Beruflich Dokumente
Kultur Dokumente
Role of Financial
Markets and
Institutions
Chapter Objectives
Financial markets provide for financial intermediation-financial savings (Surplus Units) to investment (Deficit Units)
Financial markets provide payments system
Financial markets provide means to manage risk
PRIMARY
SECONDARY
Money
Capital
Long-Term, >1Yr
Debt Only
Liquidity Market--Low
Returns
Organized
Visible
Marketplace
Members
Trade
Securities
Listed
New York
Exchange
Stock
OTC
Wired
Network of
Dealers
No
Central, Physical
Location
All
Securities Traded
off the Exchanges
Derivative Securities
receives interest
Capital gain/loss when sold
Maturity date
Valuation of Securities
cash flows
When cash flows are received
Risk of cash flows
Economic
Conditions
Industry
Condition
s
Firm Specific
Information
Impact of
Future
Cash
Flows
Evaluation
of Security
Pricing
Investor
Decision
to Trade
Exhibit 1.3
level of competition
Efficient
Low
Efficiency
payments mechanism
Circuit breakers
Federal Reserve discount window
Consumer Protection
Provide
adequate disclosure
Set rules for business conduct
To Pursue
Social Policies
Transfer
Housing
Student loans
disclosure of information
Reduced transaction costs
Reduced foreign regulation on capital flows
Increased privatization
Results: Increased financial integration--capital
flows to highest expected risk-adjusted return
By
Commercial
Banks
$5 Trillion
Total Assets
Savings
Institutions
$1.3 Trillion
Total Assets
Credit Unions
$.5 Trillion
Total Assets