Financial Markets Textbook PDF

Financial Markets Tenth Edition, Global Edition Chapter 1 Why Study Financial Markets? © 2024 Pearson Education Ltd. All Rights Reserved. 1-1 Chapter Preview (1 of 3) The evening n...

Financial Markets Tenth Edition, Global Edition Chapter 1 Why Study Financial Markets? © 2024 Pearson Education Ltd. All Rights Reserved. 1-1 Chapter Preview (1 of 3) The evening news features a segment about the bond market and interest rates. What does this mean for your small retail business? Should you borrow money? Issue stock instead of using a bank loan? What does all this mean? Do I care about interest rates? What about the turmoil in Europe? Are imports more expensive? © 2024 Pearson Education Ltd. All Rights Reserved. 1-2 Chapter Preview (2 of 3) These are good questions. Of course, the answer to these questions can be found in this book. In fact, this book touches on a variety of topics, including the Fed, stocks markets, bond markets, and banks. We will begin to appreciate many exciting issues related to these topics during the course of this term. © 2024 Pearson Education Ltd. All Rights Reserved. 1-3 Chapter Preview (3 of 3) We preview subjects of interest to anyone who is a part of a productive society. Topics include: Why Study Financial Markets? How Will We Study Financial Markets and Institutions © 2024 Pearson Education Ltd. All Rights Reserved. 1-4 Why Study Financial Markets? (1 of 2) Financial markets are crucial in our economy. 1. Channel funds from savers to investors, promoting economic efficiency. 2. Market activity affects: personal wealth, business firms, and economy. © 2024 Pearson Education Ltd. All Rights Reserved. 1-5 Why Study Financial Markets? (2 of 2) Well functioning financial markets are key factors in producing high economic growth. We will briefly examine each of these markets, key statistics, and how we will examine them throughout this course. © 2024 Pearson Education Ltd. All Rights Reserved. 1-6 Why Study Financial Markets? Debt Markets & Interest Rates (1 of 4) Debt markets allow governments, corporations, and individuals to borrow. Borrowers issue a security, called a bond, offering interest and principal over time. The interest rate is the cost of borrowing. © 2024 Pearson Education Ltd. All Rights Reserved. 1-7 Why Study Financial Markets? Debt Markets & Interest Rates (2 of 4) Many types of market interest rates: mortgage rates, car loan rates, credit card rates, etc. The level of these rates are important. For example, mortgage rates in the early part of 1983 exceeded 13%. © 2024 Pearson Education Ltd. All Rights Reserved. 1-8 Why Study Financial Markets? Debt Markets & Interest Rates (3 of 4) Understanding the history of interest rates is beneficial. We will study these further in the book: types and characteristics of bonds; theories on how rates are determined. © 2024 Pearson Education Ltd. All Rights Reserved. 1-9 Why Study Financial Markets? Debt Markets & Interest Rates (4 of 4) For the moment, we will turn to other topics, but revisit these topics. In Chapters 2, 11, 12, and 14, we will examine the role of debt markets in the economy. In Chapters 3 through 5, we will examine the characteristics of interest rates. © 2024 Pearson Education Ltd. All Rights Reserved. 1 - 10 Why Study Financial Markets? The Stock Market (1 of 3) The stock market is the market where common stock (or just stock) are traded. Companies initially sell stock (in the primary market) to raise money. After that, the stock is traded among investors. The stock market receives the most attention from the media. © 2024 Pearson Education Ltd. All Rights Reserved. 1 - 11 Why Study Financial Markets? The Stock Market (2 of 3) Companies, not just individuals, also watch the market. Often seeking additional funding The success of SEOs is dependent on the company’s stock © 2024 Pearson Education Ltd. All Rights Reserved. 1 - 12 Why Study Financial Markets? The Stock Market (3 of 3) In Chapter 2, we will examine the role of the stock market in the financial system. In Chapters 6 and 13, we will further look at how stock prices behave to information in the marketplace. © 2024 Pearson Education Ltd. All Rights Reserved. 1 - 13 Why Study Financial Markets? The Foreign Exchange Market (1 of 3) The foreign exchange market is where international currencies trade and exchange rates are set. Although most people know little about this market, it has a daily volume around $5 trillion! © 2024 Pearson Education Ltd. All Rights Reserved. 1 - 14 Why Study Financial Markets? The Foreign Exchange Market (2 of 3) These fluctuations matter! – In recent years, consumers have found that vacationing in Europe is expensive, due to a weakening dollar relative to the Euro. – When the dollar strengthens, foreign purchase of domestic goods falls. © 2024 Pearson Education Ltd. All Rights Reserved. 1 - 15 Why Study Financial Markets? The Foreign Exchange Market (3 of 3) In Chapter 15, we will examine how exchange rates are determined in both the short- and long-run. © 2024 Pearson Education Ltd. All Rights Reserved. 1 - 16 How We Study Financial Markets and Institutions (1 of 2) Basic Analytic Framework 1. Simplified models are constructed, explained, and then manipulated to illustrate various phenomena. 2. “Practicing Manager” cases are used to tie theoretical and empirical aspects. © 2024 Pearson Education Ltd. All Rights Reserved. 1 - 17 How We Study Financial Markets and Institutions (2 of 2) Other features 1. Case Studies 2. Applications and Numerical Examples 3. Special Interest Boxes 4. Hundred of Analytical End-of-Chapter Problems 5. Predicting the Future Problems © 2024 Pearson Education Ltd. All Rights Reserved. 1 - 18 Exploring the Web (1 of 2) Web Exercise The World Wide Web is an enormous resource for present and historical information. We will periodically present Web exercises to introduce some of the important locations for information, and how to use it. © 2024 Pearson Education Ltd. All Rights Reserved. 1 - 19 Exploring the Web (2 of 2) © 2024 Pearson Education Ltd. All Rights Reserved. 1 - 20