Financial Markets and Institutions (2-downloads)

Journal, 127

Hedge funds, 459, 503–6

Hedging, 590–620

with credit derivatives, 616–19

defined, 590–91

with financial derivatives, 590–619

with financial futures markets,

593–601

foreign exchange risk, 601–2

with forward contracts, 601–2

with forward markets, 591–93

with futures options, 611–13

with interest-rate futures, 596

with interest-rate swaps, 613–16

with options, 606–13

principle of, 590, 595, 601

with stock index futures, 603–5

Hierarchical mandates, 236

High-growth firms, 313

Highly leveraged transaction loans, 444

High-risk borrowers, 173

High-tech companies

stock market crash and, 130

venture-capital firms and, 558–59

Historical-cost accounting, 437

Home banking, 460

Honeywell, 534

Hong Kong, 385, 389

Hostile takeovers, 551

Hot tips, 128

Households, capital market securities 

and, 280

Housing price bubble, 173, 174, 339–40

Housing prices

Federal Reserve and, 174

financial crisis of 2007–2009 and,

172–73, 173f

in Ireland, 177

Humphrey-Hawkins Act of 1978, 202–3

Hunt, Nelson Bunker, 600

Hunt, W. Herbert, 600

Hybrid funds, 497f, 498

Hyperinflation, 232

I

Iguchi, Toshihide, 416

ImClone, 553

Import demand, 352t, 358, 359t, 360

Incentive-compatible debt contracts, 149

Income gap analysis, 574–76, 581–84

Income statements, for banks, 

417–19, 418t

Income taxes. See taxes

Indentures, 291, 296t, 299

Independent insurance agents, 516–17

Indexed bonds, 50, 51

Index funds, 500–501

Indirect finance, 22–27, 135–36, 144

Individual retirement accounts (IRAs),

491, 539–40

Individuals

capital market securities and, 280

money market participation, 

259t, 260

Indonesia, 187, 389

Inflation

adjusting for, 88

central banks and, 211, 233

consumer price indexes and, 241n

currency crises and, 183

Federal Reserve and, 184, 186, 209

foreign exchange rates and, 360–61

in Germany, 386–87

interest rates and, 87

investment returns and, 88

monetary policy and, 246

price stability goal and, 232–33

Index

I-11

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Treasury bills interest rates and,

263–64

Treasury securities and, 283f

Inflation, expected, 73t

interest rates and, 48–49, 75, 76–77,

78–79

Inflation-indexed bonds, 282

Inflation Report (Bank of England), 

238, 239

Inflation targeting, 237–52

advantages of, 238–40, 250

Bernanke, Ben, and, 241, 242

in Canada, 238, 241

communication about, 238

disadvantages of, 240–42, 250

economic growth and, 241–42

elements of, 237

Federal Reserve and, 237n, 241, 242

in Japan, 240

in New Zealand, 237–38, 239, 241

in United Kingdom, 238, 240

Information. See asymmetric information;

