Summary Financial Markets and Institutions 10th Global Edition
Exam summary - all chapters
(To the point, no blabla)
Financial Markets and Institutions
10th Global Edition from 2023
Frederic Mishkin
9781292459547
Pages book: 684
This summary: 40 (extra pages are test questions and concepts)
+ 88 common exam questions and answers (beginner-level –
answers separate)
+ 55 key core concepts explained
,Summary Financial Markets and Institutions 10th Global Edition
,Summary Financial Markets and Institutions 10th Global Edition
, Summary Financial Markets and Institutions 10th Global Edition
Part 1: Introduction
Security
A security is a claim on the issuer’s future income or assets (any financial claim or piece of property
that is subject to ownership). A bond is a debt security that promises to make payments periodically
for a specified period of time. An interest rate is the cost of borrowing or the price paid for the rental
of funds. High interest rates can stimulate you to save more and spend (borrow) less.
Common stock
A common stock represents a share (aandeel) of ownership in a corporation. It is a security that is a
claim on the earnings and assets of the corporation. Issuing stock and selling it to the public is a way
for corporations to raise funds to finance their activities. The stock market is also an important factor
in business investment decisions, because the price of shares affects the amount of funds that can be
raised by selling newly issues stock to finance investment spending. A higher price for a firm’s shares
means that it can raise a larger amount of funds, which can be used to buy production facilities and
equipment.
Foreign exchange market
For funds to be transferred from one country to another, they have to be converted from the
currency in the country of origin into the currency of the country they are going to. The foreign
exchange market is where this conversion takes place. This is also the place where the foreign
exchange rate is determined. The foreign exchange rate is very important for the public and business.
A strong dollar means that US goods exported abroad will cost more in foreign countries, hence
foreigners will buy less of them, and vice versa.
If you wanted to make a loan to IBM or General Motors, you would not go directly to the president of
that company. Instead, you lend to such companies indirect through financial intermediaries,
institutions such as commercial banks, savings and loan associations, mutual savings banks, credit
unions, insurance companies, mutual funds, pension funds, and finance companies that borrow
funds from people who have saved and in turn make loans to others.
The tremendous increase in capital flows between countries means that the international financial
system has a growing impact on domestic economies.
, Summary Financial Markets and Institutions 10th Global Edition
Banks are financial institutions that accept deposits and make loans. Banks are the financial
intermediaries that the average person interacts with most frequently by having checking accounts,
saving accounts, or other types of bank deposits.
Part 2: Financial System Overview
Financial markets
Financial markets perform the essential economic function of channelling funds from households,
firms, and governments that have saved surplus funds by spending less than their income to those
that have a shortage of funds because they wish to spend more than their income. In direct finance
borrowers borrow funds directly from lenders in financial markets by selling them securities, which
are claims on the borrower’s future income or assets. Securities are assets for the person who buys
them, but they are liabilities for the individual or firm that sells (issues) them.
Capital
Financial markets are crucial for producing an efficient allocation of capital, which contributes to
higher production and efficiency for the overall economy. A firm or individual can obtain funds in a
financial market in two ways.
(1) The most common method is to issue a debt instrument, such as a bond or a mortgage,
which is a contractual agreement by the borrower to pay the holder of the instrument fixed
dollar amounts at regular intervals (interest and principal payments) until a specified date
(maturity), when a final payment is made. Short-term is less than a year, long-term is ten
years plus. In between intermediate- term.
(2) Issuing equities, such as common stock, which are claims to share in the net income (income
after expenses and taxes) and the assets of a business. Equities often make periodic
payments called dividends to their holders and are considered long-term securities because
they have no maturity date.
The main disadvantage of owning a corporation’s equities rather than its debt is that an equity
holder is a residual claimant, meaning that the corporation must pay all its debt holders before it
pays its equity holders. The advantage of holding equities is that equity holders benefit directly from
any increases in the corporation’s profitability or asset value because equities confer ownership
rights on the equity holders.
