8th Edition
tr
SOLUTION MANUAL FOR tr tr
Financial Markets And Institutions 8th Edition Anthony Saunders
tr tr tr tr tr tr tr
Part I tr
Introduction and Overview of Financial Markets tr tr tr tr tr
ChapterOne rt tr
Introduction
I. Chapter Outline tr
1. Why Study Financial Markets and Institutions? Chapter Overview
tr tr tr tr tr tr tr
2. Overview of Financial Markets tr tr tr
a. Primary Markets versus Secondary Markets tr tr tr tr
b. Money Markets versus Capital Markets tr tr tr tr
c. Foreign Exchange Markets tr tr
d. Derivative Security Markets tr tr
e. Financial Market Regulation tr tr
3. Overview of Financial Institutions tr tr tr
a. Unique Economic Functions Performed by Financial Institutions
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b. Additional Benefits FIs Provide to Suppliers of Funds tr tr tr tr tr tr tr
c. Economic Functions FIs Provide to the Financial System as a Whole tr tr tr tr tr tr tr tr tr tr
d. Risks Incurred by Financial Institutions
tr tr tr tr
e. Regulation of Financial Institutions tr tr tr
f. Trends in the United States tr tr tr tr
4. Globalization of Financial Markets and Institutions tr tr tr tr tr
Appendix 1A: The Financial Crisis: The Failure of Financial Institutions‘ Specialness (ava
tr tr tr tr tr tr tr tr tr tr tr
ilable through McGraw Hill‘s Connect. Contact your McGraw Hill representative for more i
tr tr tr tr tr tr tr tr tr tr tr tr
nformation on making the appendix available to your students).
tr tr tr tr tr tr tr tr
II. Learning Goals tr
1. Differentiate between primary and secondary markets. tr tr tr tr tr
2. Differentiate between money and capital markets. tr tr tr tr tr
3. Understand what foreign exchange markets are. tr tr tr tr tr
4. Understand what derivative securities markets are. tr tr tr tr tr
5. Distinguish between the different types of financial institutions.
tr tr tr tr tr tr tr
6. Know the services financial institutions perform.
tr tr tr tr tr
7. Know the risks financial institutions face.
tr tr tr tr tr
8. Appreciate why financial institutions are regulated.
tr tr tr tr tr
9. Recognize that financial markets are becoming increasingly global.
tr tr tr tr tr tr tr
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproduction
tr tr tr tr tr tr tr tr tr tr tr
or distribution without the prior written consent of McGraw Hill.
tr tr tr tr tr tr tr tr tr
1-1
, 8th Edition
tr
III. Chapter in Perspective tr tr
This chapter has three major sections and one minor section. The text provides a ge
tr tr tr tr tr tr tr tr tr tr tr tr tr tr
neral overview of the major types of U.S. financial markets, focusing primarily on terminol
tr tr tr tr tr tr tr tr tr tr tr tr tr
ogy and descriptions of the major securities, market structures and regulators. Market micr
tr tr tr tr tr tr tr tr tr tr tr tr
ostructure is not discussed. Foreign exchange transactions are also briefly introduced. Seco
tr tr tr tr tr tr tr tr tr tr tr
nd, the chapter describes the various types of financial institutions and explains the risks th
tr tr tr tr tr tr tr tr tr tr tr tr tr tr
ey face and the services they provide to funds‘ users and funds‘ suppliers. The financial cri
tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr
sis is discussed and the impact of Brexit is considered. The final section of the chapter prov
tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr
ides statistics about the rapid growth of globalization of both markets and institutions. An a
tr tr tr tr tr tr tr tr tr tr tr tr tr tr
ppendix covering the details of the financial crisis and the government intervention program
tr tr tr tr tr tr tr tr tr tr tr tr
s, including the costs as of late 2009, is available through McGraw Hill‘s Connect. Contact
tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr
your McGraw Hill representative for more information on making the appendix available t
tr tr tr tr tr tr tr tr tr tr tr tr
o your students.
tr tr
IV. Key Concepts and Definitions to Communicate to Students
tr tr tr tr tr tr tr
Financial markets tr Primary markets tr
Initial public offerings (IPO) tr tr tr Secondary markets tr
Derivative security tr Liquidity
Money markets tr Over-the-counter (OTC) markets tr tr
Capital markets tr Derivative security markets tr tr
Financial institutions tr Direct transfer tr
Price risk tr Indirect transfer tr
Delegated monitor tr Asset transformers tr
Diversify Economies of scale tr tr
Enterprise risk management (ERM) tr tr tr
Appendix terms include: tr tr
TARP Federal Reserve Rescue Efforts tr tr tr
Federal Stimulus programs tr tr American International Group tr tr
FDIC Bank takeovers tr tr
Other financial initiatives tr tr tr
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproduction
tr tr tr tr tr tr tr tr tr tr tr
or distribution without the prior written consent of McGraw Hill.
tr tr tr tr tr tr tr tr tr
1-1
, 8th Edition
tr
Other housing initiatives
tr tr
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproduction
tr tr tr tr tr tr tr tr tr tr tr
or distribution without the prior written consent of McGraw Hill.
