Chapter 3-Financial Instruments, Markets, and Institutions(final)

Secondary Markets 二级市场
– Market where existing securities can be exchanged • New York Stock Exchange • American Stock Exchange • Over-the-counter (OTC) markets
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Flow of Funds
• Financial system provides a transmission mechanism between saver-lenders and borrower-spenders. – Savers benefit – Investors benefit – Economy benefits
Financial Instruments and Markets (Cont.)
• The Money Market
– Exchange of short-term instruments—less than one year – Highly liquid, minimal risk – Use of a temporary surplus of funds by banks or businesses • U.S. Treasury bills 美国政府国库券 • Bank Certificates of Deposits 可转让定期存单 • Commercial paper 商业票据 • Federal funds 联邦基金
Financial Instruments and Markets (Cont.)
• Options and Futures Contracts
– Contractual agreement between two parties to exchange a third asset in the future at a stated price – Often called derivative financial instruments because they derive value from underlying assets – Gamble on price fluctuations and hope to profit – Eliminate the risk of price fluctuations
பைடு நூலகம்
Financial Instruments and Markets (Cont.)
• Mortgages Involve Real Estate (Cont.)
– Securitization 证券化—Individual mortgages may be ―pooled‖ and sold as a unit to reduce uncertainty. – Mortgages may be insured by government agencies—Federal Housing Authority (FHA) or Veterans Administration (VA) 联邦住宅管 理局和退伍军人管理局担保的抵押贷款
Financial Instruments and Markets (Cont.)
• Both stocks and bonds [securities] represent a claim to a stream of payments [cash flows] in the future – Bonds—Interest payment and face value at maturity – Stocks—Dividends and sales price when sold
• Options
– Call option—give the owner the right to buy the underlying asset – Put option—give the owner the right to sell the underlying asset
Financial Instruments and Markets (Cont.)
• Role Financial Intermediaries
– Act as agents in transferring funds from saverslenders to borrowers-spenders. – Acquire funds by issuing their liabilities to public and use money to purchase financial assets • Lower transaction costs • Diversify portfolios and minimize risk • Production of information • Competition lowers interest rates—beneficial to economic growth
Flow of Funds (Cont.)
• Funds flow indirectly from ultimate lenders through financial intermediaries [banks or insurance companies] or directly through financial markets [stock exchange/bond markets] to ultimate borrowers (See Figure 3.1) • In order for financial system to function smoothly, must be adequate information about the markets and their operation
• Preferred Stock 优先股 • Common Stock 普通股 • Convertible 可转换优先股
Financial Instruments and Markets (Cont.)
• Stocks Represent Ownership (Cont.)
– Existing stock may be exchanged through secondary markets. – Capital Gains—Difference between price initially paid and amount received when stock is sold. – Measures of trends in overall common stock prices • Standard & Poor’s 500 Stock Index • NASDAQ Composite Index • Dow Jones Industrial Average
Financial Instruments and Markets (Cont.)
• Stocks Represent Ownership – Stockholder owns part of the corporation and receives dividends from the issuer. – No government stock – Types of Corporate stocks
Financial Instruments and Markets (Cont.)
Bonds Represent Borrowing
– Agreement by issuer to pay interest on specified dates and redeem the bond upon maturity. – Consols 永续债券 – Coupon Securities 息票债券 – Zero-coupon 零息债券 – Tax Exempt 免税债券
Primary Markets 一级市场
– Market for issuing a new security and distributing to saver-lenders. – Investment Banks—Information and marketing specialists for newly issued securities.
Figure 3.1 Flow of funds from lenders to borrowers
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Flow of Funds
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Financial Instruments and Markets Financial Intermediaries: Purposes and Profile
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Financial Instruments and Markets
Financial Instruments and Markets (Cont.)
• Futures Contracts
– Long—Buyer of the contract, receive commodity in the future – Short—Seller of the contract, provide commodity in the future
Financial Intermediaries: Purposes and Profile
• Financial Institutions in Profile—focus on composition of liabilities and assets
Chapter 3
Financial Instruments, Markets, and Institutions
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Flow of Funds
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Financial Instruments and Markets Financial Intermediaries: Purposes and Profile
• The Capital Market
– Exchange of long-term securities—in excess of one year – Generally used to secure long-term financing for capital investment • Stock market 股票市场 • Corporate bond market 公司债券市场 • Local and state government bonds 州和地方 政府债券 • Government securities 政府证券
Financial Instruments and Markets (Cont.)
• Mortgages Involve Real Estate
– – – – – Debt incurred in order to buy land or building Amortized 分期偿还 Fixed Rate 固定利率 Variable/Adjustable-Rate 变动/可调整利率 Cash flow for lender is uncertain • Interest payments may vary [variable rate mortgages] • Home owner may prepay • Refinance a fixed mortgage if interest rates decline
Financial Instruments and Markets (Cont.)
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Flow of Funds
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Financial Instruments and Markets Financial Intermediaries: Purposes and Profile
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Financial Intermediaries: Purposes and Profile