incentive-compatible, 149
moral hazard in, 145, 147–51
net worth and, 149
principal-agent problem and, 147–48
restrictive covenants and, 149–50,
570, 571
tax code and, 148
n
tools to resolve moral hazard in, 149–51
Debt deflation, 168
Debt holders, 18
Debt instruments, 18
Debt markets, 2, 18, 148–51. See also
bond markets
Debt ratings, 156–57
Decreasing term life insurance
policies, 520t
Deductibles, insurance, 516, 528–29
Deep market, 263
Default-free bonds, 90
Default risk, 112
for bank loans, 402, 408–9
interest-rate forward contracts and,
592–93
interest rates and, 90–92
Defaults
credit risk management and, 569
defined, 90
financial crisis of 2007–2009 and, 171
on mortgage loans, 333
probability of, 156–57
Defensive open market operations, 224
Deferred-load funds, 501–2
Defined-benefit pension plans, 532, 538
Defined-contribution pension plans,
532–33
Definitive agreements, 551
Deflation, 158, 170
Deleveraging, 166
Demand. See also supply and demand
determinants of, 70–71
excess, 71
Demand curve
for bonds, 68, 69, 72–77, 73t
business cycle expansion and, 79–80
defined, 68
for domestic assets, 353–54, 355–58
equilibrium interest rates and, 72–75
federal funds rate and, 246, 247f
for fixed exchange rate regimes, 382
government deficits and, 77
for reserves market, 218–19, 220–21
shifts in, 74f
Demand deposits, 267
“Democratization of credit,” 172
Denomination intermediation, 490
Deposit facility, 231
Deposit insurance, 32, 457
bank failure and, 426–26
in emerging market economies, 427
reforms, 444–45
requirements, 456
“too big to fail” policy and, 428–29
Depository institutions, 27t, 28–29, 28t.
See also banks
Federal Reserve and, 196
Depository Institutions Act of 1982
(Garn-St. Germain), 400,
441t, 444
Depository Institutions Deregulation and
Monetary Control Act (DIDMCA)
of 1980, 196, 228, 441t, 444
Deposit outflows, 405, 406–8
Deposit rate ceilings, 465–66, 470
Deposits, by banks at other banks, 402
Depreciation, of currency, 346
Derivatives, 449
Deutsche Bank, 159, 545
Devaluation, of currency, 383
Developing countries. See also emerging
market economies
financial development and economic
growth in, 152–53
sources of external funds for
businesses, 136–37
Diamonds, 307
Digital Equipment Company, 560
Digital signatures, 439
Diners Club credit card, 459
Direct finance, 16, 135–36, 144
Direct placements, 269
Dirty float, 380. See also managed float
regimes (dirty float)
Disability insurance, 519
Disclosure requirements, 32, 435–36
Discount, bonds selling at, 298
Discount bonds (zero-coupon bonds)
defined, 40
effective maturity of, 56–57
expectations theory, 100n
interest-rate risk, 54n
STRIPS, 284, 467–69
yield to maturity, 46–47
Discount brokers, 554–55, 564
Discounting, 261–62, 276
Discounting the future, 38, 276
Discount lending
by Federal Reserve, 217
Federal Reserve assets, 216
monetary policy and, 221–22, 250
Discount loans (advances), 401, 407
Discount points
defined, 325
effective interest rates and, 326–27
for residential mortgages, 325–27
Discount policy, Federal Reserve, 226–28
Discount rate
changes in, 221–22
defined, 216, 407
financial crisis of 2007–2009 and, 229
Discount window, 226–27, 226n
Discover Card, 460
Disintermediation, 466, 470
Diversification
defined, 25, 67n
foreign stocks and, 318
mutual funds and, 490–91
stock market investment and, 129n
Dividends
defined, 18
earning, 302
forecasting, 309–10, 314
stock valuation and, 308–11
tax code and, 148n
Dodd-Frank Wall Street Reform and
Consumer Protection Act of
2010, 442t, 448–49
consumer protection, 448
financial derivatives, 449
resolution authority, 448
systemic risk regulation, 449
Volcker Rule, 449
Dollarization, 385
Domestic assets
demand curve for, 353–54
expected returns on, 370–72
interest rates on, 355, 358
shifts in demand for, 355–58
supply curve for, 353
Domestic goods
foreign exchange rates and, 346, 351
preference for, 351
relative price levels, 351
value of dollar and, 5
Domestic prices, foreign exchange rates
and, 352t
Dot-com companies, 563
Dow, Charles H., 318
Dow Jones Industrial Average (DJIA), 3,
4f, 130, 133, 307, 603
companies included in, 316t
history of, 318
performance of, 317f
Down payments, for mortgages, 328, 332
Drexel Burnham Lambert, 291, 293, 464,
550, 551–52
Drexler, Millard, 563
Dual banking system, 456
Dual mandate, 236
Due diligence, 551
Duisenberg, Willem F., 205
Duration
calculating, 55–61
defined, 56, 58, 576
factors affecting, 58–59
interest-rate risk and, 60–61
market value and, 61
of a portfolio of securities, 59–60
Duration gap, 578
Duration gap analysis, 576–84
Dynamic open market operations, 224
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