Bodie2e_Chapter01 Financial Economics 英文版PPT金融学(第二版) 教学课件

Economics of Money, Banking, and Financial Markets, 12e (Mishkin)Chapter 26 Web Chapter 1: Financial Crises in Emerging Market Economies26.1 Dynamics of Financial Crises in Emerging Market Economies1) Financial crises generally develop along two basic pathsA) mismanagement of financial liberalization/globalization and severe fiscal imbalances.B) stock market declines and severe fiscal imbalances.C) mismanagement of financial liberalization/globalization and stock market declines.D) stock market declines and unanticipated declines in the value of the domestic currency. Answer: AQues Status: Previous EditionAACSB: Reflective Thinking2) In emerging market countries, the deterioration in bank's balance sheets has more ________ effects on lending and economic activity than in advanced countries.A) negativeB) positiveC) affirmingD) advancingAnswer: AQues Status: Previous EditionAACSB: Reflective Thinking3) All of the following might create problems from financial liberalization in emerging countries EXCEPTA) ineffective screening of borrowers.B) limits on risk-taking.C) lax government supervision of banks.D) lenders failure to monitor borrowers.Answer: BQues Status: Previous EditionAACSB: Reflective Thinking4) The mismanagement of financial liberalization in emerging market countries can be understood as a severeA) principal/agent problem.B) asymmetric information problem.C) lemons problem.D) free-rider problem.Answer: AQues Status: Previous EditionAACSB: Reflective Thinking5) Factors likely to cause a financial crisis in emerging market countries includeA) severe fiscal imbalances.B) decreases in foreign interest rates.C) a foreign exchange crisis.D) too strong oversight of the financial industry.Answer: AQues Status: Previous EditionAACSB: Reflective Thinking6) The two key factors that trigger speculative attacks on emerging market currencies areA) deterioration in bank balance sheets and severe fiscal imbalances.B) deterioration in bank balance sheets and low interest rates abroad.C) low interest rates abroad and severe fiscal imbalances.D) low interest rates abroad and rising asset prices.Answer: AQues Status: Previous EditionAACSB: Reflective Thinking7) Severe fiscal imbalances can directly trigger a currency crisis sinceA) investors fear that the government may not be able to pay back the debt and so begin to sell domestic currency.B) the government may stop printing money.C) the government may have to cut back on spending.D) the currency must surely increase in value.Answer: AQues Status: Previous EditionAACSB: Reflective Thinking8) In emerging market countries, many firms have debt denominated in foreign currency like the dollar or yen. A depreciation of the domestic currencyA) results in increases in the firm's indebtedness in domestic currency terms, even though the value of their assets remains unchanged.B) results in an increase in the value of the firm's assets.C) means that the firm does not owe as much on their foreign debt.D) strengthens their balance sheet in terms of the domestic currency.Answer: AQues Status: Previous EditionAACSB: Reflective Thinking9) A sharp depreciation of the domestic currency after a currency crisis leads toA) higher inflation.B) lower import prices.C) lower interest rates.D) decrease in the value of foreign currency-denominated liabilities.Answer: AQues Status: Previous EditionAACSB: Reflective Thinking10) The key factor leading to the financial crises in Mexico and the East Asian countries wasA) a deterioration in banks' balance sheets because of increasing loan losses.B) severe fiscal imbalances.C) a sharp increase in the stock market.D) a sharp decline in interest rates.Answer: AQues Status: Previous EditionAACSB: Application of Knowledge11) Factors that led to worsening conditions in Mexico's 1994-1995 financial markets includeA) failure of the Mexican oil monopoly.B) the ratification of the North American Free Trade Agreement.C) increased uncertainty from political shocks.D) decline in interest rates.Answer: CQues Status: Previous EditionAACSB: Application of Knowledge12) Factors that led to worsening financial market conditions in East Asia in 1997-1998 includeA) weak supervision by bank regulators.B) a rise in interest rates abroad.C) unanticipated increases in the price level.D) increased uncertainty from political shocks.Answer: AQues Status: Previous EditionAACSB: Application of Knowledge13) Factors that led to worsening conditions in Mexico's 1994-1995 financial markets, but did not lead to worsening financial market conditions in East Asia in 1997-1998 includeA) rise in interest rates abroad.B) bankers' lack of expertise in screening and monitoring borrowers.C) deterioration of banks' balance sheets because of increasing loan losses.D) stock market decline.Answer: AQues Status: Previous EditionAACSB: Application of Knowledge14) Argentina's financial crisis was due toA) poor supervision of the banking system.B) a lending boom prior to the crisis.C) fiscal imbalances.D) lack of expertise in screening and monitoring borrowers at banking institutions.Answer: CQues Status: Previous EditionAACSB: Application of Knowledge15) A feature of debt markets in emerging-market countries is that debt contracts are typicallyA) very short term.B) long term.C) intermediate term.D) perpetual.Answer: AQues Status: Previous EditionAACSB: Analytical Thinking16) The economic hardship resulting from a financial crises is severe, however, there are also social consequences such asA) increased crime.B) difficulty getting a loan.C) currency devaluations.D) loss of output.Answer: AQues Status: Previous EditionAACSB: Reflective Thinking17) Before the South Korean financial crisis, sales by the top five chaebols (family-owned conglomerates) wereA) nearly 50% of GDP.B) about 10% of GDP.C) almost 90% of GDP.D) nearly 25% of GDP.Answer: AQues Status: Previous EditionAACSB: Application of Knowledge18) The chaebols encouraged the Korean government to open up Korean financial markets to foreign capital. The Korean government responded byA) allowing unlimited short-term foreign borrowing but maintained quantity restrictions on long-term foreign borrowing by financial institutions.B) allowing unlimited short-term and long-term foreign borrowing by financial institutions.C) maintaining quantity restrictions on short-term foreign borrowing but allowing unlimited long-term foreign borrowing by financial institutions.D) not allowing any foreign borrowing by financial institutions.Answer: AQues Status: Previous EditionAACSB: Application of Knowledge19) At the time of the South Korean financial crisis, the government allowed many chaebol owned finance companies to convert to merchant banks. Finance companies ________ allowed to borrow abroad and merchant banks ________.A) were not; could borrow abroadB) were not; could not borrow abroadC) were; could borrow abroadD) were; could not borrow abroadAnswer: AQues Status: Previous EditionAACSB: Application of Knowledge20) At the time of the South Korean financial crisis, the merchant banks wereA) almost virtually unregulated.B) subject to heavy government regulation.C) engaged in long-term lending to the corporate sector.D) restricted to long-term foreign borrowing.Answer: AQues Status: Previous EditionAACSB: Application of Knowledge21) What two key factors trigger speculative attacks leading to currency cries in emerging market countries?Answer: The deterioration in bank balance sheets and severe fiscal imbalances are the key factors. To counter a speculative attack, a country might try to raise interest rates. Raising interest rates, however, would worsen the problem of banks that are already in trouble. Speculators recognize this and seize the opportunity. When their are severe fiscal imbalances, there is concern that government debt will not be paid back. Funds are pulled out of the country and domestic currency is sold leading to a decline in the value of the domestic currency. Speculators will once again seize the opportunity.Ques Status: Previous EditionAACSB: Reflective Thinking。

