Money and Capital Markets

Title
Contents
Part 1 The Global Financial System in Perspective
	1 Functions and Roles of the Financial System in the Economy
		1.1 Introduction to the Financial System
		1.2 The Global Economy and the Financial System
			Flows within the Global Economic System
			The Role of Markets in the Global Economic System
			Types of Markets
			The Financial Markets and the Financial System: Channel for Savings and Investment
			Nature of Savings
			Nature of Investment
		1.3 Economic Functions Performed by the Global Financial System and the Financial Markets
			Savings Function
			Wealth Function
			Liquidity Function
			Credit Function
			Payments Function
			Risk Protection Function
			Policy Function
		1.4 Types of Financial Markets within the Global Financial System
			The Money Market versus the Capital Market
			Divisions of the Money and Capital Markets
			Open versus Negotiated Markets
			Primary versus Secondary Markets
			Spot versus Futures, Forward, and Option Markets
		1.5 Factors Tying All Financial Markets Together
			Credit, the Common Commodity
			Speculation and Arbitrage
		1.6 The Dynamic Financial System
		1.7 The Plan of This Book
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
	2 Financial Assets, Money, Financial Transactions, and Financial Institutions
		2.1 Introduction: The Role of Financial Assets
		2.2 The Nature and Characteristics of Financial Assets
			Characteristics of Financial Assets
			Types of Financial Assets
		2.3 How Financial Assets Are Created
		2.4 Financial Assets and the Financial System
		2.5 Lending and Borrowing in the Financial System
		2.6 Money as a Financial Asset
			What Is Money?
			The Functions of Money
			The Value of Money and Other Financial Assets and Inflation
		2.7 The Evolution of Financial Transactions
			Direct Finance
			Semidirect Finance
			Indirect Finance and Financial Intermediation
		2.8 Relative Sizes and Types of Major Financial Institutions
			Comparative Sizes of Key Financial- Service Providers
			Classifying Financial Institutions
			Portfolio (Financial-Asset) Decisions by Financial Institutions
		2.9 The Disintermediation of Funds
			New Types of Disintermediation
		2.10 Bank-Dominated versus Market- Dominated Financial Systems
			Summary of the Chapter’s Main Points
				Key Terms Appearing in This Chapter
				Problems and Issues
				Web-Based Problems
				Selected References to Explore
	3 The Financial Information Marketplace
		3.1 Introduction: The Importance of Information in the Financial Marketplace
		3.2 The Great Debate over Efficient Markets and Asymmetric Information
			The Efficient Markets Hypothesis (EMH)
			What Is an Efficient Market?
			Different Forms of the EMH
			Insiders and Insider Trading
			What Is Insider Trading?
			When Is Insider Trading Legal or Illegal?
			The Asymmetric Information Hypothesis (AIH)
			Problems Asymmetries Can Create: Lemons and Plums
			Problems Asymmetries Can Create: Adverse Selection
			Problems Asymmetries Can Create: Moral Hazard
			Asymmetry, Efficiency, and Real- World Markets
			Informational Asymmetries and the Law
		3.3 Debt Security Prices and Yields: Sources of Information
			Bonds and Notes
			Bid and Asked Prices and Pricing Information
		3.4 Stock Prices and Dividend Yields: Sources of Information
			Price and Yield Information
			Stock Price Indexes and Foreign Stock Prices
		3.5 Information on Security Issuers
			Moody’s and Standard & Poor’s Reports
			Securities and Exchange Commission (SEC) Reports
			Company Histories
			Dun & Bradstreet Ratings and Risk Management
			Financial Institutions
			Credit Bureaus
		3.6 General Economic and Financial Conditions
			The Federal Reserve System
			Other Domestic and International Sources of Information
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
			Appendix 3A: The Flow of Funds in the Financial System
	4 The Future of the Financial System and Trends in the Money and Capital Markets
		4.1 Introduction: The Financial Markets in Change
		4.2 Financial Forces Reshaping the Money and Capital Markets Today
		4.3 Economic and Demographic Forces Reshaping the Financial System
		4.4 The Challenges and Opportunities Presented by Recent Trends
			Dealing with Risk in the Financial System: Ensuring the Strength of Financial Institutions and Increasing Public Confidence
			The Consequences of Reduced Public Confidence
			Ways to Promote Public Confidence in Financial Institutions and Reduce Risk in the Financial System
