Financial markets and institutions. 9th ed PDF
Preview Financial markets and institutions. 9th ed
Credit Crisis Timeline Jan. 3, 2007 Ownit Mortgage Solutions, Nov. 21, 2007 Freddie Mac announces a July 11, 2008 The Offi ce of Thrift Supervision Oct. 3, 2008 Wachovia, a large commercial a large subprime mortgage lender, fi les for $2 billion loss due to mortgage defaults. (OTS) closes IndyMac, a large savings institution. bank, experiences major losses due to mortgage bankruptcy due to mortgage defaults. defaults and is acquired by Wells Fargo. Jan.11, 2008 Bank of America announces July 13, 2008 The Fed approves lending to Feb. 5, 2007 Mortgage Lenders Network, plans to acquire Countrywide Financial Fannie Mae and Freddie Mac, which are struggling Oct. 7, 2008 The Fed announces a facility a large subprime mortgage lender, fi les for (which was involved in the origination of fi nancially. to provide a liquidity backup to issuers of bankruptcy due to mortgage defaults. many subprime loans). commercial paper. July 15, 2008 The SEC prohibits naked short March 20, 2007 People’s Choice Home Loan Inc., Jan. 22, 2008 The Fed reduces the federal selling of securities issued by Fannie Mae, Freddie Oct. 7, 2008 The Fed announces that deposit a large subprime mortgage lender, fi les for funds rate by .75%, to 3.5%. Mac, and fi nancial institutions that insurance will be temporarily boosted to $250,000. bankruptcy due to mortgage defaults. serve as primary dealers of securities. Jan. 30, 2008 The Fed reduces the federal Oct. 8, 2008 The FOMC reduces the federal April 3, 2007 New Century Financial, a large funds rate by .50%, to 3.0%. Sept. 7, 2008 The U.S. government takes control funds rate by .50%, to 1.50%. subprime mortgage lender, fi les for bankruptcy of Fannie Mae and Freddie Mac. due to mortgage defaults. Feb. 13, 2008 President Bush signs Economic Oct. 29, 2008 The FOMC reduces the federal Stimulus Act. Sept. 15, 2008 Lehman Brothers Inc. fi les funds rate by .50%, to 1.00%. April 12, 2007 SouthStar Funding LLC, a large for bankruptcy. subprime mortgage lender, fi les for bankruptcy March 11, 2008 The Fed creates the Term Nov. 12, 2008 The U.S. Treasury Department due to mortgage defaults. Securities Facility, in which it will lend up to Sept. 16, 2008 The Fed agrees to lend up announces that it will not use the TARP facility $200 billion of Treasury securities in exchange to $85 billion to American International to purchase illiquid assets. June 22, 2007 Bear Stearns, a large securities for various types of debt for 28-day terms. Group (AIG). fi rm, lends $3.2 billion to one of its hedge funds Dec. 16, 2008 The FOMC reduces the federal that incurred large losses due to defaults on March 11, 2008 Bear Stearns, a major securities Sept. 17, 2008 The SEC announces a temporary funds rate by .75%, to .25%. subprime mortgages. fi rm, struggles to cover its debt obligations. The ban on short selling of all stocks in fi nancial sector. Fed provides fi nancing to facilitate J.P. Morgan July 16, 2007 Alliance Bancorp, a large subprime Chase’s acquisition of Bear Stearns. Sept. 19, 2008 The U.S. Treasury department mortgage lender, fi les for bankruptcy due to announces a program that will guarantee mortgage defaults. March 16, 2008 The Fed establishes the Primary investments in money market funds. Dealer Credit Facility, which provides credit to Aug. 7, 2007 American Home Mortgage, a large primary dealers. Sept. 21, 2008 The Fed approves applications subprime mortgage lender, fi les for bankruptcy of securities fi rms Goldman Sachs and Morgan due to mortgage defaults. March 18, 2008 The FOMC reduces the Stanley to become commercial banks. federal funds rate by .75%, to 2.25%. Aug. 28, 2007 The National Association of Sept. 25, 2008 The Offi ce of Thrift Supervision Realtors reports that the supply of homes available April 3, 2008 The FOMC reduces the closes Washington Mutual, a large savings is at its highest level in 16 years. federal funds rate by .25%, to 2%. institution that experienced major mortgage default problems. J.P. Morgan Chase is provided Oct. 31, 2007 Merrill Lynch announces that it government funding to acquire Washington would write down almost $8 billion in debt due to Mutual operations. exposure to the subprime mortgage market. 