1、Financial Innovation and DevelopmentChapter 15Lead-inLanguage NotesKey PointsFollow-up Tasks15.115.315.215.4CONTENTS15.5Extended Tasks15.1Lead-inThis chapter will first of all introduce the foundations of financial innovationthe foundations of financial innovation.Then it will explain why the financ
2、ial innovation has developeddeveloped at a fast pace ever since the mid-1960s.Finally,it will take a look at the various financial derivativesfinancial derivatives.On the cost side,the malleability of financial claims and the application of emerging computer and telecommunications technology reduced
3、 the transactions costs associated with managing,moving and monitoring funds.On the benefits side,three factors came into play:Firstly,the rise in interest rates increased the benefits in terms of higher profits associated with avoiding various regulations.Secondly,increased domestic and global comp
4、etition from other financial institutions increased the benefits of financial innovation to meet and beat this competition.Finally,the benefits and costs of financial innovations are often interdependent.15.2 Key Points15.2.1 Foundations of Financial Innovation15.2 Key Points15.2.2 Development of Fi
5、nancial InnovationTwo other laws eliminated barriers to interstate branching and allowed banks,securities firms,and insurance companies to merge.in the 1990sA d v a n c e s i n c o m p u t e r a n d information technologies have made the increased competition possible and have transformed the financ
6、ial system into a global system.many innovations were centered on evading regulations.In the 1970sthe banking system was deregulated.Beginning in 1980in a globalized financial environment15.2 Key Points15.2.3 Financial Derivativesreduce interest rate and exchange rate risksused by banks and other le
7、nders to unbundle credit riskAn interest rate swap is a financial innovation that can be used to reduce the risk of future interest rate changes.Securitization is the process whereby relatively illiquid f i n a n c i a l a s s e t s a r e packaged together and sold off to individual investors.Securi
8、tization Credit derivativesSwap agreementsForwards,futures,and option agreementsbarrier bri(r)障碍ceiling si:l 上限deregulate di:regjulet 放松监管disintermediation dsntmi:den 非居间化，不干预payoff pe:f 收益fungible fndbl 代替的hedge hed 避免malleability mlblt 延展性，可塑性merge m:d 兼并mortgage m:gd 抵押proceeds prsi:dz 收入，收益secur
9、itization skjrtzen 证券化unbundle nbndl 解绑，分散volatile vltal 易变的，不稳定的15.3 Language NotesI.Wordscollateralized mortgage obligationscredit derivative credit transaction D regulations derivative contracts financial claim financial innovation hedge risks interest-bearing checkable deposit 15.3 Language Note
10、sII.Phrases interest rate ceiling mortgage-backed security option agreements profit margins Q regulations reduce losses swap agreements rules and regulations tax planningthe U.S.Treasury 美国财政部unit of account计量单位1.The fact that financial claims are fungible makes the trading of them highly receptive
11、to computer advances.2.Forwards,futures and option agreements are financial innovations used by financial institutions and others to reduce interest rate and exchange rate risks.3.Securitization is the process whereby relatively illiquid financial assets are packaged together and sold off to individ
12、ual investors.In essence,securitization turns these relatively illiquid instruments into quite liquid investments called asset-backed securities.4.Securitization became popular because it provides a way of protecting against interest rate risk in an environment of increased interest rate volatility.
13、5.Collateralized mortgages redirect the cash flows(principal and interest)of mortgage-related products to various classes of bondholders,thus creating financial instruments with varying prepayment risks and varying returns.15.3 Language NotesIII.Sentences 15.4 Follow-up TasksI.Matching()1.currency s
14、wap A.降低风险()2.bondholder B.金融机构()3.Cash flowC.保险公司()4.derivative contract D.证券公司()5.hedge risk E.货币互换()6.insurance companyF.债券持有人()7.financial derivative G.分散风险()8.financial institution H.衍生品合约()9.securities firmI.现金流()10.unbundle risks J.金融衍生产品Directions:Match the English words and phrasesEnglish w
15、ords and phrases in the leftleft column with the proper ChineseChinese equivalents in the rightright column.15.4 Follow-up TasksII.JudgmentsDirections:Decide whether each of the following statements is true(T)true(T)or false(F).1.Many of the recent financial innovations can be attributed to the prog
16、ress in information and computer technologies.()2.Since 1980,the control of the banking system is becoming tighter and tighter.()3.Innovations have made the financial sector more and more competitive in the various markets of the world.4.Although the derivative security market had existed for centur
17、ies,it didnt undergo a fast development until the mid of the 20th Century.()5.The derivative security market is the newest type of the financial security markets.()15.4 Follow-up TasksIII.Short Answer Questions Directions:Answer each of the following questions brieflybriefly.1.Which two factors have
18、 played a key role in the financial innovation starting in the 1960s?2.How do the computer and telecommunications technologies affect the operation of the financial market?3.What do Regulation D and Regulation Q mean respectively?4.Can you list three examples of how the banking system was deregulate
19、d in the 1980s and 1990s?5.Can you understand derivatives in terms of financial innovation?15.4 Follow-up TasksIV.Translation Directions:Translate the following Chinese paragraph into Englishinto English.金融创新，始于20世纪50年代末60年代初，是指通过变更现有的金融体制和增加新的金融工具，以获取现有的金融体制和金融工具所无法取得的潜在的利润。可以把金融创新粗略地分为金融技术创新、金融产品创
20、新和金融制度创新三大类。需要指出的是，金融创新需要金融监管的跟进。只有在合理有效的监管下，金融创新才能沿着正确的轨道健康发展。The early bird catches the worm.English proverbI did not want to miss a strategic opportunity on account of a tactical error.George SorosIm fascinated by chaos.Thats really how I make my money:understanding the revolutionary process in f
21、inancial markets.George SorosThe heart and soul of the company is creativity and innovation.Bob IgerIn the business world,the rearview mirror is always clearer than the windshield.Warren Buffett15.5 Extended TasksI.Proverbs and Quotes15.5 Extended TasksII.Interview ExcerptRobert Merton(above left)is
22、 an American economist,the Nobel Memorial Prize in Economic Sciences laureate in 1997,and professor at the MIT Sloan School of Management.He is famous for his pioneering contributions to continuous-time finance,especially the first continuous-time option pricing model,the Black-Scholes formula.Andre
23、w Lo(above right)is the Charles E.and Susan T.Harris Professor at the MIT Sloan School of Management and the director of the MIT Laboratory for Financial Engineering.In this interview excerpt with Lo,Merton points out that the future of finance is aimed at using science and innovation to transform the society.15.5 Extended TasksIII.Movie ClipThis clip reveals Steve Jobs definition of innovation.Thanks