			Developing Better Management Tools to Deal with Risk
			The Information Problem
			The Effect of New Technology on the Design and Delivery of Financial Services
			The Information Revolution
			Recent Technological Advances
			Public Attitudes and Cost
			The Changing Mix of Financial-Service Suppliers in the Financial System
			Price Sensitivity and Local Competition
			Importance of Established Delivery Systems
			New Financial Institutions and Instruments
			Securitization
			Consolidations and Convergences within the Financial System
		4.5 A New Role for Regulation in an Age of Financial- Services: Consolidation and Convergence
		4.6 The Payments System: Current and Future
		4.7 The Current and Future Need for Regulation of Financial Institutions
			Financial Service Regulations That Could Grow
			Financial Disclosure
			Privacy Protection and Identity Theft
			Social Responsibility
			Promoting a Level Playing Field
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
Part 2 Interest Rates and the Prices of Financial Assets
	5 The Determinants of Interest Rates: Competing Ideas
		5.1 Introduction: Interest Rates and the Price of Credit
		5.2 Functions of the Rate of Interest in the Economy
		5.3 The Classical Theory of Interest Rates
			Saving by Households
			Saving by Business Firms
			Saving by Government
			The Demand for Investment Funds
			The Investment Decision-Making Process
			Investment Demand and the Rate of Interest
			The Equilibrium Rate of Interest in the Classical Theory of Interest
			Limitations of the Classical Theory of Interest
		5.4 The Liquidity Preference or Cash Balances Theory of Interest Rates
			The Demand for Liquidity
			Motives for Holding Money (Cash Balances)
			Total Demand for Money (Cash Balances)
			The Supply of Money (Cash Balances)
			The Equilibrium Rate of Interest in Liquidity Preference Theory
			Limitations of the Liquidity Preference Theory
		5.5 The Loanable Funds Theory of Interest
			The Demand for Loanable Funds
			Consumer (Household) Demand for Loanable Funds
			Domestic Business Demand for Loanable Funds
			Government Demand for Loanable Funds
			Foreign Demand for Loanable Funds
			Total Demand for Loanable Funds
			The Supply of Loanable Funds
			Domestic Saving
			Dishoarding of Money Balances
			Creation of Credit by the Domestic Banking System
			Foreign Lending to the Domestic Funds Market
			Total Supply of Loanable Funds
			The Equilibrium Rate of Interest in the Loanable Funds Theory
		5.6 The Rational Expectations Theory of Interest
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
	6 Measuring and Calculating Interest Rates and Financial Asset Prices
		6.1 Introduction to Interest Rates and Asset Prices
		6.2 Units of Measurement for Interest Rates
			Calculating and Quoting Interest Rates
			Basis Points
		6.3 Interest Rates in the Wholesale Money Markets
			Computing Interest Rates on Money Market Assets That Are Sold at a Discount
			Holding-Period Yield on Money Market Assets Sold at a Discount
			Interest Rate Quotations on U.S. Treasury Bills
		6.4 Interest Rates on Bonds and Other Long-Term Debt Securities
			Yield to Maturity (YTM)
			Holding-Period Yield on Bonds and Other Long-Term Debt Securities
			Understanding the Concepts of Yield to Maturity and Holding-Period Yield
			Price Quotations on U.S. Treasury Notes and Bonds
			Price Quotations on Corporate Bonds
		6.5 Interest Rates and the Prices of Debt Securities
		6.6 Rates of Return on a Perpetual Financial Instrument
			The Rate of Return on Fixed-Income Perpetuities
			Interest Rates and Stock Prices
			Calculating the Holding-Period Yield on Stock
			Price Quotations in Corporate Stock
		6.7 Interest Rates Charged by Institutional Lenders
			The Simple Interest Method
			Add-On Rate of Interest
			Discount Loan Method
			Home Mortgage Interest Rate
			Annual Percentage Rate (APR)
			Compound Interest
			The Annual Percentage Yield (APY) on Deposits
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Related Problems
			Selected References to Explore
	7 Inflation, Yield Curves, and Duration: Impact on Interest Rates and Asset Prices
		7.1 Introduction
		7.2 Inflation and Interest Rates
			The Correlation between Inflation and Interest Rates
			Nominal and Real Interest Rates
			The Fisher Effect
			Alternative Views about Inflation and Interest Rates
			The Harrod-Keynes Effect of Inflation