99778811443399003388884400__eess__ffrr..iinndddd 11--22 88//1188//0099 44::3388::3311 PPMM Credit Crisis Timeline Jan. 3, 2007 Ownit Mortgage Solutions, Nov. 21, 2007 Freddie Mac announces a July 11, 2008 The Offi ce of Thrift Supervision Oct. 3, 2008 Wachovia, a large commercial a large subprime mortgage lender, fi les for $2 billion loss due to mortgage defaults. (OTS) closes IndyMac, a large savings institution. bank, experiences major losses due to mortgage bankruptcy due to mortgage defaults. defaults and is acquired by Wells Fargo. Jan.11, 2008 Bank of America announces July 13, 2008 The Fed approves lending to Feb. 5, 2007 Mortgage Lenders Network, plans to acquire Countrywide Financial Fannie Mae and Freddie Mac, which are struggling Oct. 7, 2008 The Fed announces a facility a large subprime mortgage lender, fi les for (which was involved in the origination of fi nancially. to provide a liquidity backup to issuers of bankruptcy due to mortgage defaults. many subprime loans). commercial paper. July 15, 2008 The SEC prohibits naked short March 20, 2007 People’s Choice Home Loan Inc., Jan. 22, 2008 The Fed reduces the federal selling of securities issued by Fannie Mae, Freddie Oct. 7, 2008 The Fed announces that deposit a large subprime mortgage lender, fi les for funds rate by .75%, to 3.5%. Mac, and fi nancial institutions that insurance will be temporarily boosted to $250,000. bankruptcy due to mortgage defaults. serve as primary dealers of securities. Jan. 30, 2008 The Fed reduces the federal Oct. 8, 2008 The FOMC reduces the federal April 3, 2007 New Century Financial, a large funds rate by .50%, to 3.0%. Sept. 7, 2008 The U.S. government takes control funds rate by .50%, to 1.50%. subprime mortgage lender, fi les for bankruptcy of Fannie Mae and Freddie Mac. due to mortgage defaults. Feb. 13, 2008 President Bush signs Economic Oct. 29, 2008 The FOMC reduces the federal Stimulus Act. Sept. 15, 2008 Lehman Brothers Inc. fi les funds rate by .50%, to 1.00%. April 12, 2007 SouthStar Funding LLC, a large for bankruptcy. subprime mortgage lender, fi les for bankruptcy March 11, 2008 The Fed creates the Term Nov. 12, 2008 The U.S. Treasury Department due to mortgage defaults. Securities Facility, in which it will lend up to Sept. 16, 2008 The Fed agrees to lend up announces that it will not use the TARP facility $200 billion of Treasury securities in exchange to $85 billion to American International to purchase illiquid assets. June 22, 2007 Bear Stearns, a large securities for various types of debt for 28-day terms. Group (AIG). fi rm, lends $3.2 billion to one of its hedge funds Dec. 16, 2008 The FOMC reduces the federal that incurred large losses due to defaults on March 11, 2008 Bear Stearns, a major securities Sept. 17, 2008 The SEC announces a temporary funds rate by .75%, to .25%. subprime mortgages. fi rm, struggles to cover its debt obligations. The ban on short selling of all stocks in fi nancial sector. Fed provides fi nancing to facilitate J.P. Morgan July 16, 2007 Alliance Bancorp, a large subprime Chase’s acquisition of Bear Stearns. Sept. 19, 2008 The U.S. Treasury department mortgage lender, fi les for bankruptcy due to announces a program that will guarantee mortgage