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• Half Title
• Title Page
• Copyright Page
• Dedication
• Pearson’s Commitment to Diversity, Equity, and Inclusion
• Contents in Brief
• Contents in Detail
• Additional Materials
• Preface
• About the Authors
• Part One: Introduction
• Chapter 1. Why Study Financial Markets and Institutions?
• Preview
• Why Study Financial Markets?
• Debt Markets and Interest Rates
• The Stock Market
• The Foreign Exchange Market
• Why Study Financial Institutions?
• Structure of the Financial System
• Financial Crises
• Central Banks and the Conduct of Monetary Policy
• Mini-Case: Are Bitcoin or Other Cryptocurrencies Money?
• The International Financial System
• Banks and Other Financial Institutions
• Financial Innovation
• Managing Risk in Financial Institutions
• Applied Managerial Perspective
• How We Will Study Financial Markets and Institutions
• Exploring the Web
• Collecting and Graphing Data
• Web Exercise
• Concluding Remarks
• Summary
• Key Terms
• Questions
• Quantitative Problem
• Web Exercises
• Chapter 2. Overview of the Financial System
• Preview
• Function of Financial Markets
• Structure of Financial Markets
• Debt and Equity Markets
• Primary and Secondary Markets
• Exchanges and Over-the-Counter Markets
• Money and Capital Markets
• Internationalization of Financial Markets
• International Bond Market, Eurobonds, and Eurocurrencies
• Global: Are U.S. Capital Markets Losing Their Edge?
• World Stock Markets
• Function of Financial Intermediaries: Indirect Finance
• Following the Financial News: Foreign Stock Market Indexes
• Global: The Importance of Financial Intermediaries Relative to Securities Markets: An International
• Transaction Costs
• Risk Sharing
• Asymmetric Information: Adverse Selection and Moral Hazard
• Economies of Scope and Conflicts of Interest
• Types of Financial Intermediaries
• Depository Institutions
• Contractual Savings Institutions
• Investment Intermediaries
• Regulation of the Financial System
• Increasing Information Available to Investors
• Ensuring the Soundness of Financial Intermediaries
• Financial Regulation Abroad
• Summary
• Key Terms
• Questions
• Web Exercises
• Part Two: Fundamentals of Financial Markets
• Chapter 3. What Do Interest Rates Mean, and What Is Their Role in Valuation?
• Preview
• Measuring Interest Rates
• Present Value
• Four Types of Credit Market Instruments
• Yield to Maturity
• Global: Negative Interest Rates? Japan First, Then the United States, Then Europe
• The Distinction Between Real and Nominal Interest Rates
• Mini-Case: Seeing the Difference Between Real and Nominal in Practice: Australian eTIBs
• The Distinction Between Interest Rates and Returns
• Maturity and the Volatility of Bond Returns: Interest-Rate Risk
• Reinvestment Risk
• Summary
• The Practicing Manager: Calculating Duration to Measure Interest-Rate Risk
• Calculating Duration
• Duration and Interest-Rate Risk
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Web Exercise
• Chapter 4. Why Do Interest Rates Change?
• Preview
• Determinants of Asset Demand
• Wealth
• Expected Returns
• Risk
• Liquidity
• Theory of Portfolio Choice
• Supply and Demand in the Bond Market
• Demand Curve
• Supply Curve
• Market Equilibrium
• Supply-and-Demand Analysis
• Changes in Equilibrium Interest Rates
• Shifts in the Demand for Bonds
• Shifts in the Supply of Bonds
• Case: Changes in the Interest Rate Due to Expected Inflation: The Fisher Effect
• Case: Changes in the Interest Rate Due to a Business Cycle Expansion
• Case: Explaining the Low Interest Rates in Europe, Japan, and the United States Before 2022
• The Practicing Manager: Profiting from Interest-Rate Forecasts
• Following the Financial News: Forecasting Interest Rates
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Web Exercises
• Web Appendices
• Chapter 4 Appendix 1: Models of Asset Pricing
• Chapter 4 Appendix 2: Applying the Asset Market Approach to a Commodity Market: The Case of Gold
• Chapter 4 Appendix 3: Loanable Funds Framework
• Chapter 4 Appendix 4: Supply and Demand in the Market for Money: The Liquidity Preference Framework
• Chapter 5. How Do Risk and Term Structure Affect Interest Rates?