			Anticipated versus Unanticipated Inflation
			The Inflation-Risk Premium
			The Inflation-Caused Income Tax Effect
			Conclusions from Recent Research on Inflation and Interest Rates
		7.3 Inflation and Stock Prices
		7.4 The Development of Inflation- Adjusted Securities
		7.5 The Maturity of a Loan
			The Yield Curve and the Term Structure of Interest Rates
			Types of Yield Curves
			The Unbiased Expectations Hypothesis
			Assumptions of the Expectations Hypothesis
			Policy Implications of the Unbiased Expectations Hypothesis
			The Liquidity Premium View of the Yield Curve
		7.6 The Segmented-Markets and Preferred Habitat Arguments
			The Possible Impact of Segmented Markets on the Yield Curve
			Policy Implications of the Segmented- Markets Theory
			The Preferred Habitat or Composite Theory of the Yield Curve
			Research Evidence on the Yield Curve
		7.7 Uses of the Yield Curve
			Forecasting Interest Rates
			Uses for Financial Intermediaries
			Detecting Overpriced and Underpriced Financial Assets
			Indicating Trade-Offs between Maturity and Yield
			Riding the Yield Curve
		7.8 Duration: A Different Approach to Maturity
			The Price Elasticity of a Bond or Other Debt Security
			The Impact of Varying Coupon Rates
			An Alternative Maturity Index for a Financial Asset: Duration
			The Convexity Factor
			Uses of Duration
			Estimating Asset Price Changes
			Portfolio Immunization
			Limitations of Duration
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
	8 The Risk Structure of Interest Rates: Defaults, Prepayments, Taxes, and Other Rate-Determining Factors
		8.1 Introduction
		8.2 Marketability
		8.3 Liquidity
		8.4 Default Risk and Interest Rates
			The Premium for Default Risk
			The Expected Rate of Return or Yield on a Risky Asset
			Anticipated Loss and Default-Risk Premiums
			Factors Influencing Default-Risk Premiums
			Inflation and Default-Risk Premiums
			Yield Curves for Risky Securities
				The Volatile History of Junk Bonds
				The Junk-Bond Spread and the Economy
		8.5 New Ways of Dealing with Default Risk: Credit Derivatives
			A Summary of the Default Risk— Interest Rate Relationship
		8.6 Call Privileges and Call Risk
			Calculating the Yields on Called Financial Assets
			Advantages and Disadvantages of the Call Privilege
			The Call Premium and Interest Rate Expectations
			Research Evidence on Call Privileges and Call Risk
		8.7 Prepayment Risk and the Yields on Loan-Backed Securities
		8.8 Taxation of Returns on Financial Assets
			Tax-Exempt Securities
			The Effect of Marginal Tax Rates on After-Tax Yields
			Comparing Taxable and Tax-Exempt Securities
			Treatment of Capital Losses and Capital Gains
		8.9 Convertible Securities
			Advantages for the Convertible Bond Issuer
			Advantages for the Investor in Convertible Bonds
		8.10 The Structure of Interest Rates in the Financial System
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
	9 Interest Rate Forecasting and Hedging: Swaps, Financial Futures, and Options
		9.1 Introduction
		9.2 Implicit Interest Rate Forecasts and Asset Prices
		9.3 Interest Rate Swaps
			What Are Swaps?
			How Swaps Work
			The Risks of Swapping
		9.4 Financial Futures Contracts
			The Nature of Futures Trading
			Examples of Daily Price Quotations for U.S. Treasury Futures
			Why Hedging with Futures Can Be Effective
			Types of Hedges in Futures
			The Long (or Buying) Hedge
			The Short (or Selling) Hedge
			Cross Hedging
			Executing a Trade, the Cash Margin, and the Settlement of the Contract
			Payoff Diagrams for Long and Short Futures Contracts
			Futures Contracts Offered on Exchanges Today
		9.5 Option Contracts
			Basic Types of Option Contracts and Price Quotations
			Examples of Price Quotes on Options Contracts
			Uses of Options
			Protecting against Declining Investment Yields
			Protecting against Rising Interest Rates
			Payoff Diagrams for Valuing Options
			Options Offered on Exchanges Today
		9.6 Exchanges Where Futures and Options Contracts Are Traded
		9.7 Risks, Costs, and Rules for Trading in Derivatives
			Risks and Costs Associated with Futures and Options
			Accounting Rules for Transactions Involving Derivatives
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
			Appendix 9A: The Black-Scholes Model for Valuing Options
Part 3 The Money Market and Central Banking
	10 Introduction to the Money Market and the Roles Played by Governments and Security Dealers