tr tr tr tr tr tr tr tr tr
1-1
, 8th Edition tr
V. Teaching Notes tr
a. Why Study Financial Markets and Institutions?
tr tr tr tr tr
For an economy to achieve its potential growth rate, mechanisms must exist to effe
tr tr tr tr tr tr tr tr tr tr tr tr tr
ctively allocate capital (a scarce resource) to the best possible uses while accounting for th
tr tr tr tr tr tr tr tr tr tr tr tr tr tr
e riskiness of the opportunities available. Markets and institutions have been created to facili
tr tr tr tr tr tr tr tr tr tr tr tr tr
tate transfers of funds from economic agents with surplus funds to economic agents in nee
tr tr tr tr tr tr tr tr tr tr tr tr tr tr
d of funds. For an economy to maximize its growth potential it must create methods that at
tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr
tract savers‘ excess funds and then put those funds to the best uses possible, otherwise idle
tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr t
cash is not used as productively as possible. The funds transfer should occur at as low a co
r tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr
st as possible to ensure maximum economic growth. Two competing alternative methods e
tr tr tr tr tr tr tr tr tr tr tr tr
xist: direct and indirect financing. In direct financing the ultimate funds supplier purchases
tr tr tr tr tr tr tr tr tr tr tr tr t
a claim from the funds demander with or without the help of an intermediary such as an un
r tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr
derwriter. In this case, society relies on primary markets to initially price the issue and th
tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr
en secondary markets to update the prices and provide liquidity. Trustees are appointed t
tr tr tr tr tr tr tr tr tr tr tr tr tr
o monitor contractual obligations of issuers and instigate enforcement actions for breach o
tr tr tr tr tr tr tr tr tr tr tr tr
f contract terms. In indirect financing, the funds demander obtains financing from a financ
tr tr tr tr tr tr tr tr tr tr tr tr tr
ial intermediary. The intermediary and the borrower negotiate the terms and cost. The inte
tr tr tr tr tr tr tr tr tr tr tr tr tr
rmediary obtains funds by offering different claims to fund suppliers. In this case the inter
tr tr tr tr tr tr tr tr tr tr tr tr tr tr
mediary is usually responsible for monitoring the contractual conditions of the financing a
tr tr tr tr tr tr tr tr tr tr tr tr
greement and perhaps updating the cost if appropriate.
tr tr tr tr tr tr tr
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproduction
tr tr tr tr tr tr tr tr tr tr tr
or distribution without the prior written consent of McGraw Hill.
tr tr tr tr tr tr tr tr tr
1-2
tr
SOLUTION MANUAL FOR tr tr
Financial Markets And Institutions 8th Edition Anthony Saunders
tr tr tr tr tr tr tr
Part I tr
Introduction and Overview of Financial Markets tr tr tr tr tr
ChapterOne rt tr
Introduction
I. Chapter Outline tr
1. Why Study Financial Markets and Institutions? Chapter Overview
tr tr tr tr tr tr tr
2. Overview of Financial Markets tr tr tr
a. Primary Markets versus Secondary Markets tr tr tr tr
b. Money Markets versus Capital Markets tr tr tr tr
c. Foreign Exchange Markets tr tr
d. Derivative Security Markets tr tr
e. Financial Market Regulation tr tr
3. Overview of Financial Institutions tr tr tr
a. Unique Economic Functions Performed by Financial Institutions
tr tr tr tr tr tr
b. Additional Benefits FIs Provide to Suppliers of Funds tr tr tr tr tr tr tr
c. Economic Functions FIs Provide to the Financial System as a Whole tr tr tr tr tr tr tr tr tr tr
d. Risks Incurred by Financial Institutions
tr tr tr tr
e. Regulation of Financial Institutions tr tr tr
f. Trends in the United States tr tr tr tr
4. Globalization of Financial Markets and Institutions tr tr tr tr tr
Appendix 1A: The Financial Crisis: The Failure of Financial Institutions‘ Specialness (ava
tr tr tr tr tr tr tr tr tr tr tr
ilable through McGraw Hill‘s Connect. Contact your McGraw Hill representative for more i
tr tr tr tr tr tr tr tr tr tr tr tr
nformation on making the appendix available to your students).
tr tr tr tr tr tr tr tr
II. Learning Goals tr
1. Differentiate between primary and secondary markets. tr tr tr tr tr
2. Differentiate between money and capital markets. tr tr tr tr tr
3. Understand what foreign exchange markets are. tr tr tr tr tr
4. Understand what derivative securities markets are. tr tr tr tr tr
5. Distinguish between the different types of financial institutions.
tr tr tr tr tr tr tr
6. Know the services financial institutions perform.
tr tr tr tr tr
7. Know the risks financial institutions face.
tr tr tr tr tr
8. Appreciate why financial institutions are regulated.
tr tr tr tr tr
9. Recognize that financial markets are becoming increasingly global.
tr tr tr tr tr tr tr
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproduction
tr tr tr tr tr tr tr tr tr tr tr
or distribution without the prior written consent of McGraw Hill.