• Preview
• Risk Structure of Interest Rates
• Default Risk
• Liquidity
• Case: The Coronavirus Pandemic and the Baa–Treasury Spread
• Income Tax Considerations
• Summary
• Case: Effects of the Trump Tax Cuts on Bond Interest Rates
• Term Structure of Interest Rates
• Following the Financial News: Yield Curves
• Expectations Theory
• Market Segmentation Theory
• Liquidity Premium Theory
• Evidence on the Term Structure
• Mini-Case: The Yield Curve as a Forecasting Tool for Inflation and the Business Cycle
• Summary
• Case: Interpreting Yield Curves, 1980–2022
• The Practicing Manager: Using the Term Structure to Forecast Interest Rates
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Web Exercises
• Chapter 6. Are Financial Markets Efficient?
• Preview
• The Efficient Market Hypothesis
• Rationale Behind the Hypothesis
• Evidence on the Efficient Market Hypothesis
• Evidence in Favor of Market Efficiency
• Mini-Case: An Exception That Proves the Rule: Raj Rajaratnam and Galleon
• Case: Should Foreign Exchange Rates Follow a Random Walk?
• Evidence Against Market Efficiency
• Overview of the Evidence on the Efficient Market Hypothesis
• The Practicing Manager: Practical Guide to Investing in the Stock Market
• How Valuable Are Published Reports by Investment Advisers?
• Mini-Case: Should You Hire an Ape as Your Investment Adviser?
• Should You Be Skeptical of Hot Tips?
• Do Stock Prices Always Rise When There Is Good News?
• Efficient Markets Prescription for the Investor
• Why the Efficient Market Hypothesis Does Not Imply That Financial Markets Are Efficient
• Case: What Do Stock Market Crashes Tell Us About the Efficient Market Hypothesis?
• Behavioral Finance
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Web Exercise
• Part Three: Fundamentals of Financial Institutions
• Chapter 7. Why Do Financial Institutions Exist?
• Preview
• Basic Facts About Financial Structure Throughout the World
• Transaction Costs
• How Transaction Costs Influence Financial Structure
• How Financial Intermediaries Reduce Transaction Costs
• Asymmetric Information: Adverse Selection and Moral Hazard
• The Lemons Problem: How Adverse Selection Influences Financial Structure
• Lemons in the Stock and Bond Markets
• Tools to Help Solve Adverse Selection Problems
• Mini-Case: The Enron Implosion
• How Moral Hazard Affects the Choice Between Debt and Equity Contracts
• Moral Hazard in Equity Contracts: The Principal–Agent Problem
• Tools to Help Solve the Principal–Agent Problem
• How Moral Hazard Influences Financial Structure in Debt Markets
• Tools to Help Solve Moral Hazard in Debt Contracts
• Summary
• Case: Financial Development and Economic Growth
• Mini-Case: The Tyranny of Collateral
• Case: Is China a Counter-Example to the Importance of Financial Development?
• Conflicts of Interest
• What Are Conflicts of Interest, and Why Do We Care?
• Why Do Conflicts of Interest Arise?
• Conflicts of Interest: The Demise of Arthur Andersen
• Conflicts of Interest: Credit-Rating Agencies and the 2007–2009 Financial Crisis
• What Has Been Done to Remedy Conflicts of Interest?
• Mini-Case: Has Sarbanes-Oxley Led to a Decline in U.S. Capital Markets?
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Web Exercises
• Chapter 8. Why Do Financial Crises Occur, and Why Are They So Damaging to the Economy?
• Preview
• What Is a Financial Crisis?
• Agency Theory and the Definition of a Financial Crisis
• Dynamics of Financial Crises
• Stage One: Initial Phase
• Stage Two: Banking Crisis
• Stage Three: Debt Deflation
• Case: The Mother of All Financial Crises: The Great Depression
• Stock Market Crash
• Bank Panics
• Continuing Decline in Stock Prices
• Debt Deflation
• International Dimensions
• Case: The Global Financial Crisis of 2007–2009
• Causes of the 2007–2009 Financial Crisis
• Mini-Case: Collateralized Debt Obligations (CDOs)
• Effects of the 2007–2009 Financial Crisis
• Inside the Fed: Was the Fed to Blame for the Housing Price Bubble?
• Global: The European Sovereign Debt Crisis
• Height of the 2007–2009 Financial Crisis
• Case: Could Covid Have Led to a Financial Crisis?