Primary market
A primary market is a financial market in which new issues of a security, such as a bond or a stock,
Exam summary - all chapters
(To the point, no blabla)
Financial Markets and Institutions
10th Global Edition from 2023
Frederic Mishkin
9781292459547
Pages book: 684
This summary: 40 (extra pages are test questions and concepts)
+ 88 common exam questions and answers (beginner-level –
answers separate)
+ 55 key core concepts explained
,Summary Financial Markets and Institutions 10th Global Edition
,Summary Financial Markets and Institutions 10th Global Edition
, Summary Financial Markets and Institutions 10th Global Edition
Part 1: Introduction
Security
A security is a claim on the issuer’s future income or assets (any financial claim or piece of property
that is subject to ownership). A bond is a debt security that promises to make payments periodically
for a specified period of time. An interest rate is the cost of borrowing or the price paid for the rental
of funds. High interest rates can stimulate you to save more and spend (borrow) less.
Common stock
A common stock represents a share (aandeel) of ownership in a corporation. It is a security that is a
claim on the earnings and assets of the corporation. Issuing stock and selling it to the public is a way
for corporations to raise funds to finance their activities. The stock market is also an important factor
in business investment decisions, because the price of shares affects the amount of funds that can be
raised by selling newly issues stock to finance investment spending. A higher price for a firm’s shares
means that it can raise a larger amount of funds, which can be used to buy production facilities and
equipment.
Foreign exchange market
For funds to be transferred from one country to another, they have to be converted from the
currency in the country of origin into the currency of the country they are going to. The foreign
exchange market is where this conversion takes place. This is also the place where the foreign
exchange rate is determined. The foreign exchange rate is very important for the public and business.
A strong dollar means that US goods exported abroad will cost more in foreign countries, hence
foreigners will buy less of them, and vice versa.
If you wanted to make a loan to IBM or General Motors, you would not go directly to the president of
that company. Instead, you lend to such companies indirect through financial intermediaries,
institutions such as commercial banks, savings and loan associations, mutual savings banks, credit
unions, insurance companies, mutual funds, pension funds, and finance companies that borrow
funds from people who have saved and in turn make loans to others.
The tremendous increase in capital flows between countries means that the international financial
system has a growing impact on domestic economies.
, Summary Financial Markets and Institutions 10th Global Edition
Banks are financial institutions that accept deposits and make loans. Banks are the financial
intermediaries that the average person interacts with most frequently by having checking accounts,
saving accounts, or other types of bank deposits.
Part 2: Financial System Overview
Financial markets
Financial markets perform the essential economic function of channelling funds from households,
firms, and governments that have saved surplus funds by spending less than their income to those
that have a shortage of funds because they wish to spend more than their income. In direct finance
borrowers borrow funds directly from lenders in financial markets by selling them securities, which
are claims on the borrower’s future income or assets. Securities are assets for the person who buys
them, but they are liabilities for the individual or firm that sells (issues) them.
Capital
Financial markets are crucial for producing an efficient allocation of capital, which contributes to
higher production and efficiency for the overall economy. A firm or individual can obtain funds in a
financial market in two ways.
(1) The most common method is to issue a debt instrument, such as a bond or a mortgage,
which is a contractual agreement by the borrower to pay the holder of the instrument fixed
dollar amounts at regular intervals (interest and principal payments) until a specified date
(maturity), when a final payment is made. Short-term is less than a year, long-term is ten
years plus. In between intermediate- term.
(2) Issuing equities, such as common stock, which are claims to share in the net income (income
after expenses and taxes) and the assets of a business. Equities often make periodic
payments called dividends to their holders and are considered long-term securities because
they have no maturity date.
The main disadvantage of owning a corporation’s equities rather than its debt is that an equity
holder is a residual claimant, meaning that the corporation must pay all its debt holders before it
pays its equity holders. The advantage of holding equities is that equity holders benefit directly from
any increases in the corporation’s profitability or asset value because equities confer ownership
rights on the equity holders.
Primary market
A primary market is a financial market in which new issues of a security, such as a bond or a stock,
