8th Editio
nz
n
SOLUTION MANUAL FOR nz nz
Financial Markets And Institutions 8th Edition Anthony Saunders
nz nz nz nz nz nz nz
Part I nz
Introduction and Overview of Financial Markets nz nz nz nz nz
Chapter One nz n
Introduction
z
I. Chapter Outline nz
1. Why Study Financial Markets and Institutions? Chapter Overview
nz nz nz nz nz nz nz
2. Overview of Financial Markets nz nz nz
a. Primary Markets versus Secondary Markets
nz nz nz nz
b. Money Markets versus Capital Markets
nz nz nz nz
c. Foreign Exchange Markets nz nz
d. Derivative Security Markets nz nz
e. Financial Market Regulation nz nz
3. Overview of Financial Institutions
nz nz nz
a. Unique Economic Functions Performed by Financial Institutions
nz nz nz nz nz nz
b. Additional Benefits FIs Provide to Suppliers of Funds nz nz nz nz nz nz nz
c. Economic Functions FIs Provide to the Financial System as a Whole
nz nz nz nz nz nz nz nz nz nz
d. Risks Incurred by Financial Institutions
nz nz nz nz
e. Regulation of Financial Institutions nz nz nz
f. Trends in the United States nz nz nz nz
4. Globalization of Financial Markets and Institutions nz nz nz nz nz
Appendix 1A: The Financial Crisis: The Failure of Financial Institutions‘ Specialness (
nz nz nz nz nz nz nz nz nz nz nz
available through McGraw Hill‘s Connect. Contact your McGraw Hill representative for
nz nz nz nz nz nz nz nz nz nz nz
more information on making the appendix available to your students).
nz nz nz nz nz nz nz nz nz
II. Learning Goals nz
1. Differentiate between primary and secondary markets.
nz nz nz nz nz
2. Differentiate between money and capital markets.nz nz nz nz nz
3. Understand what foreign exchange markets are.
nz nz nz nz nz
4. Understand what derivative securities markets are.
nz nz nz nz nz
5. Distinguish between the different types of financial institutions.
nz nz nz nz nz nz nz
6. Know the services financial institutions perform.
nz nz nz nz nz
7. Know the risks financial institutions face.
nz nz nz nz nz
8. Appreciate why financial institutions are regulated.
nz nz nz nz nz
9. Recognize that financial markets are becoming increasingly global.
nz nz nz nz nz nz nz
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproducti
nz nz nz nz nz nz nz nz nz nz
on or distribution without the prior written consent of McGraw Hill.
nz nz nz nz nz nz nz nz nz nz
1-1
, 8th Editio
nz
n
III. Chapter in Perspective nz nz
This chapter has three major sections and one minor section. The text provides
nz nz nz nz nz nz nz nz nz nz nz nz nz
a general overview of the major types of U.S. financial markets, focusing primarily on t
nz nz nz nz nz nz nz nz nz nz nz nz nz nz
erminology and descriptions of the major securities, market structures and regulators.
nz nz nz nz nz nz nz nz nz nz nz
Market microstructure is not discussed. Foreign exchange transactions are also briefly i
nz nz nz nz nz nz nz nz nz nz nz
ntroduced. Second, the chapter describes the various types of financial institutions and
nz nz nz nz nz nz nz nz nz nz nz nz
explains the risks they face and the services they provide to funds‘ users and funds‘ su
nz nz nz nz nz nz nz nz nz nz nz nz nz nz nz
ppliers. The financial crisis is discussed and the impact of Brexit is considered. The fin
nz nz nz nz nz nz nz nz nz nz nz nz nz nz
al section of the chapter provides statistics about the rapid growth of globalization of b
nz nz nz nz nz nz nz nz nz nz nz nz nz nz
oth markets and institutions. An appendix covering the details of the financial crisis and t
nz nz nz nz nz nz nz nz nz nz nz nz nz nz
he government intervention programs, including the costs as of late 2009, is available t
nz nz nz nz nz nz nz nz nz nz nz nz nz
hrough McGraw Hill‘s Connect. Contact your McGraw Hill representative for more inf
nz nz nz nz nz nz nz nz nz nz nz
ormation on making the appendix available to your students.
