financial markets and institutions 金融市场与机构（课堂PPT）

1、Financial Markets and Institutions6th EditionBy Jeff MaduraPrepared byDavid R. DurstThe University of AkronCHAPTERRole of Financial Markets and Institutions 2003 South-Western/Thomson LearningnDescribe the types of financial marketsnDescribe the role of financial institutions with financial marketsn

2、Identify the types of financial institutions that facilitate transactionsnFinancial markets provide for financial intermediation-financial savings (Surplus Units) to investment (Deficit Units)nFinancial markets provide payments systemnFinancial markets provide means to manage riskFinancial Market: a

3、 market in which financial assets (securities) such as stocks and bonds can be purchased or soldnBroad Classifications of Financial MarketsMoney versus Capital Markets Primary versus Secondary MarketsOrganized versus Over-the-Counter MarketslNew Issue of SecuritieslExchange of Funds for Financial Cl

4、aimlFunds for Borrower; an IOU for LenderlTrading Previously Issued SecuritieslNo New Funds for IssuerlProvides Liquidity for SellerlShort-Term, 1Yr lRange of Issuer QualitylDebt and EquitylSecondary Market FocuslFinancing Investment-Higher ReturnslVisible MarketplacelMembers TradelSecurities Listed

5、lNew York Stock ExchangelWired Network of DealerslNo Central, Physical LocationlAll Securities Traded off the ExchangesnMoney Market SecuritieslDebt securities OnlynCapital market securitieslDebt and equity securitiesnDerivative SecuritieslFinancial contracts whose value is derived from the values o

6、f underlying assetslUsed for hedging (risk reduction) and speculation (risk seeking)Debt Securities: Contractual obligations (IOU) of Debtor (borrower) to Creditor (lender)uInvestor receives interestuCapital gain/loss when solduMaturity dateEquity Securities: Claim with ownership rights and responsi

7、bilitiesuInvestor receives dividends if declareduCapital gain/loss when solduNo maturity dateneed market to sellnValue a function of:lFuture cash flowslWhen cash flows are receivedlRisk of cash flowsnPresent value of cash flows discounted at the market required rate of returnnValue determined by mar

8、ket demand/supplynValue changes with new informationExhibit 1.3Economic ConditionsIndustry ConditionsFirm Specific InformationImpact of Future Cash FlowsEvaluation of Security PricingInvestor Decision to TradenSecurity prices reflect available informationnNew information is quickly included in secur

9、ity pricesnInvestors balance liquidity, risk, and return needs lTo Promote EfficiencyuHigh level of competitionuEfficient payments mechanismuLow cost risk management contractsWhy Government Regulation?lTo Maintain Financial Market StabilityuPrevent market crashesnCircuit breakersnFederal Reserve dis

10、count windowuPrevent Inflation-Monetary policyuPrevent Excessive Risk Taking by Financial InstitutionsWhy Government Regulation?lTo Provide Consumer ProtectionuProvide adequate disclosureuSet rules for business conductlTo Pursue Social PoliciesuTransfer income and wealthuAllocate saving to socially

11、desirable areasnHousingnStudent loansWhy Government Regulation?nIncreased international funds flowlIncreased disclosure of informationlReduced transaction costslReduced foreign regulation on capital flowslIncreased privatizationResults: Increased financial integration-capital flows to highest expect

12、ed risk-adjusted return nInformation processingnServe special needs of lenders (liabilities) and borrowers (assets)lBy denomination and termlBy risk and returnnLower transaction costnServe to resolve problems of market imperfectionTypes of Depository Financial InstitutionsCommercialBanks$5 TrillionT

13、otal AssetsSavings Institutions$1.3 TrillionTotal AssetsCredit Unions$.5 TrillionTotal AssetsnInsurance companiesnMutual fundsnPension fundsnSecurities companiesnFinance companiesnSecurity poolsnFocused on capital marketnLonger-term, higher risk intermediationnLess focus on liquiditynLess regulation

14、nGreater focus on equity investmentsnRapid growth of mutual funds and pension fundsnIncreased consolidation of financial institutions via mergersnIncreased competition between financial InstitutionsnGrowth of financial conglomeratesnInternational expansionnInternational mergersnImpact of the single

15、European currencynEmerging marketsCHAPTERDetermination of Interest Rates 2003 South-Western/Thomson LearningnExplain Loanable Funds Theory of Interest Rate DeterminationnIdentify Major Factors Affecting the Level of Interest RatesnExplain How to Forecast Interest RatesnChanges in interest rates impa

16、ct the real economylInvestment spendinglInterest sensitive consumer spending such as housingnInterest rate changes affect the values of all securitieslSecurity prices vary inversely with interest rateslVarying interest rates impact retirement funds and retirement incomenInterest rates changes impact

17、 the value of financial institutionslManagers of financial institutions closely monitor rateslInterest rate risk is a major risk impacting financial institutionsnTheory of how the general level of interest rates are determinednExplains how economic and other factors influence interest rate changesnI

