8th Edition
Solution Manual for Financial Markets And Institutions 8th Edition Anthony
x x x x x x x x x
Saunders
x
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproduction
x x x x x x x x x x
or distribution without the prior written consent of McGraw Hill.
x x x x x x x x x x
1-1
, 8th Edition
SOLUTION MANUAL FOR x x
FinancialMarkets AndInstitutions8th Edition Anthony Saunders
x x x x x x x
PartI x
IntroductionandOverviewof FinancialMarkets x
ChapterOne
Introductio
x
n
I. Chapter Outline x
1. Why Study Financial Markets and Institutions? Chapter Overview
x x x x x x x
2. Overview of Financial Markets x x x
a. Primary Markets versus Secondary Markets x x x x
b. Money Markets versus Capital Markets
x x x x
c. Foreign Exchange Markets x x
d. Derivative Security Markets x x
e. Financial Market Regulation x x
3. Overview of Financial Institutions x x x
a. Unique Economic Functions Performed by Financial Institutions
x x x x x x
b. Additional Benefits FIs Provide to Suppliers of Funds x x x x x x x
c. Economic Functions FIs Provide to the Financial System as a Whole
x x x x x x x x x x
d. Risks Incurred by Financial Institutions
x x x x
e. Regulation of Financial Institutions x x x
f. Trends in the United States x x x x
4. Globalization of Financial Markets and Institutions x x x x x
Appendix 1A: The Financial Crisis: The Failure of Financial Institutions‘ Specialness
x x x x x x x x x x
x(available through McGraw Hill‘s Connect. Contact your McGraw Hill representative for
x x x x x x x x x x
xmore information on making the appendix available to your students).
x x x x x x x x x
II. Learning Goals x
1. Differentiate between primary and secondary markets.
x x x x x
2. Differentiate between money and capital markets. x x x x x
3. Understand what foreign exchange markets are. x x x x x
4. Understand what derivative securities markets are.
x x x x x
5. Distinguish between the different types of financial institutions.
x x x x x x x
6. Know the services financial institutions perform.
x x x x x
7. Know the risks financial institutions face.
x x x x x
8. Appreciate why financial institutions are regulated.
x x x x x
9. Recognize that financial markets are becoming increasingly global.
x x x x x x x
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproduction
x x x x x x x x x x
or distribution without the prior written consent of McGraw Hill.
x x x x x x x x x x
1-1
, 8th Edition
III. Chapter in Perspective x x
This chapter has three major sections and one minor section. The text provides a
x x x x x x x x x x x x x
xgeneral overview of the major types of U.S. financial markets, focusing primarily on
x x x x x x x x x x x x
xterminology and descriptions of the major securities, market structures and regulators.
x x x x x x x x x x
xMarket microstructure is not discussed. Foreign exchange transactions are also briefly
x x x x x x x x x x
xintroduced. Second, the chapter describes the various types of financial institutions and
x x x x x x x x x x x
xexplains the risks they face and the services they provide to funds‘ users and funds‘
x x x x x x x x x x x x x x
xsuppliers. The financial crisis is discussed and the impact of Brexit is considered. The
x x x x x x x x x x x x x
xfinal section of the chapter provides statistics about the rapid growth of globalization of
x x x x x x x x x x x x x
xboth markets and institutions. An appendix covering the details of the financial crisis and
x x x x x x x x x x x x x
xthe government intervention programs, including the costs as of late 2009, is available
x x x x x x x x x x x x
xthrough McGraw Hill‘s Connect. Contact your McGraw Hill representative for more
x x x x x x x x x x
xinformation on making the appendix available to your students.
x x x x x x x x
IV. Key Concepts and Definitions to Communicate to Students
x x x x x x x
Financial markets x Primary markets x
Initial public offerings (IPO)
x x x Secondary markets x
Derivative security x Liquidity
Money markets x Over-the-counter (OTC) markets x x
Capital markets x Derivative security markets x x
Financial institutions x Direct transfer x
Price risk
x Indirect transfer x
Delegated monitor x Asset transformers x
Diversify Economies of scale x x
Enterprise risk management (ERM) x x x
Appendix terms include: x x
TARP Federal Reserve Rescue Efforts x x x
Federal Stimulus programs
x x American International Group x x
FDIC Bank takeovers
x x Other financial initiatives x x
Other housing initiatives
x x x
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproduction
x x x x x x x x x x
or distribution without the prior written consent of McGraw Hill.
