ECO 325 Week 3
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This 3 page Class Notes was uploaded by Natalie Chevalier on Wednesday September 28, 2016. The Class Notes belongs to Econ 325 at Pace University - New York taught by Delalex in Fall 2016. Since its upload, it has received 5 views.
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Date Created: 09/28/16
Eco 325: Money and Capital Markets Week 3 (9/19/16) Ch. 2 Learning Objectives Participants in Financial Markets: Central governments and agencies, municipal, supranational, nonfinancial and financial businesses, and households. Business of financial institutions. What a financial intermediary is. How do financial intermediaries provide at least one of four economics functions: maturity intermediation, risk reduction via diversificaton, reducing the costs of contracting and information processing, and payments mechanism. How government regulates financial markets. The Players Governments— federal government, governmentsponsored enterprises, state governments, local governments. Nonfinancial firms— Ford. Depository institutions— commercial banks, savings and loans associations, savings banks, credit unions. Insurance companies— Life insurance, property and casualty insurance Asset Management firms Investment banks— assistance in obtaining funds. Nonprofit organizations— Commercial enterprises, foundations, endowments. Foreign investors— individuals, nonfinancial businesses, financial entities. Asset/Liability Management Type 1 Liabilities— Guaranteed Investment Contracts, Bonds Type 2 Liabilities— Life Insurance Policy Type 3 Liabilities— Certificates of Deposits Type 4 Liabilities— Property and Casualty Insurance Justification for Regulation The market, left to itself, will not produce goods and services in an efficient way at the lowest possible cost. Largely the result of financial crises over time Forms of Regulation Disclosure Financial Activity Regulation Financial Institution Regulation Foreign Participant Regulation Financial Innovation MarketBroadening instruments— increase the liquidity of markets and the availability of funds. Risk Management instruments— reallocate financial risk. Arbitraging instruments and processes— take advantage of differences in costs and returns between markets. Motivation for Financial Innovation Increased volatility Advances in computer and telecommunication tech. Greater sophistication and education among professional market participants. Financial intermediary competition
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