金融学第二版课后答案英文版中国人民大学Bodie2_IM_Ch01CHAPTER 1 – Financial EconomicsEnd-of-Chapter ProblemsDefining Finance1. What are your main goals in life? How does finance play a part in achieving those goals? What are the major tradeoffs you face?SAMPLE ANSWER:Finish schoolGet good paying job which I likeGet married and have childrenOwn my own homeProvide for familyPay for children’s educationRetireHow Finance Plays a Role:SAMPLE ANSWER:Finance helps me pay for undergraduate and graduate education and helps me decide whether spending the money on graduate education will be a good investment decision or not.Higher education should enhance my earning power and ability to obtain a job I like.Once I am married and have children I will have additional financial responsibilities (dependents) and I will have to learn how to allocate resources among individuals in the household and learn how to set aside enough money to pay for emergencies, education, vacations etc. Finance also helps me understand how to manage risks such as for disability, life and health.Finance helps me determine whether the home I want to buyis a good value or not. The study of finance also helps me determine the cheapest source of financing for the purchase of that home.Finance helps me determine how much money I will have to save in order to pay for my children’s education as well as my own retirement.Major Tradeoffs:SAMPLE ANSWERSpend money now by going to college (and possibly graduate school) but presumably make more money once I graduate due to my higher education.Consume now and have less money saved for future expenditures such as for a house and/or car or save more money now but consume less than some of my friendsFinancial Decisions of Households2. What is your net worth? What have you included among your assets and your liabilities? Would you list the value of your potential lifetime earning power as an asset or liability? How does it compare in value to other assets you have listed?SAMPLE ANSWER:$ ____________ (very possibly negative at this point)Assets:Checking account balanceSavings account balanceFurniture/Jewelry (watch)Car (possibly)Liabilities:Student loansCredit card balanceIf renting, remainder of rental agreement (unless sublettingis a possibility)Car payments (possibly)Students typically don’t think about the high value of their potential lifetime earning power when calculating their net worth but for young people it is often their most valuable asset.3. How are the financial decisions faced by a single person living alone different from those faced by the head of a household with responsibility for several children of school age? Are the tradeoffs they have to make different, or will they evaluate the tradeoffs differently?A single person needs only to support himself and therefore can make every financial decision on his own. If he does not want health insurance (and is willing to bear the financial risks associated with that decision) then no one will be affected by that decision other than that single person. In addition, this person needs to make no decisions about allocating income among dependents. A single person is very mobile and can choose to live almost anywhere. The tradeoffs this individual makes generally concern issues of consuming (or spending) today versus saving for consumption tomorrow. Since this person is supporting only himself, the need to save now is less important than for the head of household discussed next.T he head of household with several children must share resources (income) among dependents. This individual must be prepared to deal with risk management issues such as how to be prepared for potential financial emergencies (such as a serious health problem experienced by a member of the family or home owners insurance in case of a fire or other mishap). Because there are more people in this household than with a single person, there are greater risks that someone will get sick or injured. Andbecause there are dependents, the wage earner(s) should think carefully about life and disability insurance. In addition, the family is not as mobile as the single individual. Because of the school age children, the family might want to live near “good schools” thinking that a stronger education will eventually help those children’s future well being and financial situation. Thus, the tradeoffs for the head of household are more complex: more money is needed to consume today (he or she needs to support more dependents), but a lot more money is also needed to save for future expenses such as education and housing and more money is needed for risk management such as life and disability insurance.4. Family A and family B both consist of a father, mother and two children of school age. In family A both spouses have jobs outside the home and earn a combined income of $100,000 per year. In family B, only one spouse works outside the home and earns $100,000 per year. How do the financial circumstances and decisions faced by the two families differ?With two wage earners, there is less risk of a total loss of family income due to unemployment or disability than there is in a single wage earning household. The single wage earning family will probably want more disability and life insurance than the two wage earning family. On the flip side, however, the two wage earning family may need to spend extra money on child care expenses if they need to pay someone to watch the children after school.5. Suppose we define financial independence as the ability to engage in the four basic household financial decisions without resort to the use of relative’s resources when making financing decisions. At what age should children be expected to becomefinancially independent?Students will have differing responses to this question depending upon their specific experiences and opinions. Most will probably say independence should come after finishing their education, and they have a significant flow of income.6. You are thinking of buying a car. Analyze the decision by addressing the following issues:a.Are there are other ways to satisfy your transportation requirements besides buying a car? Make a list ofall the alternatives and write down the pros and cons.Transportation Mode Pros ConsWalking ?Takes you directly where you wantto goNo out of pocket costsConvenient ?Takes a long time ?Destination may be too far Bicycle ?Takes you directly to where youwant to goNo out of pocket marginal costsConvenient ?Requires physical strength and endurance ?Destination may be too farBus ?InexpensiveReaches more distant destinations ?May not take you directly where you want to go ?Inconvenient schedules to go ?Many stops, not efficientSubway ?InexpensiveFast ?May not take you directly where you want to goLocal destinations only on limited networkTrain ?Reaches distant destinations ?Moderately expensiveMay not take you directly whereyou want to goAirplane ?Reaches distant destinationsFast ?Most expensiveWill not take you directly where you want to gob. What are the different ways you can finance the purchase of a car?F inance through a bank loan or lease, finance through a car dealer with a loan or a lease or finance the car out of your own savings.c. Obtain information from at least three different providers of automobile financing on the terms they offer.d. What criteria should you use in making your decision?Your decision will be to select the financing alternative that has the lowest cost to you.When analyzing the information, you should consider the following:Do you have the cash saved to make an outright purchase? What interest rate would you be giving up to make that purchase? Do you pay a different price for the car if you pay cash rather than finance?For differing loan plans, what is the down payment today? What are the monthly payments? For how long? What is the relevant interest rate you will be paying? Does the whole loan get paid through monthly payments or is there a balloon payment at the end? Are taxes and/or insurance payments included in the monthly payments? ?For differing lease plans, what is the down payment today? What are the monthly payments? For how long? Do you own the car at the end of the lease? If not, what does it cost to buy the car? Do you have to buy the car at the end of the lease or is it an option? Is there a charge if you decide not to buy the car? What relevant interest rate will you be paying? Are taxesand/or insurance payments included in the monthly payments? Are there mileage restrictions?7. Match each of the following examples with one of the four categories of basic types of household financial decisions.At the Safeway paying with your debit card rather than taking the time to write a checkDeciding to take the proceeds from your winning lottery ticket and use it to pay for an extended vacation on the Italian RivieraFollowing Hillary’s advice and selling your Microsoft shares to invest in pork belly futuresHelping your 15-year old son learn to drive by letting putting him behind the wheel on the back road into townTaking up the offer from the pool supply company to pay off your new hot tub with a 15-month loan with zero payments for the first three monthsThe first is the most difficult since in practice it is simply a cash transaction involving no financing. As such the purchase is a consumption decision only and the payment choice is not a financing decision. The second is also a consumption/saving decision. The third is an exchange