		10.1 Introduction: The Market for Short-Term Credit
		10.2 Characteristics of the Money Market
			What the Money Market Does
			The Need for a Money Market
			Key Borrowers and Lenders in the Money Market
			The Goals of Money Market Investors
			Types of Investment Risk That Investors Face
			Money Market Maturities
			Depth and Breadth of the Money Market
			The Speed of Money Market Payments: Federal Funds versus Clearinghouse Funds
			A Market for Large Borrowers and Lenders
		10.3 Government Involvement in the Money Market
			The Roles That Governments Play in the Money Market
			Selling Treasury Bills to Money Market Investors: The Anchor of the Money Market
			Volume of Bills Outstanding
			Types of Treasury Bills
			How Bills Are Sold
			Results of a Recent Bill Auction
			Market Interest Rates on Treasury Bills
			Investors in Treasury Bills
		10.4 Primary Dealers in Government Securities
		10.5 Dealer Borrowing and Lending Activities in the Money Market
			Demand Loans for Dealers
			Repurchase Agreements (RPs) for Dealers and Other Money Market Participants
			A New Type of RP: The GCF Repo
			Sources of Dealer Income
			Dealer Positions in Securities
			Dealer Transactions and Government Security Brokers
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
	11 Commercial Banks, Major Corporations, and Federal Credit Agencies in the Money Market
		11.1 Introduction
		11.2 The Roles Played by Banks in the Money Market
		11.3 Federal Funds Provided by the Banking System
			The Nature of Federal Funds and Their Uses
			Use of the Federal Funds Market to Meet Reserve Requirements
			Mechanics of Federal Funds Trading
			Volume of Borrowings in the Funds Market
			Interest Rates on Federal Funds
			Federal Funds and Government Economic Policy
		11.4 Negotiable Certificates of Deposit (CDs) Issued by Banks
			Terms Attached to CDs and Who Buys Them
			Buyers of CDs
			New Types of CDs
		11.5 Eurocurrency Deposits in International Banks
			What Is a Eurodollar?
			The Creation of Eurocurrency Deposits
			Eurocurrency Maturities and Risks
			The Supply of Eurocurrency Deposits
			Eurodollars in U.S Domestic Bank Operations
			Recent Innovations in the Eurocurrency Markets
			Benefits and Costs of the Eurocurrency Markets
		11.6 Bankers’ Acceptances
			How Bankers’ Acceptances Are Used in International Trade
			Bankers’ Acceptances as Investment Instruments
			The Decline in Bankers’ Acceptances
		11.7 Evaluating the Money Market Costs of Funds Needed by Bankers
		11.8 Concluding Comment on Bank Activity in the Money Market
		11.9 Major Corporations in the Money Market: Commercial Paper
			The Nature of Commercial Paper
			Types of Commercial Paper
			The Recent Track Record of Commercial Paper
			Commercial Paper as Investment Instruments
			Advantages of Issuing Commercial Paper
			Possible Disadvantages from Issuing Commercial Paper
			Who Buys Commercial Paper?
			Continuing Innovations in the Paper Market
			Commercial Paper Ratings and Dealer Operations
			Dealers in Paper
		11.10 Credit Agencies in the Money Market
			Types of Federal Credit Agencies
			Growth of the Agency Security Market
			Characteristics and Marketing of Agency Securities
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
	12 Roles and Services of the Federal Reserve and Other Central Banks around the World
		12.1 Introduction to Central Banking
		12.2 The Roles of Central Banks in the Economy and Financial System
			Control of the Money Supply to Avoid Severe Inflation
			Stabilizing the Money and Capital Markets
			Lender of Last Resort and Supervisor of the Banking System
			Maintaining and Improving the Payments Mechanism
		12.3 The Goals and Channels of Central Banking
			Central Banks’ Goals
			Challenges in Achieving Central Bank Goals
			The Channels through Which Central Banks Work
		12.4 History of the Federal Reserve System—Central Bank of the United States
			Problems in the Early U.S. Banking System
			Creation of the Federal Reserve System
			The Early Structure of the Federal Reserve
			Goals and Policy Tools of the Fed
		12.5 How the Fed Is Organized Today
			The Board of Governors
			The Federal Open Market Committee
			The Federal Reserve Banks
			The Member Banks of the Federal Reserve System
		12.6 Roles of the Federal Reserve System Today
			The Clearing and Collection of Checks and Other Payments Media
			Issuing Currency and Coin and Related Services
			Maintaining a Sound Banking and Financial System
