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Review Notes and Practice Problems Chapters 1,12,4,14, 2,3 and 5-9(Madura) Dr. Curcio Chapter 1 The Role of Financial Markets and Institutions A. Overview of Financial Markets 1. Three Types of Financial Markets a. Money versus Capital Markets b. Primary versus Secondary Markets c. Organized versus Over-the-Counter Markets 2. Securities Traded in Financial Markets a. Money Market Securities b. Capital Market Securities 1) Bonds and Mortgages 2) Stocks c. Derivative Securities 1) Speculation using an underlying asset 2) Acts as Risk Management a form of hedging B. Valuation of Securities in Financial Markets 1. Market Pricing of Securities Impacted by a. Information on Valuations (top-down approach) Economic (Global Economic, Financial Market and Real Asset Market Conditions) Industry (Demand, growth prospects, Competitive Conditions in Specific Industry) Firm-specific (Strengths, weaknesses, opportunities and threats of specific company) 2. Market Pricing of Securities Impacted by a. Impact of Valuations on Pricing Information affects the supply and demand for a security 3. Market Pricing of Securities Impacted by a. Impact of the Internet on the Valuation Process More timely pricing More accurate pricing More informative pricing 4. Market Efficiency When security prices fully reflect all available information, the market is said to be efficient 5. Financial Market Regulation a. Disclosure b. Regulatory Response to Financial Scandals c. Other Regulations C. Role of Financial Institutions in Financial Markets Global Financial Markets 1. How Financial Markets Influence Economic Development 2. Global Integration a. Barriers to Global Integration b. Financial Market Integration within Europe 3. Role of the Foreign Exchange Market a. Foreign Exchange Rates D. Types of Financial Institutions in Financial Markets 1. Role of Depository Institutions a. Commercial Banks b. Savings Institutions c. Credit Unions 2. Role of Non-depository Financial Institutions Finance Companies Mutual Funds Securities Firms Insurance Companies and Pension Funds 3. Comparison of Roles among Financial Institutions a. Role as a Monitor of Publicity Traded Firms OVERVIEW OF FINANCIAL INSTITUTIONS 1. Competition between Financial Institutions a. Impact of the Internet on Competition 2. Consolidation of Financial Institutions a. Impact of Consolidation on Valuation b. Typical Structure of a Financial Conglomerate Chapter 12 Market Microstructure and Strategies Dr. Curcio A. Stock Market Transactions 1. Placing an Order a. Stop-Loss Order b. Stop-Buy Order c. Placing an Order Online 2. Margin Trading- When investors place an order, they may consider purchasing the stock on margin; which would involve using cash as well as funds borrowed from their broker to make the purchase. The Federal Reserve sets the margin requirements, which represent the minimum proportion of funds that must be covered with cash. ... View Full Document

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