• Summary
• Key Terms
• Questions
• Web Exercise
• Web References
• Part Four: Central Banking and the Conduct of Monetary Policy
• Chapter 9. Central Banks
• Preview
• Origins of the Central Banking System
• Variations in the Functions and Structures of Central Banks
• Global: Who Should Own Central Banks?
• The European Central Bank, the Euro System, and the European System of Central Banks
• Decision-Making Bodies of the ECB
• Global: The Importance of the Bundesbank Within the ECB
• How Monetary Policy Is Conducted Within the ECB
• Global: Are Non-Euro Central Banks Constrained by Membership of the EU?
• The Federal Reserve System
• Difference Between the ECB and the Fed
• The Bank of England
• Global: Brexit and the BoE
• Structure of Central Banks of Larger Economies
• The Bank of Canada
• The Bank of Japan
• The People’s Bank of China
• Structure and Independence of Central Banks of Emerging Market Economies
• Central Banks Independence
• The Case for Independence
• The Case Against Independence
• The Trend Toward Greater Independence
• Summary
• Key Terms
• Questions and Problems
• Web Exercises
• Chapter 10. Conduct of Monetary Policy
• Preview
• How Fed Actions Affect Reserves in the Banking System
• Open Market Operations
• Discount Lending
• The Market for Reserves and the Federal Funds Rate
• Demand and Supply in the Market for Reserves
• How Changes in the Tools of Monetary Policy Affect the Federal Funds Rate
• Case: How the Federal Reserve’s Operating Procedures Limit Fluctuations in the Federal Funds Rate
• Conventional Monetary Policy Tools
• Open Market Operations
• Inside the Fed: A Day at the Trading Desk
• Discount Policy and the Lender of Last Resort
• Reserve Requirements
• Interest on Excess Reserves
• Nonconventional Monetary Policy Tools and Quantitative Easing
• Liquidity Provision
• Inside the Fed: Fed Lending Facilities During the Global Financial and Covid Crises
• Large-Scale Asset Purchases
• Quantitative Easing Versus Credit Easing
• Forward Guidance
• Negative Interest Rates on Banks’ Deposits
• Monetary Policy Tools of the European Central Bank
• Open Market Operations
• Lending to Banks
• Interest on Excess Reserves
• Reserve Requirements
• The Price Stability Goal and the Nominal Anchor
• The Role of a Nominal Anchor
• The Time-Inconsistency Problem
• Other Goals of Monetary Policy
• High Employment and Output Stability
• Economic Growth
• Stability of Financial Markets
• Interest-Rate Stability
• Stability in Foreign Exchange Markets
• Should Price Stability Be the Primary Goal of Monetary Policy?
• Hierarchical Versus Dual Mandates
• Price Stability as the Primary, Long-Run Goal of Monetary Policy
• Inflation Targeting
• Advantages of Inflation Targeting
• Inside the Fed: Ben Bernanke and the Federal Reserve’s Adoption of Inflation Targeting
• Inside the Fed: The Fed’s New Monetary Policy Strategy: Average Inflation Targeting
• Disadvantages of Inflation Targeting
• Should Central Banks Respond to Asset-Price Bubbles? Lessons from the Global Financial Crisis
• Two Types of Asset-Price Bubbles
• The Debate over Whether Central Banks Should Try to Pop Bubbles
• The Practicing Manager: Using a Fed Watcher
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Web Exercises
• Part Five: Financial Markets
• Chapter 11. The Money Markets
• Preview
• The Money Markets Defined
• Why Do We Need the Money Markets?
• Money Market Cost Advantages
• The Purpose of the Money Markets
• Mini-Case: Covid and Prime Money Market Fund Withdrawals
• Who Participates in the Money Markets?
