货币市场与资本市场PDF电子书下载

Contents 1

Part One The Financial System in Perspective 1

Chapter One The Role of the Financial Svstem in the Global Economy 1

The Economy and the Financial System 2

Flows within the Economy System 2

The Role of Markets in the Economic System 2

Types of Markets 3

The Financial Markets and the Financial 3

System Channel for Sarings and Inrestmem 3

Functions Performed by the Financial System and the Financial Markets 5

Sarings Function 6

Wealth Function 6

Liquidity Function 7

Credit Function 7

Payments Function 7

Risk Function 8

Policy Function 8

Types of Financial Markets within the Financial System 9

The Money Market versus the Capital Market 9

Divisions of the Money and Capital Markets 11

Open versus Negotiated Markets 12

Primary versus Secondary Markets 12

Spot versus Futures.Forward. and Option Markets 14

Factors Tying All Financial Markets Together 15

The Dynamic Financial System 17

The Plan of This Book 17

Key Terms and Concepts in This Chapter 19

Study Questions 19

Problems 20

Selected References 22

Chapter Two Financial Assets, Money, and Financial Transactions 23

The Creation of Financial Assets 24

Characteristics of Financial Assets 24

Different Kinds of Financial Assets 24

The Creation Process for Financial Assets 25

Financial Assets and the Financial System 27

Lending and Borrowing in the Financial System 29

Money as a Financial Asset 31

What is Money? 31

The Functions of Money 31

The Evolution of Financial Transactions 34

Direct Finance 34

Semidirect finance 35

Indirect Finance 35

Relative Size and Importance of Major Financial Institutions 37

Classification of Financial Institutions 38

Portfolio Decisions by Financial Intermediaries and Other Financial Institutions 39

Disintermediation of Funds 39

New types of Disintermediation 40

Summary 41

Key Terms and Concepts in This Chapter 41

Study Questions 41

Problems 42

Selected References 43

Chapter Three Sources of Information for Financial Decision Making in the Money and Capital Markets 44

Efficient Markets and Asymmetric information 45

The Efficient Markets Hypothesis 45

The Concept of symmetric Information 48

Problems Informational Asymmetries Can Create:Lemons and Plums 49

Problems Asymmetries Can create:The Problem of Adverse Selection 50

Debt Security Prices and Yields 53

Stock Prices and Dividend Yields 56

Information on Security Issuers 59

General Economic and Financial Conditions 64

Social Accounting Data 66

National Income Accounts 66

The Flow of Funds Accounts 67

Summary 78

Key Terms and Concepts in This Chapter 79

Study Questions 79

Problems 79

Selected References 81

Part TWO The Management and Regulation of Financial Institutions 81

Chapter Four The Commercial Banking Industry 82

The Structure of U.S. Commercial Banking 83

A Trend Ioward Consolidation 84

Branch Banking 84

Bank Holding Companies 85

International Banking 86

Bank Failures 87

Changing Technology 88

Portfolio Characteristics of Commercial Banks 89

Cash and Due from Banks Primary Reserves 89

Security Holdings and Secondary Reserves 92

Loans 92

Deposits 93

Nondeposit Sources of Funds 94

Equity Capital 95

Revenues and Expenses 95

Money Creation and Destruction by Banks 98

Reserve Requirements and Excess Reserves 98

The Creation if Money and Credit 100

Destruction of Deposits and Reserves 104

Implications of Money Creation and Destruction 105

Summary 105

Key Terms and Concepts in This Chapter 105

Study Questions 105

Problems 106

Selected References 107

Chapter Five Nonbank Thrift Institutions: Credit Unions,Savings and Loan Associations, Savings Banks, and Money Market Mutual Funds 109

Credit Unions 110

Credit Union Membership 111

Size of Credit Unions 111

New Services Offered 112

A Strong Competitive Force 113

Savings and Loan Associations 113

Origins 113

How Funds Are Raised and Allocated 114

Trends in Revenues and Costs 116

Possible Remedies for the Industry's Problems 120

Savings Banks 120

Number and Distribution of Savings Banks 121

How Funds Are Raised and Allocated 121

Current Trends and Future Problems 122

Money Market Funds 122

Summary 129

Key Terms and Concepts in This Chapter 129

Study Questions 129

Problems 130

Selected References 131

Chapter Six Insurance Companies. Pension Funds, and Other Financial Institutions 132

