Financial Markets and Institutions (2-downloads)

Bond Funds

498

Hybrid Funds

498

Money Market Funds

499

Index Funds

500

Fee Structure of Investment Funds

501

Regulation of Mutual Funds

502

Hedge Funds

503

■ MINI-CASE

The Long Term Capital Debacle

505

Conflicts of Interest in the Mutual Fund Industry

506

■ CONFLICTS OF INTEREST

Many Mutual Funds Are Caught 

Ignoring Ethical Standards

507

Sources of Conflicts of Interest

506

Mutual Fund Abuses

507

■ CONFLICTS OF INTEREST

SEC Survey Reports Mutual Fund 

Abuses Widespread

509

Government Response to Abuses

509

Summary

510

Key Terms

510

Questions

511

Quantitative Problems

511

Web Exercises

512

Chapter 21 Insurance Companies and Pension Funds

513

Preview

513

Insurance Companies

514

Fundamentals of Insurance

515

Adverse Selection and Moral Hazard in Insurance

515

Selling Insurance

516

■ MINI-CASE

Insurance Agent: The Customer’s Ally

517

Growth and Organization of Insurance Companies

517

Types of Insurance

518

Life Insurance

518

Health Insurance

522

Property and Casualty Insurance

524

Insurance Regulation

525

■ CONFLICTS OF INTEREST

Insurance Behemoth Charged with 

Conflicts of Interest Violations

526

■ THE PRACTICING MANAGER

Insurance Management

526

Screening

527

Risk-Based Premium

527

Restrictive Provisions

528

Prevention of Fraud

528

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xxiv

Contents in Detail

Cancellation of Insurance

528

Deductibles

528

Coinsurance

529

Limits on the Amount of Insurance

529

Summary

529

Credit Default Swaps

529

■ CONFLICTS OF INTEREST

The AIG Blowup

530

Pensions

531

■ CONFLICTS OF INTEREST

The Subprime Financial Crisis and 

the Monoline Insurers

531

Types of Pensions

532

Defined-Benefit Pension Plans

532

Defined-Contribution Pension Plans

532

Private and Public Pension Plans

533

■ MINI-CASE

Power to the Pensions

534

Regulation of Pension Plans

537

Employee Retirement Income Security Act

537

Individual Retirement Plans

539

The Future of Pension Funds

540

Summary

540

Key Terms

541

Questions

541

Quantitative Problems

541

Web Exercises

542

Chapter 22 Investment Banks, Security Brokers and Dealers, 

and Venture Capital Firms

543

Preview

543

Investment Banks

544

Background

544

Underwriting Stocks and Bonds

545

■ FOLLOWING THE FINANCIAL NEWS

New Securities Issues

548

Equity Sales

550

Mergers and Acquisitions

551

Securities Brokers and Dealers

552

Brokerage Services

553

Securities Dealers

555

■ MINI-CASE

Example of Using the Limit-Order Book

556

Regulation of Securities Firms

556

Relationship Between Securities Firms and Commercial Banks

558

Private Equity Investment

558

Venture Capital Firms

558

Private Equity Buyouts

562

Advantages to Private Equity Buyouts

563

■ E-FINANCE

Venture Capitalists Lose Focus with Internet Companies

563

Life Cycle of the Private Equity Buyout

564

---

Contents in Detail 

xxv

Summary

564

Key Terms

565

Questions

565

Quantitative Problems

566

Web Exercises

567

PART SEVEN THE MANAGEMENT OF FINANCIAL INSTITUTIONS

Chapter 23 Risk Management in Financial Institutions

568

Preview

568

Managing Credit Risk

569

Screening and Monitoring

569

Long-Term Customer Relationships

570

Loan Commitments

571

Collateral

571

Compensating Balances

572

Credit Rationing

572

Managing Interest-Rate Risk

573

Income Gap Analysis

574

Duration Gap Analysis

576

