(14)
Answers to Selected Questions and Problems 663(14)
Index 677


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