			Serving as the Federal Government’s Fiscal Agent
			Providing Information to the Public
			Carrying Out Monetary Policy
		12.7 The Key Focus of Central Bank Monetary Policy: Interest Rates, Reserves, and Money
		12.8 Reserve Composition and the Deposit and Money Multipliers
			The Deposit Multiplier
			The Money Multiplier
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
	13 The Tools and Goals of Central Bank Monetary Policy
		13.1 Introduction to the Tools and Goals of Monetary Policy
		13.2 General versus Selective Credit Controls
		13.3 General Credit Controls in Central Banking
			Open Market Operations
			Effects of Open Market Operations on Interest Rates
			Effects of Open Market Operations on Reserves
			How Open Market Operations Are Conducted in the United States
			Types of Open Market Operations
			Goals of Open Market Operations: Defensive and Dynamic
			Changes in the Federal Reserve’s Discount Rate
			Borrowing and Repaying Discount Window Loans
			Effects of a Discount Rate Change
			Reserve Requirements
			Effects of a Change in Deposit Reserve Requirements
			An Illustration
			Current Levels of Reserve Requirements
		13.4 Selective Credit Controls Used in Central Banking
			Moral Suasion by Central Bank Officials
			Margin Requirements
		13.5 Interest Rate Targeting
			The Federal Funds Rate
			Fed Funds Targeting and Long-Term Interest Rates
		13.6 The Federal Reserve and Economic Goals
			The Goal of Controlling Inflation
			Central Bank Targeting of Inflation
			Deflation
			Hyperinflation
			The Goals of Full Employment and Stable Economic Growth
			The Natural Rate of Unemployment
			The Output Gap
		13.7 The Conflicting Goals and the Limitations of Monetary Policy
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
Part 4 Financial Institutions: Organization, Activities, and Regulation
	14 The Commercial Banking Industry: Structure, Products, and Management
		14.1 Introduction to Banking
		14.2 The Structure of U.S. Commercial Banking
			A Trend toward Consolidation
			Falling Industry Numbers As Small Banks Are Taken Over by Larger Ones
			A Countertrend: Both Small and Large Banks May Survive
			Economies of Scale Support a Consolidating Industry
			Branch Banking
			Bank Holding Companies (BHCs)
			Financial Holding Companies (FHCs)
			International Banking
		14.3 The Convergence Trend in Banking
			Bank Failures
			Changing Technology
		14.4 Portfolio Characteristics of Commercial Banks
			Balance Sheet Items
			Cash and Due from Banks (Primary Reserves)
			Investment Security Holdings and Secondary Reserves
			Loans
			Loan Loss Allowances and Loan Risk
			Deposits
			Nondeposit Sources of Funds
			Equity Capital
			Income Statement Items
			Revenues and Expenses
			Interest and Noninterest Margins
		14.5 Managing Commercial Bank Performance Today
			Managing Bank Assets, Liabilities, Revenues, and Expenses
			Monitoring the Performance of a Bank
		14.6 Money Creation and Destruction by Banks and Bank Accounting Methods
			The Creation of Money and Credit
			Destruction of Deposits and Reserves
			Implications of Money Creation and Destruction
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
	15 Nonbank Thrift Institutions: Savings and Loans, Savings Banks, Credit Unions, and Money Market Funds
		15.1 Introduction to Thrift Institutions
		15.2 Savings and Loan Associations (S&Ls)
			Origins of S&Ls
			How Funds Are Raised and Allocated
			Asset Portfolios
			Liabilities of S&Ls
			Trends in Revenues and Costs
			Possible Ways to Strengthen the S&L Industry in the Future
		15.3 Savings Banks (SBs)
			Number and Distribution of Savings Banks and Regulatory Supervision
			How Funds Are Raised and Allocated
			Current Trends and Future Problems
		15.4 Credit Unions (CUs)
			Credit Union Membership
			Size of Credit Unions
			New Services Offered
			A Strong Competitive Force
		15.5 Money Market Funds (MMFs)
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
	16 Mutual Funds, Insurance Companies, Investment Banks, and Other Financial Firms
		16.1 Introduction
		16.2 Mutual Funds (or Investment Companies)
			The Background of Investment Companies
			Bonds and Money Market Funds
			Stock Funds
			Index and Exchange-Traded Funds
			Global and Vulture Funds
			Small-Cap to Large-Cap Funds
			Life-Cycle Funds
			Hedge Funds
			Tax and Regulatory Status of the Industry
			Open-End and Closed-End Investment Companies
