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Financial Markets, Institutions and Money, 3rd Edition

Financial Markets, Institutions and Money, 3rd Edition

David S. Kidwell, Mark Brimble, Anup Basu, Liam Lenten, Paul Docherty, Paul Mazzola

ISBN: 978-1-118-38411-4

Sep 2013

864 pages


The financial system is a key influencer of the health and efficiency of an economy. The role of the financial system is to gather money from people and businesses that currently have more money than they need and transfer it to those that can use it for either business or consumer expenditures. This flow of funds through financial markets and institutions in the Australian economy is huge (in the billions of dollars), affecting business profits, the rate of inflation, interest rates and the production of goods and services. In general, the larger the flow of funds and the more efficient the financial system, the greater the economic output and welfare in the economy. It is not possible to have a modern, complex economy such as that in Australia, without an efficient and sound financial system. The global financial crisis (GFC) of late 2007–09 (and the ensuing European debt crisis), where the global financial market was on the brink of collapse with only significant government intervention stopping a catastrophic global failure of the market, illustrated the importance of the financial system. Financial Markets, Institutions and Money 3rd edition introduces students to the financial system, its operations, and participants. The text offers a fresh, succinct analysis of the financial markets and discusses how the many participants in the financial system interrelate. This includes coverage of regulators, regulations and the role of the Reserve Bank of Australia, that ensure the system’s smooth running, which is essential to a modern economy. The text has been significantly revised to take into account changes in the financial world.

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About the authors xiii
Preface xv
Acknowledgements xvii

1 Overview 1

2 The monetary authorities 63

3 The Reserve Bank of Australia and interest rates 101

4 The level of interest rates 131

5 Financial mathematics 157

6 Bond prices and interest rate risk 217

7 The structure of interest rates 257

8 Money markets 285

9 Bond markets 319

10 Equity markets 351

11 Derivatives markets 391

12 Foreign exchange markets 431

13 Regulation of financial institutions 475

14 Commercial bank operations 533

15 Nonbank financial institutions 601

16 International banking 641

17 Insurance, investment companies and superannuation 681

18 Investment banking and venture capital 733

19 Sustainability and the finance sector 771

Glossary 805

Index 825

  • New chapter on the Mathematics of Finance (Chapter 5) 
  • Updated information on regulatory reforms, both locally and globally 
  • Additional material on topics such as the current state of global markets, stability of markets in uncertain times, post GFC and US subprime crisis, GFC shift to the Eurozone region, changing customer needs and interactions with financial system
  • Provides an overview of the financial system and how it permits the allocation of funds throughout the economy 
  • Discusses the types of financial institutions and markets and the benefits they provide to the economy as well as the risks they face: interest rate, credit, liquidity, foreign exchange and political risk 
  • Considers the global financial crisis, the risk it posed to financial system stability and its impact on financial market participants 
  • Discusses the RBA’s determination and implementation of monetary policy during crisis and recovery
  • Reader friendly features in each chapter including: 
  1. An introduction that sets the scene 
  2. A chapter roadmap for guidance 
  3. In Focus vignettes that apply the content and engage the reader 
  4. Illustrative examples that present key equations and calculations to reinforce understanding of the key mathematical procedures 
  5. End-of-chapter activities for practice and revision