Financial Markets and Institutions – 9th Edition

Book Preface

Financial markets finance much of the expenditures by corporations, governments, and individuals. Financial institutions are the key intermediaries in financial markets because they transfer funds from savers to those who need funds. Financial Markets and Institu­tions, Ninth Edition, describes financial markets and the financial institutions that serve those markets. It provides a conceptual framework that can be used to understand why markets exist. Each type of financial market is described, with a focus on the securities that are traded in that market and the participation by financial institutions.

Today, many financial institutions offer all types of financial services, such as bank­ing, securities services, mutual fund services, and insurance services. Each type of finan­cial service is unique, however. Therefore, the discussion of financial services in this book is organized by type of financial service that can be offered by financial institutions.  The credit crisis has had an adverse effect across financial markets and institutions. Accordingly, this text gives special attention to the impact of the credit crisis on each type of financial market and financial institution.

INTENDED MARKET

This text is suitable for both undergraduate and master’s level courses in financial mar­kets, financial institutions, or both. To maximize students’ comprehension, some of the more difficult questions and problems should be assigned, along with the special applica­tions at the end of each chapter and the Comprehensive Project. A term paper on the credit crisis may also be a valuable exercise, and several possible topics for this paper are provided.

ORGANIZATION OF THE TEXT

Part 1 (Chapters 1 through 3) introduces the key financial markets and financial institu­tions, explains interest rate movements in the financial markets, and explains why yields vary among securities. Part 2 (Chapters 4 and 5) describes the functions of the Federal Reserve System (the Fed) and explains how its monetary policy influences interest rates and other economic conditions. Part 3 (Chapters 6 through 9) covers the major debt se­curity markets, Part 4 (Chapters 10 through 12) describes equity securities markets, and Part 5 (Chapters 13 through 16) covers the derivative security markets. Each chapter in Parts 3 through 5 focuses on a particular market. The integration of each market with other markets is stressed throughout these chapters. Part 6 (Chapters 17 through 20) con­centrates on commercial banking, and Part 7 (Chapters 21 through 25) covers all other types of financial services.  Courses that emphasize financial markets should focus on the first five parts (Chapters 1 through 16); however, some chapters in the section on commercial banking are also rel­evant. Courses that emphasize financial institutions and financial services should focus on Parts 1, 2, 6, and 7, although some background on securities markets (Parts 3, 4, and 5) may be helpful.  Professors who emphasize financial markets and institutions in their courses may wish to focus on certain chapters of this book and skip others, depending on the other courses available to their students. For example, if a course on derivative securities is commonly offered, Part 5 of this text may be ignored. Alternatively, if an investments course pro­vides a thorough background on types of securities, Parts 3 and 4 can be given less attention.

Chapters can be rearranged without a loss in continuity. Regardless of the order in which chapters are studied, it is highly recommended that the special exercises and se­lected questions in each chapter be assigned. These exercises may serve as a focal point for class discussion.

The credit crisis receives considerable emphasis in the mortgage markets chapter (Chapter 9) because it was primarily caused by activities in the mortgage market. The cri­sis has had an impact on every type of financial market and institution, however, so it is covered in each chapter as it applies to the contents of that chapter.