nz nz nz nz nz nz nz nz
IV. Key Concepts and Definitions to Communicate to Students
nz nz nz nz nz nz nz
Financial markets nz Primary markets nz
Initial public offerings (IPO)
nz nz nz Secondary markets nz
Derivative security nz Liquidity
Money markets nz Over-the-counter (OTC) markets nz nz
Capital markets nz Derivative security markets nz nz
Financial institutions nz Direct transfer nz
Price risk nz Indirect transfer nz
Delegated monitor nz Asset transformers nz
Diversify Economies of scale nz nz
Enterprise risk management (ERM) nz nz nz
Appendix terms include: nz nz
TARP Federal Reserve Rescue Efforts nz nz nz
Federal Stimulus programs nz nz American International Group nz nz
FDIC Bank takeovers
nz nz
Other financial initiativesnz nz
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproducti
nz nz nz nz nz nz nz nz nz nz
on or distribution without the prior written consent of McGraw Hill.
nz nz nz nz nz nz nz nz nz nz
1-1
, 8th Editio
nz
n
Other housing initiatives
nz nz nz
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproducti
nz nz nz nz nz nz nz nz nz nz
on or distribution without the prior written consent of McGraw Hill.
nz nz nz nz nz nz nz nz nz nz
1-1
, 8th Editionz
n
V. Teaching Notes nz
a. Why Study Financial Markets and Institutions?
nz nz nz nz nz
For an economy to achieve its potential growth rate, mechanisms must exist to
nz nz nz nz nz nz nz nz nz nz nz nz nz
effectively allocate capital (a scarce resource) to the best possible uses while accountin
nz nz nz nz nz nz nz nz nz nz nz nz
g for the riskiness of the opportunities available. Markets and institutions have been crea
nz nz nz nz nz nz nz nz nz nz nz nz nz
ted to facilitate transfers of funds from economic agents with surplus funds to economi
nz nz nz nz nz nz nz nz nz nz nz nz nz
c agents in need of funds. For an economy to maximize its growth potential it must cr
nz nz nz nz nz nz nz nz nz nz nz nz nz nz nz nz
eate methods that attract savers‘ excess funds and then put those funds to the best uses
nz nz nz nz nz nz nz nz nz nz nz nz nz nz nz n
zpossible, otherwise idle cash is not used as productively as possible. The funds transfe
nz nz nz nz nz nz nz nz nz nz nz nz nz
r should occur at as low a cost as possible to ensure maximum economic growth. Two
nz nz nz nz nz nz nz nz nz nz nz nz nz nz nz n
zcompeting alternative methods exist: direct and indirect financing. In direct financing t
nz nz nz nz nz nz nz nz nz nz nz
he ultimate funds supplier purchases a claim from the funds demander with or without
nz nz nz nz nz nz nz nz nz nz nz nz nz nz
the help of an intermediary such as an underwriter. In this case, society relies on prim
nz nz nz nz nz nz nz nz nz nz nz nz nz nz nz
ary markets to initially price the issue and then secondary markets to update the pric
nz nz nz nz nz nz nz nz nz nz nz nz nz nz
es and provide liquidity. Trustees are appointed to monitor contractual obligations of i
nz nz nz nz nz nz nz nz nz nz nz nz
ssuers and instigate enforcement actions for breach of contract terms. In indirect financ
nz nz nz nz nz nz nz nz nz nz nz nz
ing, the funds demander obtains financing from a financial intermediary. The intermedi
nz nz nz nz nz nz nz nz nz nz nz
ary and the borrower negotiate the terms and cost. The intermediary obtains funds by o
nz nz nz nz nz nz nz nz nz nz nz nz nz nz
ffering different claims to fund suppliers. In this case the intermediary is usually respo
nz nz nz nz nz nz nz nz nz nz nz nz nz
nsible for monitoring the contractual conditions of the financing agreement and perhap
nz nz nz nz nz nz nz nz nz nz nz
s updating the cost if appropriate.
nz nz nz nz nz
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproducti
nz nz nz nz nz nz nz nz nz nz
on or distribution without the prior written consent of McGraw Hill.
