1、Money and Capital Markets1C h a p t e rEighth EditionFinancial Institutions and Instruments in a Global MarketplacePeter S. RoseMcGraw Hill / IrwinSlides by Yee-Tien (Ted) FuFunctions and Roles of the Financial System in the Global Economy 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
2、McGraw Hill / Irwin1 - 2 Learning Objectives w To understand the functions performed and the roles played by the system of financial markets and institutions in the global economy.w To explore several key terms and concepts of the money and capital markets.w To discover how important the financial s
3、ystem is in increasing our standard of living, generating new jobs, and building our savings to meet tomorrows financial needs. 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 3Introductionw The financial system is the collection of markets, institutions, laws, reg
4、ulations, and techniques through which bonds, stocks, and other securities are traded, interest rates are determined, and financial services are produced and delivered around the world. 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 4Introductionw The primary task
5、 of the financial system is to move scarce loanable funds from those who save to those who borrow to buy goods and services and to make investments in new equipment and facilities, so that the global economy can grow and the standard of living can increase. 2003 by The McGraw-Hill Companies, Inc. Al
6、l rights reserved.McGraw Hill / Irwin1 - 5Flows within the Global Economic Systemw The basic function of the economic system is to allocate scarce resources land, labor, management skill, and capital to produce the goods and services needed by society.w The global economy generates a flow of product
7、ion in return for a flow of payments.w The circular flow of production and income is interdependent and never ending. 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 6Flows within the Global Economic SystemLand and other natural resourcesLabor and managerial skills
8、Capital equipmentFlow of productionFlow of paymentsGoods and services sold to the public 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 7Flows within the Global Economic SystemProducing units (mainly business firms and governments)Consuming units (mainly household
9、s) 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 8The Role of Markets in the Global Economic Systemw In most economies around the world, markets carry out the complex task of allocating resources and producing goods and services.w The marketplace determines what
10、goods and services will be produced and in what quantities through their prices.w Markets also distribute income by rewarding superior producers with increased profits, higher wages, and other economic benefits. 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 9Type
11、s of Marketsw There are essentially three types of markets within the global economic system.The factor markets allocate the factors of production to the owners of productive resources.Consuming units use most of their income from factor markets to purchase goods and services in product markets. 200
12、3 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 10Types of MarketsThe financial markets channel savings to those individuals and institutions needing more funds for spending than are provided by their current incomes. 2003 by The McGraw-Hill Companies, Inc. All rights
13、 reserved.McGraw Hill / Irwin1 - 11Types of MarketsProducing units (mainly business firms and governments)Flow of productionFlow of paymentsConsuming units (mainly households)Flow of funds (savings)Flow of financial services, income, and financial claimsFinancial marketsProduct marketsFactor markets
14、Flow of incomesProductive services Goods and servicesFlow of payments forconsumption and taxesFlow of incomesProductive services 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 12The Financial Markets and the Financial System:Channel for Savings and Investmentw The
15、 financial markets make possible the exchange of current income for future income and the transformation of savings into investment so that production, employment, and income can grow.w The suppliers of funds to the financial system can expect not only to recover their original funds but also to ear
16、n additional income as a reward for waiting and for assuming risk. 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 13The Global Financial SystemDemanders of funds (mainly business firms and governments)Flow of loanable funds (savings)Flow of financial services, inc
17、omes, and financial claimsSuppliers of funds (mainly households) 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 14Functions Performed by the Global Financial System and the Financial Marketsw Savings function. The global system of financial markets and institution
18、s provides a conduit for the publics savings.w Wealth function. The financial instruments sold in the money and capital markets provide an excellent way to store wealth.w Liquidity function. Financial markets provide liquidity for savers who hold financial instruments but are in need of money. 2003
19、by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 15Functions Performed by the Global Financial System and the Financial Marketsw Credit function. Global financial markets furnish credit to finance consumption and investment spending.w Payments function. The global financ
20、ial system provides a mechanism for making payments for goods and services. 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 16Functions Performed by the Global Financial System and the Financial Marketsw Risk protection function. The financial markets around the wo
21、rld offer businesses, consumers, and governments protection against life, health, property, and income risks.w Policy function. The financial markets are a channel through which governments may attempt to stabilize the economy and avoid inflation. 2003 by The McGraw-Hill Companies, Inc. All rights r
22、eserved.McGraw Hill / Irwin1 - 17Types of Financial MarketsWithin the Global Financial Systemw The money market is for short-term (one year or less) loans, while the capital market finances long-term investments by businesses, governments, and households.w In particular, governments borrow from comm