Example of a Nonbanking Financial Institution

581

Some Problems with Income Gap and Duration Gap Analyses

582

■ THE PRACTICING MANAGER

Strategies for Managing Interest-Rate Risk

584

Summary

585

Key Terms

586

Questions

586

Quantitative Problems

586

Web Exercises

589

Chapter 24 Hedging with Financial Derivatives

590

Preview

590

Hedging

590

Forward Markets

591

Interest-Rate Forward Contracts

591

■ THE PRACTICING MANAGER

Hedging Interest-Rate Risk with 

Forward Contracts

591

Pros and Cons of Forward Contracts

592

Financial Futures Markets

593

Financial Futures Contracts

593

■ FOLLOWING THE FINANCIAL NEWS

Financial Futures

594

■ THE PRACTICING MANAGER

Hedging with Financial Futures

595

Organization of Trading in Financial Futures Markets

597

Globalization of Financial Futures Markets

597

Explaining the Success of Futures Markets

598

■ MINI-CASE

The Hunt Brothers and the Silver Crash

600

■ THE PRACTICING MANAGER

Hedging Foreign Exchange Risk with 

Forward and Futures Contracts

601

---

xxvi

Contents in Detail

Hedging Foreign Exchange Risk with Forward Contracts

601

Hedging Foreign Exchange Risk with 

Futures Contracts

602

Stock Index Futures

603

Stock Index Futures Contracts

603

■ MINI-CASE

Program Trading and Portfolio Insurance: 

Were They to Blame for the Stock Market Crash of 1987?

603

■ FOLLOWING THE FINANCIAL NEWS

Stock Index Futures

604

■ THE PRACTICING MANAGER

Hedging with Stock Index Futures

605

Options

606

Option Contracts

606

Profits and Losses on Option and Futures Contracts

607

Factors Affecting the Prices of Option Premiums

610

Summary

611

■ THE PRACTICING MANAGER

Hedging with Futures Options

613

Interest-Rate Swaps

613

Interest-Rate Swap Contracts

613

■ THE PRACTICING MANAGER

Hedging with Interest-Rate Swaps

613

Advantages of Interest-Rate Swaps

615

Disadvantages of Interest-Rate Swaps

615

Financial Intermediaries in Interest-Rate Swaps

616

Credit Derivatives

616

Credit Options

616

Credit Swaps

617

Credit-Linked Notes

617

■ CASE

Lessons from the Subprime Financial Crisis: When Are 

Financial Derivatives Likely to Be a Worldwide Time Bomb?

618

Summary

619

Key Terms

620

Questions

620

Quantitative Problems

620

Web Exercises

623

Web Appendices

623

Glossary

G-1

Index

I-1

---

xxvii

Contents on the Web

Chapter 25 Savings Associations and Credit Unions

Preview

Mutual Savings Banks

Savings and Loan Associations

Mutual Savings Banks and Savings and Loans Compared

Savings and Loans in Trouble: The Thrift Crisis

Later Stages of the Crisis: Regulatory Forbearance

Competitive Equality in Banking Act of 1987

Political Economy of the Savings and Loan Crisis

Principal–Agent Problem for Regulators and Politicians

■ CASE

Principal–Agent Problem in Action: Charles Keating and the 

Lincoln Savings and Loan Scandal

Savings and Loan Bailout: Financial Institutions Reform, Recovery, 

and Enforcement Act of 1989

The Savings and Loan Industry Today

Number of Institutions

S&L Size

S&L Assets

S&L Liabilities and Net Worth

Capital

Profitability and Health

The Future of the Savings and Loan Industry

Credit Unions

History and Organization

Sources of Funds

Uses of Funds

Advantages and Disadvantages of Credit Unions

The Future of Credit Unions

Summary

Key Terms

Questions

Web Exercises

Chapter 26 Finance Companies

History of Finance Companies I

Purpose of Finance Companies

Risk in Finance Companies