1. Copyright © 2000 Addison Wesley Longman Slide #1-1 Chapter One WHY STUDY FINANCIAL MARKETS AND INSTITUTIONS? Part I Introduction

2. Copyright © 2000 Addison Wesley Longman Slide #1-2 Why Study Financial Markets? 1. Channels funds from savers to investors, thereby promoting economic efficiency 2. Affects personal wealth and behavior of business firms

3. Copyright © 2000 Addison Wesley Longman Slide #1-3 Bond Market and Interest Rates

4. Copyright © 2000 Addison Wesley Longman Slide #1-4 Stock Market

5. Copyright © 2000 Addison Wesley Longman Slide #1-5 Foreign Exchange Market

6. Copyright © 2000 Addison Wesley Longman Slide #1-6 Why Study Financial Institutions? 1. Central Banks and the Conduct of Monetary Policy 2. Structure of the Financial System — Helps get funds from savers to investors 3. Banks and Other Financial Institutions 4. Financial Innovation 5. Managing Risk

7. Copyright © 2000 Addison Wesley Longman Slide #1-7 How We Study Financial Markets and Institutions Basic Analytic Framework 1. Simplified approach to the demand for assets 2. Concept of equilibrium 3. Basic supply and demand approach to understand behavior in financial markets, 4. Search for profits 5. Transactions cost and asymmetric information approach to financial structure 6. Aggregate supply and demand analysis

8. Copyright © 2000 Addison Wesley Longman Slide #1-8 How We Study Financial Markets and Institutions Features 1. Case studies 2. Applications and Numerical Examples 3. Special Interest Boxes 4. Following the Financial News boxes 5. Reading the Wall Street Journal 6. Practicing Financial Institution Manager applications