PART FOUR
Transparency
Masters:
Chapter Outlines
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 290
Part 1
Introduction
Chapter 1: Why Study Money, Banking, and Financial Markets?
Why Study Financial Markets?
Debt Markets and Interest Rates
The Stock Market
Why Study Financial Institutions and Banking?
Structure of the Financial System
Banks and Other Financial Institutions
Financial Innovation
Financial Crises
Money, Banking, Financial Markets and Your Career
How We Will Study Money, Banking, and Financial Markets
Exploring the Web
Collecting and Graphing Data
Web Exercises
Concluding Remarks
Summary
Key Terms
Questions
Applied Problems
Appendix to Chapter 1: Defining Aggregate Output, Income, the Price Level, and the
Inflation Rate
Aggregate Output and Income
Real Versus Nominal Magnitudes
Aggregate Price Level
Growth Rates and the Inflation Rate
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 291
Chapter 2: An Overview of the Financial System
Function of Financial Markets
Structure of Financial Markets
Debt and Equity Markets
Primary and Secondary Markets
Following the Financial News Money Market Rates
Capital Market Instruments
Following the Financial News Capital Market Interest Rates
Internationalization of Financial Markets
Global Are US Capital Markets Losing Their Edge?
International Bond Market, Eurobonds, and Eurocurrencies
World Stock Markets
Function of Financial Intermediaries: Indirect Finance
Following the Financial News Foreign Stock Market Indexes
Transaction Costs
Global The Importance of Financial Intermediaries Relative to Securities Markets: An
International Comparison
Risk Sharing
Asymmetric Information: Adverse Selection and Moral Hazard
Economies of Scope and Conflicts of Interest
Types of Financial Intermediaries
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 292
Chapter 3: What Is Money?
Meaning of Money
Functions of Money
Medium of Exchange
Unit of Account
Store of Value
FYI Are We Headed for a Cashless Society?
Application Will Bitcoin Become the Money of the Future?
Measuring Money
The Federal Reserve’s Monetary Aggregates
Following the Financial News The Monetary Aggregates
FYI Where Are All the U.S. Dollars?
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 293
Part 2
Financial Markets
Chapter 4: The Meaning of Interest Rates
Measuring Interest Rates
Present Value
Application Simple Present Value
Application How Much Is That Jackpot Worth?
Four Types of Credit Market Instruments
Yield to Maturity
Application Yield to Maturity on a Simple Loan
Application Yield to Maturity and the Yearly Payment on a Fixed-Payment Loan
Maturity and the Volatility of Bond Returns: Interest-Rate Risk
Summary
The Distinction Between Interest Rates and Returns
The Distinction Between Real and Nominal Interest Rates
Application Calculating Real Interest Rates
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Appendix to Chapter 4: Measuring Interest-Rate Risk: Duration
Application: Rate of Capital Gain
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 294
Chapter 5: The Behavior of Interest Rates
Determinants of Asset Demand
Wealth
Expected Returns
Risk
Liquidity
Theory of Portfolio Choice
Application Changes in the Interest Rate Due to Expected Inflation: The Fisher Effect
Application Changes in the Interest Rate Due to a Business Cycle Expansion
Application Explaining Current Low Interest Rates in Europe, Japan, and the United States:
Low Inflation and Secular Stagnation
Supply and Demand in the Market for Money: The Liquidity Preference Framework
Changes in Equilibrium Interest Rates in the Liquidity Preference Framework
Shifts in the Demand for Money
Shifts in the Supply of Money
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 295
Appendix 1 to Chapter 5: Models of Asset Pricing
Expected Return
Application Expected Return
Calculating Standard Deviation of Returns
Application Standard Deviation
Appendix 2 to Chapter 5: Applying the Asset Market Approach to a Commodity Market:
The Case of Gold
Supply and Demand in the Gold Market
Demand Curve
Supply Curve
Appendix 3 to Chapter 5: Loanable Funds Framework
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 296
Chapter 6: The Risk and Term Structure of Interest Rates
Risk Structure of Interest Rates
Default Risk
FYI Conflicts of Interest at Credit-Rating Agencies and the Global Financial Crisis
Application The Global Financial Crisis and the Baa-Treasury Spread
Liquidity
Following the Financial News Yield Curves
Expectations Theory
Segmented Markets Theory
Liquidity Premium and Preferred Habitat Theories
Evidence on the Term Structure
FYI The Yield Curve as a Forecasting Tool for Inflation and the Business Cycle
Summary
Application Interpreting Yield Curves, 1980–2017
Summary
Key Terms
Questions
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 297
Chapter 7: The Stock Market, the Theory of Rational Expectations, and the Efficient
Market Hypothesis
Computing the Price of Common Stock
The One-Period Valuation Model
Application Monetary Policy and Stock Prices
Application The Global Financial Crisis and the Stock Market
The Theory of Rational Expectations
Formal Statement of the Theory
Rationale Behind the Theory
Implications of the Theory
The Efficient Market Hypothesis: Rational Expectations in Financial Markets
Rationale Behind the Hypothesis
Random-Walk Behavior of Stock Prices
Global Should Foreign Exchange Rates Follow a Random Walk?
