金融市场与机构全套英文优秀课件.ppt

1,PowerPoint Slides forFinancial Markets and Institutions5th Edition,ByJeff MaduraPrepared byAnn M. Hackert and Steve ByersIdaho State University,2,content,Chapter 1 Role of Financial Markets and InstitutionsChapter 2 Determination of Interest RatesChapter 3Structure of Interest RatesChapter 4Functions of the FedChapter 5Monetary Theory and PolicyChapter 6Money MarketsChapter 7Bond MarketsChapter 8Bond Valuation and RiskChapter 9Mortgage MarketsChapter 10Stock MarketsChapter 11Stock Valuation and RiskChapter 12Derivative Security MarketsChapter 13 Options MarketsChapter 14Interest Rate Derivative Markets,3,content2,Chapter 15Foreign Exchange Derivative MarketsChapter 16Commercial Bank OperationsChapter 17Bank RegulationChapter 18Bank ManagementChapter 19Bank PerformanceChapter 20International BankingChapter 21Thrift OperationsChapter 22Consumer Finance OperationsChapter 23Mutual Fund OperationsChapter 24Securities OperationsChapter 25Insurance OperationsChapter 26Pension Fund OperationsChapter 27Credit Unions,4,Chapter 1,Role of Financial Markets and Institutions,5,Chapter Objectives,Describe the types of financial marketsDescribe the role of financial institutions with financial marketsIdentify the types of financial institutions that facilitate transactions,6,Overview of Financial Markets,Financial Market: a market in which financial assets (securities) such as stocks and bonds can be purchased or soldProvide for financial intermediation--financial savings (Surplus Units) to investment (Deficit Units)Provide payments systemProvide means to manage risk,7,Broad Classifications of Financial MarketsMoney versus Capital Markets Primary versus Secondary MarketsOrganized versus Over-the-Counter Markets,Overview of Financial Markets,8,Primary vs. Secondary MarketsPrimary MarketNew issue of securitiesExchange of funds for financial claimFunds for borrower; an IOU for lender,Overview of Financial Markets,9,Primary vs. Secondary MarketsSecondary MarketTrading previously issued securitiesNo new funds for issuerProvides liquidity for seller,Overview of Financial Markets,10,Money vs. Capital MarketsMoney MarketShort-term, < 1 yearHigh quality issuersDebt onlyPrimary market focusLiquid market--low returns,Overview of Financial Markets,11,Money vs. Capital MarketsCapital MarketLong-term, >1Yr Range of issuer qualityDebt and equitySecondary market focusFinancing investment--higher returns,Overview of Financial Markets,12,Organized vs. OTC MarketsOrganizedVisible marketplaceMembers tradeSecurities listedExample: New York Stock Exchange,Overview of Financial Markets,13,Organized vs. OTC MarketsOTC MarketWired network of dealersNo central, physical location,Overview of Financial Markets,14,Money market securitiesCapital market securitiesDerivative securitiesFinancial contracts whose value is derived from the values of underlying assets,Securities Traded in Financial Markets,15,,Securities: Debt or Equity?Debt Securities: Contractual obligations (IOU) of Debtor (borrower) to Creditor (lender)Equity Securities: Claim with ownership rights and responsibilities,16,Security prices reflect available informationNew information is quickly included in security pricesInvestors balance liquidity, risk, and return needs,Financial Market Efficiency,17,Financial Market Regulation,Why Government Regulation?To Promote EfficiencyHigh level of competitionEfficient payments mechanismLow cost risk management contracts,18,Why Government Regulation?To Maintain Financial Market StabilityPrevent market crashesCircuit breakersFederal Reserve discount windowPrevent Inflation--Monetary policyPrevent Excessive Risk Taking by Financial Institutions,Financial Market Regulation,19,Why Government Regulation?To Provide Consumer ProtectionProvide adequate disclosureSet rules for business conductTo Pursue Social PoliciesTransfer income and wealthAllocate saving to socially desirable areasHousingStudent loans,Financial Market Regulation,20,Financial Market Globalization,Increased international funds flowIncreased disclosure of informationReduced transaction costsReduced foreign regulation on capital flowsIncreased privatizationResults: Increased financial integration--capital flows to highest expected risk-adjusted return,21,Role of Financial Institutions in Financial Markets,Information processingServe special needs of lenders (liabilities) and borrowers (assets)By denomination and termBy risk and returnLower transaction costServe to resolve problems of market imperfection,22,Role of Financial Institutions in Financial Markets,Depository Financial Institutions,23,Role of Financial Institutions in Financial Markets,Role of Depository InstitutionsOffer deposit accountsRepackage funds received from deposits to provide loans of size and maturity desiredAccept the risk on the loans providedExpertise in evaluating creditworthinessDiversify loans among numerous borrowers,24,Role of Financial Institutions in Financial Markets,Types of Nondepository Financial InstitutionsFinance Companies Mutual FundsSecurities CompaniesInsurance Companies Pension Funds,25,Role of Financial Institutions in Financial Markets,Role of Nondepository Financial InstitutionsFocused on capital marketLonger-term, higher risk intermediationLess focus on liquidityLess regulation,26,Comparison of Financial Institutions,Sources of fundsUses of fundsCompetition between financial institutionsConsolidation of financial institutions,27,Global Expansion by Financial Institutions,International expansionInternational mergersImpact of the single European currencyEmerging markets,28,Chapter 2,Determination of Interest Rates,? 