Life Insurance Companies 132

The Insurance Principle 133

Investments of Life Insurance Companies 133

Sources of Life Insurance Company Funds 137

Structure and Growth of the Life Insurance Industry 137

New Services 137

Property-Casualty Insurance Companies 140

Makeup of the Property-Casualty (P/C) Insurance Industry 140

Changing Risk Patterns in Property/Liability Coverage 140

Investments by Property-Casualty (P/C) Companies 141

Sources of income 142

Business Cycles,Inflation,and Competition 142

Pension Funds 143

Growth of Pension Funds 144

Investment Strategies of Pension Funds 146

Pension Fund Assets 147

Factors Affecting the Future Growth of Pension Funds 147

Finance Companies 149

Different Finance Companies for Different Purposes 150

Growth of Finance Companies 150

Methods of Industry Financing 151

Recent Changes in the Character of the Finance Company Industry 152

Investment Companies 152

The Background of Investment Companies 152

Tax Status of the Industry 154

Open-End and Closed-End Investment Companies 154

Goals and Earnings of Investment Companies 155

Other FinanciaI Institutions 156

Trends Affecting All Financial Institutions Today 160

Summary 161

Key Terms and Concepts in This Chapter 162

Study Questions 162

Problems 162

Selected References 163

Chapter Seven The Regulation of Financial Institutions 164

The Reasons behind the Regulation of Financial Institutions 165

Does Regulation Benefit or Harm Financial Institutions? 166

The Regulation of Commercial Banks 167

The Federal Reserve System 168

The Comptroller of the Currency 168

Federal Deposit lnsurance Corporation 168

State Banking Commissions 170

Regulations Controlling the Geographic Expansion of Banks 170

Regulation of the Services Banks Can Offer 174

The Rise of Disclosure Laws in Banking 176

The Growing Importance of Capital Regulation in Banking 176

The Unfinished Agenda for Banking Regulation 178

The Regulation of Nonbank Thrift Institutions 180

Credit Unions 180

Savings and Loans 181

Savings Banks 185

Money Market Funds 185

The Regulation of lnsurance Companies 186

The Regulation of Pension Funds 186

The Regulation of Finance Companies 187

The Regulation of Investment Companies 187

An Overview of Trends in the Regulation of Financial Institutions 188

Key Terms and Concepts in This Chapter 190

Study Questions 191

Problems 191

Selected References 191

Part Three Interest Rates and Security Prices 191

Chapter Eight Interest Rates in the Financial System 192

Functions of the Rate of Interest in the Economy 193

The Classical Theory of Interest Rates 193

Saving by Households 194

Saving by Business Firms 194

Saving by Government 195

The Demand for Investment Funds 195

The Equilibrium Rate of Interest in the Classical Theory of Interest 198

Limitarions of the Classical Theory of Interest 200

The Liquidity Preference Theory 200

The Demand for Liquidity 200

The Supply of Money 202

The Equitibrium Rate of Interest in Liquidity Preference Theory 203

Limitations of the Liquidity Preference Theory 204

The Loanable Funds Theory 205

Consumer Demand for Loanable Funds 205

Domestic Business Demand for Loanable Funds 205

Government Demand for Loanable Funds 205

Foreign Demand for Lounable Funds 206

Total Demand for Loanable Funds 206

The Supply of Loanable Funds 206

Total Supply of Loanable Funds 208

The Equilibrium Rate of Interest in the Loanable Funds Theory 208

The Rational Expectations Theory 211

Summary 215

Key Terms and Concepts in This Chapter 216