Application What Do Stock Market Crashes Tell Us About the Efficient Market Hypothesis and
the Efficiency of Financial Markets?
Behavioral Finance
Summary
Key Terms
Questions
Applied Problems
Data Analysis Problems
Web Exercises
Web References
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 298
Appendix to Chapter 7: Evidence on the Efficient Market Hypothesis
Evidence in Favor of Market Efficiency
Performance of Investment Analysts and Mutual Funds
Do Stock Prices Reflect Publicly Available Information?
Random-Walk Behavior of Stock Prices
Technical Analysis
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 299
Part 3
Financial Institutions
Chapter 8: An Economic Analysis of Financial Structure
Basic Facts About Financial Structure Throughout the World
Transaction Costs
How Transaction Costs Influence Financial Structure
How Financial Intermediaries Reduce Transaction Costs
FYI The Enron Implosion
How Moral Hazard Affects the Choice Between Debt and Equity Contracts
Moral Hazard in Equity Contracts: The Principal–Agent Problem
Tools to Help Solve the Principal–Agent Problem
How Moral Hazard Influences Financial Structure in Debt Markets
Tools to Help Solve Moral Hazard in Debt Contracts
Summary
Application Financial Development and Economic Growth
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 300
Chapter 9: Banking and the Management of Financial Institutions
The Bank Balance Sheet
Liabilities
Assets
Basic Banking
General Principles of Bank Management
Application Strategies for Managing Bank Capital
Application How a Capital Crunch Caused a Credit Crunch During the Global Financial Crisis
Managing Credit Risk
Screening and Monitoring
Long-Term Customer Relationships
Loan Commitments
Collateral and Compensating Balances
Credit Rationing
Managing Interest-Rate Risk
Gap and Duration Analysis
Application Strategies for Managing Interest-Rate Risk
Off-Balance-Sheet Activities
Loan Sales
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 301
Appendix 1 to Chapter 9: Duration Gap Analysis
Application Example 1: Duration Gap Analysis
Application Example 2: Duration Gap Analysis
Application Example 3: Duration Gap Analysis
Appendix 2 to Chapter 9: Measuring Bank Performance
Bank’s Income Statement
Operating Income
Operating Expenses
Income
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 302
Chapter 10: Economic Analysis of Financial Regulation
Asymmetric Information as a Rationale for Financial Regulation
Government Safety Net
Global The Spread of Government Deposit Insurance Throughout the World: Is This a Good
Thing?
Drawbacks of the Government Safety Net
Types of Financial Regulation
Restrictions on Asset Holdings
Capital Requirements
Global Where Is the Basel Accord Heading After the Global Financial Crisis?
Prompt Corrective Action
Global International Financial Regulation
Summary
Key Terms
Questions
Applied Problems
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 303
Appendix 1 to Chapter 10: The 1980s Banking and Savings and Loan Crisis
The Savings and Loan and Banking Crisis: Why?