2001 South-Western College Publishing Company,29,Chapter Objectives,Explain Loanable Funds Theory of Interest Rate DeterminationIdentify Major Factors Affecting the Level of Interest RatesExplain How to Forecast Interest Rates,30,Relevance of Interest Rate Movements,Interest rate movements affect the values of virtually all securitiesThey have a direct influence on debt instrumentsBonds, MortgagesThey have an indirect influence on stocks and exchange ratesInterest rates affect the value of financial institutionsManagers of financial institutions closely monitor rates,31,Loanable Funds Theory,Commonly used to explain interest rate movementsSuggests that market interest rates are determined by the supply and demand for loanable fundsSome sectors of the economy supply loanable funds, other demand loanable funds,32,Loanable Funds Theory,Household Demand for Loanable FundsHouseholds demand loanable funds to finance housing, automobiles, household itemsThese purchases result in installment debt. Installment debt increases with the level of incomeThere is an inverse relationship between the interest rate and the quantity of loanable funds demanded,33,,,,InterestRate,Quantity of Loanable Funds,D,34,Loanable Funds Theory,Household Demand for Loanable FundsEvents can cause household borrowing preferences to change, shifting demand scheduleExample: tax rates are expected to decreaseHouseholds believe that they can more easily afford future loan paymentsThey are willing to borrow moreFor any interest rate => greater quantity of loanable funds demanded => outward shift,35,Loanable Funds Theory,Business Demand for Loanable FundsBusinesses demand loanable funds to invest in assetsQuantity of funds demanded depends on how many projects to be implementedBusinesses choose projects by calculating the project’s Net Present Value,36,Loanable Funds Theory,Business Demand for Loanable FundsNet Present Value is calculated as follows:,?,CFt,(1+k)t,,t=1,n,-INV +,NPV =,37,Loanable Funds Theory,Business Demand for Loanable FundsProjects with a positive NPV are accepted because the present value of their benefits outweighs their costsIf interest rates decrease, more projects will have a positive NPVBusinesses will need a greater amount of financingBusinesses will demand more loanable funds,38,Loanable Funds Theory,Business Demand for Loanable FundsThere is an inverse relationship between interest rates and the quantity of loanable funds demandedThe curve can shift in response to events that affect business borrowing preferencesExample: Economic conditions become more favorableExpected cash flows will increase => more positive NPV projects => increased demand for loanable funds,39,Loanable Funds Theory,Government Demand for Loanable FundsWhen planned expenditures exceed revenues from taxes, the government demands loanable fundsMunicipal (state and local) governments issue municipal bondsFederal government and its agencies issue Treasury securities and federal agency securities.,40,Loanable Funds Theory,Government Demand for Loanable FundsFederal government expenditure and tax policies are independent of interest ratesGovernment demand for funds is interest-inelastic,,,,D,InterestRate,Quantity of Loanable Funds,41,Loanable Funds Theory,Foreign Demand for Loanable FundsA foreign country’s demand for U.S. funds is influenced by the differential between its interest rates and U.S. ratesThe quantity of U.S. loanable funds demanded by foreign investors will be inversely related to U.S. interest rates,42,Loanable Funds Theory,Aggregate Demand for Loanable FundsThe aggregate demand for loanable funds is the sum of the quantities demanded by the separate sectorsThe aggregate demand for loanable funds is inversely related to interest rates,43,Loanable Funds Theory,Supply of Loanable FundsRefers to funds provided to financial markets by saversThe household sector is the largest supplierLoanable funds are also supplied by Governmental units that temporarily have excess fundsBusinesses whose cash inflows exceed outflows,44,Loanable Funds Theory,Supply of Loanable FundsHouseholds, as a group, are net suppliers of loanable fundsGovernments and businesses are net demanders of loanable fundsSuppliers of loanable funds are willing to supply more funds if interest rates are higherThere