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See also banks
best efforts agreements, 549
conflicts of interest and, 159
defined, 30, 544
documents filed by, 546–47
equity sales, 550–51
financial crisis of 2007–2009 and, 481
functions of, 543, 544, 564
history of, 544–45
income, 544
mergers and acquisitions, 545, 551–52
private placements, 549–50
securities advice given by, 545–46
Securities and Exchange Commission
and, 546
underwriting stocks and bonds,
547–49
Investment companies, 259t, 260
Investment Company Act of 1940, 441t,
490, 503
Investment Company Institute, 497, 498
“Investment Dartboard,” Wall Street
Journal, 120–21, 127
Investment funds, 501–2, 503
Investment-grade bonds, 291
Investment-grade securities, 92
Investment intermediaries, 27t, 28t,
29–30
Investment pools, 557
Investment profitability, 76
Investment rate, for Treasury bills,
261–62
Investors
efficient market hypothesis, 126
information for, 30–31
Ireland, 176, 177
Irrational exuberance, 243–44
Island, 306
Israel, 237
Italian lira, 387
J
Jackson, Andrew, 192, 455
January effect, 125
Janus Capital Management LLC, 507
Japan
banking structure in, 482
Bank of Japan, 207
exchange rates, 348–49
financial futures markets, 597
inflation targeting in, 240
interest rates in, 81–82
market timing, 508
negative interest rates on Treasury
bills, 47, 81
sources of external funds for
businesses, 136
Japanese Securities Act, 482
Jay Cooke and Company, 167
J.P. Morgan, 159, 176, 229, 259, 293, 294,
456, 480, 481, 544, 545, 552
J.P. Morgan Chase, 478
Jumbo mortgages, 338
Junk bonds, 92, 291, 293, 463–64, 552
K
Kane, Edward, 465
Kansas City Board of Trade, 597
Keogh plans, 540
Keynes, John Maynard, 84n
King, Mervyn, 236
KKR (Kohlberg, Kravis,
Roberts & Co.), 558
Knickerbocker Trust Company, 167
L
Large, complex banking organizations
(LCBOs), 476
Large-denomination time deposits, 401
Later-stage investing, 562
Late trading, 508
Law of large numbers, 519–20
Law of one price, 348–49
Lawyers, financial system and, 153
Leeson, Nick, 416
Legal system, 153
Index
I-13
Lehman Brothers, 159, 167, 177, 230,
294, 427, 448, 467, 481, 499,
545, 552
Lemons problem, 140–45, 162, 528n
Lender of last resort
Federal Reserve as, 227–30, 392, 394
financial crisis of 2007–2009 and,
229–30, 392, 428
International Monetary Fund as,
392–94
moral hazard and, 228, 393
Lender-savers, 16
Lending Tree, 335
Letters of interest, 551
Leveraged buyouts, 444
Leverage ratio, 430
Levine, Dennis, 122
Levitt, Arthur, 509
Liabilities
of banks, 399, 401–2
decline in cost advantages of
acquiring, 470–71
defined, 16
duration gap analysis, 576–84
of Federal Reserve, 214, 215–16
of life insurance companies, 521–22
rate-sensitive, 573–74
Liability insurance, 524–25
Liability management, 405, 409–10
“Liar loans,” 438
Liens, 327–28
Life expectancy, 519, 519t, 536, 537
Life insurance, 518–22, 540
adverse selection and, 516
annuities, 521
beneficiaries of, 519
decreasing term life, 520t
life expectancy and, 519
purpose of, 518, 519
term life, 520, 521
types of, 519
universal life, 521
whole life, 520, 521
Life insurance companies, 27t, 28t
assets and liabilities of, 521–22,
522f, 523f
defined, 29
mortgages held by, 334f
number of, in U.S., 518f
screening by, 527
Limit orders, 553–54, 556, 564
Lipper Convertibles, 505
Liquid, 19
Liquidity
asset demand and, 64, 67–68
bond demand curve and, 73t, 75
defined, 64
discount window and, 226–27
financial futures market and, 599
of financial instruments, 19
of government securities, 402
interest on reserves and, 220
interest-rate forward contracts
and, 592
interest rates and, 93–94, 112
intermediation, of mutual funds, 490
intervention, 274
management, 405, 406–8
of money market securities, 274
risk premium and, 94
of Treasury bills, 274
Liquidity preference framework, 84n
Liquidity premium (term premium),
103–6
Liquidity premium theory
calculations, 105
defined, 103
term structure of interest rates and,
97–98, 103–6, 113
value of, 107–8
Liquidity services, 24, 139
Liquid market, 263
Lithuania, 385
Living wills, for financial institutions, 449
Load funds, 501–2
Loanable funds, 72f
Loan commitments, 414, 571
Loan losses, 417, 419
Loan proceeds, for mortgages, 328
Loans
as bank assets, 402
bank management of, 407–9
fixed-payment, 39
real interest rate and, 49
sales of, by banks, 414
screening for, 569–70
servicing, 334
simple, 37, 39
specialization in lending, 570
Loan terms, for residential mortgages,
325, 327–29
Loan-to-value ratio (LTV), 173, 328
Lombard facility, 226n
Lombard rate, 226n
London, 484, 485
London interbank bid rate (LIBID),
271–72
London Interbank Market, 271–72
London interbank offer rate (LIBOR),
271–72
London International Financial Futures
Exchange, 597
London Stock Exchange, 304
Longer-term refinancing operations, 231
Long position, 590–91, 593, 595, 596, 601
Long-term bonds
default risk and, 90–92
expectations theory and, 97–102, 102n
interest rates, 89–90
liquidity premium theory and, 97–98,
103–6
market segmentation theory and,
97–98, 102–3
reinvestment risk and, 468
risk premium, 90, 91
Long Term Capital Management, 503–6
Long-term debt instruments, 2n, 18,
53–54
Long-term securities, 280–81
Long-term Treasury rates, 326f
Loophole mining, 465, 476
Loss aversion, 131
LTV, 539
M
Maastricht Treaty, 204, 205, 235–36
Macaulay, Frederick, 56–57, 576
Macroeconomic Advisors, 84
Macro hedge, 596–97
Macroprudential regulation, 245
Mahathir Mohamad, 391
Main refinancing operations, 231
Malaysia, 389, 391
Managed care, 523
Managed float regimes (dirty float), 380,
381, 390–91
Managerial expertise, mutual funds
and, 491
Managers, of financial institutions,
366–67
Mandate-consistent inflation, 242
Marché à Terme International de
France, 597
Marginal lending facility, 231
Marginal lending rate, 231
Margin credit, 554
Margin requirements, 599
Marine insurance, 518
Marked to market, 599–600
Market. See stock markets
Market-clearing price, 71
Market efficiency. See efficient market
hypothesis
Market equilibrium
in bond market, 70–71
in reserves market, 219
Market fundamentals, 120
Market makers, 555
Market orders, 553, 554, 564
Market rates, 296t, 325
Market segmentation theory, 97–98,
102–3, 113
“Markets Lineup,” Wall Street
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