Study Questions 216

Problems 217

Selected References 218

Chapter Nine Relationships between Interest Rates and Security Prices 219

Units of Measurement for lnterest Rates and Security Prices 219

Definition of Interest Rates 219

Basis Points 220

Security Prices 220

Measures of the Rate of Return,or Yield, on a Loan or Security 221

Coupon Rate 221

Current Yield 222

Yield to Maturity 222

Holding-Period Yield 223

Calculating Yields to Maturity and Holding-Period Yields 224

Yield-Price Relationships 227

Interest Rates Charged by Institutional Lenders 229

The Simple Interest Method 230

Add-On Rate of Interest 230

Discount Method 231

Home Mortgage Interest Rate 231

Annual Percentage Rate(APR) 232

Compound Interest 233

The Annual Percentage Yield(APY) 235

Summary 236

Key Terms and Concepts in This Chapter 236

Study Questions 236

Problems 237

Selected References 238

Chapter Ten Inflation, Yield Curves, and Duration 239

Inflation and Interest Rates 240

The Correlation between Inflation and Interest Rates 240

The Nominal and Real Interest Rates 240

The Fisher Effect 241

The Harrod-Keynes Effect Of Inflation 242

Alternative Views on Inflation and Interest Rates 243

Inflation and Stock Prices 248

The Maturity of a Loan 250

The Yield Curve and the Term Structure of Interest Rates 250

Types of Yield Curves 250

The Unbiased Expectations Hypothesis 251

The Role of Expectations in Shaping the Yield Curve 253

Relative Changes in Long-Term Interest Rates 253

Policy Implications of the Unbiased Expectations Hypothesis 254

The Liquidity Premium View Of the Yield Curve 255

The Segmented-Markets or Hedging-Pressure Argument 255

Policy implications of the Segmented-Markets Theory 256

The Preferred Habitat or Composite Theory of the Yield Curve 257

Research Evidence on Yield-Curve 258

Theories 258

Uses of the Yield Curve 261

Duration: A Different Approach to Maturity 262

The Price Elasticity of a Debt Security 262

The Impact of Varying Coupon Rates 263

An Alternative Maturity Index for a Security:Duration 264

Uses of Duration 265

Limitations of Duration 267

Summary 268

Key Terms and Concepts in This Chapter 269

Study Questions 269

Problems 270

Selected References 271

Chapter Eleven Default Risk, Taxes, and Other Factors Affecting Interest Rates 273

Marketability 274

Liquidity 274

Default Risk and Interest Rates 275

The Premium for Default Risk 275

The Expected Rate of Return or Yield on a Risky Security 276

AnticiPated Loss and Default-Risk Premiums 276

Factors Influencing Default-Risk Premiums 277

The Rise and Fall of Junk Bonds 283

A Summary of the Default Risk, Interest Rate Relationship 284

Call Privileges 284

Calculating the Yields on Called Securities 284

Advantages and Disadvantages of the Call Privilege 287

The Call Premium and Interest Rate Expectations 287

Research Evidence 288

Effect of Coupon Rates on Call Risk 288

Prepayment Risk and Interest Rates on Loan-Backed Securities 289

Taxation of Security Returns 290

The Tax Treatment of Capital Gains 290

Treatment of Capital Losses 292

Tax-Exempt Securities 292

Convertible Securities 294

The Structure of Interest Rates 295

Key Terms and Concepts in This Chapter 296

Study Questions 296

Problems 297

Selected References 298

Chapter Twelve Interest Rate Forecasting and Hedging against Interest Rate Risk 299

The Influence of the Business Cycle in Shaping Interest Rates 300

Relative Movements in Short-and Long-Term Interest Rates and Security Prices over the Business Cycle 301