is a direct relationship between quantity of loanable funds supplied and the interest rate,45,Loanable Funds Theory,Supply of Loanable FundsIn the United States, the supply of loanable funds is also influenced by the monetary policy of the Federal ReserveThe Fed controls the amount of reserves held by depository institutions and can influence the amount of savings available for loanable funds,46,,,,InterestRate,Quantity of Loanable Funds,S,47,Loanable Funds Theory,Equilibrium Interest RateAggregate DemandDA = Dh + Db + Dg + Dm + DfAggregate SupplySA = Sh + Sb + Sg + Sm + SfIn equilibrium, DA = SA,48,,Graphic Presentation,,,,,Demand for Loanable Funds,Supply of Loanable Funds,Interest Rates,Quantity of Loanable Funds,,,49,Loanable Funds Theory,Graphic PresentationWhen a disequilibrium situation exists, market forces should cause an adjustment in interest rates until equilibrium is achievedExample: interest rate above equilibriumSurplus of loanable fundsRate fallsQuantity supplied reduced, quantity demanded increases until equilibrium,50,Economic Forces That Affect Interest Rates,Economic GrowthInflationMoney SupplyBudget DeficitForeign Flows of Funds,51,Economic Forces That Affect Interest Rates,Economic GrowthExpected impact is an outward shift in the demand schedule without obvious shift in supplyResult is an increase in the equilibrium interest rate,52,Economic Forces That Affect Interest Rates,InflationIf inflation is expected to increaseHouseholds may reduce their savings to make purchases before prices riseSupply shifts to the left, raising the equilibrium rateAlso, households and businesses may borrow more to purchase goods before prices increaseDemand shifts outward, raising the equilibrium rate,53,Economic Forces That Affect Interest Rates,InflationThe Fisher EffectNominal Interest Rates = Sum of Real Rate plus Expected Rate of Inflation,in,ir,E(I),+,=,54,Economic Forces That Affect Interest Rates,InflationThe Fisher EffectNominal rates compensate investors two ways: compensate for reduced purchasing powerCompensate for foregoing current consumption,55,Economic Forces That Affect Interest Rates,Money SupplyWhen the Fed increases the money supply, it increases supply of loanable fundsPlaces downward pressure on interest rates,56,Economic Forces That Affect Interest Rates,Budget DeficitIncrease in deficit increases the quantity of loanable funds demandedDemand schedule shifts outward, raising ratesGovernment is willing to pay whatever is necessary to borrow funds, “crowding out” the private sector,57,Economic Forces That Affect Interest Rates,Foreign FlowsIn recent years there has been massive flows between countriesDriven by large institutional investors seeking high returnsThey invest where interest rates are high and currencies are not expected to weakenThese flows affect the supply of funds available in each country,58,Forecasting Interest Rates,To forecast interest rates, forecast the Net Demand for Funds (ND)ND = DA - SAForecast economic sector activity and impact upon Demand/Supply of loanable fundsForecasting interest rates has been difficult,59,Chapter 3,Structure of Interest Rates,? 2001 South-Western College Publishing Company,60,Chapter Objectives,Learn how characteristics of debt securities cause their yields to varyLearn how to calculate bond yieldsExplain the theories behind the term structure of interest rates,61,Factors Affecting Yields Among Securities,Debt securities offer different yields because they exhibit different characteristicsUnfavorable characteristics result in higher yields to entice investors,62,Factors Affecting Yields Among Securities,Security yields and prices are affected by levels and changes in:Default risk (also called Credit Risk)LiquidityTax statusTerm to maturitySpecial contract provisions such as embedded options,63,Factors Affecting Yields Among Securities,Credit (Default) RiskBenchmark: Risk-free treasury securitiesDefault Risk Premium = Risky security yield - Treasury security yield of same maturityRisk premiums for a particular bond can change over time,64,Factors Affecting Yields Among Securities,Credit (Default) RiskInvestors can assess default risk by checking bond ratings set by Rating Agencies Moody’s Investor ServiceStandard and Poor’s CorporationAnticipated or actual ratings changes can impact security prices and yieldsDifferent bonds issued by the same firm can differ in rating,65,Factors Affecting Yields Among Securities,LiquidityA liquid investment is easily converted to cash without a loss in valueInvestors pay more (lower yield) for a more liquid investmentSecurities with lower liquidity must offer a higher yieldShort-term, low default risk, marketable securities have higher liquidity,66,Factors Affecting Yields Among Securities,Tax StatusInvestors are more concerned with after-tax return or yieldInvestors require higher yields for higher taxed securitiesInvestors in high tax brackets benefit most from tax-exempt securities,