			Changing Investment Strategies
			Goals and Earnings of Investment Companies
			Scandal Envelops the Mutual Fund Industry
		16.3 Pension Funds
			Types of Pension Funds
			Defined-Benefit and Contribution Plans
			Cash-Balance Pension Funds
			Growth of Pension Funds
			Investment Strategies of Pension Funds
			Pension Fund Assets
			Factors Affecting the Future Growth of Pension Funds
		16.4 Life Insurance Companies
			The Insurance Principle
			Investments of Life Insurance Companies
			Sources of Life Insurance Company Funds
			Structure and Growth of the Life Insurance Industry
			New Services
		16.5 Property-Casualty Insurance Companies
			Makeup of the Property-Casualty (P/C) Insurance Industry
			Changing Risk Patterns in Property/ Liability Coverage
			Investments by Property-Casualty (P/C) Companies
			Sources of Income
			Business Cycles, Inflation, and Competition
		16.6 Finance Companies
			Different Finance Companies for Different Purposes
			Growth of Finance Companies
			Methods of Industry Financing
			Recent Changes in the Character of the Finance Company Industry
			Consolidation in the Industry
			New Types of Finance Companies
		16.7 Investment Banks
			The Underwriting Function of Investment Banks
			Other Investment Banking Services
			Leading Investment Banks and the Convergence of Commercial and Investment Banking
		16.8 Other Important Financial Institutions
		16.9 Trends Affecting All Financial Institutions Today
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
	17 Regulation of the Financial Institutions’ Sector
		17.1 Introduction to Financial Institutions’ Regulation
		17.2 The Reasons behind the Regulation of Financial Institutions
			Does Regulation Benefit or Harm Financial Institutions?
		17.3 The Regulation of Commercial Banks
			The Federal Reserve System (The Fed)
			Office of the Comptroller of the Currency (The OCC)
			Federal Deposit Insurance Corporation (FDIC)
			State Banking Commissions
			Opening Competition across Political Boundaries
			Regulation of the Services Banks Can Offer
			The Gramm-Leach-Bliley (GLB) Act
			The Rise of Disclosure and Privacy Laws in Banking
			The Growing Importance of Capital Regulation in Banking
			Basel I
			Basel II
			The Unfinished Agenda for Banking Regulation
		17.4 The Regulation of Thrift Insitutions
			Credit Unions
			Savings and Loans
			Savings Banks
			Money Market Funds
		17.5 The Regulation of Insurance Companies
		17.6 The Regulation of Pension Funds
		17.7 The Regulation of Finance Companies
		17.8 The Regulation of Invest-ment Companies (Mutual Funds)
		17.9 An Overview of Trends in the Regulation of Financial Institutions
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
Part 5 Governments and Businesses in the Financial Markets
	18 Federal, State, and Local Governments Operating in the Financial Markets
		18.1 Introduction to the Role of Governments in the Financial Marketplace
		18.2 Federal Government Activity in the Money and Capital Markets
			The Treasury Department in the Financial Marketplace
			The Fiscal Policy Activities of the U.S. Treasury
			Sources of Federal Government Funds
			Federal Government Expenditures
			Effects of Government Borrowing on the Financial System and the Economy
			Management of the Federal Debt
			The Size and Growth of the Public Debt
			The Composition of the Public Debt
			Marketable Public Debt
			Nonmarketable Public Debt
			Investors in U.S. Government Securities
			Methods of Offering Treasury Securities
			The Auction Method
			Types of Treasury Auctions
			Marketing Techniques
			Book Entry
			Other Services Offered Investors
			On-the-Run and Off-the-Run Treasury Securities
			Treasury Interest Rates as Global Benchmarks for Other Interest Rates
			The Goals of Federal Debt Management
			Minimize Interest Costs
			Economic Stabilization
			The Impact of Federal Debt Management on the Financial Markets and the Economy
		18.3 State and Local Governments in the Financial Markets
			Growth of State and Local Government Borrowing
			Sources of Revenue for State and Local Governments
			State and Local Government Expenditures
			Motivations for State and Local Government Borrowing
			Types of Securities Issued by State and Local Governments
			Short-Term Securities
			Long-Term Securities
			Types of Revenue Bonds
			Innovations in Municipal Securities
			Key Features of Municipal Debt
			Tax Exemption
			Exemption Contributes to Market Volatility
