Financial Markets & Institutions

5th edition

By Peter Howells & Keith Bain
June 2007
Distributed by Trans-Atlantic Publications
Prentice Hall / Financial Times
ISBN: 9780273709190
432 Pages, Illustrated
$117.50 paper original


With its clear and accessible style, Financial Markets and Institutions will help students make sense of the financial activity that is so widely and prominently reported in the media. Looking at the subject from the economist’s perspective, the book takes a practical, applied approach and theory is covered only where absolutely necessary in order to help students understand events as they happen in the real world.  This fifth edition has been thoroughly updated to reflect the changes that have occurred in the financial system in recent years.

Key Features
·        New! Chapter 12 Financial Market Failure and Financial Crisis puts forward arguments concerning for example,  the ability of small firms to borrow, the problems of financial exclusion and inadequate long-term saving and the tendency in financial markets to bubbles and crashes.
·        New! Thoroughly updated to include new figures and recent legislative and regulatory changes.
·        Provides a comprehensive coverage of the workings of financial markets.
·        Contains sufficient theory to enable students to make sense of current events.
·        Up-to-date coverage of the role of central banks and the regulation of financial systems.
·        Focuses on UK and European financial activity, context and constraints.
·        Offers a wealth of statistical information to illustrate and support the text.
·        Extensive pedagogy includes revised boxes, illustrations, keywords/concepts, discussion questions, chapter openers, chapter summaries and numerous worked examples.
·        Frequent use of material from the Financial Times.
·        Regularly maintained and updated Companion Website containing valuable teaching and learning material.
Financial Markets and Institutions will be appropriate for a wide range of courses in money, banking and finance.  Students taking financial markets and institutions courses as part of accounting, finance, economics and business studies degrees will find this book ideally suited to their needs.  The book will also be suitable for professional courses in business, banking and finance.
Peter Howells is Professor of Monetary Economics at the University of the West of England.
Keith Bain is formerly of the University of East London where he specialized in monetary economics and macroeconomic policy.
 
Contents
1.  Introduction: the financial system
1.1       Financial Institutions
            1.1.1    Financial institutions as firms
            1.1.2    Financial institutions as ‘intermediaries’
            1.1.3    The creation of assets and liabilities
            1.1.4    Portfolio equilibrium
1.2       Financial markets
            1.2.1    Types of product
            1.2.2    The supply of financial instruments
            1.2.3    The demand for financial instruments
            1.2.4    Stocks and flows in financial markets
1.3       Lenders and borrowers
            1.3.1    Saving and lending
            1.3.2    Borrowing
            1.3.3    Lending, borrowing and wealth
1.4       Summary
Questions for discussion
Further reading
2.  The financial system and the real economy
2.1       Lending, borrowing and national income
2.2       Financial activity and the level of aggregate demand
            2.2.1    Money and spending
            2.2.2    Liquid assets and spending
            2.2.3    Financial wealth and spending
2.3       The composition of aggregate demand
2.4       The financial system and resource allocation
2.5       Summary
Questions for discussion
Further reading
Answers to exercises
3.  Deposit-taking institutions
3.1       The Bank of England
            3.1.1    The conduct of monetary policy
            3.1.2    Banker to the commercial banking system
            3.1.3    Banker to the government
            3.1.4    Supervisor of the banking system
            3.1.5    Management of the national debt
            3.1.6    Manager of the foreign exchange reserves
            3.1.7    Currency Issue
3.2       Banks
3.3       Banks and the creation of money
            3.3.1    Why banks create money
            3.3.2    How banks create money
3.4       Constraints on bank lending
            3.4.1    The demand for bank lending
            3.4.2    The demand for money
            3.4.3    The monetary base
3.5       Building societies
3.6       Liability management
Questions for discussion
Further reading
Answers to exercises
Appendix: A history of UKmonetary aggregates
4.  Non-deposit-taking institutions
4.1       Insurance companies
4.2       Pension funds
4.3       Unit trusts
4.4       Investment trusts
4.5       NDTIs and the flow of funds
4.6       Summary
Questions for discussion
Further reading

5.  The money markets
5.1       The discount market
5.2       The ‘parallel’ markets
            5.2.1    The interbank market
            5.2.2    The market for certificates of deposit
            5.2.3    The commercial paper market
            5.2.4    The local authority market
            5.2.5    Repurchase agreements
            5.2.6    The euromarkets
            5.2.7    The significance of the parallel markets
5.3       Monetary policy and the money markets
5.4       Summary
Questions for discussion
Further reading
Answers to exercises
6.  The capital markets
6.1       The importance of capital markets
6.2       Characteristics of bonds and equities
            6.2.1    Bonds
            6.2.2    Equities
            6.2.3    The trading of bonds and equities
6.3       Bonds: supply, demand and price
6.4       Equities: supply, demand and price
6.5       The behaviour of security prices
6.6       Reading the financial press
6.7       Summary
Questions for discussion
Further reading
Answers to exercises

