1. Financial Markets & Institutions
ECO 473 – Money & Banking – Dr. D. Foster

2. Economic Functions of Financial Markets
Match savers and investors
Spread/share risk.
Successful strategy - diversification
Don’t savers and investors have different goals? Explain why the answer is “No.”
Diversification seems like the opposite of our concept of specialization (of labor). If it is true that we maximize our standard of living by specializing, why isn’t that true for saving/investing?

3. Financial Markets - Why & Who
Why - Intermediation
Who . . .
pension funds
Insurance companies
mutual funds
mortgage brokers
investment bankers
finance companies
banks
credit unions
S&Ls
thrifts
savings banks
Government Players

4. Financial Markets - New & Used
New - Primary Markets
Used - Secondary Markets
Suppose that secondary markets were prohibited (maybe they are too speculative). What would happen to primary markets?
Financial Markets - Short & Long
Short - Money Markets
Long - Capital Markets

5. Financial Institutions
Mutual Funds
Hedge Funds
Brokers and Dealers
Investment Banks 5 5

6. The End of Investment Banks?
1930s regulations
collapse of the MBS market.
Bear Stearns - couldn’t roll over debt.
Lehman Brothers - $639 bill. in assets.
Merrill Lynch - sold to BoA
Goldman Sachs & Morgan Stanley- converted to commercial banks.

7. Financial Markets & Institutions
ECO 473 – Money & Banking – Dr. D. Foster