003 - Financial Markets, Financial Markets, Institutions...

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Unformatted text preview: Financial Markets, Financial Markets, Institutions Institutions 5  , , and Instruments and Instruments ECO 473 Money & Banking Dr. D. Foster ECO 473 Money & Banking Dr. D. Foster Match savers and investors Savers want to wealth Investors want to create wealth Successful strategy - diversification Savers seek out mutual funds Savers seek out financial intermediaries Investors seek OPM banks credit unions S&Ls thrifts savings banks pension funds Insurance companies mutual funds mortgage brokers investment bankers finance companies Why - Intermediation e & , e& , e& Who . . . Financial Markets - Why & Who Financial Markets - Why & Who A financial intermediary Banks raise funds by accepting deposits. Banks use the funds to make loans. Banks as a solution to asymmetric  info. How does this occur for direct finance? S&L, Thrifts, Credit Unions also. Not Investment banks. When one party to a transaction knows more than the other party. Adverse selection Adverse selection - parties to a transaction have different information sets. Borrowers as inherently  risky. Moral hazard Moral hazard    b+- after the transaction, behavioral changes adversely affect one party. How is the $ used? Bernard Mad off. Involved on Wall Street since 1960. Prominent philanthropist. Client losses = $65 bill. Ponzi scheme: Began in 1991. Model unreplicated. Targeted charities. Client suicides . New - Primary Markets stocks (IPO), bonds, mortgages, other. Used - Secondary Markets exchange of ownership. Where: NYSE, NASDAQ, OTC . . . Financial Markets - New & Used Financial Markets - New & Used Short - Money Markets A financial instrument that matures w/in one year. Used to facilitate liquidity demands.  Need funds soon.  Have excess cash. 3 mo. & 6 mo. T-Bills Commercial paper Bank CDs Fedl funds Repurchase agreements Bankers acceptances Euro$ funds Financial Markets - Short & Long Financial Markets - Short & Long Money Market Instruments Outstanding, April 2005 Money Market Instruments Outstanding, April 2005...
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003 - Financial Markets, Financial Markets, Institutions...

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