Contents
Preface
Biographical Sketches
Chapter 1: Introduction
Financial Assets
Financial Markets
Derivative Markets
Summary
Questions
Section 1: The Players
Chapter 2: Overview of Market Participants
and Financial Innovation
Issuers and Investors
Role of Financial Intermediaries
Overview of Asset/Liability Management for Financial Institutions
Regulation of Financial Markets
Financial Innovation
Summary
Questions
Capital Markets: Institvtions and Instruments
Chapter 3: Depository Institutions
Asset/Liability Problem of Depository Institutions
Commercial Banks
Savings and Loan Associations
Savings Banks
Credit Unions
Summary
Questions
Chapter 4: Nondepository Institutions
Insurance Companies
Pension Funds
Investment Companies
Summary
Questions
Chapter 5: Investment Banking Firms
Scope of Investment Banking
Nature of the Business
Industry Stmcture
Competition and Challenges for Investment Banking Firms
Summary
Questions
Section 11: Organization and Structure of Markets
Chapter 6: The Primary Markets
Regulation of the Issuance of Securities
Variations in the Underwriting of Securities
World Capital Markets Integration and Fund Raising Implications
Motivation for Raising Funds Outside of the Domestic Market
Summary
Questions
Chapter 7: Secondary Markets
Function of Secondary Markets
Trading Locations
Market Structures
Perfect Markets
Secondary Market Trading Mechanics
Role of Brokers and Dealers in Real Markets
Market Efficiency
Transaction Costs
Summary
Questions
Section III: Risk and Return Theories
Chapter 8: Risk and Return Theories: 1
Measuring Investment Return
Portfolio Theory
Risky Assets Versus Risk-Free Assets
Measuring Portfolio Risk
Diversification
Choosing a Portfolio of Risky Assets
Summary
Questions
Chapter 9: Risk and Return Theories: 11
Economic Assumptions
Capital Market Theory
The Capital Asset Pricing Model
The Multifactor CAPM
Arbitrage Pricing Theory Model
Some Principles to Take Away
Summary
Questions
Section IV: Derivatives Markets
Chapter 10: Introduction to Financial
Futures Markets
Mechanics of Futures Trading
Futures Versus Forward Contracts
Risk and Return Characteristics of Futures Contracts
Pricing of Futures Contracts
General Principles of Hedging With Futures
The Role of Futures in Financial Markets
The GAO Study on Derivatives
Summary
Questions
Chapter 11: Introduction to Options Markets
Option Contract Defined
Differences Between Options and Futures Contracts
Risk and Return Characteristics of Options
Pricing of Options
Economic Role of the Option Markets
Exotic Options
Summary
Questions
Capital Markets: Institutions and Instruments
Chapter 12: Introduction to the Swaps,
Caps, and Floors Markets
Swaps
Cap and Floor Agreements
Summary
Questions
Section V: The Equity Market
Chapter 13: Common Stock Market
Secondary Markets
SEC Studies of the Structure of the Equity Markets
Trading Arrangements for Institutional Investors
Stock Market Indicators
Empirical Evidence on Pricing Efficiency and
Implications for Portfolio Strategies
The Market Crash of 1987
Non-U.S. Equity Markets
Summary
Questions
Chapter 14: Stock Options Market
History of Exchange-Traded Options
Features of Exchange-Traded Stock Options
Stock Option Pricing Models
Option Strategies
Pricing Efficiency of the Stock Options Market
Warrants
Summary
Questions
Chapter 15: Stock Index Derivative Markets
Stock Index Options
Stock Index Futures Market
Equity Swaps
Stock Index Contracts, Stock Price Volatility, and Black Monday
Summary
Questions
Section VI: Interest Rate Determination
and Bond Valuation
Chapter 16: The Theory and Structure
of Interest Rates
The Theory of Interest Rates
The Structure of Interest Rates
