Financial Markets and Institutions 6th Edition

Chapter 01 Introduction 6th Edition 1.1.1.1.1Part I 1.1.1.1.1.1.1 Introduction and Overview of Financial Markets 1.1.1.1.2Chapter One Introduction I. Chapter Outline 1. Why Study Financial Markets And Institutions? Chapter Overview 2. Overview of Financial Markets a. Primary Markets versus Secondary Markets b. Money Markets versus Capital Markets c. Foreign Exchange Markets d. Derivative Security Markets e. Financial Market Regulation 3. Overview of Financial Institutions a.

1. Overview of Financial Institutions Many savers today are willing to risk some of their funds in the capital markets, but not all. For at least some of their wealth, savers typically desire a different type of claim than the ultimate borrower wishes to offer. Asset transformers, such as banks, have evolved

Answers to Chapter 1 Questions: 1. a. primary b. primaryc. secondaryd. secondarye. secondary b. primaryc. secondaryd. secondarye. secondary b. primary c. secondary d. secondary e. secondary 2. a. money market b. money market c. capital marketd. capital markete. capital market f. money marketg. money marketh. money marketi. capital marketj. money market3. The capital markets are more likely to be characterized

1.1.1.1.1Chapter Ten Derivative Securities Markets 1.1.1.2 I. Chapter Outline 1. Derivative Securities: Chapter Overview 2. Forwards and Futures a. Spot Markets b. Forward Markets c. Futures Markets 3. Options a. Call Options b. Put Options c. Option Values d. Option Markets 4. Regulation of Futures and Options Markets 5. Swaps a. Interest Rate Swaps b. Currency Swaps c. Credit Swaps d. Swap Markets 6. Caps, Floors, and Collars 7.

1. Options Unlike futures and forwards, options give the holder the right, but not the obligation, to either buy or sell the underlying commodity at a fixed price called the exercise or strike price. American style options may be exercised at any time up to contract expiration. European options can only

6. International Aspects of Derivative Securities Markets The global OTC derivatives market is huge, and dwarfs the size of exchange traded contracts. According to the BIS, at year-end 2013 there was $710.182 trillion worth of OTC contracts outstanding compared to $62.14 trillion in exchange traded contracts. Interest rate contracts are the

Answers to Chapter 10 Questions: 1. A derivative security is a financial security whose payoff is linked to another, previously issued security. Derivative securities generally involve an agreement between two parties to exchange a standard quantity of an asset or cash flow at a predetermined price and at a specified date in

1.1.1.1.1Part III 1.1.1.1.2Commercial Banks 1.1.1.1.3 1.1.1.1.4Chapter Eleven Commercial Banks: Industry Overview 1.1.1.2 I. Chapter Outline 1. Commercial Banks as a Sector of the Financial Institutions Industry: Chapter Overview 2. Definition of a Commercial Bank 3. Balance Sheets and Recent Trends a. Assets b. Liabilities c. Equity d. Off-Balance-Sheet Activities e. Other Fee-Generating Activities 4. Size, Structure, and Composition of the Industry a. Bank

Chapter 11 - Commercial Banks: Industry Overview 6th Edition 1. Size, Structure, and Composition of the Industry As of March 2014 there were 5,809 insured commercial banks. This number continues to decline. Teaching Tip: The decline is somewhat misleading because the number of bank offices including branches grew from 60,000 in 1984 to 83,593

Answers to Chapter 11 Questions: 1. A depository institution is a financial intermediary that obtains a significant proportion of its funds from customer deposits. Industrial corporations tend to obtain a greater proportion of their funds from stockholders, bondholders, and other types of creditors. customer deposits. Industrial corporations tend to obtain a greater

1.1.1.1.1Chapter Twelve Commercial Banks Financial Statements and Analysis 1.1.1.2 I. Chapter Outline 1. Why Evaluate the Performance of Commercial Banks? Chapter Overview 2. Financial Statements of Commercial Banks a. Balance Sheet Structure b. Off-Balance-Sheet Assets and Liabilities c. Other Fee-Generating Activities d. Income Statement e. Direct Relationship between the Income Statement and the Balance Sheet 3. Financial Statement Analysis Using

