1. Why Study Financial Markets and Institutions? ...................................................................... 2

Instructor’s Manual For Financial Markets and Institutions Eighth Edition Frederic S. Mishkin Stanley Eakens 1 / 4

© 2015 Pearson Education, Inc.Table of Contents

• Introduction 
 ............................................................................................................................ 1
• Why Study Financial Markets and Institutions? ...................................................................... 2
• Overview of the Financial System ........................................................................................... 5

II.Fundamentals of Financial Markets 
 ...................................................................................... 8

• What Do Interest Rates Mean and What Is Their Role in Valuation? ..................................... 9
• Why Do Interest Rates Change? ............................................................................................ 15
• How Do Risk and Term Structure Affect Interest Rates? ..................................................... 23
• Are Financial Markets Efficient? .......................................................................................... 29

III.Fundamentals of Financial Institutions .................................................................................. 32

• Why Do Financial Institutions Exist? .................................................................................... 33
• Why Do Financial Crises Occur and Why Are They So Damaging to

the Economy? ........................................................................................................................ 39 IV.Central Banking and the Conduct of Monetary Policy ......................................................... 43

• Central Banks and the Federal Reserve System .................................................................... 44
• Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics ....................................... 48

V.Financial Markets ..................................................................................................................... 56

• The Money Markets ............................................................................................................. 57
• The Bond Market .................................................................................................................. 63
• The Stock Market
 ............................................................................................................... 69
• The Mortgage Markets
 ....................................................................................................... 75
• The Foreign Exchange Market ............................................................................................. 86
• The International Financial System ...................................................................................... 92

VI.The Financial Institutions Industry ........................................................................................ 97

• Banking and the Management of Financial Institutions ....................................................... 98
• Financial Regulation ........................................................................................................... 106
• Banking Industry: Structure and Competition .................................................................... 114
• The Mutual Fund Industry .................................................................................................. 117
• Insurance Companies and Pension Funds .......................................................................... 123
• Investment Banks, Security Brokers and Dealers, and Venture Capital Firms .................. 128

VII. The Management of Financial Institutions .......................................................................... 133

• Risk Management in Financial Institutions ........................................................................ 134
• Hedging with Financial Derivatives ................................................................................... 143

Chapters on the Web

• Financial Crises in Emerging Market Economies .............................................................. 152
• Savings Associations and Credit Unions ............................................................................ 155
• Finance Companies ............................................................................................................ 158 2 / 4

© 2015 Pearson Education, Inc.Part I Introduction

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Copyright © 2015 Pearson Education, Inc.Chapter 1 Why Study Financial Markets and Institutions?Why Study Financial Markets?Debt Markets and Interest Rates The Stock Market The Foreign Exchange Market Why Study Financial Institutions?Structure of the Financial System Financial Crises Central Banks and the Conduct of Monetary Policy The International Financial System Banks and Other Financial Institutions Financial Innovation Managing Risk in Financial Institutions Applied Managerial Perspective How We Will Study Financial Markets and Institutions Exploring the Web Collecting and Graphing Data Web Exercise Concluding Remarks „ Overview and Teaching Tips Before embarking on a study of financial markets and institutions, the student must be convinced that this subject is worth studying. Chapter 1 pursues this goal by showing the student that financial markets and institutions is an exciting field because it focuses on phenomena that affect everyday life. An additional purpose of Chapter 1 is to provide an overview for the entire book, previewing the topics that will be covered in later chapters. The chapter also provides the students with a guide as to how they will be studying financial markets and institutions with a unifying, analytic framework and an applied managerial perspective.In teaching this chapter, the most important goal should be to get the student excited about the material. I have found that talking about the data presented in the figures helps achieve this goal by showing the students that the subject matter of financial markets and institutions has real-world implications that they should care about.In addition, it is important to emphasize to the students that the course will have an applied managerial

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