of one financial asset for another and therefore an investment decision. The fourth is a risk-management decision since you have subjected yourself to increased risk that is not covered by insurance. The final example is a financing decision involving a loan to finance a purchase.Forms of Business Organization8. You are thinking of starting your own business, but have no money.a.Think of a business that you could start without having to borrow any money.A ny business that involves a student’s own personal service would be cheap to start up. For instance he or she could start a business running errands for others, walking their dogs, shopping etc. Along those same lines they could start some kind of consulting business. Both of these businesses could be run out of their dorm room or their own home and could be started with very little capital. If they wanted to hire additional workers, they would have to be paid on a commission basis to limit upfront expenses.b. Now think of a business that you would want to start if you could borrow any amount of money at the going market interest rate.Certainly there are many interesting businesses that could be started if one could finance 100% of the business with borrowed capital and no equity. Since you will be able to borrow 100% of the financing, you will be willing to take a lot greater risk than if you were investing your own money.c. What are the risks you would face in this business?[Answer is, of course, dependent on answer to question “b.”]d. Where can you get financing for your new business?Depending upon the size of the financing needed, students should be looking for both debt and equity financing. The sources of this financing ranges from individuals and credit cards (for very small sums) to banks, venture capitalists, public debt and equity markets, insurance companies and pension funds9. Choose an organization that is not a firm, such as a club or church group and list the most important financial decisions it has to make. What are the key tradeoffs the organization faces? What role do preferences play in choosing among alternatives?Interview the financial manager of the organization and check to see if he or she agrees with you.SAMPLE ANSWER:Local Church group. Most important financial decisions:Whether or not to repair damage done to church and grounds during last big hurricane (specifically repairing the leaking roof)What project to put off in order to pay for repair damageHow to pay for renovations to downstairs Sunday school roomsHow to increase member attendance and contributionsHow to organize and solicit volunteers for the annual Church Sale (largest fund raiser of the year)Key Tradeoffs and Preferences:C hurch group funds are severely limited, so the organization needs to prioritize expenses based upon cost and need. Not all projects that are needed will be undertaken due to the expense involved. An equally large amount of timewill be spent trying to raise financing since funds inflow is variable. Since not all projects can be financed, preferences of different important individuals (such as the pastor) take on great significance in the decision-making process.Market Discipline: Takeovers10. Challenge Question: While there are clear advantages to the separation of management from ownership of business enterprises, there is also a fundamental disadvantage in that it may be costly to align the goals of management with those of the owners. Suggest at least two methods, other than the takeover market, by which the conflict can be reduced, albeit at some cost.One way is to provide incentives for the managers so that they increase their pay when owners interests are improved. An example would be compensating managers with stock options, the value of which increase with the market value of shareholder’s int erests. A second method is to more closely monitor the behavior of the managers. Outside management consultants and auditors serve this role in part particularly to the extent that they report their findings to representatives from ownership groups. Both of these solutions assume the management cannot effectively deceive markets or consultant/auditors through misleading information or actions to inflate the market value of the ownership shares or there performance records.11. Challenge Question:Consider a poorly run local coffee shop with its prime location featuring a steady stream of potential clients passing by on their way to and from campus. How does the longtime disgruntled, sloppy and inefficient owner-manager of Cup-a-Joe survive and avoid disciplining from the takeover market? This is not a question about a misalignment of the goals of the owner(s) and manager(s) of a firm since we have explicitly said the firm is owner-managed. If in fact the coffee shop is mismanaged the potential exists for an outsider to purchase a controlling interest in the operation and put more efficient management into place if the purchase price does not exceed the value of profits to be generated by the efficiently managed firm. If the present owner chooses not to sell he must value the firm for more than the value of the profits generated by an efficiently managed firm. Therefore his position in the firm must generate for him non-pecuniary benefits, or benefits unrelated to the firm’s profitability and he is therefore not avalue maximizer. Perhaps he enjoys making fun of his clients or takes pride in his eclectic tastes in interior decorating. In any case the takeover market does discipline him in the sense that he will be forced to pay for his non-pecuniary benefits in the sense that he trades off profits.The same could be said of an owner-manager who lacks the required specialized skills to properly run the firm but never the less continues to operate the company inefficiently because he ‘likes’ the work!The Role of the Finance Specialist in a Corporation12. Which of the following tasks undertaken within a corporate office are likely to fall under the supervision of the treasurer? The controller?Arranging to extend a line of credit from a bankArranging with an investment bank for a foreign exchange transactionProducing a detailed analysis of the cost structure of the company’s alternative product linesTaking cash payments for company sales and purchasing U.S. Treasury BillsFiling quarterly statements with the Securities and Exchange CommissionThe first two and the fourth items are responsibilities of the treasurer while the third and fifth items fall under the workload of the controller’s office.Objectivesy Define finance.y Explain why finance is worth studying.y Introduce two of the main players in the world of finance—households and firms—and the kinds of financial decisions theymake. The other main players, financial intermediaries and government, are introduced in chapter 2.Contents1.1Defining Finance1.2Why Study Finance?1.3Financial Decisions of Households1.4Financial Decisions of Firms1.5Forms of Business Organization1.6Separation of Ownership and Management1.7The Goal of Management1.8Market Discipline: Takeovers1.9The Role of the Finance Specialist in a CorporationSummaryFinance is the study of how to allocate scarce resources over time. The two features that distinguish finance are that the costs and benefits of financial decisions are spread out over time and are usually not known with certainty in advance by either the decision maker or anybody else.A basic tenet of finance is that the ultimate function of the system is to satisfy people’s consumption preferences. Economic organizations such as firms and governments exist in order to facilitate the achievement of that ultimate function. Many financial decisions can be made strictly on the basis of improving the trade-offs available to people without knowledge of their consumption preferences.There are at least five good reasons to study finance:y To manage your personal resources.y To deal with the world of business.y To pursue interesting and rewarding career opportunities.y To make informed public choices as a citizen.y To expand your mind.The players in finance theory are households, business firms, financial intermediaries, and governments. Households occupy a special place in the theory because the ultimate function of the system is to satisfy the preferences of people, and the theory treats those preferences as given. Finance theory explains household behavior as an attempt to satisfy those preferences. The behavior of firms is viewed from the perspective of how it affects the welfare of households.Households face four basic types of financial decisions:y Saving decisions: How much of their current income should they save for the future?y Investment decisions: How should they invest the money they have saved?y Financing decisions: When and how