Download Understanding Financial Markets and Institutions: A Comprehensive Guide and more Slides Finance in PDF only on Docsity! Part I Introduction Chapter One Why Study Financial Markets and Institutions? 5 Why Study Financial Markets? 1.Debt Markets and Interest Rates 2.The stock market 3.The Foreign Exchange Market 6 financial markets: Markets in which funds are transferred from people who have a surplus of available funds to people who have a shortage of available funds. 3 7 Why Study Financial Markets? 1. Channels funds from savers to investors, thereby promoting economic efficiency 2. Affects personal wealth and behavior of business firms 10 interest rate: The cost of borrowing or the price paid for the rental of funds (usually expressed as a percentage per year). 4 11 Bond Market and Interest Rates Complete list of interest rates http://www.federalreserve.gov/releases Figure 1-1: Interest Rates on Selected Bonds, 1950–2001 12 Treasury notes 中期国库券 treasury bonds 国库券 long-term bonds 长期债券 Treasury bills: Securities sold by the federal government with initial maturities of less than one year. They are often considered the lowest-risk security available. 15 Stock Marke t Figure 1-2: Stock Prices as Measured by the Dow Jones Industrial Average, 1950–2001 16 3.The Foreign Exchange Market foreign exchange market: The market in which exchange rates are determined. 7, 331 foreign exchange rate: ( exchange rate). The price of one currency in terms of another. 7, 331 17 Foreign Exchange Market Figure 1-3: Exchange Rate of the U.S. Dollar for a Basket of Foreign Currencies, 1970–2002 20 Federal Reserve System (the Fed): The central banking authority responsible for monetary policy in the United States. 8 A U.S. banking system that consists of 12 federal reserve banks, with each one serving member banks in its own district. This system, supervised by the Federal Reserve Board, has broad regulatory powers over the money supply and the credit structure. 21 Federal Reserve banks: The 12 district banks in the Federal Reserve system. 183 monetary policy: The management of the money supply and interest rates. 8 neutral monetary policy money: Anything that is generally accepted in payment for goods or services or in the repayment of debts. Also called money supply. 8 22 money supply 货币供应量 The amount of money in the economy, measured according to varying methods or principles. One such method incorporates only money that is usually used to purchase goods and services, such as cash and the contents of checking accounts. 25 financial instrument: See security.金融工具 security: A claim on the borrower's future income that is sold by the borrower to the lender. Also called a financial instrument. 26 3.Banks and Other Financial Institutions banks: Financial institutions that accept deposits and make loans (such as commercial banks, savings and loan associations, and credit unions). 9 27 4.Financial Innovation The development of new financial products such as credit cards, debit cards, interest bearing chequing accounts, and money market funds 30 How We Study Financial Markets and Institutions Basic Analytic Framework 1. Simplified approach to the demand for assets 2. Concept of equilibrium 3. Basic supply and demand approach to understand behavior in financial markets 4. Search for profits 5. Transactions cost and asymmetric information approach to financial structure 6. Aggregate supply and demand analysis 31 How We Study Financial Markets and Institutions Features 1. Case studies 2. Applications and Numerical Examples 3. Special Interest Boxes 4. Following the Financial News boxes 5. Reading the Wall Street Journal 6. Practicing Financial Institution Manager applications 32 Exploring the Web Web Exercise: Historical Relationship Between Long- and Short-Term Interest Rates