Seasonality 302

Forecasting Interest Rates: Advantages and Problems 303

Advantages of Rate Forecasting 303

Problems in Forecasting Interest Rates 303

Approaches to Modem Interest Rate Forecasting 304

Money Supply APProaches 304

Inflation and the Fisher Effect 305

Econometric Models 306

The Flow of Funds Accounts as a Source of Forecasting Information 307

Following the Forward Calendar of New Security Offerings 308

Market Expectations and Implied Rate Forecasting 308

The Consensus Forecast 310

Interest-Rate-Risk Hedging Strategies 310

Duration 310

Stripped Securities 311

GAP Management 312

Interest Rate Caps and Collars 313

Interest Rate Insurance 313

Loan Options 314

Interest Rate SWAPS 314

Summary 318

Key Terms and Concepts in This Chapter 319

Study Questions 319

Problems 320

Selected References 321

Chapter Thirteen FinanciaI Futures and Options Contracts 323

The Nature of Futures Trading 323

General Principles of Hedging 324

Opening and Closing a Hedge 324

Why Hedging Can Be Effective 325

Risk Selection through Hedging 326

FinanciaI Futures 326

The Purpose of Trading in Financial Futures 327

Securities Used in Financial Futures Contracts 328

U.S. Treasury Bonds and Notes 329

U.S. Treasury Bills 330

Eurodollar Time Deposits 331

Other Money Market Futures Contracts 331

Municipal State and Local Government Bonds 331

New Foreign-Bond-Index Futures Contracts 331

Stock Index Futures 332

Types of Hedging in the Financial Futures Market 333

The Long (or Buying) Hedge 333

The Short (or Selling)Hedge 334

Cross Hedging 335

The Mechanics of Futures Trading 336

Payoff Diagrams for Long and Short Futures Contracts 338

Options Contracts on Financial Futures 339

Basic Types of Option Contracts 339

Option Contracts for Money Market and Capital Market Instruments 340

Uses of Options on futures Contracts 341

Payoff Diagrams for Valuing Options 343

The Black-Scholes Model for Valuing Options 347

Traders Active in the Futures and Options Markets 348

Potential Benefits from the Futures and Options Markets 349

Summary 352

Key Terms and Concepts in This Chapter 353

Study Questions 353

Problems 354

Selected References 355

Part Four The Money Market 356

Chapter Fourteen Characteristics of the Money Market 356

Characteristics of the Money Market 357

The Need for a Money Market 357

Borrowers and Lenders in the Money Market 358

The Goals of Money Market Investors 358

Types of Investment Risk 359

Money Market Maturities 360

Depth and Breadth of the Money Market 360

Federal funds versus Clearinghouse Funds 361

A Market for Large Borrowers and Lenders 361

The Volume of Money Market Securities 363

The Pattern of Interest Rates in the Money Market 364

Summary 366

Key Terms and Concepts in This Chapter 367

Study Questions 367

Problems 367

Selected References 368

Chapter Fifteen Treasury Bills, Dealer Loans, and Repurchase Agreements 369

U.S. Treasury Bills 370

Volume of Bills Outstanding 370

Types of Treasury Bills 371

How Bills Are Sold 371

Results of a Recent Bill Auction 372

Calculating the Yield on Bills 373

Market Interest Rates on Treasury Bills 375

Investors in Treasury Bills 377

Primary Dealers, Dealer Loans, and Repurchase Agreements 378

Scandal Rocks the Market for Government Securities 378

Proposals for New Ways to Auction Government Securities 379

Dealers Reliance on Borrowed Funds 381

Demand Loans 381

Repurchase Agreements 381

Sources of Dealer Income 383

Dealer positions in Securities 384

Changing Sources of Dealer Financing 385

Dealer Transactions and Government Security Brokers 385

Summary 386

Key Terms and Concepts in This Chapter 387

Study Questions 387

Problems 387

Selected References 388

Chapter Sixteen Federal Funds, Negotiable CDs, and Loans from the Discount Window 389

Federal Funds 390

Nature of Federal Funds 390

Use of the Federal Funds Market to Meet Deposit Reserve Requirements 391

Mechanics of Federal Funds Trading 392

Volume of Borrowings in the Funds Market 393

Rates on Federal Funds 393

Federal Funds and Government Policy 394

Negotiable Certificates of Deposit 394

Growth of CDs 396

Terms Attached to CDs 396

Buyers of CDs 397

Cds in Liability Management 398

New Types of CDs 398

Loans from the Federal Reserve's Discount Window 400

Causes and Effects of Borrowing from the Discount Window 400

Collateral for Discount Window Loans 401

Restrictions on Federal Reserve Credit 401

The Federal Reserve's Discount Rate 402

Concluding Comment on Bank Activity in the Money Market 404

Key Terms and Concepts in This Chapter 405

Study Questions 405

Problems 406

Selected References 406

Chapter Seventeen Commercial Paper and Federal Agency Securities 407

Commercial Paper 408

What Is Commercial PaPer? 408

Types of Commercial Paper 408

Recent Growth Of Commercial PaPer 410

Maturities and Rates of Return on Commercial PaPer 413

Changing Yields on PaPer Issues 413

Advantages of Issuing Commercial PaPer 414

Possible Disadvantages from Issuing Commercial PaPer 415

Principal investors 415

Continuing Innovation in the PaPer Market 416

Commercial PaPer Ratings 417

Dealers in PaPer 418

Federal Agency Securities 418

Types of Federal Credit Agencies 419

Growth Of the Agency Market 420

Terms on Agency Securities 421

The Marketing Of Agency Issues 422

Summary 423

Key Terms and Concepts in This Chapter 423

Study Questions 424

Problems 424

Selected References 425

Chapter Eighteen International Money Market Instruments:Bankers' Acceptances and Eurodollars 426