should they use other people’s money to sa tisfy their wants and needs?y Risk-management decisions: How and on what terms should they seek to reduce the economic uncertainties they face or to take calculated risks?There are three main areas of financial decision making in a business: capital budgeting, capital structure, and working capital management.There are five reasons for separating the management from the ownership of a business enterprise: y Professional managers may be found who have a superior ability to run the business.y To achieve the efficient scale of a business the resources of many households may have to be pooled.y In an uncertain economic environment, owners will want to diversify their risks across many firms. Such efficient diversification is difficult to achieve without separation ofownership and management.y To achieve savings in the costs of gathering information.y The “learning curve” or “going concern” effect: When the owner is also the manager, the new owner has to learn the business from the former owner in order to manage it efficiently. If the owner is not the manager, then when the business is sold, the manager continues in place and works for the new owner.The corporate form is especially well suited to the separation of ownership and management of firms because it allows relatively frequent changes in owners by share transfer without affecting the operations of the firm.The primary goal of corporate management is to maximize shareholder wealth. It leads managers to make the same investment decisions that each of the individual owners would have made had they made the decisions themselves.A competitive stock market imposes a strong discipline on managers to take actions to maximize the market value of the firm’s shares.。

Chapter 1Elements of Investments1.Equity is a lower priority claim and represents an ownership share in a corporation,whereas debt has a higher priority claim, but does not have an ownership interest. Debt also pays a specified cash flow over a specific period and the claim will eventuallyexpire. Equity has an indefinite life.2. A derivative asset provides a payoff that depends on the values of a primary asset. Theprimary asset has a claim on the real assets of a firm, whereas a derivative asset does not.3.Asset allocation is the allocation of an investment portfolio across broad asset classes.Security selection is the choice of specific securities within each asset class.4.Agency problems are conflicts of interest between managers and stockholders. They areaddressed through the corporate governance process via audits, compensation structures and board elections.5.Real assets are assets used to produce goods and services. Financial assets are claims onreal assets or the income generated by them.6.Investment bankers are firms specializing in the sale of new securities to the public,typically by underwriting the issue. Commercial banking processes the financialtransactions of businesses such as checks, wire transfers and savings accountmanagement.7.a.The factory is a real asset that is created. The loan is a financial asset that iscreated by the transaction.b.When the loan is repaid, the financial asset is destroyed but the real assetcontinues to exist.c.The cash is a financial asset that is traded in exchange for a real asset, inventory. 8.a.No. The real estate in existence has not changed, merely the perception of itsvalue.b.Yes. The financial asset value of the claims on the real estate has changed, thusthe balance sheet of individual investors has been reduced.c.The difference between these two answers reflects the difference between realand financial asset values. Real assets still exist, yet the value of the claims onthose assets or the cash flows they generate do change. Thus, the difference. 9.a.The bank loan is a financial liability for Lanni. Lanni's IOU is the bank'sfinancial asset. The cash Lanni receives is a financial asset. The new financialasset created is Lanni's promissory note held by the bank.b.The cash paid by Lanni is the transfer of a financial asset to the softwaredeveloper. In return, Lanni gets a real asset, the completed software. Nofinancial assets are created or destroyed. Cash is simply transferred from onefirm to another.nni sells the software, which is a real asset, to Microsoft. In exchange Lannireceives a financial asset, 1,500 shares of Microsoft stock. If Microsoft issuesnew shares in order to pay Lanni, this would constitute the creation of newfinancial asset.d.In selling 1,500 shares of stock for $120,000, Lanni is exchanging one financialasset for another. In paying off the IOU with $50,000 Lanni is exchangingfinancial assets. The loan is "destroyed" in the transaction, since it is retiredwhen paid.10.b.Software product*$70,000 Bank loan $50,000Computers 30,000Shareholders’ equity 50,000Total $100,000Total $100,000 *Valued at costRatio of real to total assets = $100,000/$100,000 = 1.0Assets Liabilities &Shareholders’ equityc. Microsoft shares$125,000 Bank loan $50,000 Computers30,000Shareholders’ equity 105,000Total $155,000 Total $155,000Ratio of real to total assets = $30,000/$155,000 = 0.2Conclusion: when the firm starts up and raises working capital, it will be characterized by a low ratio of real to total assets. When it is in full production, it will have a high ratio of real assets. When the project "shuts down" and the firm sells it AssetsLiabilities & Shareholders’ equity11. Ultimately, real assets determine the material well being of an economy. Individualscan benefit when financial engineering creates new products which allow them tomanage portfolios of financial assets more efficiently. Since bundling and unbundling creates financial products creates new securities with varying sensitivities to risk, it allows investors to hedge particular sources of risk more efficiently.12. For commercial banks, the ratio is: $121.2/$11,426.2 = 0.0106For non-financial firms, the ratio is: $14,773/$28,507 = 0.5182The difference should be expected since the business of financial institutions is to make loans that are financial assets.13. National wealth is a measurement of the real assets used to produce the GDP in theeconomy. Financial assets are claims on those assets held by individuals. Thesefinancial assets are important since they drive the efficient use of real assets and help us allocate resources, specifically in terms of risk return trade-offs.14.a. A fixed salary means compensation is (at least in the short run) independent ofthe firm's success. This salary structure does not tie the manager’s immediatecompensation to the success of the firm. The manager might, however, viewthis as the safest compensation structure with the most value.b. A salary paid in the form of stock in the firm means the manager earns the mostwhen shareholder wealth is maximized. When the stock must be held for fiveyears, the manager has less of an incentive to manipulate the stock price. Thisstructure is most likely to align the interests of managers with the interests ofthe shareholders. If stock compensation is used too much, the manager mightview it as overly risky since the manager’s career is already linked to the firm.This undiversified exposure would be exacerbated with a large stock position inthe firm.c.When executive salaries are linked to firm profits, the firm creates incentives formanagers to contribute to the firm’s su ccess. The success of the firm is linkedto the compensation of the manager. This may lead to earnings manipulation,but that is what audits and external analysts will look out for.15.I f an individual shareholder could monitor and improve managers’ perform ance, andthereby increase the value of the firm, the payoff would be small, since the ownership share in a large corporation would be very small. For example, if you own $10,000 of IBM stock and can increase the value of the firm by 5%, a very ambitious goal, you benefit by only: 0.05 x $10,000 = $500.In contrast, a bank that has a multimillion-dollar loan outstanding to the firm has a big stake in making sure the firm can repay the loan. It is clearly worthwhile for the bank to spend considerable resources to monitor the firm.16.Since the trader benefited from profits but did not get penalized by losses, they wereencouraged to take extraordinary risks. Since traders sell to other traders, there also existed a moral hazard since other traders might facilitate the misdeed. In the end, this represents an agency problem.17.Securitization requires access to a large number of potential investors. To attract theseinvestors, the capital market needs:(1) a safe system of business laws and low probability of confiscatorytaxation/regulation;(2) a well-developed investment banking industry;(3) a well-developed system of