			Credit Ratings
			Serialization
			How Municipal Bonds Are Marketed
			Problems in the Municipal Market
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
	19 Business Borrowing: Corporate Bonds, Asset-Backed Securities, Bank Loans, and Other Forms of Business Debt
		19.1 Introduction to Business Borrowing
		19.2 Factors Affecting Business Activity in the Money and Capital Markets
		19.3 Characteristics of Corporate Notes and Bonds
			Principal Features of Corporate Notes and Bonds
			Recent Trends in Original Maturities of Corporate Bonds
			Call Privileges Attached to Corporate Bonds
			Sinking Fund Provisions
			Yields and Costs of Corporate Bonds
			Signals Corporate Bond Issues May Send to the Financial Marketplace
			The Most Common Types of Corporate Bonds
			Debentures
			Subordinated Debentures
			Mortgage Bonds
			Income Bonds
			Equipment Trust Certificates
			Industrial Development Bonds
			Innovations in Corporate Debt
		19.4 Asset-Backed Securities Issued by Corporations
		19.5 Investors in Corporate Debt
		19.6 The Secondary Market for Corporate Debt
		19.7 The Marketing of Corporate Debt
			Public Sales
			Private Placements
		19.8 The Volume of Borrowing by Corporations
		19.9 Bank Loans to Business Firms
			The Volume of Bank Credit Supplied to Businesses
			The Prime, or Base, Interest Rate on Business Loans
			Other Examples of Base Rates for Business Loans
		19.10 Commercial Mortgages
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
	20 The Market for Corporate Stock
		20.1 Introduction to the Stock Market
		20.2 Characteristics of Corporate Stock
			Common Stock
			Preferred Stock
		20.3 Stock Market Investors
		20.4 Equity as a Source of Funding
		20.5 The Process of Price Discovery in the Equity Markets
			Organized Exchanges
			Foreign Exchanges
			Contributions of Exchanges
			Over-the-Counter (OTC) Markets
			Evolving Trading Platforms
		20.6 The Third Market: Trading in Listed Securities off the Exchanges
		20.7 The Private Equity Market
		20.8 Investment Banking and the Sale of New Stock
		20.9 The Development of a Unified International Market for Stock
			The National Market System
			NASD and Automated Price Quotations
			The Advent of Shelf Registration
			Global Trading in Equities
			The Development of ADRs
		20.10 Valuing Stocks: Alternative Approaches
			Technical and Fundamental Analysis
			Private Information
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
Part 6 Consumers in the Financial Markets
	21 Consumer Lending and Borrowing
		21.1 Introduction to Consumer Lending and Borrowing
		21.2 Consumers as Lenders of Funds
			Financial Assets Purchased by Consumers
			Recent Innovations in Consumer Savings Instruments
		21.3 Consumers as Borrowers of Funds
			Is Consumer Borrowing Excessive?
			Categories of Consumer Borrowing
		21.4 Home Equity Loans
		21.5 Credit and Debit Cards
			Credit Cards
			Debit Cards
		21.6 The Determinants of Consumer Borrowing
		21.7 Consumer Lending Institutions
			Commercial Banks
			Finance Companies
			Other Consumer Lenders: Credit Unions, Savings Associations, and Small Loan Companies
		21.8 Factors Considered in Making Consumer Loans
		21.9 Credit Scoring Techniques
		21.10 Financial Disclosure and Consumer Credit
			Truth in Lending
			Fair Credit Billing Act
			Fair Credit Reporting Act
			Consumer Leasing Act
			Competitive Banking Equality Act
			Fair Credit and Charge Card Disclosure Act
			Truth in Savings Act
			The Financial Services Modernization (Gramm-Leach-Bliley) Act
			Identity Theft
		21.11 Credit Discrimination Laws
			Community Reinvestment Act and Financial Institutions Reform, Recovery, and Enforcement Act
			Equal Credit Opportunity Act
			Fair Housing and Home Mortgage Disclosure Acts
		21.12 Bankruptcy Law Changes
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
	22 The Residential Mortgage Market
		22.1 Introduction to the Residential Mortgage Market
		22.2 Recent Trends in New Home Prices and the Terms of Mortgage Loans
		22.3 The Structure of the Mortgage Market
			Volume of Mortgage Loans
			Residential versus Nonresidential Mortgage Loans
		22.4 Mortgage-Lending Institutions
		22.5 The Roles Played by Leading Financial Institutions in the Mortgage Market
			Savings and Loan Associations
			Commercial Banks
			Life Insurance Companies
			Savings Banks
			Mortgage Bankers
		22.6 Government Activity in the Mortgage Market
