1. Dr. David P Echevarria1All Rights Reserved CHAPTER 1 ROLE OF FINANCIAL MARKETS & INSTITUTIONS Dr. David P. Echevarria University of North Carolina – Wilmington Cameron School of Business Fall, 2015

2. All Rights ReservedIntro & Chapter 1Page 2 Tips on getting through the FMI course before A.Skim read the assignments before class 1.Reading the material the night before the exam will invariably lead to a poor grade. B.Keep up with the homework as assigned. 1.helps to understand material 2.helps with exams questions. 3.Homework due on exam day.

3. All Rights ReservedIntro & Chapter 1Page 3 Tips on getting through the FMI course C.Attendance 1.Missing classes results in poor exam performance. 2.I regularly take attendance. 3.Penalty for excessive absences. D.Class Participation 1.Don’t hesitate to ask questions!

4. All Rights ReservedIntro & Chapter 1Page 4 General Information A.Course Syllabi and Lecture Notes 1. My UNCW web page: http://www.csb.uncw.edu/people/echevarriad/ a.Course Related Information b.Course notes require Adobe Reader c.Hyperlinks to business related web sites B.Email 1.I use email to communicate important information to students. Make certain your email account is able to receive mail.

5. All Rights ReservedIntro & Chapter 1Page 5 A Thought on Exams A.Things Happen! 1.Take the responsible approach – keep up with the work (reading and homework) 2.Email me before the exam – we’ll work something out. 3.Failure to do so means you take Version 2 (the nightmare version).

6. Then lets get started Any Questions? Dr. David P EchevarriaAll Rights Reserved6

7. What’s this course about? A.The US is a fully developed market economy 1.An efficient banking system. 2.An active and liquid securities market. 3.A well defined insurance network. 4.A highly developed system for consumer and business financing 5.An increasing demand for financial specialists to analyze, manage, and advise.

8. Dr. David P EchevarriaAll Rights Reserved8 FINANCIAL MARKET FUNCTIONS A.Efficient Allocation of Resources 1.Provide funds to most efficient investments 2.Provide Capital Surplus to Capital Deficit units B.Risk Management & Risk Reduction 1.Provide hedging instruments 2.Diversify investments to reduce risk C.Efficient Transfer of Financial Claims 1.Provide low cost liquidity services 2.Facilitate efficient movement of capital

9. Dr. David P EchevarriaAll Rights Reserved9 SECURITIES TRADED IN FINANCIAL MARKETS A.Money Market Instruments 1.Maximum 1 year maturities 2.T-Bills, Commercial Paper, Bankers Acceptances B.Capital Market Instruments 1.Long maturity debt securities (Bonds) 2.Stocks C.Derivative Securities 1.Options 2.Futures

10. Dr. David P EchevarriaAll Rights Reserved10 TYPES OF FINANCIAL INTERMEDIARES A.Depository Institutions 1.Banks, Credit Unions, Savings & Loan Associations B.Contractual Savings Institutions 1.Insurance Companies, Pension Funds C.Investment Intermediaries 1.Mutual Fund Companies, Finance Companies

11. Dr. David P EchevarriaAll Rights Reserved11 REGULATORY STRUCTURE A.Regulatory Divisions by the US Congress 1.Security Markets 2.Depository Institutions B.Objectives of Regulation 1.Protect consumers/investors 2.Insure a level playing field C.Rational for Regulation 1.Increase information flow 2.Insure financial soundness

12. Dr. David P EchevarriaAll Rights Reserved12 INTERNATIONAL INTEGRATION OF FINANCIAL MARKETS A.Financial Services / Infrastructure 1.Follows international trade patterns and practices 2.Stage of host market development key to service level B.Foreign Investment 1.Dependent upon availability of information 2.Restrictions on direct investment 3.Affected by the political climate 4.Ability to repatriate profits

13. Dr. David P EchevarriaAll Rights Reserved13 HOMEWORK QUESTIONS A.What is the difference between Surplus and Deficit units? B.How do Primary markets differ from Secondary markets? C.What is the difference between Money and Capital markets? D.What is Marketability and why is it important? E.How Depository and Non-Depository institutions differ in services provided?

14. Dr. David P EchevarriaAll Rights Reserved14 HOMEWORK F. While you are surfing the web, add the following sites to your tool bar: 1.www.marketwatch.comwww.marketwatch.com 2.http://time.com/http://time.com/ 3.http://www.usnews.com/http://www.usnews.com/ 4.http://www.economist.com/http://www.economist.com/ 5.http://www.wsj.com/http://www.wsj.com/ G. The last URL is for the Wall Street Journal. You cannot read everything but you get a short precis of what’s going on.