tr tr tr tr tr tr tr tr tr
1-1
, 8th Edition
tr
III. Chapter in Perspective tr tr
This chapter has three major sections and one minor section. The text provides a ge
tr tr tr tr tr tr tr tr tr tr tr tr tr tr
neral overview of the major types of U.S. financial markets, focusing primarily on terminol
tr tr tr tr tr tr tr tr tr tr tr tr tr
ogy and descriptions of the major securities, market structures and regulators. Market micr
tr tr tr tr tr tr tr tr tr tr tr tr
ostructure is not discussed. Foreign exchange transactions are also briefly introduced. Seco
tr tr tr tr tr tr tr tr tr tr tr
nd, the chapter describes the various types of financial institutions and explains the risks th
tr tr tr tr tr tr tr tr tr tr tr tr tr tr
ey face and the services they provide to funds‘ users and funds‘ suppliers. The financial cri
tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr
sis is discussed and the impact of Brexit is considered. The final section of the chapter prov
tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr
ides statistics about the rapid growth of globalization of both markets and institutions. An a
tr tr tr tr tr tr tr tr tr tr tr tr tr tr
ppendix covering the details of the financial crisis and the government intervention program
tr tr tr tr tr tr tr tr tr tr tr tr
s, including the costs as of late 2009, is available through McGraw Hill‘s Connect. Contact
tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr
your McGraw Hill representative for more information on making the appendix available t
tr tr tr tr tr tr tr tr tr tr tr tr
o your students.
tr tr
IV. Key Concepts and Definitions to Communicate to Students
tr tr tr tr tr tr tr
Financial markets tr Primary markets tr
Initial public offerings (IPO) tr tr tr Secondary markets tr
Derivative security tr Liquidity
Money markets tr Over-the-counter (OTC) markets tr tr
Capital markets tr Derivative security markets tr tr
Financial institutions tr Direct transfer tr
Price risk tr Indirect transfer tr
Delegated monitor tr Asset transformers tr
Diversify Economies of scale tr tr
Enterprise risk management (ERM) tr tr tr
Appendix terms include: tr tr
TARP Federal Reserve Rescue Efforts tr tr tr
Federal Stimulus programs tr tr American International Group tr tr
FDIC Bank takeovers tr tr
Other financial initiatives tr tr tr
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproduction
tr tr tr tr tr tr tr tr tr tr tr
or distribution without the prior written consent of McGraw Hill.
tr tr tr tr tr tr tr tr tr
1-1
, 8th Edition
tr
Other housing initiatives
tr tr
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproduction
tr tr tr tr tr tr tr tr tr tr tr
or distribution without the prior written consent of McGraw Hill.
tr tr tr tr tr tr tr tr tr
1-1
, 8th Edition tr
V. Teaching Notes tr
a. Why Study Financial Markets and Institutions?
tr tr tr tr tr
For an economy to achieve its potential growth rate, mechanisms must exist to effe
tr tr tr tr tr tr tr tr tr tr tr tr tr
ctively allocate capital (a scarce resource) to the best possible uses while accounting for th
tr tr tr tr tr tr tr tr tr tr tr tr tr tr
e riskiness of the opportunities available. Markets and institutions have been created to facili
tr tr tr tr tr tr tr tr tr tr tr tr tr
tate transfers of funds from economic agents with surplus funds to economic agents in nee
tr tr tr tr tr tr tr tr tr tr tr tr tr tr
d of funds. For an economy to maximize its growth potential it must create methods that at
tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr
tract savers‘ excess funds and then put those funds to the best uses possible, otherwise idle
tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr t
cash is not used as productively as possible. The funds transfer should occur at as low a co
r tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr
st as possible to ensure maximum economic growth. Two competing alternative methods e
tr tr tr tr tr tr tr tr tr tr tr tr
xist: direct and indirect financing. In direct financing the ultimate funds supplier purchases
tr tr tr tr tr tr tr tr tr tr tr tr t
a claim from the funds demander with or without the help of an intermediary such as an un
r tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr
derwriter. In this case, society relies on primary markets to initially price the issue and th
tr tr tr tr tr tr tr tr tr tr tr tr tr tr tr
en secondary markets to update the prices and provide liquidity. Trustees are appointed t
tr tr tr tr tr tr tr tr tr tr tr tr tr
o monitor contractual obligations of issuers and instigate enforcement actions for breach o
tr tr tr tr tr tr tr tr tr tr tr tr
f contract terms. In indirect financing, the funds demander obtains financing from a financ
tr tr tr tr tr tr tr tr tr tr tr tr tr
ial intermediary. The intermediary and the borrower negotiate the terms and cost. The inte
tr tr tr tr tr tr tr tr tr tr tr tr tr
rmediary obtains funds by offering different claims to fund suppliers. In this case the inter
tr tr tr tr tr tr tr tr tr tr tr tr tr tr
mediary is usually responsible for monitoring the contractual conditions of the financing a
tr tr tr tr tr tr tr tr tr tr tr tr
greement and perhaps updating the cost if appropriate.
tr tr tr tr tr tr tr
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproduction
tr tr tr tr tr tr tr tr tr tr tr
or distribution without the prior written consent of McGraw Hill.
tr tr tr tr tr tr tr tr tr
1-2