			The Impact of the Great Depression on Government Involvement in the Mortgage Market
			Launching the Federal Home Loan Bank System
			Setting Up the Federal Housing Administration (FHA) and the Veterans Administration (VA)
			The Creation of Fannie Mae—A Government-Sponsored Enterprise (GSE)
			The Creation of Ginnie Mae (GNMA)
			GNMA Mortgage-Backed Securities
			The Federal Home Loan Mortgage Corporation—Another Government- Sponsored Enterprise (GSE)
			FHLMC Mortgage-Backed Securities
			Freddie and Fannie Face New Problems
			Collateralized Mortgage Obligations (CMOs) and Real Estate Mortgage Investment Conduits (REMICs)
			Impact of Securitized Mortgages
		22.7 Innovations in Mortgage Instruments
			Fixed-Rate Home Mortgages—The Oldest Form of Home Loan
			Variable-Rate and Adjustable Mortgage Instruments
			Interest-Only Mortgages
			Reverse-Annuity Mortgages
			Epilogue on the Fixed-Rate Mortgage
		22.8 Pricing and Other Issues in Home Mortgage Lending
			Pricing Home Mortgages and the Treasury Security Market
			Mortgage Lock-Ins, Loan Modifications, and Foreclosures
			Refinancing Home Mortgages and “Cash Outs”
			Predatory Lending
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
Part 7 The International Financial System
	23 International Transactions and Currency Values
		23.1 Introduction to International Transactions and Currency Values
		23.2 The Balance-of-Payments (BOP) Accounts
			The U.S. Balance of International Payments
			The Current Account
			The Merchandise Trade Balance in the Current Account
			The Service Balance in the Current Account
			Investment Income Receipts and Payments in the Current Account
			Compensation of Employees in the Current Account
			Unilateral Transfers in the Current Account
			The Balance on Current Account
			The Capital and Financial Accounts
			Official Transactions
			Disequilibrium in the Balance of Payments
		23.3 The Problem of Different Monetary Units in International Trade and Finance
			The Gold Standard
			The Gold Exchange Standard
			The Modified Exchange Standard
			The Managed Floating Currency Standard
		23.4 Determining Foreign Currency Values
			Essential Features of the Foreign Exchange Market
			Exchange Rate Quotations
			Factors Affecting Foreign Exchange Rates
			BOP Position
			Speculation
			Domestic Political and Economic Conditions
			Purchasing Power Parity
			Central Bank Intervention
			Supply and Demand for Foreign Exchange
		23.5 The Forward Market for Currencies
			Methods of Quoting Forward Exchange Rates
		23.6 Functions of the Forward Exchange Market
			Commercial Covering
			Hedging an Investment Position
			Speculation on Future Currency Prices
			Covered Interest Arbitrage
			The Principle of Interest Rate Parity
		23.7 The Market for Foreign Currency Futures
			The Buying Hedge
			The Selling Hedge
		23.8 Other Innovative Methods for Dealing with Currency Risk
		23.9 Government Intervention in the Foreign Exchange Markets
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
	24 International Banking
		24.1 Introduction to International Banking
		24.2 The Scope of International Banking Activities
			Multinational Banking Corporations
			Types of Facilities Operated by Banks Abroad
			Choosing the Right Kind of Facility to Serve Foreign Markets
		24.3 Services Offered by International Banks
			Issuing Letters of Credit
			Buying and Selling Foreign Exchange (FOREX)
			Accepting Eurocurrency Deposits and Making Eurocurrency Loans
			Marketing and Underwriting of Both Domestic and Eurocurrency Bonds, Notes, and Equity Shares
			Securitizing Loans
			Advisory Services Provided by International Banks
			Universal Banking Services and One-Stop Shopping
		24.4 Foreign Banks Operating in the United States
			The Growth of Foreign Bank Activity in the United States
			Federal Regulation of Foreign Bank Activity
		24.5 Regulation of the International Banking Activities of U.S. Banks
		24.6 The Future of International Banking
			The Risks of International Lending
			Political and Currency Risk
			Geographic Distribution of International Bank Lending
			Public Confidence and Protecting Against Bank Failures
			The Spread of Deregulation: How Fast Should We Go?
		24.7 Prospects and Challenges for the Twenty-First Century
			Summary of the Chapter’s Main Points
			Key Terms Appearing in This Chapter
			Problems and Issues
			Web-Based Problems
			Selected References to Explore
Money and Capital Markets Dictionary
Index