• U.S. Treasury Department
• Federal Reserve System
• Commercial Banks
• Businesses
• Investment and Securities Firms
• Individuals
• Money Market Instruments
• Treasury Bills
• Case: Discounting the Price of Treasury Securities to Pay the Interest
• Mini-Case: Treasury Bill Auctions Go Haywire
• Federal Funds
• Repurchase Agreements
• Negotiable Certificates of Deposit
• Commercial Paper
• Banker’s Acceptances
• Eurodollars
• Global: Ironic Birth of the Eurodollar Market
• Comparing Money Market Securities
• Interest Rates
• Liquidity
• How Money Market Securities Are Valued
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Web Exercises
• Chapter 12. The Bond Market
• Preview
• Purpose of the Capital Market
• Capital Market Participants
• Capital Market Trading
• Types of Bonds
• Treasury Notes and Bonds
• Treasury Bond Interest Rates
• Treasury Inflation-Protected Securities (TIPS)
• Treasury STRIPS
• Agency Bonds
• Case: The 2007–2009 Financial Crisis and the Bailout of Fannie Mae and Freddie Mac
• Municipal Bonds
• Risk in the Municipal Bond Market
• Corporate Bonds
• Characteristics of Corporate Bonds
• Types of Corporate Bonds
• Financial Guarantees for Bonds
• Oversight of the Bond Markets
• Current Yield Calculation
• Current Yield
• Finding the Value of Coupon Bonds
• Finding the Price of Semiannual Bonds
• Investing in Bonds
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Chapter 13. The Stock Market
• Preview
• Investing in Stocks
• Common Stock Versus Preferred Stock
• How Stocks Are Sold
• Computing the Price of Common Stock
• The One-Period Valuation Model
• The Generalized Dividend Valuation Model
• The Gordon Growth Model
• Price Earnings Valuation Method
• How the Market Sets Security Prices
• Errors in Valuation
• Problems with Estimating Growth
• Problems with Estimating Risk
• Problems with Forecasting Dividends
• Mini-Case: Covid Impact on Stock Markets
• Stock Market Indexes
• Mini-Case: History of the Dow Jones Industrial Average
• Buying Foreign Stocks
• Regulation of the Stock Market
• The Securities and Exchange Commission
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Web Exercise
• Chapter 14. The Mortgage Markets
• Preview
• What Are Mortgages?
• Characteristics of the Residential Mortgage
• Mortgage Interest Rates
• Case: The Discount Point Decision
• Loan Terms
• Mortgage Loan Amortization
• Types of Mortgage Loans
• Insured and Conventional Mortgages
• Fixed- and Adjustable-Rate Mortgages
• Other Types of Mortgages
• Mortgage-Lending Institutions
• Loan Servicing
• E-Finance: Borrowers Shop the Web for Mortgages
• Secondary Mortgage Market
• Securitization of Mortgages
• What Is a Mortgage-Backed Security?
• Types of Pass-Through Securities
• Subprime Mortgages and CDOs
• The Real Estate Bubble
• Mini-Case: Has Covid Led to a Housing Price Bubble?
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Chapter 15. The Foreign Exchange Market
• Preview
• Foreign Exchange Market
• What Are Foreign Exchange Rates?
• Why Are Exchange Rates Important?
• Following the Financial News: Foreign Exchange Rates
• How Is Foreign Exchange Traded?
• Exchange Rates in the Long Run
• Law of One Price
• Theory of Purchasing Power Parity
• Why the Theory of Purchasing Power Parity Cannot Fully Explain Exchange Rates
• Factors That Affect Exchange Rates in the Long Run
• Exchange Rates in the Short Run: A Supply and Demand Analysis
• Supply Curve for Domestic Assets
• Demand Curve for Domestic Assets
• Equilibrium in the Foreign Exchange Market
• Explaining Changes in Exchange Rates
• Shifts in the Demand for Domestic Assets
• Recap: Factors That Change the Exchange Rate
• Case: Effect of Changes in Interest Rates on the Equilibrium Exchange Rate
• Case: Brexit and the British Pound
• The Practicing Manager: Profiting from Foreign Exchange Forecasts
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Web Exercises
• Chapter 15. Appendix: The Interest Parity Condition
• Comparing Expected Returns on Domestic and Foreign Assets
• Interest Parity Condition
• Chapter 16. The International Financial System
• Preview
• Intervention in the Foreign Exchange Market
• Foreign Exchange Intervention and Reserves in the Banking System
• Global: Variation in Central Banks’ Activism and Method of Intervention on Foreign Exchange Market
• Unsterilized Intervention
• Sterilized Intervention
• Balance of Payments
• Global: Rising Current Account Deficits in the EU
• Exchange Rate Regimes in the International Financial System
• Fixed Exchange Rate Regimes
• How a Fixed Exchange Rate Regime Works
• The Policy Trilemma
• Monetary Unions
• Global: Will the Euro Survive?
• Currency Boards and Dollarization
• Speculative Attacks
• Global: Argentina’s Currency Board
• Managed Float
• Global: Dollarization
• Case: The Foreign Exchange Crisis of September 1992
• The Practicing Manager: Profiting from a Foreign Exchange Crisis
• Case: How Did China Accumulate Over $3 Trillion of International Reserves?