brokerage and financial transactions, and;(4)well-developed media, particularly financial reporting.These characteristics are found in (indeed make for) a well-developed financial market.18.Securitization leads to disintermediation; that is, securitization provides a means formarket participants to bypass intermediaries. For example, mortgage-backed securities channel funds to the housing market without requiring that banks or thrift institutions make loans from their own portfolios. As securitization progresses, financialintermediaries must increase other activities such as providing short-term liquidity to consumers and small business, and financial services.19.Mutual funds accept funds from small investors and invest, on behalf of these investors,in the national and international securities markets.Pension funds accept funds and then invest, on behalf of current and future retirees, thereby channeling funds from one sector of the economy to another.Venture capital firms pool the funds of private investors and invest in start-up firms.Banks accept deposits from customers and loan those funds to businesses, or use the funds to buy securities of large corporations.20.Even if the firm does not need to issue stock in any particular year, the stock market isstill important to the financial manager. The stock price provides importantinformation about how the market values the firm's investment projects. For example, if the stock price rises considerably, managers might conclude that the market believes the firm's future prospects are bright. This might be a useful signal to the firm toproceed with an investment such as an expansion of the firm's business.In addition, the fact that shares can be traded in the secondary market makes the shares more attractive to investors since investors know that, when they wish to, they will be able to sell their shares. This in turn makes investors more willing to buy shares in a primary offering, and thus improves the terms on which firms can raise money in the equity market.21.Treasury bills serve a purpose for investors who prefer a low-risk investment. Thelower average rate of return compared to stocks is the price investors pay forpredictability of investment performance and portfolio value.22.You should be skeptical. If the author actually knows how to achieve such returns, onemust question why the author would then be so ready to sell the secret to others.Financial markets are very competitive; one of the implications of this fact is that riches do not come easily. High expected returns require bearing some risk, and obviousbargains are few and far between. Odds are that the only one getting rich from the book is its author.。

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NBER WORKING PAPER SERIESFINANCIAL CONDITIONS INDEXES:A FRESH LOOK AFTER THE FINANCIAL CRISISJan HatziusPeter HooperFrederic S. MishkinKermit L. SchoenholtzMark W. WatsonWorking Paper 16150/papers/w16150NATIONAL BUREAU OF ECONOMIC RESEARCH1050 Massachusetts AvenueCambridge, MA 02138July 2010This paper will be published as part of “Proceedings of the US Monetary Policy Forum 2010” which will be available at /igm/events/conferences/usmonetaryforum.aspx. We are grateful to our discussants (William Dudley and Narayana Kocherlakota) and to the participants in the 2010 U.S. Monetary Policy Forum for their helpful contributions. We thank Christine Dobridge, David Kelley, and Torsten Slok for help with the analysis. We also thank Lewis Alexander, Anil Kashyap, Serena Ng, Hyun Shin, and Kenneth West for valuable comments and advice, and we thank the Columbia University Macroeconomics Lunch Group and a seminar faculty group at NYU Stern School of Business for their suggestions. Finally, we thank Bloomberg, Citi, the Federal Reserve Bank of Kansas City, Simon Gilchrist, Macroeconomic Advisers, and the OECD for generously sharing their credit spread and financial conditions data. The views expressed here are those of the authors only and not necessarily of the institutions with which they are affiliated QRU RI WKH 1DWLRQDO %XUHDX RI (FRQRPLF 5HVHDUFK. All errors are our own. Data and replications files for the FCI and other results in this paper can be downloaded at /~mwatson/© 2010 by Jan Hatzius, Peter Hooper, Frederic S. Mishkin, Kermit L. Schoenholtz, and Mark W. Watson. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.Financial Conditions Indexes: A Fresh Look after the Financial CrisisJan Hatzius, Peter Hooper, Frederic S. Mishkin, Kermit L. Schoenholtz, and Mark W. Watson NBER Working Paper No. 16150July 2010JEL No. E17,E44,E5ABSTRACTThis paper explores the link between financial conditions and economic activity. We first review existing measures, including both single indicators and composite financial conditions indexes (FCIs). We then build a new FCI that features three key innovations. First, besides interest rates and asset prices, it includes a broad range of quantitative and survey-based indicators. Second, our use of unbalanced panel estimation techniques results in a longer time series (back to 1970) than available for other indexes. Third, we control for past GDP growth and inflation and thus focus on the predictive power of financial conditions for future economic activity. During most of the past two decades for which comparisons are possible, including the last five years, our FCI shows a tighter link with future economic activity than existing indexes, although some of this undoubtedly reflects the fact that we selected the variables partly based on our observation of the recent financial crisis. As of the end of 2009, our FCI showed financial conditions at somewhat worse-than-normal levels. The main reason is that various quantitative credit measures (especially issuance of asset backed securities) remained unusually weak for an economy that had resumed expanding. Thus, our analysis is consistent with an ongoing modest drag from financial conditions on economic growth in 2010.Jan HatziusGoldman Sachs200 West StreetNew York, NY 10282-2198 jan.hatzius@Peter HooperDeutsche Bank, NYC60-1701 60 Wall StreetNew York, NY 10005 peter.hooper@ Frederic S. Mishkin Columbia University Graduate School of Business Uris Hall 8173022 BroadwayNew York, NY 10027and NBERfsm3@ Kermit L. Schoenholtz Economic and Market Analysis Citigroup388 Greenwich Street28th FloorNew York, New York 10013 kim.schoenholtz@ Mark W. Watson Department of Economics Princeton University Princeton, NJ 08544-1013and NBERmwatson@1. INTRODUCTIONStarting in August of 2007, the U.S. economy was hit by the most serious financial disruption since the Great Depression period of the early 1930s. The subsequent financial crisis, which receded during the course of 2009, was followed by the most severe recession in the post World War II period, with unemployment rising by over five and half percentage points from its lows, and peaking at over ten percent.This shock to the U.S. (and the world) economy has brought to the fore the importance of financial conditions to macroeconomic outcomes. In this paper we examine why financial condition indexes might prove to be a useful tool for both forecasters and policymakers, analyze how they are constructed, and provide new econometric research to see how useful a tool they can be.2. THE WHYS AND HOWS OF FINANCIAL CONDITIONS INDEXESTo understand the usefulness of financial condition indexes, we will start by discussing why financial conditions matter, and then will turn to how they have been constructed in practice. 