nz nz nz nz nz nz nz nz nz nz
1-2
nz
n
SOLUTION MANUAL FOR nz nz
Financial Markets And Institutions 8th Edition Anthony Saunders
nz nz nz nz nz nz nz
Part I nz
Introduction and Overview of Financial Markets nz nz nz nz nz
Chapter One nz n
Introduction
z
I. Chapter Outline nz
1. Why Study Financial Markets and Institutions? Chapter Overview
nz nz nz nz nz nz nz
2. Overview of Financial Markets nz nz nz
a. Primary Markets versus Secondary Markets
nz nz nz nz
b. Money Markets versus Capital Markets
nz nz nz nz
c. Foreign Exchange Markets nz nz
d. Derivative Security Markets nz nz
e. Financial Market Regulation nz nz
3. Overview of Financial Institutions
nz nz nz
a. Unique Economic Functions Performed by Financial Institutions
nz nz nz nz nz nz
b. Additional Benefits FIs Provide to Suppliers of Funds nz nz nz nz nz nz nz
c. Economic Functions FIs Provide to the Financial System as a Whole
nz nz nz nz nz nz nz nz nz nz
d. Risks Incurred by Financial Institutions
nz nz nz nz
e. Regulation of Financial Institutions nz nz nz
f. Trends in the United States nz nz nz nz
4. Globalization of Financial Markets and Institutions nz nz nz nz nz
Appendix 1A: The Financial Crisis: The Failure of Financial Institutions‘ Specialness (
nz nz nz nz nz nz nz nz nz nz nz
available through McGraw Hill‘s Connect. Contact your McGraw Hill representative for
nz nz nz nz nz nz nz nz nz nz nz
more information on making the appendix available to your students).
nz nz nz nz nz nz nz nz nz
II. Learning Goals nz
1. Differentiate between primary and secondary markets.
nz nz nz nz nz
2. Differentiate between money and capital markets.nz nz nz nz nz
3. Understand what foreign exchange markets are.
nz nz nz nz nz
4. Understand what derivative securities markets are.
nz nz nz nz nz
5. Distinguish between the different types of financial institutions.
nz nz nz nz nz nz nz
6. Know the services financial institutions perform.
nz nz nz nz nz
7. Know the risks financial institutions face.
nz nz nz nz nz
8. Appreciate why financial institutions are regulated.
nz nz nz nz nz
9. Recognize that financial markets are becoming increasingly global.
nz nz nz nz nz nz nz
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproducti
nz nz nz nz nz nz nz nz nz nz
on or distribution without the prior written consent of McGraw Hill.
nz nz nz nz nz nz nz nz nz nz
1-1
, 8th Editio
nz
n
III. Chapter in Perspective nz nz
This chapter has three major sections and one minor section. The text provides
nz nz nz nz nz nz nz nz nz nz nz nz nz
a general overview of the major types of U.S. financial markets, focusing primarily on t
nz nz nz nz nz nz nz nz nz nz nz nz nz nz
erminology and descriptions of the major securities, market structures and regulators.
nz nz nz nz nz nz nz nz nz nz nz
Market microstructure is not discussed. Foreign exchange transactions are also briefly i
nz nz nz nz nz nz nz nz nz nz nz
ntroduced. Second, the chapter describes the various types of financial institutions and
nz nz nz nz nz nz nz nz nz nz nz nz
explains the risks they face and the services they provide to funds‘ users and funds‘ su
nz nz nz nz nz nz nz nz nz nz nz nz nz nz nz
ppliers. The financial crisis is discussed and the impact of Brexit is considered. The fin
nz nz nz nz nz nz nz nz nz nz nz nz nz nz
al section of the chapter provides statistics about the rapid growth of globalization of b
nz nz nz nz nz nz nz nz nz nz nz nz nz nz
oth markets and institutions. An appendix covering the details of the financial crisis and t
nz nz nz nz nz nz nz nz nz nz nz nz nz nz
he government intervention programs, including the costs as of late 2009, is available t
nz nz nz nz nz nz nz nz nz nz nz nz nz
hrough McGraw Hill‘s Connect. Contact your McGraw Hill representative for more inf
nz nz nz nz nz nz nz nz nz nz nz
ormation on making the appendix available to your students.