• Capital Controls
• Controls on Capital Outflows
• Controls on Capital Inflows
• The Role of the IMF
• Should the IMF Be an International Lender of Last Resort?
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Web Exercise
• Part Six: The Financial Institutions Industry
• Chapter 17. Banking and the Management of Financial Institutions
• Preview
• The Bank Balance Sheet
• Liabilities
• Assets
• Basic Banking
• General Principles of Bank Management
• Liquidity Management and the Role of Reserves
• Asset Management
• Liability Management
• Capital Adequacy Management
• The Practicing Manager: Strategies for Managing Bank Capital
• Case: How a Capital Crunch Caused a Credit Crunch During the Global Financial Crisis
• Off-Balance-Sheet Activities
• Loan Sales
• Generation of Fee Income
• Trading Activities and Risk Management Techniques
• Conflicts of Interest: Barings, Daiwa, Sumitomo, Société Générale, and JPMorgan Chase: Rogue Tra
• Measuring Bank Performance
• Bank’s Income Statement
• Measures of Bank Performance
• Recent Trends in Bank Performance Measures
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Chapter 18. Financial Regulation
• Preview
• Asymmetric Information as a Rationale for Financial Regulation
• Government Safety Net
• Global: The Spread of Government Deposit Insurance Throughout the World: Is This a Good Thing?
• Types of Financial Regulation
• Restrictions on Asset Holdings
• Capital Requirements
• Prompt Corrective Action
• Financial Supervision: Chartering and Examination
• Global: Where Is the Basel Accord Heading in a Post–Global Financial Crisis World?
• Assessment of Risk Management
• Disclosure Requirements
• Consumer Protection
• Mini-Case: Mark-to-Market Accounting and the Global Financial Crisis
• Restrictions on Competition
• Mini-Case: The Global Financial Crisis and Consumer Protection Regulation
• Macroprudential Versus Microprudential Supervision
• E-Finance: Electronic Banking: New Challenges for Bank Regulation
• Summary
• Global: International Financial Regulation
• The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
• Dodd-Frank
• Too-Big-to-Fail and Future Regulation
• What Can Be Done About the Too-Big-to-Fail Problem?
• Other Issues for Future Regulation
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Web Appendix
• Chapter 18 Appendix: Banking Crises Throughout the World
• Chapter 19. Banking Industry: Structure and Competition
• Preview
• Historical Development of the Banking System
• Multiple Regulatory Agencies
• Financial Innovation and the Growth of the Shadow Banking System
• Responses to Changes in Demand Conditions: Interest Rate Volatility
• Responses to Changes in Supply Conditions: Information Technology
• E-Finance: Will Fintech Disrupt the Conventional Banking Sector?
• E-Finance: Why Are Scandinavians So Far Ahead of Americans in Using Electronic Payments and Online B
• E-Finance Sweden: The Leading Cashless Society
• Securitization and the Shadow Banking System
• Avoidance of Existing Regulations
• Mini-Case: Bruce Bent and the Money Market Mutual Fund Panic of 2008
• The Practicing Manager: Profiting from a New Financial Product: A Case Study of Treasury Strips
• Financial Innovation and the Decline of Traditional Banking
• Structure of the U.S. Banking Industry
• Restrictions on Branching
• Response to Branching Restrictions
• Bank Consolidation and Nationwide Banking
• E-Finance: Information Technology and Bank Consolidation
• The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
• What Will the Structure of the U.S. Banking Industry Look Like in the Future?
• Are Bank Consolidation and Nationwide Banking Good Things?