Bankers' Acceptances 427

Why AccePtances Are Used in International Trade 427

How AccePtances Arise 428

Recent Growth of Acceptance Financing 429

Acceptance Rates 431

Investors in Acceptances 432

Eurodollars 432

What is a Eurodollar? 433

The Creation of Eurodollars 433

Eurodollar Maturities and Risks 436

The Supply of Eurodollars 437

Eurodollars in Domestic Bank Operations 437

Recent Innovations in the Eurodollar Market 439

Benefits and Costs of the Eurodollar Market 439

Summary 440

Key Terms and Concepts in This Chapter 441

Study Questions 441

Problems 441

Selected References 442

Part Five 443

Central Banking and Monetary Policy 443

Chapter Nineteen Central Banking and the Role of the Federal Reserve 443

The Role of Central Banks in the Economy 444

Control of the Money Supply 444

Stabilizing the Money and Capital Markets 444

Lender of Last Resort 445

Maintaining and Improving the Payments Mechanism 445

The Goals and Channels of Central Banking 445

The Channels through Which Central Banks Work 446

The History of the Federal Reserve System 447

Problems in the Early U.S. Banking System 449

Creation of the Federal Reserve System 450

The Early Structure of the Federal Reserve System 451

Goals and Policy Tools of the Federal Reserve System 451

How the Fed is Organized 452

Board of Governors of the Federal Reserve System 452

The Federal Open Market Committee and Manager of the System Open Market Account 453

The Federal Reserve Banks 454

The Member Banks of the Federal Reserve System 455

Roles of the Federal Reserve System Today 458

The Clearing and Collection of Checks and Other Means of Payment 458

Issuing Currency and Com and Providing Other Services 459

Maintaining a Sound Banking and Financial system 459

Serving as the Federal Governments Fiscal Agent 460

Carrying out Monetary Policy 460

Providing information to the Public 460

Summary 460

Key Terms and Concepts in This Chapter 461

Study Questions 462

Selected References 462

Chapter Twenty The Tools of Monetary Policy 463

Reserves and Money—Targets of Federal Reserve Policy 463

The Composition of Reserves 464

The Deposit Multiplier 464

The Money Multiplier 466

General versus Selective Credit Controls 468

The General Credit Controls of the Fed 468

Reserve Reauirements 468

Changes in the Federal Reserves Discount Rate 471

Open Market Operations 474

Selective Credit Controls Used by the Fed 481

Moral Suasion by Federal Reserve Officials 483

Margin Requirements 483

Summary 484

Key Terms and Concepts in This Chapter 485

Study Questions 485

Problems 485

Selected References 486

Chapter Twenty-One Indicators and Goals of Monetary Policy 487

Factors Influencing the Reserves of the Banking System 488

Actions of the Public Affecting Reserves 488

Operations of the Treasury and Foreign Investors Affecting Reserves 489

Federal Reserve Operations Affecting reserves 490

The Heart of The Monetary Policy Process Controlling Reserves to Achieve Desired Target Levels 490

The Federal Reserve Statement 490

Factors Supplying Reserves 491

Factors Absorbing Reserves 492

Measures of the Money Supply 492

Money Supply Measures 493

Federal Reserve Control of Money Supply Growth 494

Achieving the Fed's Money Supply Targets 496

Money Market Indicators 496

The Federal Funds Rate 497

Other Money Market Interest Rates 498

Free Reserves 498

The Federal Reserve and Economic Goals 500

The Goal of Controlling Inflation 500

The Goal of Full Employment 501

The Goal of Sustainable Economic Growth 503

Equilibrium in the U.s.Balance of Payments and Protecting the Dollar 504

What Policies Should We Pursue to Achieve National and International Economic Goals? 505