Chapter 12 - Commercial Banks Financial Statements and Analysis 6th Edition 1. Financial Statement Analysis Using A Return on Equity Framework Time series and cross sectional ratio analysis can be useful to identify strengths and weaknesses of banks. The FFIEC or the FDIC websites can be used to generate average data for

Answers to Chapter 12 Questions: 1. The Report of Condition refers to the bank's balance sheet which presents information about the accumulation of assets, liabilities, and equity as of a specific point in time. The Report of Income refers to the bank's income statement which presents information about the flow of

1.1.1.1.1Chapter Thirteen Regulation of Commercial Banks 1.1.1.2 I. Chapter Outline 1. Specialness and Regulation: Chapter Overview 2. Types of Regulations and the Regulators a. Safety and Soundness Regulations b. Monetary Policy Regulation c. Credit Allocation Regulation d. Consumer Protection Regulation e. Investor Protection Regulation f. Entry and Chartering Regulation g. Regulators 3. Regulation of Product and Geographic Expansion a. Product Segmentation in

1. Regulation of Product and Geographic Expansion The focus of the banking laws from 1933 to 1980 was to limit the number of failures by limiting How banks could compete Where banks could compete What lines of business banks could engage in. The laws were also designed to protect small banks

1. Balance Sheet Regulations a. Regulations on Commercial Bank Liquidity Under Federal Reserve Regulation D banks are currently required to meet minimum liquid asset requirements to back transactions deposits. Since 1980 all DIs must back their net transactions deposits with reserves held at the Federal Reserve.1 Appendix 13D: Deposit Insurance Coverage for

Chapter 13 - Regulation of Commercial Banks 6th Edition 1. Foreign Versus Domestic Regulation of Commercial Banks a. Product Diversification Activities The passage of the FSMA allowed U.S. banks to engage in activities similar to most other developed country banks. Japan, which had a system more like the U.S., also deregulated. b. Global or International

Answers to Chapter 13 Questions: 1. Regulators have issued several guidelines to insure the safety and soundness of CBs: i. CBs are required to diversify their assets and not concentrate their holdings of assets. For example, banks cannot lend more than 10% of their equity to a single borrower. i. CBs are required

4. a. Reserve requirements = (0 x $12.4m) + ($79.5m - $12.4m)(0.03) + ($325m - $79.5m) (0.10) = 0 + $2.013m + $24.550m = $26.563 million After subtracting the average daily balance of vault cash of $4.3 million, the bank needs to maintain a target daily average of $22.263 million ($26.563

1.1.1.1.1Part IV: Other Financial Institutions 1.1.1.1.2Chapter Fourteen Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies 1.1.1.2 I. Chapter Outline 1. Other Lending Institutions: Chapter Overview 2. Savings Institutions a. Size, Structure, and Composition of the Industry b. Balance Sheet and Recent Trends c. Regulators d. Savings Institutions Recent Performance 3. Credit Unions a. Size, Structure, and Composition

Chapter 14 - Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies 6th Edition 1. Finance Companies Finance companies provide specialized lending services to various market subsets as described below. Their primary sources of funding are short and long term debt. a. Size, Structure, and Composition of the Industry Finance companies were originally

Answers to Chapter 14 Questions: 1. A comparison of Table 11-1 with Table 14-1 reveals that unlike banks, savings institutions hold the vast majority of their assets in the form of mortgages and mortgage backed securities. Like banks, the liabilities of savings institutions consist primarily of demand and time deposits. The

1.1.1.1.1Chapter Fifteen Insurance Companies 1.1.1.2 I. Chapter Outline 1. Two Categories of Insurance Companies: Chapter Overview 2. Life Insurance Companies a. Size, Structure, and Composition of the Industry b. Balance Sheets and Recent Trends c. Regulation 3. Property-Casualty Insurance Companies a. Size, Structure, and Composition of the Industry b. Balance Sheet and Recent Trends c. Regulation 4. Global Issues II. Learning Goals 1.

Chapter 15 - Insurance Companies 6th edition 1. Property-Casualty Insurance Companies a. Size, Structure and Composition of the Industry There are about 2,700 P&C insurers. The top10 firms write about 53% of the premiums, and the top 200 firms write 94% of all premiums. State Farm is the largest, followed by Berkshire Hathaway.

