Financial Institutions and Markets

This text is designed to provide students with an understanding of why institutions and markets take the form they do and why this form is constantly changing. It considers each institution and market from three angles: economic function, historical context and international comparison.

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Because the study of financial institutions and markets is in a constant state of change, students who take this course must be prepared to know more than just what today's major institutions and markets are. They need to understand why institutions and markets take the form they do and why this form is constantly changing. This text is designed to provide students with that understanding by studying each institution and market from three angles: economic function, historical context and international comparison. A three-chapter introduction on the principles behind the development of the financial system includes a discussion of the needs it serves, the technology it uses and the regulation it faces. Coverage of the fundamentals of security prices provides a parallel development of interest rates and exchange rates. The text examines the historical development of institutions and markets for lessons about the process of change. It also includes an international comparison: financial institutions and markets in other countries are scrutinized to provide students with a broader understanding of global conditions.
The chapter on insurance highlights the important role played by insurance companies in the financial system in terms of the risk-shifting they facilitate and the fact that they utilize much of the same technology that banks use in facilitating lending. Also, the structural boundaries between insurance companies and other financial institutions is absent in many countries and slowly eroding in many others. A chapter on the stability of the financial system addresses the different ways of ensuring the stability and safety of the entire financial system.