Chapter 1: Introduction 1
Financial Assets 2
Financial Markets 11
Derivative Markets 15
Summary 16
Questions 17
Section Ⅰ: The Players 19
Chapter 2: Overview of Market Participants and Financial Innovation 19
Issuers and Investors 20
Role of Financial Intermediaries 22
Overview of Asset/Liability Management for Financial Institutions 25
Regulation of Financial Markets 28
Financial Innovation 31
Summary 33
Questions 34
Chapter 3: Depository Institutions 37
Asset/Liability Problem of Depository Institutions 38
Commercial Banks 40
Savings and Loan Associations 55
Savings Banks 60
Credit Unions 60
Summary 61
Questions 63
Chapter 4: Nondepository Institutions 67
Insurance Companies 68
Pension Funds 78
Investment Companies 84
Summary 92
Questions 93
Chapter 5: Investment Banking Firms 97
Scope of Investment Banking 98
Nature of the Business 99
Industry Structure 110
Competition and Challenges for Investment Banking Firms 119
Summary 121
Questions 122
Section Ⅱ: Organization and Structure of Markets 125
Chapter 6: The Primary Markets 125
Regulation of the Issuance of Securities 126
Variations in the Underwriting of Securities 129
World Capital Markets Integration and Fund Raising Implications 136
Motivation for Raising Funds Outside of the Domestic Market 137
Summary 138
Questions 139
Chapter 7: Secondary Markets 143
Function of Secondary Markets 144
Trading Locations 144
Market Structures 145
Perfect Markets 145
Secondary Market Trading Mechanics 146
Role of Brokers and Dealers in Real Markets 152
Market Efficiency 154
Transaction Costs 155
Summary 157
Questions 159
Section Ⅲ: Risk and Return Theories 161
Chapter 8: Risk and Return Theories:Ⅰ 161
Measuring Investment Return 163
Portfolio Theory 166
Risky Assets Versus Risk-Free Assets 166
Measuring Portfolio Risk 167
Diversification 171
Choosing a Portfolio of Risky Assets 176
Summary 181
Questions 182
Chapter 9: Risk and Return Theories:Ⅱ 187
Economic Assumptions 188
Capital Market Theory 189
The Capital Asset Pricing Model 193
The Multifactor CAPM 205
Arbitrage Pricing Theory Model 206
Some Principles to Take Away 210
Summary 211
Questions 212
SectionⅣ： Derivatives Markets 215
Chapter 10: Introduction to Financial Futures Markets 215
Mechanics of Futures Trading 216
Futures Versus Forward Contracts 220
Risk and Return Characteristics of Futures Contracts 220
Pricing of Futures Contracts 221
General Principles of Hedging With Futures 228
The Role of Futures in Financial Markets 239
The GAO Study on Derivatives 242
Summary 244
Questions 245
Chapter 11: Introduction to Options Markets 249
Option Contract Defined 250
Differences Between Options and Futures Contracts 251
Risk and Return Characteristics of Options 252
Pricing of Options 261
Economic Role of the Option Markets 274
Exotic Options 276
Summary 277
Questions 278
Chapter 12: Introduction to the Swaps,Caps, and Floors Markets 281
Swaps 282
Cap and Floor Agreements 287
Summary 289
Questions 289
Section Ⅴ: The Equity Market 293
Chapter l3: Common Stock Market 293
Secondary Markets 295
SEC Studies of the Structure of the Equity Markets 299
Trading Arrangements for Institutional Investors 303
Stock Market Indicators 305
Empirical Evidence on Pricing Efficiency and Implications for Portfolio Strategies 308
The Market Crash of l987 313
Non-U.S. Equity Markets 316
Summary 324
Questions 326
Chapter 14: Stock Options Market 329
History of Exchange-Traded Options 330
Features of Exchange-Traded Stock Options 331
Stock Option Pricing Models 332
Option Strategies 338
Pricing Efficiency of the Stock Options Market 346
Warrants 348
Summary 349
Questions 350
Chapter 15: Stock Index Derivative Markets 355
Stock Index Options 356
Stock Index Futures Market 362
Equity Swaps 377
Stock Index Contracts, Stock Price Volatility, and Black Monday 379
Summary 386
Questions 387
Section Ⅵ: Interest Rate Determination and Bond Valuation 391
Chapter 16: The Theory and Structure of Interest Rates 391
The Theory of Interest Rates 392
The Structure of Interest Rates 409