Answers to Chapter 15 Questions: 1. The primary function of a life insurance company is to protect policyholders from adverse events. Insurance companies accept premium payments in exchange for compensation in the event that certain specified, but undesirable, events occur. The primary function of depository institutions is to provide financial intermediation

1.1.1.1.1Chapter Sixteen Securities Firms and Investment Banks 1.1.1.2 I. Chapter Outline 1. Services Offered by Securities Firms versus Investment Banks: Chapter Overview 2. Size, Structure, and Composition of the Industry 3. Securities Firm and Investment Bank Activity Areas a. Investment Banking b. Venture Capital c. Market Making d. Trading e. Cash Management f. Mergers and Acquisitions g. Other Service Functions 4. Recent

Chapter 16 - Securities Firms and Investment Banks 6th Edition 1. Recent Trends and Balance Sheets a. Recent Trends As goes the stock market, so goes securities firms profitability. Industry profits are strongly cyclical. Extended bull markets are good for profits, employment and growth; crashes and downturns hurt trading volume and hence commission

Answers to Chapter 16 Questions: 1. As with all intermediaries, these firms bring together those who may need extra money with those who wish to invest their money. This may take the form of an investment banker underwriting an IPO for a growing company or a brokerage firm finding good investment

1.1.1.1.1Chapter Seventeen Investment Companies 1.1.1.2 I. Chapter Outline 1. Investment Companies: Chapter Overview 2. Size, Structure, and Composition of the Mutual Fund Industry a. Historical Trends b. Different Types of Mutual Funds c. Other Types of Investment Company Funds 3. Mutual Fund Returns and Costs a. Mutual Fund Prospectuses and Objectives b. Investor Returns from Mutual Fund Ownership c. Mutual

Chapter 17 Investment Companies 6th Edition 1. Mutual Fund Balance Sheets and Recent Trends a. Long-Term Funds In 2013 equity investments were 55.5% of total funds invested in long term funds (Table 17-7). This percent has yet to recover to precrisis levels. Investments in corporate and foreign bonds comprised 18.4%, and U.S. government

Answers to Chapter 17 Questions: 1. A mutual fund represents a pool of financial resources obtained from individuals and invested in the money and capital markets. It represents another way for those with extra funds to channel those funds to those in need of extra funds. capital markets. It represents another

1.1.1.1.1Chapter Eighteen Pension Funds 1.1.1.2 I. Chapter Outline 1. Pension Funds Defined: Chapter Overview 2. Size, Structure and Composition of the Industry a. Defined Benefit Versus Defined Contribution Pension Funds b. Insured Versus Noninsured Pension Funds c. Private Pension Funds d. Public Pension Funds 3. Financial Asset Investments and Recent Trends a. Private Pension Funds b. Public Pension Funds 4.

Chapter 18 - Pension Funds 6th Edition 1. Financial Asset Investments and Recent Trends a. Private Pension Funds Major assets include 2002 2004 2007 2010 2013 Corporate equities 45.75% 38.03% 47.27% 32.37% 30.89% Mutual fund shares 15.88% 26.41% 27.75% 34.10% 35.98% Treasury and agency securities 8.16% 7.49% 6.75% 11.12% 7.40% Corporate and foreign bonds 8.05% 7.45% 5.22%

Answers to Chapter 18 Questions: 1. Private pension funds are created by the private entities (e.g., manufacturing, mining, or transportation firms) and are administered by private corporations (financial institutions). Public pension funds are those funds administered by a federal, state, or local government (e.g., Social Security). are administered by private corporations (financial institutions).

1.1.1.1.1Part V: Risk Management in Financial Institutions 1.1.1.1.2 1.1.1.1.3Chapter Nineteen Types of Risks Incurred By Financial Institutions 1.1.1.2 I. Chapter Outline 1. Why Financial Institutions Need to Manage Risk: Chapter Overview 2. Credit Risk 3. Liquidity Risk 4. Interest Rate Risk 5. Market Risk 6. Off-Balance-Sheet Risk 7. Foreign Exchange Risk 8. Country or Sovereign Risk 9. Technology and Operational Risk 10. Insolvency

Chapter 19 - Types of Risks Incurred By Financial Institutions 6th edition 1. Foreign Exchange Risk Foreign exchange risk arises from current and contingent claims in foreign currencies. Net current and contingent asset exposures are at risk from declining currency values and net liability exposures are at risk from rising currency values

