Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
This is the final post in my series covering Financial Markets and Institutions by Jeff Madura. Over the previous posts, I worked through all 25 chapters and 7 parts of the book. Here is what it all adds up to.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 25 is the longest chapter in Part 7 and covers two major categories of financial institutions: insurance companies and pension funds. Both are massive investors that channel money from individuals into financial markets. Insurance companies alone hold trillions in assets. Pension funds are some of the largest institutional investors in the world.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 24 is about securities firms, and it covers a lot of ground. These are the companies that sit at the center of capital markets, helping governments and corporations raise money, facilitating trades between investors, and sometimes trading for their own profit. Some are independent. Many are part of larger financial conglomerates. After the credit crisis, some became part of bank holding companies. But their securities operations remain distinct from traditional banking.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 23 covers mutual funds, and it is packed. This is one of the longer chapters because mutual funds are such a big part of the financial system. There are more than 7,500 different mutual funds in the US with total assets of about $12 trillion. If you have a retirement account, you are almost certainly invested in one.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 22 is one of the shorter chapters in the book, but it covers an important piece of the financial system that most people do not think about. Finance companies provide short and intermediate-term credit to consumers and small businesses. They are not banks. They do not take deposits. But they move a lot of money.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 21 takes us into the world of thrift institutions. These are the savings banks, savings and loan associations (S&Ls), and credit unions that most of us interact with without thinking twice. They are different from commercial banks in important ways, and this chapter explains exactly how.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 20 wraps up the commercial banking section by asking a simple question: how do you know if a bank is doing well? Regulators need to spot problems early. Shareholders need to know if their investment is paying off. And bank managers need feedback on whether their strategies are working.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 19 is where the rubber meets the road. You know what banks are (Chapter 17) and how they are regulated (Chapter 18). Now the question is: how do bank managers actually run these things day to day? The answer involves juggling several types of risk at once while trying to maximize shareholder value.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 18 is all about the rules banks have to follow. The short version: banks hold other people’s money, so governments regulate them to prevent disasters. The longer version involves a complex web of federal and state agencies, capital requirements, and lessons learned from every financial crisis.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 17 shifts the book from financial markets to financial institutions. And it starts with the biggest ones: commercial banks. By total assets, they are the most important type of financial intermediary in the economy. Their core job is simple. Take money from people who have it (surplus units) and move it to people who need it (deficit units). But the way they do it is worth understanding.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 16 is where things get global. If you have ever traveled abroad and exchanged dollars for euros or pesos, you already know the basics of the foreign exchange market. But there is a whole world of derivative instruments built on top of currency exchange rates. And they move serious money. Foreign exchange derivatives account for about half of all daily forex transaction volume.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 Series: Chapter 15 Review
A swap is an agreement between two parties to exchange a set of payments over time. The most common type swaps fixed interest rate payments for floating ones. Chapter 15 covers the different types of swaps, how they are priced, what risks they carry, and how the swap market nearly brought down the financial system.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 Series: Chapter 14 Review
Options give you the right, but not the obligation, to buy or sell something at a specific price by a specific date. That “not the obligation” part is what makes them different from futures. Chapter 14 covers call options, put options, what drives their prices, and how they are used to speculate and hedge.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 Series: Chapter 13 Review
Futures contracts are basically agreements to buy or sell something at a specific price on a specific date in the future. Chapter 13 focuses on financial futures, which cover Treasury bills, Treasury bonds, stock indexes, and individual stocks. Two types of people use them: hedgers who want to reduce risk, and speculators who want to bet on price movements.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 Series: Chapter 12 Review
Most people think buying a stock is simple. You click a button and it happens. Chapter 12 pulls back the curtain on what actually goes on between that click and the execution. It covers order types, margin trading, short selling, the role of market makers, electronic trading, and the regulations that try to keep everything fair.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 Series: Chapter 11 Review
How much is a stock actually worth? That is the central question of Chapter 11. And the honest answer is: it depends on who you ask and what model they use. Madura walks through the main valuation methods, explains how risk gets measured, and then tackles whether markets are even efficient enough for any of this to matter.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 10 moves from debt markets to equity markets. This is about how companies sell ownership to the public, how stock exchanges work, and how investors try to keep corporate managers honest. If the previous chapters were about lending money, this one is about buying a piece of a company.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 9 is the one where everything comes together. Madura covers how mortgage markets work, the different types of mortgages, how they get packaged into securities, and how the whole system collapsed in 2008. If you want to understand the credit crisis, this is the chapter to read.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 8 is where Madura gets into the math behind bond prices. If Chapter 7 was about the types of bonds, this chapter explains how to figure out what they are worth, why their prices change, and how investors manage the risk. It is the most technical chapter so far, but the concepts are fundamental to understanding how fixed-income investing works.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 7 shifts from money markets (short-term) to bond markets (long-term). Bonds are how governments and corporations borrow money for years or even decades. This chapter covers the different types of bonds, how they work, and how the bond market has gone global.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
This is Chapter 6 of Madura’s textbook, and it covers money markets. These are the markets where short-term debt gets traded. We are talking about securities that mature in one year or less. They might not be exciting, but they keep the financial system running.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 4 explained how the Fed is set up and what tools it uses. Chapter 5 goes deeper into how those tools actually affect the economy. This is where it all comes together: money supply changes flow through to interest rates, which affect borrowing, which affects spending, which affects jobs and prices.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
The Federal Reserve is the most powerful financial institution in the United States. Chapter 4 explains how it is organized, how it controls the money supply, and what it did during the 2008 credit crisis. If you want to understand why interest rates change, you need to understand the Fed.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 2 explained why the general level of interest rates changes. Chapter 3 answers a different question: why do different securities pay different yields at the same point in time? A Treasury bond and a corporate bond with the same maturity do not offer the same return. This chapter explains why.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
Chapter 2 answers a question that affects everyone: why do interest rates go up and down? The answer comes down to supply and demand for money, explained through what economists call the loanable funds theory.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
This is Part 1 of a chapter-by-chapter review of Financial Markets and Institutions by Jeff Madura. Chapter 1 sets the stage for the entire book by explaining what financial markets are, what gets traded in them, and why financial institutions exist.
Book: Financial Markets and Institutions, 11th Edition Author: Jeff Madura (Florida Atlantic University) Publisher: Cengage Learning, 2015 ISBN: 978-1-133-94788-2
If you have ever wondered how money actually moves through the economy, this is the book that breaks it all down. Financial Markets and Institutions by Jeff Madura is a college textbook that has been around for over a decade, and the 11th edition is one of the most complete versions.