7.  Interest rates
7.1       The rate of interest
7.2       The loanable funds theory of real interest rates        
            7.2.1    Loanable funds theory and nominal interest rates
       &nbspbsp; Problems with the loanable funds theory
7.3       Loanable funds in an uncertain economy
7.4       The liquidity preference theory of interest rates
7.5       Loanable funds and liquidity preference
7.6       The monetary authorities and the rate of interest
7.7       The structure of interest rates
            7.7.1    The term structure theory of interest rates
            7.7.2    The pure expectations theory of interest rate structure
            7.7.3    Term premiums
            7.7.4    Market segmentation
            7.7.5    Preferred habitat
            7.7.6    A summary of views on maturity substitutability
7.8       The significance of term structure theory
7.9       Summary
Questions for discussion
Further reading
Answers to exercises
8.  Foreign exchange markets
8.1       The nature of forex markets
8.2       Interest rate parity
8.3       Other foreign exchange market rules
            8.3.1    Differences in interest rates among countries – the Fisher effect
            8.3.2    The determinants of spot exchange rates – purchasing power parity
            8.3.3    Equilibrium and the forex markets
8.4       Alternative views of foreign exchange markets
8.5       The fixed exchange rate system
8.6       Monetary union in Europe
            8.6.1    The single currency in practice 1999-2006
            8.6.2    The UKand the euro
8.7       Summary
Questions for discussion
Further reading
Answers to exercises

9.  Exchange rate risk, derivatives markets and speculation
9.1       Forms of exposure to exchange rate risk
9.2       Exchange rate risk management techniques
9.3       Derivatives markets
            9.3.1    Financial futures
            9.3.2    Options
            9.3.3    Exotic options
            9.3.4    Other related products
9.4       Comparing different types of derivatives
            9.4.1    Exchange-traded versus OTC products
            9.4.2    Foward versus future contracts
            9.4.3    Forward and future contracts versus options
9.5       The use and abuse of derivatives
9.6       Summary
Questions for discussion
Further reading
Answers to exercises
10.   International capital markets
10.1     The world capital market
10.2     Eurocurrencies
            10.2.1  The growth of the eurocurrency market
            10.2.2  The nature of the market
            10.2.3  Issues relating to eurocurrency markets
10.3     Techniques and instruments in international capital markets
10.4     Summary
Questions for discussion
Further reading
Answers to exercises

11.   Government borrowing and financial markets
11.1     The measurement of public deficits and debt
11.2     Financing the PSNCR
            11.2.1 The PSNCR and interest rates
            11.2.2 The sale of bonds to banks
            11.2.3 The sale of bonds overseas
            11.2.4 PSNCR, interest rates and the money supply
11.3     Attitudes to public debt in the European Union
11.4     The public debt and open market operations
11.5     Debt management and interest rate structure
11.6     Summary
Questions for discussion
Further reading
12.       Financial Market Failure and Financial Crises
12.1     Borrowing and lending problems in financial intermediation
            12.1.1 Financing needs of firms and attempted remedies
            12.1.2 Financial market exclusion
            12.1.3 The financial system and long-term saving
            12.1.4 The financial system and household indebtedness
12.2     Financial instability: bubbles and crises
12.3     Fraudulent behaviour and scandals in financial markets
12.4     The damaging effects of international markets?
12.5     Summary
Questions for discussion
Further reading
Answers to exercises

13.  The regulation of financial markets
13.1     The theory of regulation
13.2     Financial regulation in the UK
            13.2.1  Regulatory changes in the 1980s
            13.2.2  Supervision of the banking system
            13.2.3 The 1998 reforms
            13.2.4 The Financial Services Authority
13.3     The European Union and financial regulation
            13.3.1  The regulation of the banking industEU
            13.3.2  The regulation of the securities market in the EU
            13.3.3  The regulation of the insurance services in the EU
13.4     Globalisation and the growing complexity of derivatives markets
13.5     Summary
Questions for discussion
Further reading
Appendix I :     Portfolio Theory
Appenidix II-V: Present and future value tables

Features
New! Chapter 12 Financial Market Failure and Financial Crisis puts forward arguments concerning for example,  the ability of small firms to borrow, the problems of financial exclusion and inadequate long-term saving and the tendency in financial markets to bubbles and crashes.
New! Thoroughly updated to include new figures and recent legislative and regulatory changes.
Provides a comprehensive coverage of the workings of financial markets.
Contains sufficient theory to enable students to make sense of current events.
Up-to-date coverage of the role of central banks and the regulation of financial systems.
Focuses on UK and European financial activity, context and constraints.
Offers a wealth of statistical information to illustrate and support the text.
Extensive pedagogy includes revised boxes, illustrations, keywords/concepts, discussion questions, chapter openers, chapter summaries and numerous worked examples.
Frequent use of material from the Financial Times.
Regularly maintained and updated Companion Website containing valuable teaching and learning material.



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