Summary
Questions
Chapter 17: Valuation of Debt Contracts and
Their Price Volatility Characteristics
Features of Debt Contracts
Basic Valuation Principles
Return From a Bond: Yield-to-Maturity Measure
Reasons Why a Bond's Price Will Change
Reinvestment of Cash Flow and Yield
What Determines the Premium-Par Yield
Bond Price Volatility
Summary
Questions
Chapter 18: The Term Structure bf Interest Rates
The Yield Curve
Constructing the Theoretical Spot Rate Curve
Forward Rates
Determinants of the Shape of the Term Structure
Summary
Questions
Section VII: Debt Markets
Chapter 19: Money Markets
Treasury Bills
Commercial Paper
Bankers Acceptances
Large-Denomination Negotiable CDs
Repurchase Agreements
Federal Funds
Summary
Questions
Chapter 20: Treasuryand Agency Securities Markets
Treasury Securities
Federal Agency Securities
Non-U.S. Government Bond Markets
Summary
Questions
Chapter 21: Corporate Bond Market
Features of a Corporate Bond Issue
Corporate Bond Ratings
Event Risk
High-Yield Corporate Bond Market
Secondary Market
Private Placement Market for Corporate Bonds
Risk and Return in the Corporate Bond Market
Eurobond Market
Capital Markets: Institutions and Inslruments
Summary
Questions
Chapter 22: Medium-Term Note, Bank Loan,
and Preferred Stock Markets
Medium-Term Notes
Bank Loan Market
Preferred Stock
Bankruptcy and Creditor Rights
Summary
Questions
Chapter 23: Municipal Securities Market
Investors in Municipal Securities
Features of Municipal Securities
Types of Municipal Securities
Credit Risk
Tax Risk
The Primary Market
The Secondary Market
Regulation of the Municipal Securities Market
Yields on Municipal Bonds
Summary
Questions
Chapter 24: The Mortgage Market
What is a Mortgage?
Investors
Mortgage Originators
Mortgage Servicers
Mortgage Insurers
The Traditional Mortgage
The Mismatch Problem and the Creation of
Adjustable-Rate Mortgages
The Tilt Problem and the Creation of Other Mortgage Instruments
Default Risk for Mortgages
Summary
Questions
Chapter 25: The Market for Mortgage
Pass-Through Securities
Development of the Secondary Mortgage Market
Mortgage Pass-Through Securities
Types of Mortgage Pass-Through Securities
Prepayment Conventions and Cash Flow
Factors Affecting Prepayment Behavior
Secondary Market
Prepayment Risks Associated With Pass-Through Securities
Stripped Mortgage-Backed Securities
Summary
Questions
Chapter 26: The Market for Collateralized
Mortgage Obligations
Sequential-Pay Tranches
Accmal Bonds
Floating Rate Tranches
Planned Amortization Class Tranches
Credit Risk
Tax Considerations
The CMO Market Today
Summary
Questions
Chapter 27: The Market for Asset-Backed Securities
Issuers of and Collateral for Asset-Backed Securities
Features of Asset-Backed Securities
Benefits of Asset Securitization and Implications
for Financial Markets
Summary
Questions
Chapter 28: Exchange-Traded Interest Rate
Futures and Options
Interest Rate Futures Contracts
Exchange-Traded Interest Rate Options
Summary
Questions
Chapter 29: Over-the-Counter Interest
Rate Derivative Markets
Over-the-Counter Interest Rate Options
Forward Rate Agreement
Interest Rate Swaps
Interest Rate Agreements
Summary
Questions
Section VIII: Foreign Exchange Markets
Chapter 30: Foreign Exchange Market
Foreign Exchange Rates
Foreign-Exchange Risk
Capital Markets: Institutions and Instruments
Spot Market
Cross Rates
Dealers
The European Currency Unit
Summary
Questions
Chapter 31: Instruments for Controlling
Foreign-Exchange Risk
Currency Forward Contracts
Currency Futures Contracts
Currency Options Contracts
Currency Swaps
Summary
Questions
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