Monetarist View 505

The Credit Availability,or Neo-Keynesian View 506

Supply Side Economics 508

The Trade-Offs among Economic Goals 509

The Limitations of Monetary Policy 510

Key Terms and Concepts in This Chapter 510

Study Questions 510

Problems 511

Selected References 511

Part Six 513

The Roles Played by Governments within the Financial System 513

Chapter Twenty-Two The Treasury in the Financial Markets 513

The Fiscal Policy Activities of the U.S.Treasury 513

Sources of Federal Government Funds 514

Federal Government Expenditures 515

Recent Tax and Expenditure Legislation 516

Effects of Federal Borrowing and Budget Deficits on the Financial System and the Economy 516

Effects of the Retirement of Government Debt from a Budget Surplus on the Financial System and the Economy 518

Overall Impact of Government Borrowing and Spending 521

Management of the Federal Debt 522

The Size and Growth of the Public Debt 523

The Composition of the Public Debt 525

Marketable Public Debt 525

Nonmarketable Public Debt 525

Investors in U.S.Government Securiies 526

A Trend toward Shorter Maturities 527

Methods of Offering Treasury Securities 528

The Goals of Federal Debt Management 531

The Impact of Federal Debt Management on the Financial Markets and the Economy 532

Summary 533

Key Terms and Concepts in This Chapter 533

Study Questions 534

Problems 534

Selected References 535

Chapter Twenty-Three State and Local Governments in the Financial Markets 536

Growth of State and Local Government Borrowing 537

Sources of Revenue for State and Local Governments 538

State and Local Government Expenditures 539

Motivations for State and Local Government Borrowing 540

Types of Securities lssued by State and Local Governments 540

Short-Term Securities 541

Long-Term Securities 541

Types of Revenue Bonds 542

Innovations in Municipal Securities 543

Key Features of Municipal Debt 544

Tax Exemption 544

Exemption Contributes to Market Volatility 546

Credit ratings 546

Seriali=ation 548

How Municipal Bonds Are Marketed 549

Problems in the Municipal Market 550

Problems and Proposals Regarding Tax Exemption 550

California's Proposition 13 and Taxpayer Resistance 550

The Outlook for State and Local Governments 550

Key Terms and Concepts in This Chapter 551

Study Questions 551

Problems 552

Selected References 552

Part seven The Consumer in the Financial Markets 553

Chapter Twenty-Four Consumer Lending and Borrowing 553

Consumers as Lenders of Funds 553

FinanciaI Assets Purchased by Consumers 554

The Growing Menu of Sarings Instruments Available to Consumers 555

Consumers as Borrowers of Funds 557

Is Consumer Borrowing Excessive? 558

Categories of Consumer Borrowing 559

Home Equity Loans 560

Credit and Debit Cards 561

Credit Cards 561

Debit Cards 561

The Determinants of Consumer Borrowing 562

Consumer Lending Institutions 563

Commercial Banks 563

Finance Companies 563

Other Consumer Lending Institutions 564

Factors Considered in Making Consumer Loans 564

Financial Disclosure and Consumer Credit 565

Truth in Lending 565

Fair Credit Billing Act 567

Fair Credit Reporting Act 567

Consumer Leasing Act 568

Competitive Banking Equality Act 568

Truth in Savings Act 568

Credit Discrimination Laws 568

Community Reinvestment Act and Financial Institutions Reform, Recovery and Enforcement Act 568

Equal Credit Opportunity ACt 569

Fair Housing and Home Mortgage Disclosure Act 569

Consumer Bankruptcy Laws 569

Summary 570

Key Terms and Concepts in This Chapter 571

Study Questions 571

Problems 572

Selected References 573

Chapter Twenty-Five The Residential Mortgage Market 574

Recent Trends in New Home Prices and the Terms of Mortgage Loans 575

The Structure of the Mortgage Market 576

Volume Of Mortgage Loans 576

Residential versus Nonresidential Mortgage Loans 576

Mortgage-Lending Institutions 577

The Roles Played by Financial Institutions in the Mortgage Market 577

Savings and Loan Associations 578

Commercial Banks 579

Life Insurance Companies 579

Savings Banks 579

Mortgage Bankers 579

Government Activity 580

The Impact of the Great Depression on Government Involvement in the Mortgage Market 580