financial information

Information technology, 459–65

bank consolidation and, 476

bank credit and debit cards, 459–60

commercial paper market, 464

defined, 459

electronic banking, 460–61

electronic payment, 461

e-money, 462–63

junk bonds, 463–64

securitization, 464–65

Initial public offerings (IPOs), 280

defined, 156

pricing, 546

spinning and, 156

U.S. vs. foreign, 21

In liability risk exposure, 525

Insider information, 556–57

Insiders, 31

Insider trading, 31, 122

Instinet, 306

Instrument independence, 202

Insurance. See also health insurance; life

insurance; property and casualty

insurance

adverse selection in, 515–16, 540

beneficiaries, 515

cancellation policies, 528

coinsurance, 529

credit default swaps, 529–31

deductibles, 516, 528–29

fraud prevention, 528

insured parties, 515

limits on amount of, 529

loss principles, 515

moral hazard in, 516, 540

on pension plans, 538

probability distributions and, 519–20

restrictive provisions, 528

risk-adverse behavior and, 514

risk-based premiums, 527–28

risk reduction contract terms, 516

selling, 516–17

types of, 518–25

Insurance agents, 516–17

Insurance brokers, 526

Insurance companies, 514–31

adverse selection and, 515–16, 527

conflicts of interest and, 526

employment by, 513, 514f

as financial intermediaries, 513

fundamentals of, 515–17

growth and organization of, 517

management, 526–29

money markets and, 259t, 260

monoline, 531

moral hazard and, 515–16, 527

mutual insurance company

organization of, 517

pension plans vs., 513

premiums charged by, 514

regulation, 525–27

revenues, 513

sales, 516–17

screening by, 527

stock company organization of, 517

underwriters, 517

Insurance company management, 526–29

adverse selection and, 527

coinsurance, 529

deductibles, 528–29

fraud prevention, 528

insurance cancellation, 528

limits on amount of insurance, 529

restrictive provisions, 528

screening by, 527

Insurance fraud, 528

Insurance regulation, 525–26

Insured mortgages, 330, 333t

Insured persons, 515

Inter-American Development Bank, 384

Interbank Card Association, 459

Interest expenses, for banks, 417

Interest income, for banks, 417

Interest parity condition, 370, 372–73

Interest-rate forward contracts, 

591–93, 619

Interest-rate futures, hedging with, 596

Interest-rate risk, 573–85

adjustable-rate mortgages and, 

330–31, 458

bank management of, 405, 415

in bond market, 298

bond term to maturity and, 104

calculating duration to measure, 

55–56, 57t

defined, 53–54, 568

duration and, 60–61

duration gap analysis, 576–85

financial derivatives and, 459

futures options and, 611–13

hedging with forward contracts,

591–92

helping investors select, 54

income gap analysis, 574–76

management of, 572–85

reinvestment risk, 54

strategies, 584–85

Interest rates

on adjustable-rate mortgages 

(ARMs), 330

bond prices and, 53, 64

on bonds, 2–3, 3n, 36, 47, 51–53,

89–90

business cycle expansion and, 

79–80, 81

on commercial paper, 273f

defined, 2

discount rate, 216

duration and, 58

economy and, 79–82

equilibrium (market-clearing), 71

expectations theory and, 97–102

expected inflation and, 78–79

on federal funds, 265–66, 273f

federal funds rate, 217–18

financial crises and, 165f, 166–67, 181,

182, 183

Fisher effect and, 78–79

on fixed-rate mortgages, 330

fluctuations in, 2, 64

forecasting, 84–85, 108, 110–12

foreign exchange rates and, 355–57,

356f, 358, 359t, 360–61

graphing, 10–12

importance of, 2, 36

income taxes and, 94–96

inflation and, 87

in Japan, 47, 81–82

limitations on, 256

liquidity and, 93–94

liquidity premium theory and, 97–98,

103–6

long-term, 10, 102n, 103

market segmentation theory and,

97–98, 102–3

mean-reversing, 102n

measuring, 37–47

on money market securities, 273, 276

on mortgages, 325–27

on municipal bonds, 94–96

negative, 47, 81–82

on negotiable certificates of deposit,

267, 273f

nominal, 48–50, 363, 364f

present value, 37–39

for primary credit, 226

rate of return and, 50–61

I-12

Index

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real, 48–50, 363, 364f

on repurchase agreements

(repos), 267

on reserves, 218, 221

restrictions on, 33

risk structure of, 89–96

for seasonal credit, 227

for secondary credit, 227

short-term, 10, 102n, 103

simple, 37–38

spikes in, 165f, 166–67

term structure of, 89, 96–112

on Treasury bills, 64, 263–64, 268f,

273f, 283f

on Treasury bonds, 94–96, 282, 283f

U.S. dollar and, 362–63

volatility of, 458

yield to maturity, 36, 40–47

Interest-rate stability, 234–35

Interest-rate swaps, 613–16

advantages and disadvantages of,

615–16

defined, 620

financial intermediaries in, 616

hedging with, 613–14

types of, 613

Intermediate cash payments, 54n

Intermediate targets, 246

Intermediate-term debt instruments, 18

Internal rate of return, 43n

Internal Revenue Service (IRS)

bearer bonds and, 289

insurance company dividends

policy, 517

International Bank for Reconstruction

and Development (World 

Bank), 381

International banking, 483–86

International Banking Act of 1978, 486

International banking facilities

(IBFs), 485

International bond market, 20–21

International financial systems, 7,

374–95, 483–86. See also

emerging market economies;

financial globalization

balance of payments, 379–80

banking crises, 445–48

capital controls, 391–92

Eurodollar market, 483–84

exchange rate regimes in, 380–91

financial crisis of 2007–2009 and, 176

financial futures markets, 597–98

financial markets, 20–22

foreign banks in the U.S., 485–86

International Monetary Fund and,

392–94

intervention in, 374–78

regulation, 440

U.S. banking overseas, 485

International Monetary Fund (IMF), 187,

381, 384

as international lender of last resort,

392–94

International reserves, 374

International Steel Group, Inc., 539

International trade, 483–84

Internet

for financial research, 9

long- and short-term interest rates

exercise, 10–12

mortgage sources on, 334, 335

online banking, 461–62

online-only banks, 461

Internet companies, 563

Interstate banking, 476, 477–78

Inverted yield curves, 96–97

Investment advisors

con men, 128

index funds vs., 500–501

mutual funds and, 491, 500–501, 503

value of information provided by,

120–21, 127, 129

Investment Advisors Act of 1940, 441t,

503, 557

Investment analysis

efficient market hypothesis and,

120–21

value computations, 307–8

Investment bankers

regulation of, 556–57

securities advice given by, 545–46

Investment banking research, 155–56

Investment banks, 18, 544–52.