• Separation of the Banking and Other Financial Service Industries
• Erosion of Glass-Steagall
• The Gramm-Leach-Bliley Financial Services Modernization Act of 1999: Repeal of Glass-Steagall
• Implications for Financial Consolidation
• Mini-Case: The Global Financial Crisis and the Demise of Large, Free-Standing Investment Banks
• Separation of Banking and Other Financial Services Industries Throughout the World
• Thrift Industry
• Savings and Loan Associations
• Mutual Savings Banks
• Credit Unions
• International Banking
• Eurodollar Market
• Structure of U.S. Banking Overseas
• Foreign Banks in the United States
• Summary
• Key Terms
• Questions
• Chapter 20. The Mutual Fund Industry
• Preview
• The Growth of Mutual Funds
• The First Mutual Funds
• Benefits of Mutual Funds
• Ownership of Mutual Funds
• Mutual Fund Structure
• Open-Versus Closed-End Funds
• Case: Calculating a Mutual Fund’s Net Asset Value
• Organizational Structure
• Investment Objective Classes
• Equity Funds
• Bond Funds
• Hybrid Funds
• Money Market Funds
• Index Funds
• Fee Structure of Investment Funds
• Regulation of Mutual Funds
• Hedge Funds
• Mini-Case: The Long Term Capital Debacle
• Conflicts of Interest in the Mutual Fund Industry
• Sources of Conflicts of Interest
• Mutual Fund Abuses
• Conflicts of Interest: Many Mutual Funds Are Caught Ignoring Ethical Standards
• Government Response to Abuses
• Conflicts of Interest: SEC Survey Reports Mutual Fund Abuses Widespread
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Web Exercise
• Chapter 21. Insurance Companies and Pension Funds
• Preview
• Insurance Companies
• Fundamentals of Insurance
• Adverse Selection and Moral Hazard in Insurance
• Selling Insurance
• Mini-Case: Insurance Agent: The Customer’s Ally
• Growth and Organization of Insurance Companies
• Types of Insurance
• Life Insurance
• Health Insurance
• Mini-Case: Updates to the Affordable Care Act
• Property and Casualty Insurance
• Mini-Case: Will Liability Issues Be a Roadblock to Driverless Cars?
• Insurance Regulation
• The Practicing Manager: Insurance Management
• Screening
• Risk-Based Premium
• Restrictive Provisions
• Prevention of Fraud
• Cancellation of Insurance
• Deductibles
• Coinsurance
• Limits on the Amount of Insurance
• Summary
• Credit Default Swaps
• Conflicts of Interest: The AIG Blowup
• Pensions
• Conflicts of Interest: The Subprime Financial Crisis and the Monoline Insurers
• Types of Pensions
• Defined-Benefit Pension Plans
• Defined-Contribution Pension Plans
• Private and Public Pension Plans
• Mini-Case: Power to the Pensions
• Regulation of Pension Plans
• Employee Retirement Income Security Act
• Individual Retirement Plans
• The Future of Pension Funds
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Chapter 22. Investment Banks, Security Brokers and Dealers, and Venture Capital Firms
• Preview
• Investment Banks
• Background
• Underwriting Stocks and Bonds
• Equity Sales
• Mergers and Acquisitions
• Mini-Case: Twitter Uses Poison Pills to Drive Hard Bargain with Musk
• Securities Brokers and Dealers
• Brokerage Services
• Mini-Case: Example of Using the Limit-Order Book
• Securities Dealers
• Regulation of Securities Firms
• Relationship Between Securities Firms and Commercial Banks
• Private Equity Investment
• Venture Capital Firms
• Private Equity Buyouts
• Advantages to Private Equity Buyouts
• Life Cycle of the Private Equity Buyout
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Part Seven: The Management of Financial Institutions
• Chapter 23. Risk Management in Financial Institutions
• Preview
• Managing Credit Risk
• Screening and Monitoring
• Long-Term Customer Relationships
• Loan Commitments
• Collateral
• Compensating Balances
• Credit Rationing
• Managing Interest-Rate Risk
• Income Gap Analysis
• Duration Gap Analysis
• Example of a Nonbanking Financial Institution
• Some Problems with Income Gap and Duration Gap Analyses
• The Practicing Manager: Strategies for Managing Interest-Rate Risk
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Web Exercise
• Chapter 24. Hedging with Financial Derivatives
• Preview
• Hedging
• Forward Markets
• Interest-Rate Forward Contracts
• The Practicing Manager: Hedging Interest-Rate Risk with Forward Contracts
• Pros and Cons of Forward Contracts
• Financial Futures Markets
• Financial Futures Contracts