Answers to Chapter 19 Questions: 1. Credit risk is the risk that promised cash flows from loans and securities held by FIs may not be paid in full. FIs that lend money for long periods of time, whether as loans or by buying bonds, are more susceptible to this risk than

1.1.1.1.1Chapter Two Determinants of Interest Rates 1.1.1.2 I. Chapter Outline 1. Interest Rate Fundamentals: Chapter Overview 2. Loanable Funds Theory a. Supply of Loanable Funds b. Demand for Loanable Funds c. Equilibrium Interest Rate d. Factors that Cause the Supply and Demand Curves for Loanable Funds to Shift 3. Movement of Interest Rates over Time 4. Determinants of Interest Rates

Chapter 02 Determination of Interest Rates 6th Edition 1. Determinants of Interest Rates For Individual Securities a. Inflation b. Real Riskless Interest Rates & Fisher Effect Inflation is the rate of change in the overall price level. The Consumer Price Index (CPI) is the most commonly quoted measure of inflation. The CPI purports to

Answers to Chapter 2 Questions: 1. The household sector (consumers) is the largest supplier of loanable funds. Households supply funds when they have excess income or want to reinvest a part of their wealth. For example, during times of high growth households may replace part of their cash holdings with earning

1.1.1.1.1Chapter Twenty Managing Credit Risk on the Balance Sheet 1.1.1.2 I. Chapter Outline 1. Credit Risk Management: Chapter Overview 2. Credit Quality Problems 3. Credit Analysis a. Real Estate Lending b. Consumer (Individual) and Small-Business Lending c. Mid-Market Commercial and Industrial Lending d. Large Commercial and Industrial Lending 4. Calculating the Return on A Loan a. Return on Assets (ROA) b.

1. Credit Analysis Teaching Tip: Credit analysis is geared towards one decision, Does the FI grant the loan? The purpose of credit analysis is to generate profitable loans that do not expose the lender to excessive amounts of risk. The reason for the accept or reject decision should be clearly documented

a. Mid-Market Commercial and Industrial Lending Mid-market loans consist of loans to corporations with annual sales of $5 million to $100 million. Loan maturity ranges from a few weeks to eight years or more and loan amounts range from very small amounts such as $100,000 to $1 billion or more to

Chapter 20 - Managing Credit Risk on the Balance Sheet 6th Edition 1. Calculating the Return on a Loan a. Return on Assets (ROA) (The traditional approach) Factors that affect a FIs return on a loan include: The base lending rate on the loan (BR) The credit risk premium (m) Fees earned as

Answers to Chapter 20 Questions: 1. Credit risk management is important for FI managers because it determines several features of a loan: interest rate, maturity, collateral and other covenants. Riskier projects require more analysis before loans are approved. If credit risk analysis is inadequate, default rates could be higher and push

1.1.1.1.1Chapter Twenty-One Managing Liquidity Risk on the Balance Sheet 1.1.1.2 I. Chapter Outline 1. Liquidity Risk Management: Chapter Overview 2. Causes of Liquidity Risk 3. Liquidity Risk and Depository Institutions a. Liability-Side Liquidity Risk b. Asset-Side Liquidity Risk c. Measuring a Depository Institutions Liquidity Exposure d. Liquidity Risk, Unexpected Deposit Drains, and Bank Runs e. Bank Runs, the Discount

1. Liquidity Risk And Insurance Companies a. Life Insurance Companies Life insurers face liquidity risk due to unexpected policy cancellations and working capital needs. If an insurer cancels (surrenders) a policy with a cash value, the insurer must pay the surrender value of the policy to the insured. Some policies also allow

Answers to Chapter 21 Questions: 1. Due to the nature of their asset and liability contracts, depository institutions are the FIs most exposed to liquidity risk. Mutual funds, hedge funds, pension funds, and PC insurance companies are the least exposed. In the middle are life insurance companies.2. In the case of a

1.1.1.1.1Chapter Twenty-Two Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet 1.1.1.2 I. Chapter Outline 1. Interest Rate and Insolvency Risk Management: Chapter Overview 2. Interest Rate Risk Measurement and Management a. Repricing Model b. Duration Model 3. Insolvency Risk Management a. Capital and Insolvency Risk II. Learning Goals 1. Define the repricing gap measure of interest rate

