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Lecture notes

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  • 1. Other Institutions Economics 71a Spring 2007 Mayo, Chapter 4 Lecture notes 2.4
  • 2. Institutions
    • Commercial banks
    • Investment managers
      • Mutual funds
      • Pension funds
      • Hedge funds
    • Money market mutual funds
    • Insurance companies
    • Others
  • 3. Commercial Banks
    • Consumers
      • Deposits/savings
      • Lending/transactions
        • Consumer loans
        • Home mortgages
        • Checking accounts
        • Credit cards
        • Debit cards
        • Foreign exchange
        • Brokerage (recent)
  • 4. Commercial Banks
    • Firms
      • Cash management
      • Lines of credit
        • Loan of varying magnitude
        • Similar to credit card
      • Bank loans (term loans)
  • 5. Commercial Banks
    • Intermediary roles
      • Between lenders and borrowers
      • Repackaging financial products
    • Regulatory environment
      • Key aspect of monetary policy
      • Federal Deposit Insurance Corporation (FDIC)
      • Federal Reserve System
  • 6. Related Institutions
    • Thrifts (S&L’s)
    • Credit unions
  • 7. Bank Regulations
    • Reserve requirements
      • Deposits with specific banks
      • Cash
    • Deposit insurance/FDIC
      • $100,000 per account limit
    • Bank failures and bank runs
  • 8. Bank/Investment Bank Separation
    • Banks versus Investment Banks
      • The Glass-Steagall act (1933)
      • Repealed 1999
    • Now separation is not required
    • Example:
      • Citigroup
  • 9. Investment Managers
    • Mutual funds
    • Pension funds
    • Hedge funds
  • 10. Mutual Funds
    • Function
      • Consumer investments -> Firms
    • Types
      • Stock (invest in stock market portfolios)
      • Money market (short term lending to firms)
      • Bond
      • Real Estate
  • 11. Mutual Funds
    • Allow consumers to better diversify
    • Gather and process investment information
    • Major industry in Boston
  • 12. Pension Funds
    • Manage/invest employee savings/pension plans
    • Similar in spirit to mutual funds
    • Hired by employer
  • 13. Retirement Systems
    • Defined benefit
      • Contributions to employer
      • Receive formula at retirement
      • Do not control assets
    • Defined contribution
      • Contributions made to employees own account
      • Receive lump sum at retirement
      • Employee controls assets
      • Transferable/increasing
  • 14. Hedge Funds
    • Large investors
    • Less regulation
    • Broader strategies
      • Derivatives
      • Short sales
      • More risk??
    • Growing fast
  • 15. Money Market Funds
    • Purchase only low risk securities
      • Government bonds
        • Treasury bills, Treasury bonds
        • Tax anticipation notes
      • Short term corporate debt
        • Commercial paper
      • International low risk securities
  • 16. Insurance Companies
    • Insure individual and corporate risks
    • Receive payments (insurance premia)
    • Payout for losses
    • New issues
      • Trading insurance policies
      • Derivatives
      • High tech risk management
  • 17. Others
    • Information and software services
      • Bloomberg
      • Quicken
      • Microsoft
      • Yahoo
      • Google

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