18、nterest rates determined by demand and supply for loanable fundsnDemand = borrowers, issuers of securities, deficit spending unitnSupply = lenders, financial investors, buyers of securities, surplus spending unitnAssume economy divided into sectorsnSlope of demand/supply curves related to elasticity

19、 or sensitivity of interest ratesnHousehold Sector-Usually a net supplier of loanable fundsnBusiness SectorUsually a net demander in growth periodsnGovernment SectorslStatesBorrow for capital projectslFederalBorrow for capital projects and deficit spending nForeign SectorsNet supplier since early 19

20、80snSum of sector demand (quantity) at varying levels of interest ratesnSector cash receipts in period less than outlays = borrowernQuantity demanded inversely related to interest ratesnVariables other than interest rate changes cause shift in demand curveInterest RateQuantity of Loanable FundslHous

21、eholds demand loanable funds to finance housing, automobiles, household itemslThese purchases result in installment debt. Installment debt increases with the level of incomelThere is an inverse relationship between the interest rate and the quantity of loanable funds demandedHousehold Demand for Loa

22、nable FundslBusinesses demand loanable funds to invest in assetslQuantity of funds demanded depends on how many projects to be implementeduBusinesses choose projects by calculating the projects Net Present ValueuSelect all projects with +NPVsBusiness Demand for Loanable FundsNet Present Value is cal

23、culated as follows: CFt(1 + k)tt = 1nINV +NPV =Business Demand for Loanable FundslProjects with a positive NPV are accepted because the present value of their benefits outweighs their costslIf interest rates decrease, more projects will have a positive NPVuBusinesses will need a greater amount of fi

24、nancinguBusinesses will demand more loanable fundsBusiness Demand for Loanable FundslThere is an inverse relationship between interest rates and the quantity of loanable funds demandedlThe curve can shift in response to events that affect business borrowing preferencesuExample: Economic conditions b

25、ecome more favorableuExpected cash flows will increase more positive NPV projects increased demand for loanable fundsBusiness Demand for Loanable FundslWhen planned expenditures exceed revenues from taxes, the government demands loanable fundslMunicipal (state and local) governments issue municipal

26、bondslFederal government and its agencies issue Treasury securities and federal agency securities.Government Demand for Loanable FundslFederal government expenditure and tax policies are independent of interest rateslGovernment demand for funds is interest-inelasticDInterestRateQuantity of Loanable

27、FundsGovernment Demand for Loanable FundslA foreign countrys demand for U.S. funds is influenced by the differential between its interest rates and U.S. rateslThe quantity of U.S. loanable funds demanded by foreign investors will be inversely related to U.S. interest rates Foreign Demand for Loanabl

28、e FundslThe aggregate demand for loanable funds is the sum of the quantities demanded by the separate sectorslThe aggregate demand for loanable funds is inversely related to interest ratesAggregate Demand for Loanable FundsnHouseholds are major suppliers of loanable fundsnBusinesses and governments

29、may invest (loan) funds temporarilynForeign sector a net supplier of funds in last twenty yearsnFederal Reserves monetary policy impacts supply of loanable fundsnSum of sector supply (quantity) at varying levels of interest ratesnSector cash receipts in period greater than outlayslendernQuantity sup

30、plied directly related to interest ratesnVariables other than interest rate changes causes a shift in the supply curveInterestRateQuantity of Loanable FundsSnEquilibrium Interest RatelAggregate DemandDA = Dh + Db + Dg + Dm + DflAggregate SupplySA = Sh + Sb + Sg + Sm + SfIn equilibrium, DA = SADemand

31、 for Loanable FundsSupply of Loanable FundsInterest RatesQuantity of Loanable FundsnGraphic PresentationlWhen a disequilibrium situation exists, market forces should cause an adjustment in interest rates until equilibrium is achieveduExample: interest rate above equilibriumuSurplus of loanable funds

32、uRate fallsuQuantity supplied reduced, quantity demanded increases until equilibriumnMeans of explaining how economic factors affect interest rate levelsnInterest rate level where quantity of aggregate loanable funds demanded = supplynSurplus and shortage conditionslSurplus- Quantity demanded quanti

33、ty supplied followed by market interest rate decreaseslShortageGovernment interest rate ceilings below market interest ratesn+ Directly related to level of economic activity or growth rate of economic activityn+ Directly related to expected inflationn Inversely related to rates of money supply chang

34、esnEconomic GrowthlExpected impact is an outward shift in the demand schedule without obvious shift in supplylNew technological applications with +NPVslResult is an increase in the equilibrium interest ratenLenders want to be compensated for expected loss of purchasing power (inflation) when they le

35、ndnNominal Interest Rates = Sum of real rate plus expected rate of inflation,nExpected Real Rate (ex ante) = expected increase in purchasing power in periodnRealized Real Rate (ex post) = nominal rates less actual rate of inflation in periodiE Iinr=+( )nInflationlThe Fisher EffectuNominal Interest R