The Creation of Fannie Mae (FNMA) 581

The Creation of Ginnie Mae (GNMA) 581

The Federal Home Loan Mortgage Corporation(FHLMC 581

Innovations in Mortgage Instruments 582

Variable-Rate and Other Adjustable Mortgages 583

Convertible Mortgages 583

Canadian Rollover and Other Renegotiated Mortgage Loans 584

Reverse-Annuity Mortgages 584

Graduated-Payment Mortgages 584

Epilogue on the Fixed-Rate Mortgage 585

Creative Financing Techniques 585

Second Mortgages 585

Home-Leasing Plans 585

Land-Leasing Plans and Property Exchanges 585

Refinancing Home Mortgages and Home Equity Loans 586

Summary 586

Key Terms and Concepts in This Chapter 587

Study Questions 587

Selected References 588

Part Eight Businesses in the Financial Markets 589

Chapter Twenty-Six Business Borrowing 589

Factors Affecting Business Activity in the Money and Capital Markets 589

Characteristics of Corporate Notes and Bonds 590

PrinciPal Features of CorPorate Notes and Bonds 591

Term Bonds versus Serial Bonds 591

Recent Trends in Original Maturities of Bonds 591

Call Privileges 592

Sinking Fund Provisions 592

Yields and Costs Of CorPorate Bonds 592

The Most Common Types of Corporate Bonds 593

New Types of Corporate Notes and Bonds 595

Investors in Corporate Notes and Bonds 596

The Secondary Market for Corporate Bonds 597

The Marketing of Corporate Notes and Bonds 598

The Public Sale of Bonds 598

Private Placements of Corporate Bonds 599

The Volume of Borrowing in the Corporate Bond Market 601

Bank Loans to Business Firms 602

The Prime, or Base, Interest Rate 603

Commercial Mortgages 604

Summary 605

Key Terms and Concepts in This Chapter 606

Study Questions 607

Problems 607

Selected References 608

Chapter Twenty-Seven 609

Corporate Stock 609

Characteristics of Corporate Stock 610

Common Stock 610

Preferred Stock 611

Stock Market Investors 612

Characteristics of the Corporate Stock Market 613

The Major Organized Exchanges 614

The Informal Over-the-Counter Market 616

The Third Market: Trading in Listed Securities off the Exchange 617

The Market for Stock Options 617

Call Options 617

Puts 618

Straddles 618

The Growth of Options Markets 618

The Rise of Program Trading:Portfolio Insurance and Stock Index Arbitraging 619

The Development of a Unified International Market for Stock 620

Random Walk and Efficient Markets 625

Summary 626

Key Terms and Concepts in This Chapter 627

Study Questions 627

Selected References 627

Part Nine The International Financial System and the Future 629

Chapter Twenty-Eight International Transactions and Currency Values 629

The Balance of Payments 630

The U.s.Balance of Imernational Payments 630

The Current Aecoum 631

The Capital Aecoum 634

The Basic Balance 634

Official Reserve Transactions 635

Disequilibrium in the Balance of Payments 635

The Problem of Different Monetary Units in International Trade and Finance 636

The Gold Standard 636

The Gold Exchange Standard 637

The Modified Exchange Standard 637

Adoption of a New Managed Floating Currency Bank 637

Standard 638

Determining Foreign Currency Values in Today's Markets 639

Essential Features of the Foreign Exchange Market 640

Exchange Rate Quotations 640

Factors Affecting Foreign Exchange Rates 641

Supply and Demand for Foreign Exchange 643

The Forward Market for Currencies 645

Methods of Quoting Forward Exchange Rates 645

Functions of the Forward Exchange Market 646

Commercial Covering 647

Hedging an Investment Position 647

Speculation on Future Currency Prices 647

Covered Interest Arbitrage 648

The Principle of Interest Rate Party 648

The Market for Foreign Currency Futures 649

Other Innovative Methods for Dealing with Currency Risk 650

Government Intervention in the Foreign Exchange Markets 652

Key Terms and Concepts in This Chapter 653

Study Questions 653

Problems 654

Selected References 655

Chapter Twenty-Nine International Banking 656

The Scope of International Banking Activities 657

Multinational Banking Corporations 657

Types of Facilities Operated by Banks Abroad 657

Services Offered by Intemational Banks 658

Issuing Letters of Credit 658

Buying and Selling Foreign Exchange(FORFX) 658

Issuing Bankers'Acceptances 658

Accepting Eurocurrency Deposits and Making Eurocurrency Loans 658

Marketing and Underwriting of Both Domestic and Eurocurrency Bonds,Notes,and Equity Shares 659