Summary 414
Questions 415
Chapter 17: Valuation of Debt Contracts and Their Price Volatility Characteristics 419
Features of Debt Contracts 420
Basic Valuation Principles 421
Return From a Bond: Yield-to-Maturity Measure 422
Reasons Why a Bond's Price Will Change 424
Reinvestment of Cash Flow and Yield 425
What Determines the Premium-Par Yield 425
Bond Price Volatility 426
Summary 439
Questions 441
Chapter 18: The Term Structure of Interest Rates 445
The Yield Curve 446
Constructing the Theoretical Spot Rate Curve 448
Forward Rates 455
Determinants of the Shape of the Term Structure 459
Summary 464
Questions 465
Section Ⅶ: Debt Markets 467
Chapter 19: Money Markets 467
Treasury Bills 468
Commercial Paper 471
Bankers Acceptances 478
Large-Denomination Negotiable CDs 481
Repurchase Agreements 484
Federal Funds 488
Summary 489
Questions 490
Chapter 20: Treasury and Agency Securities Markets 493
Treasury Securities 494
Federal Agency Securities 502
Non-U.S. Government Bond Markets 505
Summary 510
Questions 511
Chapter 21: Corporate Bond Market 513
Features of a Corporate Bond Issue 514
Corporate Bond Ratings 519
Event Risk 521
High-Yield Corporate Bond Market 521
Secondary Market 527
Private Placement Market for CorPorate Bonds 527
Risk and Return in the Corporate Bond Market 531
Eurobond Market 535
Summary 537
Questions 538
Chapter 22: Medium-Term Note, Bank Loan,and Preferred Stock Markets 541
Medium-Term Notes 542
Bank Loan Market 546
Preferred Stock 548
Bankruptcy and Creditor Rights 551
Summary 554
Questions 555
Chapter 23: Municipal Securities Market 557
Investors in Municipal Securities 558
Features of Municipal Securities 559
Types of Municipal Securities 559
Credit Risk 566
Tax Risk 568
The Primary Market 569
The Secondary Market 569
Regulation of the Municipal Securities Market 570
Yields on Municipal Bonds 571
Summary 573
Questions 573
Chapter 24: The Mortgage Market 575
What is a Mortgage? 576
Investors 577
Mortgage Originators 577
Mortgage Servicers 582
Mortgage Insurers 584
The Traditional Mortgage 587
The Mismatch Problem and the Creation of Adjustable-Rate Mortgages 592
The Tilt Problem and the Creation of Other Mortgage Instruments 596
Default Risk for Mortgages 600
Summary 604
Questions 605
Chapter 25: The Market for Mortgage Pass-Through Securities 607
Development of the Secondary Mortgage Market 608
Mortgage Pass-Through Securities 610
Types of Mortgage Pass-Through Securities 611
Prepayment Conventions and Cash Flow 614
Factors Affecting Prepayment Behavior 623
Secondary Market 626
Prepayment Risks Associated With Pass-Through Securities 626
Stripped Mortgage-Backed Securities 629
Summary 630
Questions 631
Chapter 26: The Market for Collateralized Mortgage Obligations 633
Sequential-Pay Tranches 634
Accrual Bonds 639
Floating Rate Tranches 641
Planned Amortization Class Tranches 645
Credit Risk 649
Tax Considerations 649
The CMO Market Today 649
Summary 650
Questions 651
Chapter 27: The Market for Asset-Backed Securities 655
Issuers of and Collateral for Asset-Backed Securities 656
Features of Asset-Backed Securities 659
Benefits of Asset Securitization and Implications for Financial Markets 661
Summary 665
Questions 666
Chapter 28: Exchange-Traded Interest Rate Futures and Options 669
Interest Rate Futures Contracts 670
Exchange-Traded Interest Rate Options 682
Summary 689
Questions 690
Chapter 29: Over-the-Counter Interest Rate Derivative Markets 693
Over-the-Counter Interest Rate Options 694
Forward Rate Agreement 696
Interest Rate Swaps 696
Interest Rate Agreements 715
Summary 717
Questions 718
Section Ⅷ: Foreign Exchange Markets 723
Chapter 30: Foreign Exchange Market 723
Foreign Exchange Rates 724
Foreign-Exchange Risk 726
Spot Market 726
Cross Rates 727
Dealers 727
The European Currency Unit 728
Summary 729
Questions 730
Chapter 31: Instruments for Controlling Foreign-Exchange Risk 731
Currency Forward Contracts 732
Currency Futures Contracts 737
Currency Options Contracts 737
Currency Swaps 739
Summary 744
Questions 745