nz nz nz nz nz nz nz nz
IV. Key Concepts and Definitions to Communicate to Students
nz nz nz nz nz nz nz
Financial markets nz Primary markets nz
Initial public offerings (IPO)
nz nz nz Secondary markets nz
Derivative security nz Liquidity
Money markets nz Over-the-counter (OTC) markets nz nz
Capital markets nz Derivative security markets nz nz
Financial institutions nz Direct transfer nz
Price risk nz Indirect transfer nz
Delegated monitor nz Asset transformers nz
Diversify Economies of scale nz nz
Enterprise risk management (ERM) nz nz nz
Appendix terms include: nz nz
TARP Federal Reserve Rescue Efforts nz nz nz
Federal Stimulus programs nz nz American International Group nz nz
FDIC Bank takeovers
nz nz
Other financial initiativesnz nz
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproducti
nz nz nz nz nz nz nz nz nz nz
on or distribution without the prior written consent of McGraw Hill.
nz nz nz nz nz nz nz nz nz nz
1-1
, 8th Editio
nz
n
Other housing initiatives
nz nz nz
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproducti
nz nz nz nz nz nz nz nz nz nz
on or distribution without the prior written consent of McGraw Hill.
nz nz nz nz nz nz nz nz nz nz
1-1
, 8th Editionz
n
V. Teaching Notes nz
a. Why Study Financial Markets and Institutions?
nz nz nz nz nz
For an economy to achieve its potential growth rate, mechanisms must exist to
nz nz nz nz nz nz nz nz nz nz nz nz nz
effectively allocate capital (a scarce resource) to the best possible uses while accountin
nz nz nz nz nz nz nz nz nz nz nz nz
g for the riskiness of the opportunities available. Markets and institutions have been crea
nz nz nz nz nz nz nz nz nz nz nz nz nz
ted to facilitate transfers of funds from economic agents with surplus funds to economi
nz nz nz nz nz nz nz nz nz nz nz nz nz
c agents in need of funds. For an economy to maximize its growth potential it must cr
nz nz nz nz nz nz nz nz nz nz nz nz nz nz nz nz
eate methods that attract savers‘ excess funds and then put those funds to the best uses
nz nz nz nz nz nz nz nz nz nz nz nz nz nz nz n
zpossible, otherwise idle cash is not used as productively as possible. The funds transfe
nz nz nz nz nz nz nz nz nz nz nz nz nz
r should occur at as low a cost as possible to ensure maximum economic growth. Two
nz nz nz nz nz nz nz nz nz nz nz nz nz nz nz n
zcompeting alternative methods exist: direct and indirect financing. In direct financing t
nz nz nz nz nz nz nz nz nz nz nz
he ultimate funds supplier purchases a claim from the funds demander with or without
nz nz nz nz nz nz nz nz nz nz nz nz nz nz
the help of an intermediary such as an underwriter. In this case, society relies on prim
nz nz nz nz nz nz nz nz nz nz nz nz nz nz nz
ary markets to initially price the issue and then secondary markets to update the pric
nz nz nz nz nz nz nz nz nz nz nz nz nz nz
es and provide liquidity. Trustees are appointed to monitor contractual obligations of i
nz nz nz nz nz nz nz nz nz nz nz nz
ssuers and instigate enforcement actions for breach of contract terms. In indirect financ
nz nz nz nz nz nz nz nz nz nz nz nz
ing, the funds demander obtains financing from a financial intermediary. The intermedi
nz nz nz nz nz nz nz nz nz nz nz
ary and the borrower negotiate the terms and cost. The intermediary obtains funds by o
nz nz nz nz nz nz nz nz nz nz nz nz nz nz
ffering different claims to fund suppliers. In this case the intermediary is usually respo
nz nz nz nz nz nz nz nz nz nz nz nz nz
nsible for monitoring the contractual conditions of the financing agreement and perhap
nz nz nz nz nz nz nz nz nz nz nz
s updating the cost if appropriate.
nz nz nz nz nz
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproducti
nz nz nz nz nz nz nz nz nz nz
on or distribution without the prior written consent of McGraw Hill.
nz nz nz nz nz nz nz nz nz nz
1-2