x x x x x x x x x x
1-1
, 8th Edition
V. Teaching Notes x
a. Why Study Financial Markets and Institutions?
x x x x x
For an economy to achieve its potential growth rate, mechanisms must exist to
x x x x x x x x x x x x
xeffectively allocate capital (a scarce resource) to the best possible uses while accounting
x x x x x x x x x x x x
xfor the riskiness of the opportunities available. Markets and institutions have been created
x x x x x x x x x x x x
xto facilitate transfers of funds from economic agents with surplus funds to economic
x x x x x x x x x x x x
xagents in need of funds. For an economy to maximize its growth potential it must create
x x x x x x x x x x x x x x x
xmethods that attract savers‘ excess funds and then put those funds to the best uses
x x x x x x x x x x x x x x
xpossible, otherwise idle cash is not used as productively as possible. The funds transfer
x x x x x x x x x x x x x
xshould occur at as low a cost as possible to ensure maximum economic growth. Two
x x x x x x x x x x x x x x
xcompeting alternative methods exist: direct and indirect financing. In direct financing the
x x x x x x x x x x x
xultimate funds supplier purchases a claim from the funds demander with or without the
x x x x x x x x x x x x x
xhelp of an intermediary such as an underwriter. In this case, society relies on primary
x x x x x x x x x x x x x x
xmarkets to initially price the issue and then secondary markets to update the prices and
x x x x x x x x x x x x x x
xprovide liquidity. Trustees are appointed to monitor contractual obligations of issuers
x x x x x x x x x x
xand instigate enforcement actions for breach of contract terms. In indirect financing, the
x x x x x x x x x x x x
xfunds demander obtains financing from a financial intermediary. The intermediary and
x x x x x x x x x x
xthe borrower negotiate the terms and cost. The intermediary obtains funds by offering
x x x x x x x x x x x x
xdifferent claims to fund suppliers. In this case the intermediary is usually responsible for
x x x x x x x x x x x x x
xmonitoring the contractual conditions of the financing agreement and perhaps updating
x x x x x x x x x x
xthe cost if appropriate.
x x x
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproduction
x x x x x x x x x x
or distribution without the prior written consent of McGraw Hill.
x x x x x x x x x x
1-2
Solution Manual for Financial Markets And Institutions 8th Edition Anthony
x x x x x x x x x
Saunders
x
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproduction
x x x x x x x x x x
or distribution without the prior written consent of McGraw Hill.
x x x x x x x x x x
1-1
, 8th Edition
SOLUTION MANUAL FOR x x
FinancialMarkets AndInstitutions8th Edition Anthony Saunders
x x x x x x x
PartI x
IntroductionandOverviewof FinancialMarkets x
ChapterOne
Introductio
x
n
I. Chapter Outline x
1. Why Study Financial Markets and Institutions? Chapter Overview
x x x x x x x
2. Overview of Financial Markets x x x
a. Primary Markets versus Secondary Markets x x x x
b. Money Markets versus Capital Markets
x x x x
c. Foreign Exchange Markets x x
d. Derivative Security Markets x x
e. Financial Market Regulation x x
3. Overview of Financial Institutions x x x
a. Unique Economic Functions Performed by Financial Institutions
x x x x x x
b. Additional Benefits FIs Provide to Suppliers of Funds x x x x x x x
c. Economic Functions FIs Provide to the Financial System as a Whole
x x x x x x x x x x
d. Risks Incurred by Financial Institutions
x x x x
e. Regulation of Financial Institutions x x x
f. Trends in the United States x x x x
4. Globalization of Financial Markets and Institutions x x x x x
Appendix 1A: The Financial Crisis: The Failure of Financial Institutions‘ Specialness
x x x x x x x x x x
x(available through McGraw Hill‘s Connect. Contact your McGraw Hill representative for
x x x x x x x x x x
xmore information on making the appendix available to your students).
x x x x x x x x x
II. Learning Goals x
1. Differentiate between primary and secondary markets.
x x x x x
2. Differentiate between money and capital markets. x x x x x
3. Understand what foreign exchange markets are. x x x x x
4. Understand what derivative securities markets are.
x x x x x
5. Distinguish between the different types of financial institutions.
x x x x x x x
6. Know the services financial institutions perform.
x x x x x
7. Know the risks financial institutions face.
x x x x x
8. Appreciate why financial institutions are regulated.
x x x x x
9. Recognize that financial markets are becoming increasingly global.
x x x x x x x
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproduction
x x x x x x x x x x
or distribution without the prior written consent of McGraw Hill.
