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WHY STUDY FINANCIAL MARKETS AND INSTITUTIONS?
To start, we preview subjects of interest to anyone who is a part of a productive society. We motivate how financial markets and institutions have significant impact on important questions about our financial well-being. Topics include:
Why Study Financial Markets? Why Study Financial Institutions? Applied Managerial Perspective How Will We Study Financial Markets and Institutions
© 2012 Pearson Education. All rights reserved. 1-1
1. All rights reserved.Why Study Financial Markets? Financial markets. 1-2 . These markets channel funds from savers to investors. are crucial in our economy. such as bond and stock markets. 2. the behavior of business firms. thereby promoting economic efficiency. and economy as a whole © 2012 Pearson Education. Market activity affects personal wealth.
All rights reserved. and how we will examine them throughout this course. key statistics.Why Study Financial Markets? Well functioning financial markets. are key factors in producing high economic growth. stock market. We will briefly examine each of these markets. such as the bond market. © 2012 Pearson Education. 1-3 . and foreign exchange market.
© 2012 Pearson Education. that promises the timely payment of interest and principal over some specific time horizon. All rights reserved. borrowers issue a security. corporations. 1-4 . or bond markets. called a bond. In this market. The interest rate is the cost of borrowing. allow governments. and individuals to borrow to finance activities.Why Study Financial Markets? Debt Markets & Interest Rates Debt markets.
mortgage rates in the early part of 1983 exceeded 13%. including mortgage rates. Financing a house was quite expensive at this time. For example. © 2012 Pearson Education. car loan rates. All rights reserved. credit card rates. etc.Why Study Financial Markets? Debt Markets & Interest Rates There are many different types of market interest rates. The level of these rates are important. 1-5 .
and corporate rates. 1-6 . All rights reserved. Government rates.S. We will study these further in several chapters. examining the types and characteristics of bonds. understanding the history of interest rates is beneficial. Government rates.S. Short-Term U. © 2012 Pearson Education.Why Study Financial Markets? Debt Markets & Interest Rates Because interest rates are important to individuals and business. The next slide shows historical interest rates in various sectors of the bond market: Long-Term U. as well as theories on how rates are determined.
1-7 .Bond Market and Interest Rates © 2012 Pearson Education. All rights reserved.
© 2012 Pearson Education. Companies initially sell stock (in the primary market) to raise money. 1-8 .Why Study Financial Markets? The Stock Market The stock market is the market where common stock (or just stock). probably because it is the place where people get rich (and poor) quickly. But after that. are traded. Of all the active markets. the stock market receives the most attention from the media. All rights reserved. representing ownership in a company. the stock is traded among investors (secondary market).
1-9 . as well as how prices react to information in the marketplace. we will examine the role of the stock market. Note how volatile stock prices have been. especially over the last five years. All rights reserved.Why Study Financial Markets? The Stock Market The next slide shows the level of the Dow Jones Industrial Average over the last 55 years. In future chapters. © 2012 Pearson Education.
Stock Market © 2012 Pearson Education. 1-10 . All rights reserved.
© 2012 Pearson Education. The success of these seasoned-equity offerings (SEOs) is very dependent on the current price of the company’s stock. not just individuals. Although corporations don’t typically ―invest‖ in the market. they often seek additional funding in equity markets after going public. 1-11 . All rights reserved.Why Study Financial Markets? The Stock Market Companies. also watch the market.
it has a daily volume around $1 trillion! © 2012 Pearson Education.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. All rights reserved. 1-12 .
All rights reserved. ─ When the dollar strengthens. foreign purchase of domestic goods falls. due to a weakening dollar relative to the Euro. These fluctuations matter! ─ In recent years. dollar has fluctuated in price against a basket of foreign currencies.Why Study Financial Markets? The Stock Market The next slide shows how the U. 1-13 .S. consumers have found that vacationing in Europe is expensive. and US manufacturers experience a decreased demand for their goods. © 2012 Pearson Education.
All rights reserved. 1-14 .Foreign Exchange Market © 2012 Pearson Education.
‖ These institutions play a crucial role in improving the efficiency of the economy. Why did it happen? © 2012 Pearson Education. Financial Crises The financial crises of 2007–2009 was the worst financial crisis since the Great Depression. All rights reserved. organizations.Why Study Financial Institutions? We will also spend considerable time discussing financial institutions—the corporations. 1-15 . Structure of the Financial System Helps get funds from savers to investors 2. We will look at: 1. and networks that operate the so-called ―marketplaces.
Why Study Financial Institutions? 3. and the role of agencies such as the IMF © 2012 Pearson Education. Central Banks and the Conduit of Monetary Policy The role of the Fed. The International Financial System Capital flows between countries impacts domestic economies Need to understand exchange rates. and foreign counterparts. 1-16 . capital controls. in the management of interest rates and the money supply 4. All rights reserved.
Financial Innovation ─ Focusing on the improvements in technology and its impact on how financial products are delivered 7. Banks and Other Financial Institutions ─ Includes the role of insurance companies. © 2012 Pearson Education. Managing Risk in Financial Institutions ─ Focusing on risk management in the financial institution. etc. pension funds. All rights reserved. mutual funds. 1-17 . 6.Why Study Financial Institutions? 5.
1-18 . and often pay high salaries.S. Knowing how financial institutions are managed may help you better deal with them. All rights reserved. © 2012 Pearson Education.Applied Managerial Perspective Financial institutions are among the largest employers in the U.
Simplified models are constructed.How We Study Financial Markets and Institutions Basic Analytic Framework 1. and then manipulated to illustrate various phenomena. explained. © 2012 Pearson Education. ―Practicing Manager‖ cases are used to tie theoretical and empirical aspects. 1-19 . All rights reserved. 2.
Actual articles from the Wall Street Journal reinforcing the concepts from the book. helping you develop critical skills to identify key concepts from the day’s news. and explanations of articles. All rights reserved. © 2012 Pearson Education.How We Study Financial Markets and Institutions Basic Analytic Framework 3. 1-20 .
© 2012 Pearson Education.Exploring the Web Web Exercise The World Wide Web is an enormous resource for present and historical information. We will periodically present web exercises to introduce some of the important locations for information. All rights reserved. and how to use it. 1-21 .
© 2012 Pearson Education.Exploring the Web Web Exercise The next three slides show you how to (1) find historical interest rates from the Fed and save the information. 1-22 . All rights reserved. (2) how to import the data into Excel. and (3) how to examine the information.
Exploring the Web © 2012 Pearson Education. All rights reserved. 1-23 .
Exploring the Web © 2012 Pearson Education. 1-24 . All rights reserved.
1-25 .Exploring the Web © 2012 Pearson Education. All rights reserved.
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