36、ates = Sum of Real Rate plus Expected Rate of InflationinirE(I)+=Year-505101520AnnualizedRealInterest RateAnnualizedInflationAnnualizedT-BillRate19961995199419991998199719931992199119901989198819871986198519841983198219811980nInflationlIf inflation is expected to increaseuHouseholds may reduce their

37、 savings to make purchases before prices riseuSupply shifts to the left, raising the equilibrium rateuAlso, households and businesses may borrow more to purchase goods before prices increaseuDemand shifts outward, raising the equilibrium ratenMoney SupplylWhen the Fed increases the money supply, it

38、increases supply of loanable fundslPlaces downward pressure on interest ratesnFederal Government Budget DeficitlIncrease in deficit increases the quantity of loanable funds demandedlDemand schedule shifts outward, raising rateslGovernment is willing to pay whatever is necessary to borrow funds, “cro

39、wding out” the private sectornForeign FlowslIn recent years there has been massive flows between countrieslDriven by large institutional investors seeking high returnslThey invest where interest rates are high and currencies are not expected to weakenlThese flows affect the supply of funds available

40、 in each countrylInvestors seek the highest real after-tax, exchange rate adjusted rate of return around the worldnAttempts to forecast demand/supply shiftsnForecast economic sector activity and impact upon demand/supply of loanable fundsnForecast incremental effects on interest ratesnForecasting in

41、terest rates has been difficultnEconomic GrowthIncreased growth; increased demand for funds; interest rates increasenExpected inflation-security prices fall; interest rates increasenGovernment budgetslDeficitincrease borrowing; security prices fall, interest rates increaselSurplusdecreased borrowing

42、; security prices increase; interest rates decreasenIncreased foreign supply of loanable fundssecurity prices increase; interest rates decreaseCHAPTER Credit Unions 2003 South-Western/Thomson LearningnDescribe the main sources and uses of funds for credit unionsnPresent the terms and concepts relate

43、d to credit unionsnDescribe how credit unions are regulatednDescribe how credit unions are exposed to various forms of risknEvaluate the performance of credit unionsnCredit Unions (CUs) are nonprofit, mutual organizationsnMembers have a common bond such as an affiliation withlLabor unionlChurchlUniv

44、ersitylResidential areanThere are about 10,000 credit unions in the U.S. with approximately 20 million membersnTotal assets of CUs are less than one tenth the amount in commercial banksnOwnership of credit unionslCredit unions do not issue stocklOwned by depositorslDeposits are called shares, and th

45、e interest paid is called dividendslBecause they are nonprofit organizations their income is not taxedlThey can be either federally or state charterednObjectives of credit unionslSatisfy their membersuOffer interest on share depositsuOffer loans to memberslWhat about earnings that the CU accumulates

46、?uOffer higher rates on depositsuOffer lower rates on loansuAdvertising costsnSize of Credit UnionslA few CUs have assets of more than $1 billion (e.g. the Navy Federal CU)lMost, however, are very smallnAdvantages of credit unionslPay no federal income taxeslEmployer-supported facilitieslExempt from

47、 anti-trust lawslPowerful grass-roots lobby and trade associationsnLimited diversificationlEconomic risks impact funds providers and borrowerslHigh liquidity needslConcentrated default risknManagement ConcernslInternal controlsseparation of dutieslVolunteers vs. professionalsnSmall EntitieslDifficul

48、t to attain scale economiesnCUs obtain most funds through share deposit by memberslSimilar to passbook savingslInsured up to $100,000nCUs also offer share certificateslCompete with CDs from commercial banksnChecking accounts are called share draftslCompete with NOW accountsnIf CUs need funds tempora

49、rily, they can borrow from other credit unions or from the Central Liquidity Facility (CLF)lActs as a lender for CUs much like the Feds discount window for bankslCLF is an emergency lending fund that is part of a larger internal system called the Corporate Credit Union Network, which is a “credit un

50、ion for credit unions”nThe primary source of capital for CUs is retained earningsnCUs use the majority of funds for loans to memberslAutomobileslHome improvementslPersonal expenseslSome CUs offer mortgagesnCUs also invest in securitiesnFederal CUs are supervised and regulated by the National Credit

51、Union Administration (NCUA)lNCUA is composed of three board members appointed by the presidentuGrants and revokes Federal chartersuExamines the financial condition of Federal credit unionsnRisk assessmentlNCUA examiners compare CU ratios with industry norms to identify problemslEmploy the CAMEL syst

52、em much like FDIC examinersuCapital, assets, management, earnings, and liquidityuAssign each CU into a risk category ranging from Code 1 (low risk) to Code 5 (high risk)uLess than 10 percent of CUs in Codes 4 or 5uAlerts examiners to CUs experiencing problemslCorporate Risk Information System (CRIS) analysisnCapital requirements for Federal credit unionslCUs are subject to capital requirements of 8 percent of risk-weighted assets, 4 percent of primary capital (retained earnings and reserves) and 4