2.1 Why Financial Conditions MatterFinancial conditions can be defined as the current state of financial variables that influence economic behavior and (thereby) the future state of the economy. In theory, such financial variables may include anything that characterizes the supply or demand of financial instruments relevant for economic activity. This list might comprise a wide array of asset prices and quantities (both stocks and flows), as well as indicators of potential asset supply and demand. The latter may range from surveys of credit availability to the capital adequacy of financial intermediaries.A financial conditions index (FCI) summarizes the information about the future state of the economy contained in these current financial variables. Ideally, an FCI should measure financial shocks– exogenous shifts in financial conditions that influence or otherwise predict future economic activity. True financial shocks should be distinguished from the endogenous reflection or embodiment in financial variables of past economic activity that itself predicts future activity. If the only information contained in financial variables about future economic activity were of this endogenous variety, there would be no reason to construct an FCI: Past economic activity itself would contain all the relevant predictive information.11 For this reason, an assessment of the marginal predictive value of an FCI should purge the FCI of its endogenous predictive content. We will see later in the empirical section of this paper that existing FCIs include some mix of exogenous financial shocks and endogenous predictive components. In constructing a new FCI, we use standardOf course, a single measure of financial conditions may be insufficient to summarize all the predictive content. To simplify the exposition, we assume in this section that a single FCI is an adequate summary statistic. Later, in the empirical section of the paper, we relax and examine that assumption.The vast literature on the monetary transmission mechanism is a natural starting place for understanding FCIs. In that literature, monetary policy influences the economy by altering the financial conditions that affect economic behavior. The structure of the financial system is a key determinant of the importance of various channels of transmission. For example, the large corporate bond market in the United States and its broadening over time suggest that market prices for credit are more powerful influences on U.S. economic activity than would be the case in Japan or Germany today, or in the United States decades ago. The state of the economy also matters: For example, financial conditions that influence investment may be less important in periods of large excess capacity.The recent analysis of the monetary transmission mechanism by Boivin et al. (2009) classifies these channels as neoclassical and non-neoclassical.2 The first category is comprised of traditional investment-, consumption- and trade-based channels of transmission. The investment channel contains both the impact of long-term interest rates on the user cost of capital and the impact of asset prices on the demand for new physical capital (Tobin‘s q). The consumption channel contains both wealth and intertemporal substitution effects. Both the investment- and consumption-based channels may be affected by changes in risk perceptions and risk tolerance that alter market risk premia. Finally, the trade channel captures the impact of the real exchange rate on net exports.The second category – or non-neoclassical set – of transmission channels includes virtually everything else. Prominent among this category are imperfections in credit supply arising from government intervention, from institutional constraints on intermediaries and from balance sheet constraints of borrowers.These credit-related channels work in complex ways that depend on prevailing institutional and market practices. For example, factors that aggravate or mitigate information asymmetries between lenders and borrowers – such as an increase in aggregate uncertainty – can alter credit supply. In addition, the behavior of intermediaries is subject to threshold effects – like runs – that are sudden and highly nonlinear and may radically alter the link between the policy tool and economic prospects. Consequently, factors that affect the vulnerability of financial arrangements – such as changing uncertainty about the risk exposures of leveraged intermediaries – also may play an important role in assessing financial conditions.econometric procedures to remove the endogenous component in order to isolate and study the impact of exogenous financial shocks.2 An alternative classification might distinguish between financial shocks that are directly related to monetary policy and those that are due to other factors. In this taxonomy, an FCI could be designed to measure the impact of financial variables on real activity over and above the direct effects of monetary policy via a risk-free yield curve. We employ this approach in Section 5.2 below, where we show that most of the predictive power of financial conditions for real activity reflects influences other than the evolution of monetary policy.Naturally, the importance of these different transmission categories may change over time. For example, a ―credit view‖ – which emphasizes some of the non-neoclassical factors – might highlight the impact of the depletion of bank capital and the decline in borrower net worth in explaining the weak response of the U.S. economy to low policy rates in the early 1990s. A neoclassical assessment of the 1998-2002 period might highlight the role of stock prices in driving investment and, to a lesser extent, consumption.Note that both categories of transmission channels allow for a loose link (or even for the loss of a link) between the setting of the policy tool – typically, the rate on interbank lending – and the behavior of the economy. The financial conditions that matter for future economic activity are subject to shocks from sources other than policy, in addition to policy influences. In the two examples in the previous paragraph, these shocks would include changes in the net worth of lenders and borrowers, or in the relationship between asset prices and economic fundamentals. The impact of the policy tool on financial conditions also need not be stable (let alone linear) over time. This consideration would seem particularly important when policy tools are used beyond the usual range of variation. Indeed, at the zero interest rate bound for monetary policy, the conventional policy tool itself is no longer available.Naturally, policymakers would like to know how less conventional policy tools affect financial conditions and the economy. Following the financial crisis of 2007-09, three unconventional policy approaches are of particular importance: (1) a commitment to keep policy rates low (hereafter, a policy duration commitment); (2) quantitative easing (QE; the supply of reserves in excess of the level needed to keep the policy rate at its target); and (3) credit easing (CE; changes in a central bank‘s asset mix aimed at altering the relative prices of the assets available to the private sector).3To understand the impact of such unconventional tools, it is again necessary to focus on the specific channels by which these tools affect financial conditions. In theory, a full and complete understanding of the channels of monetary transmission could allow us to anticipate the economic impact of unconventional policy shifts. We could try to address questions such as ―At the zero bound, what scale of QE or CE is expected to be equivalent in terms of future economic stimulus to a step-reduction of the conventional policy rate?‖ Or, ―how long a policy duration commitment is needed to achieve the same effect?‖ Or, how much does it matter if the commitment is conditional (say, on the evolution of inflation prospects) or unconditional (that is, fixed in time)? How different is the economic stimulus if the central bank purchases $1 trillion or $2 trillion of mortgage-backed securities?In practice, of course, our understanding of monetary policy transmission is far less evolved. First, in economies with sophisticated financial systems, the transmission channels are diverse3 Unlike the Bank of Japan in the late 1990s and earlier in this decade, the Federal Reserve did not target any specific level of reserves as a part of its unconventional policy apparatus. The Fed‘s policy focus was on credit policies that influence relative asset prices (yields), suggesting that the changing size of the balance sheet was principally a by-product of credit interventions. Nevertheless, for analytic purposes, it is useful to distinguish changes in the size of the central bank balance sheet (QE) from changes in the mix of the central bank balance sheet (CE).and change over time. Some channels occasionally may be blocked (for example, when intermediaries are impaired or key markets fail to function), thereby altering the impact of policy changes. Second, across economies with different financial systems, the variance in the importance of specific transmission channels can be large. Third, our experience with unconventional policies is exceptionally brief and limited. At this stage, no central bank that undertook QE or CE in 2008-09 has exited from that policy stance. And, until this episode, no major central bank (aside from the Bank of Japan) had used such policies since the Great Depression.So how does the policy transmission framework help us understand and appreciate the potential utility of an FCI? To simplify, imagine that the link between a particular FCI and the future growth rate of the economy is one-for-one. In this stylized world – depicted in the schematic in Figure 2.1 – a one-unit rise (decline) in the FCI leads to a one-percentage-point increase (decrease) in the pace of economic activity. Then, since policy is transmitted to the economy solely via financial