Early Stage of the Crisis
FYI The Principal–Agent Problem in Action: Charles Keating and the Lincoln Savings and Loan
Scandal
Savings and Loan Bailout: The Financial Institutions Reform, Recovery, and Enforcement Act of
1989
Federal Deposit Insurance Corporation Improvement Act of 1991
Appendix 2 to Chapter 10: Banking Crises Throughout the World
“Déjà Vu All Over Again”
Scandinavia
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 304
Chapter 11: Banking Industry: Structure and Competition
Historical Development of the Banking System
Multiple Regulatory Agencies
Financial Innovation and the Growth of the “Shadow Banking System”
Responses to Changes in Demand Conditions: Interest-Rate Volatility
Responses to Changes in Supply Conditions: Information Technology
Securitization and the Shadow Banking System
Avoidance of Existing Regulations
FYI Bruce Bent and the Money Market Mutual Fund Panic of 2008
Financial Innovation and the Decline of Traditional Banking
Bank Consolidation and Nationwide Banking
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
What Will the Structure of the US Banking Industry Look Like in the Future?
Global Comparison of Banking Structure in the United States and Abroad
Are Bank Consolidation and Nationwide Banking Good Things?
Separation of Banking and Other Financial Service Industries
Erosion of Glass-Steagall
Separation of Banking and Other Financial Services Industries Throughout the World
FYI The Global Financial Crisis and the Demise of Large, Free-Standing Investment
Banks
Thrift Industry: Regulation and Structure
Savings and Loan Associations
Mutual Savings Banks
Credit Unions
International Banking
Eurodollar Market
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 305
Chapter 12: Financial Crisis
What Is a Financial Crisis?
Dynamics of Financial Crises
Stage One: Initial Phase
Stage Two: Banking Crisis
Stage Three: Debt Deflation
Application The Mother of All Financial Crises: The Great Depression
Stock Market Crash
Bank Panics
FYI Collateralized Debt Obligations (CDOs)
Effects of the 2007–2009 Financial Crisis
Inside the Fed Was the Fed to Blame for the Housing Price Bubble?
Global The European Sovereign Debt Crisis
Height of the 2007–2009 Financial Crisis
Government Intervention and the Recovery
Global Worldwide Government Bailouts During the 2007–2009 Financial Crisis
Response of Financial Regulation
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 306
Part 4
Central Banking and the Conduct of Monetary Policy
Chapter 13: Central Banks and the Federal Reserve System
Origins of the Federal Reserve System
Inside the Fed The Political Genius of the Founders of the Federal Reserve System
Structure of the Federal Reserve System
Federal Reserve Banks
Inside the Fed The Role of the Research Staff
Inside the Fed The FOMC Meeting
Inside the Fed Green, Blue, Teal, and Beige: What Do These Colors Mean at the Fed?
Why the Chair of the Board of Governors Really Runs the Show
Inside the Fed Styles of Federal Reserve Chairs: Bernanke and Yellen Versus Greenspan
How Independent Is the Fed?
Should the Fed Be Independent?
The Case for Independence
The Case Against Independence
Central Bank Independence and Macroeconomic Performance Throughout the World
Explaining Central Bank Behavior
Inside the Fed The Evolution of the Fed’s Communication Strategy
Structure and Independence of the European Central Bank
Differences Between the European System of Central Banks and the Federal Reserve System
Governing Council
How Independent Is the ECB?
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 307
Chapter 14: The Money Supply Process
Three Players in the Money Supply Process
The Fed’s Balance Sheet
Liabilities
Assets
Control of the Monetary Base
Federal Reserve Open Market Operations
Shifts from Deposits into Currency
Loans to Financial Institutions
Other Factors That Affect the Monetary Base
Overview of the Fed’s Ability to Control the Monetary Base
Overview of the Money Supply Process
The Money Multiplier
Deriving the Money Multiplier
Intuition behind the Money Multiplier
Money Supply Response to Changes in the Factors
Application Quantitative Easing and the Money Supply, 2007–2017
Summary
Key Terms
Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 308
Appendix 1 to Chapter 14: The Fed’s Balance Sheet and the Monetary Base
Assets
Liabilities
Monetary Base
Appendix 2 to Chapter 14: The M2 Money Multiplier
Appendix 3 to Chapter 14: Explaining the Behavior of the Currency Ratio
Effect of Changes in Wealth
Effect of Changes in Expected Returns
Interest Rates on Checkable Deposits
Cost of Acquiring Currency
Bank Panics
Illegal Activity
Foreign Holdings of Currency
Application Explaining the Historical Record of c
1892–1917
1917–1919
Application Predicting the Future of c
Rise in Income Tax Rates to Balance the Budget
Abolishment of Interest Payments on Checking Accounts