Instructor’s Manual
Financial Markets and Institutions, 10th edition
By Frederic S Mishkin, Stanley Eakins
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, Table of Content
I. Introduction ............................................................................................................................ 1
1. Why Study Financial Markets and Institutions? ...................................................................... 2
2. Overview of the Financial System ........................................................................................... 5
II. Fundamentals of Financial Markets ...................................................................................... 8
3. What Do Interest Rates Mean and What Is Their Role in Valuation? ..................................... 9
4. Why Do Interest Rates Change? ............................................................................................ 15
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5. How Do Risk and Term Structure Affect Interest Rates? ..................................................... 23
6. Are Financial Markets Efficient? .......................................................................................... 29
III. Fundamentals of Financial Institutions .................................................................................. 32
7. Why Do Financial Institutions Exist? .................................................................................... 33
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8.Why Do Financial Crises Occur and Why Are They So Damaging to
the Economy? ........................................................................................................................ 39
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IV. Central Banking and the Conduct of Monetary Policy ......................................................... 43
9. Central Banks and the Federal Reserve System .................................................................... 44
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10. Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics ....................................... 48
V. Financial Markets ..................................................................................................................... 56
11. The Money Markets ............................................................................................................. 57
12. The Bond Market .................................................................................................................. 63
U
13. The Stock Market ............................................................................................................... 69
14. The Mortgage Markets ....................................................................................................... 75
ID
15. The Foreign Exchange Market ............................................................................................. 86
16. The International Financial System ...................................................................................... 92
VI. The Financial Institutions Industry ........................................................................................ 97
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17. Banking and the Management of Financial Institutions ....................................................... 98
18. Financial Regulation ........................................................................................................... 106
19. Banking Industry: Structure and Competition .................................................................... 114
20. The Mutual Fund Industry .................................................................................................. 117
21. Insurance Companies and Pension Funds .......................................................................... 123
22. Investment Banks, Security Brokers and Dealers, and Venture Capital Firms .................. 128
VII. The Management of Financial Institutions .......................................................................... 133
23. Risk Management in Financial Institutions ........................................................................ 134
,24. Hedging with Financial Derivatives ................................................................................... 143
Chapters on the Web
25. Financial Crises in Emerging Market Economies .............................................................. 152
26. Savings Associations and Credit Unions ............................................................................ 155
27. Finance Companies ............................................................................................................ 158
SC
O
R
EG
U
ID
ES
, Chapter 1
SC
Why Study Financial Markets
and Institutions?
Why Study Financial Markets?
O
Debt Markets and Interest Rates
The Stock Market
The Foreign Exchange Market
R
Why Study Financial Institutions?
Structure of the Financial System
Financial Crises
EG
Central Banks and the Conduct of Monetary Policy
The International Financial System
Banks and Other Financial Institutions
Financial Innovation
Managing Risk in Financial Institutions
U
Applied Managerial Perspective
How We Will Study Financial Markets and Institutions
Exploring the Web
ID
Collecting and Graphing Data
Web Exercise
Concluding Remarks
ES
◼ Overview and Teaching Tips
Before embarking on a study of financial markets and institutions, the student must be convinced that this
subject is worth studying. Chapter 1 pursues this goal by showing the student that financial markets and
institutions is an exciting field because it focuses on phenomena that affect everyday life. An additional
purpose of Chapter 1 is to provide an overview for the entire book, previewing the topics that will be
covered in later chapters. The chapter also provides the students with a guide as to how they will be studying
financial markets and institutions with a unifying, analytic framework and an applied managerial perspective.
In teaching this chapter, the most important goal should be to get the student excited about the material. I have
found that talking about the data presented in the figures helps achieve this goal by showing the students that
the subject matter of financial markets and institutions has real-world implications that they should care about.
In addition, it is important to emphasize to the students that the course will have an applied managerial
Financial Markets and Institutions, 10th edition
By Frederic S Mishkin, Stanley Eakins
SC
O
R
EG
U
ID
ES
, Table of Content
I. Introduction ............................................................................................................................ 1
1. Why Study Financial Markets and Institutions? ...................................................................... 2
2. Overview of the Financial System ........................................................................................... 5
II. Fundamentals of Financial Markets ...................................................................................... 8
3. What Do Interest Rates Mean and What Is Their Role in Valuation? ..................................... 9
4. Why Do Interest Rates Change? ............................................................................................ 15
SC
5. How Do Risk and Term Structure Affect Interest Rates? ..................................................... 23
6. Are Financial Markets Efficient? .......................................................................................... 29
III. Fundamentals of Financial Institutions .................................................................................. 32
7. Why Do Financial Institutions Exist? .................................................................................... 33
O
8.Why Do Financial Crises Occur and Why Are They So Damaging to
the Economy? ........................................................................................................................ 39
R
IV. Central Banking and the Conduct of Monetary Policy ......................................................... 43
9. Central Banks and the Federal Reserve System .................................................................... 44
EG
10. Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics ....................................... 48
V. Financial Markets ..................................................................................................................... 56
11. The Money Markets ............................................................................................................. 57
12. The Bond Market .................................................................................................................. 63
U
13. The Stock Market ............................................................................................................... 69
14. The Mortgage Markets ....................................................................................................... 75
ID
15. The Foreign Exchange Market ............................................................................................. 86
16. The International Financial System ...................................................................................... 92
VI. The Financial Institutions Industry ........................................................................................ 97
ES
17. Banking and the Management of Financial Institutions ....................................................... 98
18. Financial Regulation ........................................................................................................... 106
19. Banking Industry: Structure and Competition .................................................................... 114
20. The Mutual Fund Industry .................................................................................................. 117
21. Insurance Companies and Pension Funds .......................................................................... 123
22. Investment Banks, Security Brokers and Dealers, and Venture Capital Firms .................. 128
VII. The Management of Financial Institutions .......................................................................... 133
23. Risk Management in Financial Institutions ........................................................................ 134
,24. Hedging with Financial Derivatives ................................................................................... 143
Chapters on the Web
25. Financial Crises in Emerging Market Economies .............................................................. 152
26. Savings Associations and Credit Unions ............................................................................ 155
27. Finance Companies ............................................................................................................ 158
SC
O
R
EG
U
ID
ES
, Chapter 1
SC
Why Study Financial Markets
and Institutions?
Why Study Financial Markets?
O
Debt Markets and Interest Rates
The Stock Market
The Foreign Exchange Market
R
Why Study Financial Institutions?
Structure of the Financial System
Financial Crises
EG
Central Banks and the Conduct of Monetary Policy
The International Financial System
Banks and Other Financial Institutions
Financial Innovation
Managing Risk in Financial Institutions
U
Applied Managerial Perspective
How We Will Study Financial Markets and Institutions
Exploring the Web
ID
Collecting and Graphing Data
Web Exercise
Concluding Remarks
ES
◼ Overview and Teaching Tips
Before embarking on a study of financial markets and institutions, the student must be convinced that this
subject is worth studying. Chapter 1 pursues this goal by showing the student that financial markets and
institutions is an exciting field because it focuses on phenomena that affect everyday life. An additional
purpose of Chapter 1 is to provide an overview for the entire book, previewing the topics that will be
covered in later chapters. The chapter also provides the students with a guide as to how they will be studying
financial markets and institutions with a unifying, analytic framework and an applied managerial perspective.
In teaching this chapter, the most important goal should be to get the student excited about the material. I have
found that talking about the data presented in the figures helps achieve this goal by showing the students that
the subject matter of financial markets and institutions has real-world implications that they should care about.
In addition, it is important to emphasize to the students that the course will have an applied managerial