23、ercial banks in the money market, while in the capital market, insurance companies, mutual funds, security dealers, and pension funds supply the funds for businesses. 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 18Types of Financial MarketsWithin the Global Fina
24、ncial Systemw The money market may be subdivided into Treasury bills, certificates of deposit (CDs), bankers acceptances, commercial paper, federal funds and Eurocurrencies.w The capital market may be subdivided into mortgage loans, tax-exempt (municipal) bonds, consumer loans, Eurobonds and Euronot
25、es, corporate stock, and corporate notes and bonds. 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 19Types of Financial MarketsWithin the Global Financial Systemw In open markets, financial instruments are sold to the highest bidder, and they can be traded as ofte
26、n as is desirable before they mature. In negotiated markets, the instruments are sold to one or a few buyers under private contract.w Financial capital is raised when newly issued securities are sold in the primary markets. Security trading in the secondary markets then provides liquidity for the in
27、vestors. 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 20Types of Financial MarketsWithin the Global Financial Systemw In the spot market, assets or financial services are traded for immediate delivery (usually within two business days).w Contracts calling for th
28、e future delivery of financial instruments are traded in the futures or forward market.w Contracts granting the right to buy or sell certain securities at specified prices within a certain period are traded in the options market. 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hil
29、l / Irwin1 - 21w Credit, the Common Commodity. The shifting of borrowers among markets helps to weld the parts of the global financial system together and to bring the credit costs in the different markets into balance with one another.w Speculation and Arbitrage. Speculators who watch for profitabl
30、e arbitrage opportunities help to maintain consistent prices among the markets.Factors Tying All Financial Markets Together 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 22Factors Tying All Financial Markets Togetherw Perfect and Efficient Markets. There is some
31、research evidence suggesting that financial markets are closely tied to one another due to their near perfection and efficiency.w In the real world however, market imperfection and information asymmetry exist. 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 23The D
32、ynamic Financial Systemw The global financial system is rapidly changing.w In particular, there are trends toward the deregulation of financial institutions and services, the harmonization of regulations, and global integration, leading to more intense competition as well as the development of new f
33、inancial services. 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 24The Plan of This Bookw Part One provides an overview of the global financial system its role in the worlds economy and its basic characteristics.w Part Two examines the forces that shape interest
34、rates and the prices of financial instruments.w Part Three draws our attention to the money market and its principal instruments and institutions (including the central bank). 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 25The Plan of This Bookw Part Four gives
35、a closer look at commercial banks, credit unions, savings and loan associations, money market funds, insurance companies, pension funds, mutual funds, and other financial-service firms.w Part Five turns to the role of governments federal, state, and local within the global financial system. 2003 by
36、The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 26The Plan of This Bookw Part Six focuses on the financial activities of nonfinancial business firms and consumers.w Part Seven is devoted to the international financial system and future trends in global finance. 2003 by The
37、 McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 27Money and Capital Markets in Cyberspacew For more on the nature of the financial system, see homepages.uel.ac.uk/K.Bain/fimac223.html.w Help on planning for savings and investments is available at sec.gov/investor.shtml.w How
38、much wealth does the U.S. really have and how unevenly is it distributed? See aei.org/research/description.htm#1.113 and woodrow.mpls.frb.fed.us/research/. 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 28Money and Capital Markets in Cyberspacew For a discussion o
39、f the important roles performed by capital markets within the financial system, see www1.worldbank.org/finance/.w For further discussion on the low U.S. savings rate, see bankrate/brm/.w For a discussion of the concept of arbitrage, see finpipe/derivglossary.htm. 2003 by The McGraw-Hill Companies, I
40、nc. All rights reserved.McGraw Hill / Irwin1 - 29Money and Capital Markets in Cyberspacew Some experts see the Internet as a nearly perfect market. See, for example, wright.edu/tdung/internet.htm. 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 30Chapter Revieww In
41、troductionw The Global Economy and the Financial SystemFlows within the Global Economic SystemThe Role of Markets in the Global Economic SystemTypes of MarketsThe Financial Markets and the Financial System: Channel for Savings and Investment 2003 by The McGraw-Hill Companies, Inc. All rights reserve
42、d.McGraw Hill / Irwin1 - 31Chapter Revieww Functions Performed by the Global Financial System and the Financial MarketsSavings FunctionWealth FunctionLiquidity FunctionCredit FunctionPayments FunctionRisk Protection FunctionPolicy Function 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
43、McGraw Hill / Irwin1 - 32Chapter Revieww Types of Financial Markets Within the Global Financial SystemThe Money Market versus the Capital MarketDivisions of the Money and Capital MarketsOpen versus Negotiated MarketsPrimary versus Secondary MarketsSpot versus Futures, Forward, and Option MarketsFactors Tying All Financial Markets TogetherThe Dynamic Financial System 2003 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw Hill / Irwin1 - 33Chapter Revieww The Plan of This Book