conditions, the FCI would indicate whether a change in policy will alter economic prospects. It would summarize all the information about financial conditions – arising from both policy and from non-policy influences – that is relevant for the economic outlook. If policymakers changed their policy tool – conventional or unconventional – with a goal of altering economic behavior, the FCI would inform them if they will succeed.Of course, nothing about monetary policy or its assessment is so simple. First, the link between financial conditions and economic activity evolves over time. Changing mechanisms of finance mean that the indicators needed to capture the financial state also change. As an example, consider how the rising share of ARMs over recent decades alters the impact of short-term interest rates on the cost of home mortgages and on housing activity. Or, consider how the expansion of highly leveraged shadow banks in the decades after 1980 altered the link between the level of interest rates and the supply of credit.Second, the importance of factors other than monetary policy on financial conditions varies over time. Bouts of euphoria and pessimism can prompt asset bubbles and crashes even in periods where monetary policy tools are set close to long-run norms. Long periods of stability can erode risk awareness (consider the impact of steadily rising house prices over the period from the Second World War to 2006). And, pro-cyclical aspects of regulation, accounting and institutional risk management can amplify the cyclicality of credit supply and the swings in market risk premia that affect economic prospects. In recent years, the impact of such non-monetary influences on financial conditions seems unusually high.Third, the response of financial conditions to policy changes – even aside from non-policy shocks – may change. Imagine, for example, that a central bank chooses to lower interest rates in response to an oil price shock. How will long-term interest rates and equity prices change? Presumably, a central bank that gains anti-inflation credibility over time will experience a changing response to its policy actions.Fourth, forces other than financial conditions also affect the performance of the real economy. Examples include productivity shocks, commodity prices, and the ―animal spirits‖ of consumersand business managers. While there is a financial aspect to most of these forces, the assumption that their only impact on the real economy occurs via financial conditions is clearly too strong. In light of these considerations, policymakers cannot know the extent to which a policy change will alter an FCI, or the extent to which a change in an FCI foreshadows a change in the economy. Even so, an effective FCI may provide policymakers with a useful guide, especially in periods when the link between policy setting and financial conditions seems weak, or when the policy tools in use are stretched beyond their normal range. Just as a Taylor-type rule can inform (and helpfully constrain) the use of policy discretion, an FCI can serve as one guide to the effective stance of policy, after taking into account all the other factors that affect financial variables.Consider, for example, the period of Federal Reserve rate hikes from 2004 to 2006. In this era of the ―Greenspan conundrum,‖ a number of FCIs in wide use suggested that broad financial conditions remained accommodative despite rising policy interest rates and a flattening yield curve. The same FCIs also showed the most extremely restrictive conditions in late 2008, even after the funds rate hit zero, the authorities had introduced a policy duration commitment, the Fed balance sheet had doubled in size, excess reserves had ballooned by a factor of 50, and policymakers had undertaken or announced plans for massive purchases of securities with some degree of credit risk. Indeed, a comparison of the paths for a specific FCI that we will construct later over previous periods of policy tightening or periods of policy easing shows that the 2004-06 and 2007-09 episodes are outliers in opposite directions. Precisely for that reason, they provide useful information to policymakers.To be sure, FCIs are not underpinned by a structural model derived from stable underlying microeconomic foundations. As such, their stability and predictive power is questionable. They are certainly vulnerable to the Lucas critique: Policy changes (or, more precisely, policy regime changes) reduce their utility. However, structural models with a role for a credit sector and for unconventional monetary policy are only now beginning to be explored, and they remain rudimentary (see Gertler and Kiyotaki, 2009 and Brunnermeier and Sannikov, 2009). It may be many years before such structural models can provide a reasonable basis for assessing specific policy choices. From a practical point of view, then, the use of reduced-form statistical techniques like those employed in creating FCIs is virtually the only means currently available to assess the impact of specific unconventional policy choices at the zero bound.2.2 Which Variables to Include in an FCIIn principle, the range of potential financial measures to include in an FCI is quite vast. Consider, for example, the neoclassical channels of transmission. There is a long list of financial price measures that influence the user cost of capital, including the interest rates that firms pay to borrow (both short- and long-term) and the price at which they could raise new equity capital. Not surprisingly, equity prices, the shape of the yield curve and measures of credit risk have long been used as financial indicators of future economic activity, and are common components of FCIs. Similarly, prices that affect household wealth – including those of equities and houses – or consumer interest rates that affect the tradeoff between consumption today and consumption tomorrow would be natural candidates for an FCI.The non-neoclassical or credit channels point to an even broader array of possible FCI components, including measures of liquidity, of borrower risk, and of the capacity and willingness of intermediaries to lend. In light of information asymmetries, the value of collateral often is critical in determining whether borrowers can obtain credit, so the asset prices of key types of collateral may be useful in an FCI. Uncertainty about the value of collateral also can be an obstacle to obtaining credit, so the volatility of these asset prices may be relevant, too. Finally, liquidity conditions (including the ability to roll over debt and to sell assets easily) and the status of their own capital also influence the propensity of intermediaries to lend. For some intermediary-related indicators – like the excess cost of an interbank loan above the expected policy rate – it is difficult to disentangle the liquidity component from the borrower-risk component, but both matter for the credit channels of transmission.In contrast to the neoclassical channels, which are generally measured via asset prices or interest rates, some of the non-neoclassical channels may be measured via quantity indicators or even surveys. The volume of transactions helps to quantify actual access to credit. In addition, survey measures of lending standards and conditions may be useful in assessing prospective access to credit.2.3 How FCIs Have Been Constructed in PracticeEarly research on financial conditions centered on the slope of the yield curve. Studies published in the late 1980s and early 1990s found the yield curve to be a reliable predictor of economic activity (Estrella and Hardouvelis, 1991; Harvey 1988; Laurent 1989; Stock and Watson, 1989). The spread between the fed funds rate and 10-year Treasury yield has been a key component of the Conference Board‘s index of leading indicators since 1996. Credit risk, as measured by the commercial paper-Treasury bill spread, has also been used as a leading indicator of output since the late 1980s (Friedman and Kuttner 1992; Stock and Watson, 1989), and Gilchrist, Yankov, and Zakrajšek (2009) have recently proposed improved credit risk spr eads with good forecasting performance over the past decade. The yield curve has been found to outperform other financial variables in terms of predicting recessions, though stock market performance has been found by some to be a useful recession predictor as well (Estrella and Mishkin, 1996). Stock market variables have been included in indexes of leading indicators since the 1950s (Zarnowitz, 1992). The Bank of Canada (BOC) pioneered work on broader financial condition measures in the mid-1990s, when it introduced its monetary conditions index (MCI, Freedman, 1994). For the BOC, the exchange rate was the most important additional variable. Its