• Following the Financial News: Financial Futures
• The Practicing Manager: Hedging with Financial Futures
• Organization of Trading in Financial Futures Markets
• Globalization of Financial Futures Markets
• Explaining the Success of Futures Markets
• Mini-Case: The Hunt Brothers and the Silver Crash
• The Practicing Manager: Hedging Foreign Exchange Risk with Forward and Futures Contracts
• Hedging Foreign Exchange Risk with Forward Contracts
• Hedging Foreign Exchange Risk with Futures Contracts
• Stock Index Futures
• Stock Index Futures Contracts
• Following the Financial News: Stock Index Futures
• The Practicing Manager: Hedging with Stock Index Futures
• Options
• Option Contracts
• Profits and Losses on Option and Futures Contracts
• Factors Affecting the Prices of Option Premiums
• Summary
• The Practicing Manager: Hedging with Futures Options
• Interest-Rate Swaps
• Interest-Rate Swap Contracts
• The Practicing Manager: Hedging with Interest-Rate Swaps
• Advantages of Interest-Rate Swaps
• Disadvantages of Interest-Rate Swaps
• Financial Intermediaries in Interest-Rate Swaps
• Credit Derivatives
• Credit Options
• Credit Swaps
• Credit-Linked Notes
• Case: Lessons from the Global Financial Crisis: When Are Financial Derivatives Likely to Be a Worldw
• Summary
• Key Terms
• Questions
• Quantitative Problems
• Web Exercise
• Web Appendix
• Chapter 24 Appendix: More on Hedging with Financial Derivatives
• Additional Chapters
• Chapter 25. Financial Crises in Emerging Market Economies
• Preview
• Dynamics of Financial Crises in Emerging Market Economies
• Stage One: Initial Phase
• Stage Two: Currency Crisis
• Stage Three: Full-Fledged Financial Crisis
• Case: Crisis in South Korea, 1997–1998
• Financial Liberalization/Globalization Mismanaged
• Perversion of the Financial Liberalization/Globalization Process: Chaebols and the South Korean Cris
• Stock Market Decline and Failure of Firms Increase Uncertainty
• Adverse Selection and Moral Hazard Problems Worsen and the Economy Contracts
• Currency Crisis Ensues
• Final Stage: Currency Crisis Triggers Full-Fledged Financial Crisis
• Recovery Commences
• Case: The Argentine Financial Crisis, 2001–2002
• Severe Fiscal Imbalances
• Adverse Selection and Moral Hazard Problems Worsen
• Bank Panic Begins
• Currency Crisis Ensues
• Currency Crisis Triggers Full-Fledged Financial Crisis
• Recovery Begins
• Preventing Emerging Market Financial Crises
• Beef Up Prudential Regulation and Supervision of Banks
• Global: When an Advanced Economy Is Like an Emerging Market Economy: The Icelandic Financial Crisis
• Encourage Disclosure and Market-Based Discipline
• Limit Currency Mismatch
• Sequence Financial Liberalization
• Summary
• Key Terms
• Questions
• Chapter 26. Savings Associations and Credit Unions
• Preview
• Mutual Savings Banks
• Savings and Loan Associations
• Mutual Savings Banks and Savings and Loans Compared
• Savings and Loans in Trouble: The Thrift Crisis
• Later Stages of the Crisis: Regulatory Forbearance
• Competitive Equality in Banking Act of 1987
• Political Economy of the Savings and Loan Crisis
• Principal–Agent Problem for Regulators and Politicians
• Case: Principal–Agent Problem in Action: Charles Keating and the Lincoln Savings and Loan Scandal
• Savings and Loan Bailout: Financial Institutions Reform, Recovery, and Enforcement Act of 1989
• The Savings and Loan Industry Today
• Number of Institutions
• S&L Size
• S&L Assets
• S&L Liabilities and Net Worth
• Capital
• Profitability and Health
• The Future of the Savings and Loan Industry
• Credit Unions
• History and Organization
• Sources of Funds
• Uses of Funds
• Advantages and Disadvantages of Credit Unions
• The Future of Credit Unions
• Summary
• Key Terms
• Questions
• Exercise
• Chapter 27. Finance Companies
• Preview
• History of Finance Companies
• Purpose of Finance Companies
• Risk in Finance Companies
• Types of Finance Companies
• Business (Commercial) Finance Companies
• Consumer Finance Companies
• Sales Finance Companies
• Regulation of Finance Companies
• Finance Company Balance Sheet
• Assets
• Liabilities
• Income
• Finance Company Growth
• Summary
• Key Terms
• Questions
• Exercise
• Glossary
• Index
• A
• B
• C
• D
• E
• F
• G
• H
• I
• J
• K
• L
• M
• N
• O
• P
• Q
• R
• S
• T
• U
• V
• W
• Y
• Z
• Guide to Commonly Used Symbols