1.1.1.1 Equity Value Change E = [3 (0.901)] $500 million (0.0050 / 1.12) = $4,687,500. To find the percentage change in equity, divide both sides of the equation by E: E = $500 million (1-0.90) or E = $50 million so that: E/E = [3 (0.901)] ($500 million/$50 million) (0.0050 / 1.12) =

Answers to Chapter 22 Questions: 1. Through its daily open market operations, such as buying and selling Treasury bonds and Treasury bills, the Fed seeks to influence the money supply, inflation, and the level of interest rates. When the Fed finds it necessary to slow down the economy, it tightens monetary

1.1.1.1.1Chapter Twenty-Three Managing Risk off the Balance Sheet with Derivative Securities 1.1.1.2 I. Chapter Outline 1. Derivative Securities Used to Manage Risk: Chapter Overview 2. Forwards and Futures Contracts a. Hedging with Forward Contracts b. Hedging with Futures Contracts 3. Options a. Basic Features of Options b. Actual Interest Rate Options c. Hedging with Options d. Caps, Floors, and Collars 4.

BT Call Prot 1. Options a. Basic Features of Options (See Chapter 10 for details) Buying options: A call option on a bond gives the holder gains if interest rates fall. Thus buying bond calls is a useful hedge against falling rates. A put option on a bond gives the put holder gains if interest

. Comparison of Hedging Methods Table of Exposures and Methods of Hedging Interest Rate Exposure Risk Futures/ Forwards Call/Put Options Caps & Floors Swaps Macrohedges Side to Pay: + Repricing gap or Duration Gap Falling rates Long Call Floor Variable - Repricing gap or + Duration Gap Rising rates Short Put Cap Fixed Microhedges Long security or future commitment to sell

Answers to Chapter 23 Questions: 1. The major differences between futures and forward contracts are: i. Futures contracts are traded in open exchanges in standardized units, with fixed maturities. Forward contracts are bilateral agreements between two counter parties. Hence, they can be tailor-made to the buyers satisfaction. ii. Futures contracts are marked to

1.1.1.1.1Chapter Twenty-Four Managing Risk off the Balance Sheet with Loan Sales and Securitization 1.1.1.2 I. Chapter Outline 1. Why Financial Institutions Sell and Securitize Loans: Chapter Overview 2. Loan Sales a. Types of Loan Sales Contracts b. The Loan Sale Market c. Secondary Market for Less Developed Country Debt d. Factors Encouraging Future Loan Sales Growth e. Factors Deterring

Chapter 24 - Managing Risk off the Balance Sheet with Loan Sales and Securitization 6th Edition 1. Loan Securitization (Also see Chapter 7) In 2013 there were $1,954.7.3 billion in U.S. mortgage related securities issued by agency and non-agency sources according to SIFMA. In 2013 agency mortgage backed securities outstanding (MBS) totaled $5,905.6

Answers to Chapter 24 Questions: 1. Loan securitization has increased in volume as a result of the creation of an active secondary market and the implicit and explicit government guarantees on pass-through securities. The loan sales market has suffered from credit risk exposure, high information and monitoring costs, and costly validation and

1.1.1.1.1Chapter Three Interest Rates and Security Valuation 1.1.1.2 I. Chapter Outline 1. Interest Rates as a Determinant of Financial Security Values: Chapter Overview 2. Various Interest Rate Measures a. Coupon Rate b. Required Rate of Return c. Expected Rate of Return d. Required versus Expected Rates of Return: The Role of Efficient Markets e. Realized Rate of Return 3. Bond

Chapter 03 Security Valuation 6th Edition 1. Impact of Coupon Rates on Security Values a. Coupon Rate and Security Price Ceteris paribus, the higher the coupon rate the higher the bonds price. See the Teaching Tip in 3a for an explanation. b. Coupon Rate and Security Price Sensitivity to Changes in Interest Rates A higher

Answers to Chapter 3 Questions: 1. The required rate of return is the interest rate an investor should receive on a security given its risk. Required rate of return is used to calculate the fair present value on a security. The expected rate of return is the interest rate an investor

31. Coupon Bond: Par value = $1,000, Coupon rate = 10%, annual payments, rb = 8%, Maturity = 2 years t CF CF/(1 + 0.08) t PV of CF x t 1 $100 $92.59 $92.59 2 1,100 943.07 1,886.15 $1,035.67 $1,978.74 Duration = $1,978.74/$1,035.67 = 1.9106 2 1,100 943.07 1,886.15