MCI, therefore, consisted of a weighted average of its refinancing rate and the exchange rate. The weights were determined via simulations with macroeconomic models designed to quantify the relative effect of a given percentage change in each variable on GDP or final demand. In the case of Canada, a relatively open economy, the exchange rate was given a weight equal to about one-third that of the refinancing rate. For a more closed economy like the United States, the weight given to the exchange rate is considerably smaller. The MCI was used to help evaluate how much adjustment in the refinancing rate might be needed to offset the macroeconomic effects of a swing in theexchange rate in order to maintain a desired stance of monetary conditions or degree of monetary accommodation.Over the course of the late 1990s, MCIs along the lines constructed by BOC became a widely used tool to assess the stance of monetary policy in many countries. Moreover, the scope of variables augmenting the effects of policy rates was broadened to include long-term interest rates, equity prices, and even house prices (on the grounds that rising house prices increased the borrowing capacity of households). These broader measures became known as financial condition indexes (FCIs) in order to distinguish them from MCIs.A variety of methodologies for constructing FCIs have been developed over time, and tend to fall into two broad categories: a weighted-sum approach and a principal-components approach. In the weighted-sum approach, the weights on each financial variable are generally assigned based on estimates of the relative impacts of changes in the variables on real GDP. These estimates or weights have been generated in a variety of ways, including simulations with large-scale macroeconomic models, vector autoregression (VAR) models, or reduced-form demand equations.The second broad approach is a principal components methodology, which extracts a common factor from a group of several financial variables. This common factor captures the greatest common variation in the variables and is either used as the FCI or is added to the central bank policy rate to make up the FCI (this latter method is a combination of the weighted-sum approach and the principal-components approach).In most cases, financial condition indexes are based on the current value of financial variables, but some take into account lagged financial variables as well. Some FCIs can be interpreted as the summarizing the impact of financial conditions on growth, others can be interpreted as measuring whether financial conditions have tightened or loosened.Though the specific variables included in various FCIs differ considerably, there are commonalities. Most FCIs include some measure of short-term interest rates, long-term interest rates, risk premia, equity market performance, and exchange rates. In the weighted-average approach, some FCIs use the outright levels of each variable, and some standardize the variables by subtracting the variable‘s mean and dividing by its standard deviation in each case. The components are predominantly rates or financial prices (or derivatives of prices). In a few cases a stock market wealth or market capitalization variable is included. One FCI uses a Federal Reserve survey of lending standards; another FCI incorporates energy prices and a measure of narrow money. None of the FCIs include stock or flow measures of any broader categories of credit.In what follows, we consider seven well-established FCIs: the Bloomberg FCI, the Citi FCI, the Deutsche Bank (DB) FCI, the Goldman Sachs (GS) FCI, the Kansas City Federal Reserve Financial Stress Index (KCFSI), the Macroeconomic Advisers Monetary and Financial Conditions Index, and the OECD FCI. While a number of other FCIs have been developed, these particular indexes span a wide range of construction methodologies and financial variables,。

博迪投资学第九版课件Chap001Chapter 1The Investment EnvironmentThe Investment EnvironmentINVESTMENTS|BODIE, KANE, MARCUSReal Assets Versus Financial Assets ?Real AssetsReal Assets–Determine the productive capacity andnet income of the economyt i f th–Examples: Land, buildings, machines,knowledge used to produce goods andservicesFinancial Assets–Claims on real assetsINVESTMENTS|BODIE, KANE, MARCUSFinancial AssetsThree types:1.Fixed income or debt1Fixed income or debt/doc/c30ecec07c1cfad6185fa718.html mon stock or equity 3.Derivative securitiesINVESTMENTS|BODIE, KANE, MARCUSFixed IncomePayments fixed or determined by aP t fi d d t i d bformulaMoney market debt: short term, highly ?Money market debt:short term highly marketable, usually low credit risk Capital market debt: long term bonds, can be safe or riskyINVESTMENTS|BODIE, KANE, MARCUSCommon Stock and Derivatives ?Common Stock is equity or ownershipCommon Stock is equity or ownershipin a corporation.–Payments to stockholders are not fixed,P t t t kh ld t fi dbut depend on the success of the firm ?Derivatives–Value derives from prices of othersecurities, such as stocks and bonds–Used to transfer riskINVESTMENTS|BODIE, KANE, MARCUSFinancial Markets and the Economy ?Information Role: Capital flows tocompanies with best prospectscompanies with best prospectsConsumption Timing: Use securitiesto store wealth and transferto store wealth and transferconsumption to the futureINVESTMENTS|BODIE, KANE, MARCUSFinancial Markets and theEconomy (Ctd.)Allocation of Risk: Investors can select securities consistent with their tastesfor riskfor riskSeparation of Ownership andg y Management: With stability comes agency problemsINVESTMENTS|BODIE, KANE, MARCUSFinancial Markets and theEconomy (Ctd.)Corporate Governance and Corporate Ethicsg–Accounting ScandalsExamples –Enron, Rite Aid, HealthSouth –Auditors –watchdogs of the firms Auditors–watchdogs of the firms–Analyst ScandalsArthur Andersen–Sarbanes-Oxley ActTighten the rules of corporate governanceINVESTMENTS|BODIE, KANE, MARCUSThe Investment ProcessAsset allocationChoice among broad asset classes–Choice among broad asset classes ?Security selection–Choice of which securities to hold withinasset class–Security analysis to value securities anddetermine investment attractivenessdetermine investment attractivenessINVESTMENTS|BODIE, KANE, MARCUSMarkets are CompetitiveRisk-Return Trade-OffEfficient Markets–Active ManagementFinding mispriced securitiesFinding mispriced securitiesTiming the marketINVESTMENTS|BODIE, KANE, MARCUSMarkets are Competitive (Ctd.)(Ctd)–Passive ManagementNo attempt to find undervaluedNo attempt to find undervaluedsecuritiesN tt t t ti th k tNo attempt to time the marketo d g a g y d e s ed po t o o ?Holding a highly diversified portfolioINVESTMENTS|BODIE, KANE, MARCUSThe PlayersBusiness Firms–net borrowers Households –net saversGovernments can be both borrowers ?Governments–can be both borrowersand saversINVESTMENTS|BODIE, KANE, MARCUS(Ctd)The Players (Ctd.)Financial Intermediaries: Pool and invest funds–Investment Companies–Banks–Insurance companies–Credit unionsINVESTMENTS|BODIE, KANE, MARCUSUniversal Bank ActivitiesInvestment Banking Commercial Banking g ?Underwrite new stockand bond issues g ?Take deposits and ?Sell newly issued securities to public in p make loans pthe primary marketInvestors trade previously issued securities amongthemselves in thesecondary markets INVESTMENTS |BODIE, KANE, MARCUSFinancial Crisis of 2008Antecedents of the Crisis:–“The Great Moderation”: a time in which theU.S. had a stable economy with low interestrates and a tame business cycle with onlyy y mild recessions–Historic boom in housing marketINVESTMENTS|BODIE, KANE, MARCUSFigure 1.3 The Case‐Shiller Index of U.S.Housing PricesINVESTMENTS|BODIE, KANE, MARCUSChanges in Housing Finance Old Way New Way yLocal thrift institution made mortgage loans to y Securitization: Fannie Mae and Freddie Mac made mortgage loans to homeownersThrift’s major asset:a Mae and Freddie Mac bought mortgage loans and bundled them into Thrift s major asset: a portfolio of long-term mortgage loans large pools ?Mortgage-backed g gThrift’s main liability:depositssecurities are tradable claims against the underlying mortgage pool ?“Originate to hold”underlying mortgage pool“Originate to distribute”INVESTMENTS |BODIE, KANE, MARCUSFigure 1.4 Cash Flows in a MortgagePass‐Through SecurityINVESTMENTS|BODIE, KANE, MARCUSChanges in Housing Finance(Ctd.)At first, Fannie Mae and Freddie MacAt fi t F i M d F ddi M securitized conforming mortgages, which were lower risk and properly documented.?Later, private firms began securitizing ,p g g nonconforming “subprime”loans withg e de au t shigher default risk.–Little due diligencePlaced higher default risk on investors–Placed higher default risk on investors–Greater use of ARMs and “piggyback” loansINVESTMENTS|BODIE, KANE, MARCUS。