defaults. March 16, 2008 The Fed establishes the Primary investments in money market funds. Dealer Credit Facility, which provides credit to Aug. 7, 2007 American Home Mortgage, a large primary dealers. Sept. 21, 2008 The Fed approves applications subprime mortgage lender, fi les for bankruptcy of securities fi rms Goldman Sachs and Morgan due to mortgage defaults. March 18, 2008 The FOMC reduces the Stanley to become commercial banks. federal funds rate by .75%, to 2.25%. Aug. 28, 2007 The National Association of Sept. 25, 2008 The Offi ce of Thrift Supervision Realtors reports that the supply of homes available April 3, 2008 The FOMC reduces the closes Washington Mutual, a large savings is at its highest level in 16 years. federal funds rate by .25%, to 2%. institution that experienced major mortgage default problems. J.P. Morgan Chase is provided Oct. 31, 2007 Merrill Lynch announces that it government funding to acquire Washington would write down almost $8 billion in debt due to Mutual operations. exposure to the subprime mortgage market. 99778811443399003388884400__eess__ffrr..iinndddd 11--22 88//1188//0099 44::3388::3311 PPMM Financial Markets and Institutions This page intentionally left blank Financial Markets and Institutions 9TH EDITION J E F F M A D U R A Florida Atlantic University Australia(cid:129)Brazil(cid:129)Japan(cid:129)Korea(cid:129)Mexico(cid:129)Singapore(cid:129)Spain(cid:129)UnitedKingdom(cid:129)UnitedStates FinancialMarketsandInstitutions, ©2010,2008South-Western,apartofCengageLearning 9thEdition JeffMadura ALLRIGHTSRESERVED.Nopartofthisworkcoveredbythecopyrighthereon maybereproducedorusedinanyformorbyanymeans—graphic,electronic,or VPofEditorial,Business:JackW.Calhoun mechanical,includingphotocopying,recording,taping,Webdistribution,infor- Publisher:JoeSabatino mationstorageandretrievalsystems,orinanyothermanner—exceptasmaybe ExecutiveEditor:MichaelR.Reynolds permittedbythelicensetermsherein. 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Foryourcourseandlearningsolutions,visitacademic.cengage.com Purchaseanyofourproductsatyourlocalcollegestoreoratourpreferredon- linestorewww.ichapters.com Printed in Canada 1 2 3 4 5 6 7 13 12 11 10 09 This text is dedicated to Best Friends Animal Sanctuary in Kanab, Utah, for its commitment to, compassion for, and care of more than 1,500 animals, many of which were previously homeless. Most of the royalties the author receives from this text will be invested in an estate that will ultimately be donated to Best Friends. This page intentionally left blank Brief Contents PART 1: Overview of the Financial Environment 1 1 Role of Financial Markets and Institutions, 3 2 Determination of Interest Rates, 29 3 Structure of Interest Rates, 49 PART 2:The Fed and Monetary Policy 79 4 Functions of the Fed, 81 5 Monetary Policy, 99 PART 3:Debt Security Markets 123 6 Money Markets, 125 7 Bond Markets, 149 8 Bond Valuation and Risk, 173 9 Mortgage Markets, 205 PART 4:Equity Markets 227 10 Stock Offerings and Investor Monitoring, 229 11 Stock Valuation and Risk, 263 12 Market Microstructure and Strategies, 303 PART 5:Derivative Security Markets 323 13 Financial Futures Markets, 325 14 Options Markets, 353 15 Swap Markets, 391 16 Foreign Exchange Derivative Markets, 417 PART 6:Commercial Banking 459 17 Commercial Bank Operations, 461 18 Bank Regulation, 481 19 Bank Management, 499 20 Bank Performance, 527 PART 7: Nonbank Operations 543 21 Thrift Operations, 545 22 Finance Operations, 567 23 Mutual Fund Operations, 579 24 Securities Operations, 615 25 Insurance and Pension Fund Operations, 641 Appendix A: Comprehensive Project, 677 Appendix B: Using Excel to Conduct Analyses, 687 Glossary, 691 Index, 705 vii
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