Securitizing Loans 659

Other Services Provided by International Banks 660

Foreign Banks in the United States 660

Recent Growth of Foreign Banks in the United States 660

Federal Regulation of Foreign Bank Activity 661

Regulation of the International Banking Activities of U.S. Banks 662

The Future of International Banking 664

The Risks of International Lending 664

Public Confidence and Bank failures 665

The SPread of Deregulation:how Fast should We Go? 666

Prospects and Issues in the l990s 667

Key Terms and Concepts in This Chapter 668

Study Questions 668

Selected References 668

Chapter Thirty The Future or the Financial System 669

Social,Economic,and Demographic Forces and Trends Reshaping the Financial System 670

The Challenges and Opportunities Presented by Recent Trends 672

Dealing with Risk in the Financial System:Ensuring the Strength and Viability of Financial Institutions 672

The Implications of Inflation for Financial Institutions 675

The Effect of New Technology on the Design and Delivery of Financial Services 676

The Changing Mix of Financial Service Suppliers 679

Management Coordination within Diversified Financial Institutions 681

Steps Toward Better Management Coordination 681

The Future Of Alternative Financial Service Distribution Systems 682

The Future Need for Regulation of Financial Institutions 682

Regulations That Could Grow 685

Summary and a Look Forward 686

Key Terms and Concepts in This Chapter 686

Study Questions 687

Selected References 687

Appendix: Present Value, Annuity,Compound lnterest, and Annual Percentage Rate(APR)Tables 688

Money and Capital Markets Dictionary 697

Index 710

Contents in Brief 1

Part One 1

The Financial System in Perspective 1

Chapter One 1

The Role of the FinanciaI System in theGlobal Economy 1

Chapter Two 23

Financial Assets, Money, and Financial Transactions 23

Chapter Three 44

Sources of Information for Financial Decision Making in the Money and Capital Markets 44

Chapter Four 82

The Commercial Banking Industry 82

Chapter Five 109

Nonbank Thrift Institutions: Credit Unions, Savings and Loan Associations, Savings Banks, and Money Market Mutual Funds 109

Chapter Six 132

Insurance Companies, Pension Funds, and Other Financial Institutions 132

Chapter Seven 164

The Regulation of Financial Institutions 164

Chapter Eight 192

Interest Rates in the Financial System 192

Chapter Nine 219

Relationships between Interest Rates and Security Prices 219

Chapter Ten 239

Inflation, Yield Curves, and Duration 239

Chapter Eleven 273

Default Risk, Taxes, and Other Factors Affecting Interest Rates 273

Chapter Twelve 299

Interest Rate Forecasting and Hedging against Interest Rate Risk 299

Chapter Thirteen 323

FinanciaI Futures and Options Contracts 323

Part Four 356

The Money Market Chapter Fourteen Characteristics of the Money Market 356

Chapter Fifteen 369

Treasury Bills, Dealer Loans, and Repurchase Agreements 369

Chapter Sixteen 389

Federal Funds, Negotiable CDs, and Loans from the Discount Window 389

Chapter Seventeen 407

Commercial Paper and Federal Agenc Securities 407

Chapter Eighteen 426

International Money Market Instruments:Bankers' Acceptances and Eurodollars 426

Chapter Nineteen 443

Central Banking and the Role of the Federal Reserve 443

Chapter Twenty 463

The Tools of Monetary Policy 463

Chapter Twenty-one 487

Indicators and Goals of Monetary Policy 487

Chapter Twenty-Two 513

The Treasury in the Financial Markets 513

Chapter Twenty-Three 536

State and Local Governments in the Financial Markets 536

Chapter Twenty-Four 553

Consumer Lending and Borrowing 553

Chapter Twenty-Five 574

The Residential Mortgage Market 574

Chapter Twenty-Six 589

Business Borrowing 589

' Chapter Twenty-Seven 609

Corporate Stock 609

Chapter Twenty-Eight 629

International Transactions and Currency Values 629

Chapter Twenty-Nine 656

International Banking 656

Chapter Thirty 669

The Future of the Financial System 669

Appendix: Present Value, Annuity,Compound Interest, and Annual Percentage Rate(APR)Tables 688

Money and Capital Markets Dictionary 697

Index 710