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Part I

Introduction

Chapter One

Why Study Financial Markets and Institutions?

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Why Study Financial Markets?

1. Channels funds from savers to investors, thereby promoting economic efficiency

2. Affects personal wealth and behavior of business firms

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Bond Market and Interest Rates

Complete list of interest rateshttp://www.federalreserve.gov/releases

Figure 1-1: Interest Rates on Selected Bonds, 1950–2001

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Stock Market

Figure 1-2: Stock Prices as Measured by the Dow Jones Industrial Average, 1950–2001

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Foreign Exchange Market

Figure 1-3: Exchange Rate of the U.S. Dollar for a Basket of Foreign Currencies, 1970–2002

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Why Study Financial Institutions?

1. Central Banks and the Conduct of Monetary Policy

2. Structure of the Financial System– Helps get funds from savers to investors

3. Banks and Other Financial Institutions

4. Financial Innovation

5. Managing Risk

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How We Study Financial Markets and Institutions

• Basic Analytic Framework1. Simplified approach to the demand for assets

2. Concept of equilibrium

3. Basic supply and demand approach to understand behavior in financial markets

4. Search for profits

5. Transactions cost and asymmetric information approach to financial structure

6. Aggregate supply and demand analysis

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How We Study Financial Markets and Institutions

• Features1. Case studies

2. Applications and Numerical Examples

3. Special Interest Boxes

4. Following the Financial News boxes

5. Reading the Wall Street Journal

6. Practicing Financial Institution Manager applications

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Exploring the Web

• Web Exercise: Historical Relationship Between Long- and Short-Term Interest Rates

Exploring the Web

Exploring the Web

Exploring the Web