Financial Market

Chapter 5

Financial Markets and Institutions

Learning Objectives

After reading this chapter, students should be able to:

◆ Describe three ways in which the transfer of capital takes place.

◆ List some of the many different types of financial markets, and identify several recent trends taking place in the financial markets.

◆ Identify some of the most important money and capital market instruments, and list the characteristics of each.

◆ Compare and contrast major financial institutions.

◆ Distinguish between the two basic types of stock markets.

◆ Identify the three classifications of stock market transactions.

◆ Read stock quotations from a variety of sources/publications.

◆ Briefly explain the Efficient Markets Hypothesis (EMH), identify the three levels of efficiency, and discuss the implications of market efficiency.

◆ Briefly discuss behavioral finance and its impact on the support for EMH.

Lecture Suggestions

Chapter 5 presents an overview of financial markets and institutions and it leads right into the next chapter. Additionally, students have an interest in financial markets and institutions.

What we cover, and the way we cover it, can be seen by scanning the slides and Integrated Case solution for Chapter 5, which appears at the end of this chapter solution. For other suggestions about the lecture, please see the “Lecture Suggestions” in Chapter 2, where we describe how we conduct our classes.

DAYS ON CHAPTER: 2 OF 58 DAYS (50-minute periods)

Answers to End-of-Chapter Questions

5-1 The prices of goods and services must cover their costs. Costs include labor, materials, and capital. Capital costs to a borrower include a return to the saver who supplied the capital, plus a mark-up (called a “spread”) for the financial intermediary that brings the saver and the borrower together. The more efficient the financial system, the lower the costs of intermediation, the...