x x x x x x x x x x
1-1
, 8th Edition
III. Chapter in Perspective x x
This chapter has three major sections and one minor section. The text provides a
x x x x x x x x x x x x x
xgeneral overview of the major types of U.S. financial markets, focusing primarily on
x x x x x x x x x x x x
xterminology and descriptions of the major securities, market structures and regulators.
x x x x x x x x x x
xMarket microstructure is not discussed. Foreign exchange transactions are also briefly
x x x x x x x x x x
xintroduced. Second, the chapter describes the various types of financial institutions and
x x x x x x x x x x x
xexplains the risks they face and the services they provide to funds‘ users and funds‘
x x x x x x x x x x x x x x
xsuppliers. The financial crisis is discussed and the impact of Brexit is considered. The
x x x x x x x x x x x x x
xfinal section of the chapter provides statistics about the rapid growth of globalization of
x x x x x x x x x x x x x
xboth markets and institutions. An appendix covering the details of the financial crisis and
x x x x x x x x x x x x x
xthe government intervention programs, including the costs as of late 2009, is available
x x x x x x x x x x x x
xthrough McGraw Hill‘s Connect. Contact your McGraw Hill representative for more
x x x x x x x x x x
xinformation on making the appendix available to your students.
x x x x x x x x
IV. Key Concepts and Definitions to Communicate to Students
x x x x x x x
Financial markets x Primary markets x
Initial public offerings (IPO)
x x x Secondary markets x
Derivative security x Liquidity
Money markets x Over-the-counter (OTC) markets x x
Capital markets x Derivative security markets x x
Financial institutions x Direct transfer x
Price risk
x Indirect transfer x
Delegated monitor x Asset transformers x
Diversify Economies of scale x x
Enterprise risk management (ERM) x x x
Appendix terms include: x x
TARP Federal Reserve Rescue Efforts x x x
Federal Stimulus programs
x x American International Group x x
FDIC Bank takeovers
x x Other financial initiatives x x
Other housing initiatives
x x x
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproduction
x x x x x x x x x x
or distribution without the prior written consent of McGraw Hill.
x x x x x x x x x x
1-1
, 8th Edition
V. Teaching Notes x
a. Why Study Financial Markets and Institutions?
x x x x x
For an economy to achieve its potential growth rate, mechanisms must exist to
x x x x x x x x x x x x
xeffectively allocate capital (a scarce resource) to the best possible uses while accounting
x x x x x x x x x x x x
xfor the riskiness of the opportunities available. Markets and institutions have been created
x x x x x x x x x x x x
xto facilitate transfers of funds from economic agents with surplus funds to economic
x x x x x x x x x x x x
xagents in need of funds. For an economy to maximize its growth potential it must create
x x x x x x x x x x x x x x x
xmethods that attract savers‘ excess funds and then put those funds to the best uses
x x x x x x x x x x x x x x
xpossible, otherwise idle cash is not used as productively as possible. The funds transfer
x x x x x x x x x x x x x
xshould occur at as low a cost as possible to ensure maximum economic growth. Two
x x x x x x x x x x x x x x
xcompeting alternative methods exist: direct and indirect financing. In direct financing the
x x x x x x x x x x x
xultimate funds supplier purchases a claim from the funds demander with or without the
x x x x x x x x x x x x x
xhelp of an intermediary such as an underwriter. In this case, society relies on primary
x x x x x x x x x x x x x x
xmarkets to initially price the issue and then secondary markets to update the prices and
x x x x x x x x x x x x x x
xprovide liquidity. Trustees are appointed to monitor contractual obligations of issuers
x x x x x x x x x x
xand instigate enforcement actions for breach of contract terms. In indirect financing, the
x x x x x x x x x x x x
xfunds demander obtains financing from a financial intermediary. The intermediary and
x x x x x x x x x x
xthe borrower negotiate the terms and cost. The intermediary obtains funds by offering
x x x x x x x x x x x x
xdifferent claims to fund suppliers. In this case the intermediary is usually responsible for
x x x x x x x x x x x x x
xmonitoring the contractual conditions of the financing agreement and perhaps updating
x x x x x x x x x x
xthe cost if appropriate.
x x x
Copyright © 2022 McGraw Hill Education. All rights reserved. No reproduction
x x x x x x x x x x
or distribution without the prior written consent of McGraw Hill.
x x x x x x x x x x
1-2