1.1.1.1.1Chapter Four The Federal Reserve System, Monetary Policy, and Interest Rates 1.1.1.2 I. Chapter Outline 1. Major Duties and Responsibilities of the Federal Reserve System: Chapter Overview 2. Structure of the Federal Reserve System a. Organization of the Federal Reserve System b. Board of Governors of the Federal Reserve System c. Federal Open Market Committee d. Functions Performed

Chapter 04 - The Federal Reserve System, Monetary Policy, and Interest Rates 6th edition 1. The Federal Reserve, the Money Supply, and Interest Rates a. Effects of Monetary Tools on Various Economic Variables If the Fed wishes to increase the money supply it can Buy U.S. Government Securities Decrease the Discount Rate Lower reserve

Answers to Chapter 4 Questions: 1. As part of the Federal Reserve System, Federal Reserve Banks perform multiple functions. These include assistance in the conduct of monetary policy, supervision and regulation of member banks and other large financial institutions, consumer protection, and the provision of services, such as new currency issue,

1.1.1.1.1Part Two 1.1.1.1.1.1.1.1 Securities Markets 1.1.1.1.2Chapter Five Money Markets 1.1.1.2 I. Chapter Outline 1. Definition of Money Markets: Chapter Overview 2. Money Markets 3. Yields on Money Market Securities a. Bond Equivalent Yields b. Equivalent Annual Return c. Discount Yields d. Single-Payment Yields 4. Money Market Securities a. Treasury Bills b. Federal Funds c. Repurchase Agreements d. Commercial Paper e. Negotiable Certificates of Deposit f. Bankers

Chapter 05 - Money Markets 6th Edition d.Commercial Paper Commercial paper is a short term unsecured promissory note issued by large, creditworthy corporations and financial institutions. Because the notes are unsecured and are not very liquid, commercial paper is rated by ratings agencies. The paper rating strongly affects the cost of financing with

Answers to Chapter 5 Questions: 1. First, money market instruments are generally sold in large denominations (often in units of $1 million to $10 million). Most money market participants want or need to borrow large amounts of cash so that transactions costs are low relative to the interest paid. The size of

1.1.1.1.1Chapter Six Bond Markets 1.1.1.2 I. Chapter Outline 1. Definition of Bond Markets: Chapter Overview 2. Bond Market Securities a. Treasury Notes and Bonds b. Municipal Bonds c. Corporate Bonds d. Bond Ratings and Interest Rate Spreads e. Bond Market Indexes 3. Bond Market Participants 4. Comparison of Bond Market Securities 5. International Aspects of Bond Markets a. Eurobonds, Foreign Bonds, and Sovereign

Chapter 06 - Bond Markets 6th edition d. Bond Ratings and Interest Rate Spreads Most bonds are rated in terms of default risk by at least one of the major ratings agencies, typically Moodys and/or Standard and Poors. Many institutions can hold only limited amounts of unrated or low rated debt, so a

Answers to Chapter 6 Questions: 1. Capital markets are markets that trade equity (stocks) and debt (notes, bonds, and mortgages) instruments with maturities of more than one year. Bonds are long term debt obligations issued by corporations and government units. Proceeds from a bond issue are used to raise funds to support

1.1.1.1.1Chapter Seven Mortgage Markets 1.1.1.2 I. Chapter Outline 1. Mortgages and Mortgage-Backed Securities: Chapter Overview 2. The Primary Mortgage Market a. Mortgage Characteristics b. Mortgage Amortization c. Other Types of Mortgages 3. The Secondary Mortgage Markets a. History and Background of Secondary Mortgage Markets b. Mortgage Sales c. Mortgage-Backed Securities 4. Participants in the Mortgage Markets 5. International Trends in Securitization Appendix 7a: Amortization

a. Mortgage Characteristics Although mortgages can have unique terms, the demands of the secondary market increasingly determine the guidelines for accepting or rejecting a mortgage application. Collateral All mortgage loans are backed by collateral that will have a lien placed against it. A lien is a public record attached to the title

Chapter 07 - Mortgage Markets 6th Edition 1. The Secondary Mortgage Markets a. History And Background Of Secondary Mortgage Markets In 2013 about 60% of all residential mortgages were securitized. Originators often keep the servicing contract. Servicing fees range from % to % of the loan amount. Securitization also allows FIs to remove

