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    Why Study Financial Markets and Institutions?: All Rights Reserved

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    Дарья
    Chapter 1 Mishkin

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    Why Study Financial Markets and Institutions?: All Rights Reserved

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    Дарья
    70 views23 pages
    Chapter 1 Mishkin

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    C01 (1)

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    Chapter 1 Mishkin

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    70 views23 pages

    Why Study Financial Markets and Institutions?: All Rights Reserved

    Uploaded by

    Дарья
    Chapter 1 Mishkin

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    You are on page 1of 23

    CHAPTER 1

    Why Study
    Financial Markets
    and Institutions?

    Copyright © 2012 Pearson Prentice Hall.


    All rights reserved.
    Chapter Preview

    The evening news features a segment


    about interest rates, the Fed Chairman
    Ben Bernanke, and liquidity in credit
    markets.
    What does all this mean? Do I care about
    interest rates? What is “the Fed?” Will this
    impact my firm’s ability to get a bank loan?

    © 2012 Pearson Prentice Hall. All rights reserved. 1-2


    Chapter Preview

    These are good questions.


    And this course will help you answer these
    questions by addressing a variety of topics
    ranging from the functioning of the bond
    and sock markets to the behavior of the
    Fed and banks.

    © 2012 Pearson Prentice Hall. All rights reserved. 1-3


    Why Study Financial Markets?

    Financial markets, such as bond and stock


    markets, are crucial in our economy.
    1.These markets channel funds from savers to
    investors, thereby promoting economic
    efficiency.
    2.Market activity affects personal wealth, the
    behavior of business firms, and economy as a
    whole

    © 2012 Pearson Prentice Hall. All rights reserved. 1-4


    Why Study Financial Markets?

     Well functioning financial markets, such


    as the bond market, stock market, and
    foreign exchange market, are key factors
    in producing high economic growth.
     We will briefly examine each of these
    markets, key statistics, and how we will
    examine them throughout this course.

    © 2012 Pearson Prentice Hall. All rights reserved. 1-5


    Why Study Financial Markets?
    Debt Markets & Interest Rates

     Debt markets, or bond markets, allow


    governments, corporations, and
    individuals to borrow to finance activities.
     In this market, borrowers issue a
    security, called a bond, that promises the
    timely payment of interest and principal
    over some specific time horizon.
     The interest rate is the cost of borrowing.

    © 2012 Pearson Prentice Hall. All rights reserved. 1-6


    Why Study Financial Markets?
    Debt Markets & Interest Rates

     There are many different types of market


    interest rates, including mortgage rates,
    car loan rates, credit card rates, etc.
     The level of these rates are important.
    For example, mortgage rates in the early
    part of 1983 exceeded 13% vs near 4.5%
    over the past several years.

    © 2012 Pearson Prentice Hall. All rights reserved. 1-7


    Bond Market and Interest Rates

    © 2012 Pearson Prentice Hall. All rights reserved. 1-8


    Why Study Financial Markets?
    The Stock Market
     The stock market is the market where common
    stock (or just stock), representing ownership in
    a company, are traded.
     Companies initially sell stock (in the primary
    market) to raise money. But after that, the
    stock is traded among investors (secondary
    market).
     Of all the active markets, the stock market
    receives the most attention from the media.
    Why?

    © 2012 Pearson Prentice Hall. All rights reserved. 1-9


    Stock
    Market

    © 2012 Pearson Prentice Hall. All rights reserved. 1-10


    Why Study Financial Markets?
    The Foreign Exchange Market

     The foreign exchange market is where


    international currencies trade and
    exchange rates are set.
     Although most people know little about
    this market, it has a daily volume around

    $1 trillion!

    © 2012 Pearson Prentice Hall. All rights reserved. 1-11


    Foreign Exchange Market

    © 2012 Pearson Prentice Hall. All rights reserved. 1-12


    Why Study Financial
    Institutions?
    We will also spend considerable time discussing financial
    institutions—the corporations, organizations, and
    networks that operate the so-called “marketplaces.”
    1. Structure of the Financial System
    ─ Helps get funds from savers to investors
    2. Financial Crises
    ─ The financial crises of 2007–2009 was the worst
    financial crisis since the Great Depression. Why
    did it happen?

    © 2012 Pearson Prentice Hall. All rights reserved. 1-13


    Why Study Financial
    Institutions?

    3. Banks and Other Financial Institutions


    ─ Includes the role of insurance companies, mutual
    funds, pension funds, etc.
    4. Financial Innovation
    ─ Focusing on the improvements in technology and
    its impact on how financial products are delivered
    5. Managing Risk in Financial Institutions
    ─ Focusing on risk management in the
    financial institution.

    © 2012 Pearson Prentice Hall. All rights reserved. 1-14


    Applied Managerial Perspective

     Financial institutions are among the


    largest employers in the U.S. and often
    pay high salaries.
     Knowing how financial institutions are
    managed may help you better deal
    with them.

    © 2012 Pearson Prentice Hall. All rights reserved. 1-15


    How We Study Financial
    Markets and Institutions

    Basic Analytic Framework


    1.Simplified approach to demand for
    assets.
    2. Basic supply & demand approach to
    understanding behavior in financial
    markets.

    © 2012 Pearson Prentice Hall. All rights reserved. 1-16


    How We Study Financial
    Markets and Institutions

    Basic Analytic Framework


    3. Equilibrium forces & profit seeking
    behavior
    4.Transactions cost & asymmetric
    information approach to financial structure

    © 2012 Pearson Prentice Hall. All rights reserved. 1-17


    Learning Objectives
     You should be familiar with and able to
    explain key elements of financial markets
    and how they function, including
    ─ the basic theory of asset demand and
    determination of asset prices,
    ─ the role of arbitrage and profit motive in
    financial markets,
    ─ the role of information in financial markets,
    ─ and the causes and consequences of
    financial crises.
    1-18
    Learning Objectives

     You should be able to use appropriate


    models to analyze the issues listed
    above, and to draw appropriate
    conclusions about the effects of economic
    developments and policy interventions.

    1-19
    Exploring the Web

    Web Exercise
    The next three slides (starting on page 10 in
    the text) show you how to (1) find historical
    interest rates from the Fed and save the
    information, (2) how to import the data into
    Excel, and (3) how to examine the information.

    © 2012 Pearson Prentice Hall. All rights reserved. 1-20


    Exploring
    the Web

    © 2012 Pearson Prentice Hall. All rights reserved. 1-21


    Exploring
    the Web

    © 2012 Pearson Prentice Hall. All rights reserved. 1-22


    Exploring
    the Web

    © 2012 Pearson Prentice Hall. All rights reserved. 1-23

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