Abstract
As we broaden our focus from just banks to all types of financial institutions and to the financial markets, we shall consider the roles that financial institutions play in the markets and look at their interdependence. We shall also consider the impact of changes in market conditions on the institutions. Finally, we shall examine financial risk and how it is managed – or in some instances, mismanaged.
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Notes
- 1.
More details on the Barings Bank case are presented in Chap. 9.
- 2.
Now a unit of NYSE-Euronext, Inc.
- 3.
NASDAQ’s name stands for the National Association of Securities Dealers Automated Quotation system, which began simply as a data base for the NASD to monitor prices of OTC trades in stocks, specializing in technology issues. It was quickly realized that the existence of that information on an electronic network provided all the ingredients for a market and that it could conduct trades. Hence, it has become the second largest stock exchange in the world, in terms of volume of shares traded, and has developed from a trading system to a comprehensive exchange operating in a wide variety of markets.
- 4.
It is worth noting that in the year preceding the date of this table, the 12 largest stock exchanges in the world lost $5.6 trillion in market capitalization, or 13.3 % of their total value, due to the worldwide recession.
- 5.
“Taking Stock,” The Wall Street Journal, 12 July 2012, p C-1.
- 6.
The United Kingdom is one of the three countries (along with Denmark and Sweden) that are original members of the European Union, the free trade zone, but chose not to join the Euro-zone. They retain their own currencies. Many observers believe that the reason that London has maintained its dominance as Europe’s financial center is because the English language remains the principal business language of the world. See the table on the following page showing member countries of the EU and the Euro-zone.
- 7.
The DJIA is arguably the most widely used and most frequently quoted of all stock indices. The sample of 30 stocks, upon which it is based, is revised periodically to keep it reflective of American industry in general. To calculate the DJIA, add the market prices of the 30 stocks at any given point in time, and divide that total by a “divisor,” which is calculated and published daily by Dow Jones in the Wall Street Journal. The result is the DJIA. The divisor takes into account any adjustments in the sample, such as added or deleted stocks, stock dividends, etc. For example, on a randomly selected date, say July 12, 2012, the total prices of all 30 stocks was $1,665.27, and the divisor was .132129493. The calculation gives you $12,603.31, which was the DJIA just before closing on that date. One can simulate, by this technique the impact on the DJIA of movements in price of any given stock or group of stocks.
- 8.
Note that the chart is logarithmically scaled, which has the effect of muting the overall impact of the changes – that is, an upward-sloping straight line on the chart represents a constant percentage rate of change.
References
Meulendyke A-M (1998) Purposes and functions of the Federal Reserve System. Board of Governors of the Federal Reserve System, Washington, DC, pp 79–82
Ackerman A (2012) SEC arms itself to better track trades. The Wall Street Journal, 12 July 2012, p C-3
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Wallace, W.H. (2013). What Makes the System Work? The Discipline of the Markets. In: The American Monetary System. Springer, Cham. https://doi.org/10.1007/978-3-319-02907-8_7
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