Answers to Chapter 7 Questions: 1. Mortgage markets are examined separately from bond and stock markets for several reasons. First, mortgages are backed by a specific piece of real property. If the borrower defaults on a mortgage, the financial institution can take ownership of the property. Only mortgage bonds are backed by

11. You will make a down payment of 20 percent of the purchase price, or you will make a down payment of $39,000 (0.20 x $195,000) at closing and borrow $156,000 through the mortgage. a. If Option 2 is chosen you pay $156,000 x 0.015 = $2,340 in points and

1.1.1.1.1Chapter Eight Stock Markets 1.1.1.2 I. Chapter Outline 1. The Stock Markets: Chapter Overview 2. Stock Market Securities a. Common Stock b. Preferred Stock 3. Primary and Secondary Stock Markets a. Primary Stock Markets b. Secondary Stock Markets c. Stock Market Indexes 4. Stock Market Participants 5. Other Issues Pertaining to Stock Markets a. Economic Indicators b. Market Efficiency c. Stock Market Regulations 6. International Aspects

1. Primary and Secondary Stock Markets a. Primary Markets In the primary market, corporations obtain equity funds by creating and selling new issues of stock. Investment bankers usually assist in this process. Sales may be on a fully underwritten basis or may be via best efforts. Recall from Chapter 6 that with

Chapter 08 - Stock Markets 6th Edition 1. Stock Market Participants In 2013 the amount of corporate stock directly held by households was $11,242.8 billion, or about 39.5% of the total (see the two tables below). Breadth of ownership peaked at 65% of the public in 2007 and was at 52% in

Answers to Chapter 8 Questions: 1. This is because stock market movements are sometimes seen as predictors of economic activity in a country. This is also because corporate stocks may be the most widely held of all financial securities. Most individuals own stock securities either directly through stock purchases or indirectly through

17. According to the weak form market efficiency, current stock prices reflect all historical public information. Thus, historical price trends are of no help in predicting future stock price movements. Under weak form market efficiency, historical news and trends are already impounded in historical prices and are of no use

1.1.1.1.1Chapter Nine Foreign Exchange Markets 1.1.1.2 I. Chapter Outline 1. Foreign Exchange Markets and Risk: Chapter Overview 2. Background and History of Foreign Exchange Markets 3. Foreign Exchange Rates and Transactions a. Foreign Exchange Rates b. Foreign Exchange Transactions c. Return and Risk of Foreign Exchange Transactions d. Role of Financial Institutions in Foreign Exchange Transactions 4. Interaction of Interest

1.1.1.1 Net exposure The dollar value of foreign currency assets is at risk from falling exchange rates and the dollar value of foreign currency liabilities is at risk from rising foreign currency values. Net exposure is the value of exposed assets minus the value of exposed liabilities. If this calculation is

Answers to Chapter 9 Questions: 1. Cash flows from the sale of products, services, or assets denominated in a foreign currency are transacted in foreign exchange (FX) markets. A foreign exchange rate is the price at which one currency (e.g., the U.S. dollar) can be exchanged for another currency (e.g., the Swiss

1) The largest asset on the typical securities firms' balance sheet in 2012 was A.securities purchased under agreements to resell. B.long positions in securities and commodities. C.reverse repurchase agreements. D.repurchase agreements. E.cash. Answer: A Answer: A Answer: A 2) For a nine-month maturity bucket, the bank has _________________ in fixed-rate assets and _________________ in fixed-rate liabilities. A.$425; $285 B.$285; $425 C.$285; $359 D.$359;

1) After conducting a rate-sensitive analysis, a bank finds itself with the following amounts of rate-sensitive assets and liabilities (RSAs and RSL) and fixed-rate assets and liabilities (FRAs and FRLs); the rate of return and cost rates on the accounts are also given: If the bank wishes to set up a

1) An FI with DA< kDL may choose to enter into a long-term swap in which it pays a fixed rate of interest and receives a variable rate in order to effectively reduce the duration gap. Answer: FALSE Answer: FALSE Answer: FALSE 2) The primary asset for P&C insurers is bonds. Answer: TRUE Answer: TRUE Answer: TRUE 3)