Modern Financial Systems : Theory and Applications

by Edwin H. Neave

• ISBN13: 9780470538135
• ISBN10: 0470538139
• Format: eBook
• Copyright: 2009-10-01
• Publisher: Wiley

Summary

A valuable guide to the essential elements of modern financial systemsThis book offers you a unified theory of modern financial system activity. In it, author Edwin Neave distills a large body of literature on financial systems, the institutions that comprise the systems, and the economic impacts of the systems' operation. Through non-technical summaries, Neave provides you with a primer on how financial systems work, as well as how the many parts of any financial system relate to each other. He does so in a straightforward manner, with an emphasis on economic principles and the relationship between various aspects of financial system activity. Discusses financial governance and explains how financial markets and institutions complement each other Identifies the economic forces at work within financial systems and explores how they determine system organization and change Offers a theoretical survey of financial activity and its application to numerous practical situations Explains both static financial system organization and the dynamics of financial system evolutionFollowing a non-technical approach, this book skillfully explores how financial systems work, as well as how the many parts of any financial system relate to each other.

Table of Contents

Preface

Theoretical Overview

Introduction

Aims and approach

Importance of financial system analysis

Differences among financial systems: overview

Functions and governance

Financial system organization

Financial system change

Financial System Functions

Introduction

Clearing and settling payments

Pooling resources

Transferring resources

Managing risks

Information production

Managing incentives

Functional-structural approach

Financial System Governance

Introduction

Governance types

Deal types

Alignment

Financial system organization

Financial System Change

Trends in providing financial services

Profit opportunities and change

Market Versus Non-Market Governance

Market Governance

Functions of markets

Descriptive and economic characteristics

Market efficiency

Information production

Liquidity

Securitization: funding illiquid asset portfolios

Intermediation And Non-Market Governance

Intermediaries and value creation

Intermediaries and liquidity

Information sharing

Delegated monitoring

Intermediary information processing

Internal governance

Appendix: Derivation of equilibria in 6.5

Terms Of Deals

Costs of deals

Informational conditions

Moral hazard

Complete contracts

Costly verification

Incentives to report honestly

Incomplete contracts: introduction

Incomplete contracts: further comments

Asset Prices And Market Relations

Pricing Corporate Securities

Profit-seeking eliminates arbitrage opportunities

Pricing securities relative to each other

Calculating risk neutral probability measures

Securities valuation using risk neutral probabilities

Debt versus equity

Bond valuation: further aspects

Pricing Derivatives By Arbitrage

Introduction

Forwards

Options

Debt, equity and options

Futures

Markets With Impediments To Arbitrage

Differences in liquidity

Links among markets

Market segmentation

Consequences of segmentation

Credit rationing equilibria

Market failure

Financial system externalities

Applications: Market Activity

Securities, Bond And Mortgage Markets

Economic differences among markets

Money markets

Equity markets

Bond markets

Mortgage markets

Markets For Trading Risks

Introduction

Options markets

Market evolution

International Financial Markets

Introduction

Exchange rate relations

Foreign exchange markets

Exchange risk management

Exchange rate management

Applications: Pooled Investments

Marketable Securities Portfolios

Introduction

Managing portfolio return

Mutual funds

Hedge funds

Value at risk

Non-Marketable Securities Portfolios

Characteristics of illiquid portfolios

Managing earnings risk

Managing closely held investments

Securitization revisited

Mortgage pools

Default insurance

Applications: Intermediation

Management Principles

Introduction

A strategic management model

Economics of intermediation

Operating issues

Management Practice: Domestic Institutions

Banks

Other depository intermediaries

Insurance companies

Investment banks

Pension funds

Lending intermediaries

Financial conglomerates

Venture capital companies

Evolution

Management Practice: Investment Banks And Other International Institutions

International banking

Investment banking

Financial conglomerates

Euromarket activity

Industry Organization And Regulation

Industrial Organization Approach To Banking

Banking under perfect competition

Banking under oligopoly

Monopolistic competition and the number of banks

Empirical aspects of banking competition

Market structure and performance

Bank Runs And Systemic Risk

Liquidity provision and system stability

Deposit insurance

Information production

System risks and current policy issues

Solvency regulations

Closure decisions

Financial Activity And Capital Formation

Adverse selection and credit conditions

Moral hazard and credit conditions

Financial cycles

Banks, markets, and economic activity

Equilibrium, financial structure and economic activity

Financial structure and economic activity

Regulation

Aims and approaches

Regulating domestic industries

Regulating international activity

Toward the future

Dealing with the global credit crisis

The Market Turmoil of 2007-2008

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