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fin350_Chapter021.pptCopyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
CHAPTER 2
Overview of Market Participants and Financial Innovation
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Learning Objectives
- Participants in financial markets:
- central governments and agencies, municipal , supranationals, nonfinancial and financial businesses, and households.
- Business of financial institutions
- What a financial intermediary is
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
The Players
- Governments
- Federal government
- Government-sponsored enterprises
- State governments
- Local governments
- Nonfinancial Corporations
- Ford
- General Electric
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
The Players (continued)
- Depository Institutions
- Commercial banks
- Savings and loan associations
- Savings banks
- Credit unions
- Insurance Companies
Life Insurance
Property and Casualty Insurance
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
The Players (continued)
- Asset Management Firms
- Pension Funds
- Regulated investment companies
- Exchange-traded funds
- Hedge funds
- Real estate investment trusts
- Collateralized debt obligations
- Structured finance operating companies
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
The Players (continued)
- Investment Banks
- Assistance in obtaining funds
- For investors, act as broker and dealer
- May be a subsidiary of
- Commercial banks
- Insurance companies
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
The Players (continued)
- Nonprofit Organizations
- Classified as
- Commercial enterprises
- Not-for-profit organizations
- Foundations
- endowments
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
The Players (continued)
- Foreign Investors
- Individuals
- Nonfinancial businesses
- Financial entities
- Supranational institutions
- Two or more central governments through treaties
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Financial Institutions
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Role of Financial Intermediaries
- Transform financial assets and re-constitute them into different types of assets.
- Exchange financial assets on behalf of customers.
- Exchange financial assets for their own account.
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Role of Financial Intermediaries (continued)
- Assist in the creation of financial assets for their customers and then sell those financial assets to other market participants.
- Provide investment advice to other market participants.
- Manage the portfolios of other market participants.
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Role of Financial Intermediaries (continued)
- Providing a Payment Mechanism
- Credit cards, debit cards, electronic transfers
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Regulation of Financial Markets (continued)
- Forms of Federal Government Regulation of Financial Market
- Disclosure Regulation
- Financial Activity Regulation
- Financial Institution Regulation
- Foreign Participant Regulation
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Summary
- Funds (debt or equity) can be raised by issuing obligations and investment in financial assets
- Financial institutions provide broker, dealer and underwriting functions
- Intermediaries transform corporate assets into assets attractive to the market
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Summary (continued)
- Investment strategies of financial institutions are determined by the type of liabilities, regulations and tax considerations
- Regulations can be classified by disclosure, activity, institution and foreign participation
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Summary (continued)
- Financial innovation can be classified by function and either process or product
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall.
