A-paper, 204 ABN AMRO Group, 208 Abu Dhabi

Transcription

INDEX
A
A-paper, 204
ABN AMRO Group, 208
Abu Dhabi Investment Authority, 304
accommodating policy, 674
accountability, 390 391
accounting firms, 188
accounting net worth, 336n
adaptive expectations, 147, 148
adjustable-rate mortgages, 259
advances, 316, 407, 412 413
adverse selection
see also asymmetric information
collateral, 176 177
credit risk management, 330 334
defined, 171
described, 32 33
financial intermediation, 175 176
financial structure, influence on,
171 177
financial supervision and, 231
free-rider problem, 173
and government regulation to
increase information, 174 175
and government safety net, 228
lemons problem, 171 177
net worth, 176 177
private production, 173
sale of information, 173
tools to help solve problems, 173 177
adverse shocks, 549
Affected Trusts, 208
after-tax real interest rate, 78n
Afxentiou, Panos, 400
agency problems, 205 206, 341
agency theory, 171
aggregate demand
components of, 619 620
defined, 619
deriving the aggregate demand curve,
620 622
equation, 573
equilibrium, 627 633
aggregate demand curve, 613 616,
620 622
aggregate demand function, 577
aggregate demand shocks, 630 631
aggregate output
aggregate demand, 573
aggregate demand function, 577
autonomous consumer expenditure,
580 581, 584
changes in equilibrium level of,
601 603
consumer expenditure, 573, 574 575
consumption function, 574 575, 575f
defined, 6
determinants of, 572 586
and expansionary policy, 696 697,
701 703
expenditure multiplier, 578 581
fiscal policy, response to change in,
602 603
government, role of, 581 583
government spending, 573, 581 583,
584 585, 603
international trade, role of, 583
and ISLM model, 592 593, 592f
Keynesian cross diagram, 576 578
monetary policy, response to change
in, 601 602
and money supply, 602
net exports, 573, 586
in new classical macroeconomic
model, 696
planned investment spending, 573,
575 576, 579, 579f, 584
and price level, 620
response of, 585t
taxes, 585, 603
and unemployment, 620
aggregate price level
and aggregate output, 620
defined, 7
equilibrium interest rate, changes in,
102
and exchange rates, 501
expansionary policy, response to,
701 703
expected price level, 626
fixed, 573
and the money supply, 8f
unanticipated price level channel,
657 658, 662
unexpected decline, and balance
sheets, 197
aggregate supply
defined, 619
deriving the aggregate supply curve,
622 627
equilibrium, 627 633
aggregate supply curve, 622 627
aggregate supply shocks, 631
AIG, 209, 210, 227, 292, 375
Akerlof, George, 172n
Alberta Heritage Savings Trust Fund, 304
Alberta Municipal Financing Corporation,
27
Alberta Treasury Branches, 277, 406n,
432n, 433n
Alesina, Alberto, 401n
alt-A mortgages, 204
American Express, 260
American International Group. See AIG
American options, 362
American Stock Exchange (AMEX), 301
anchor country, 540
anchor currency, 524
Ando, Albert, 649n
animal spirits, 581, 671n
annual percentage rate (APR), 235
annuities, 290
anti-inflation policies, 704 706
anticipated policy, 694 696, 699
appreciation, 11, 495, 497
Arab countries, and sovereign wealth
funds, 304
arbitrage, 153, 231, 351
Argentina
Central Bank of Argentina, 545
currency, collapse of, 221
currency board, 544, 545
financial crises in, 217 222
fiscal imbalances in, 199
foreign exchange crisis, 533 534
foreign lending to, 279, 280
Arthur Andersen, 188, 191
asset-backed commercial paper (ABCP)
market, 207, 208 209
Asset-Backed Commercial Paper Money
Market Mutual Fund Liquidity
Facility, 459
asset demand
determinants of, 83 85
expected return, 83
liquidity, 83, 84
risk, 83 84
theory of asset demand, 84, 84t
wealth, 83
asset-liability management (ALM)
committee, 326
asset management, 321, 325
asset market approach, 88, 88n, 503n,
510n
asset market effects, and balance sheets,
197 199
asset-price bubble, 202, 481 485
asset price channels, 654 655
asset transformation, 32
assets
asset price boom and bust, 202
on bank balance sheet, 317 318
on Bank of Canada s balance sheet,
406 407
as collateral, 23
defined, 3
demand for. See asset demand
of financial intermediaries, 39
plain vanilla assets, 208
portfolio, 32
real assets, 91
restrictions on asset holdings, 229 230
risky assets, 229 230
write-downs, and balance sheets, 198
asymmetric information
see also adverse selection; moral
hazard
consumer protection, 235
credit view, 652
727
728 Index
defined, 37, 171
described, 32 34
and financial regulation, 225 237
in Great Depression, 204n
problems, and tools to solve them,
182 183, 183t
at the money option, 363
ATB Financial, 208
Atta-Mensah, Joseph, 52n
auditors, 188, 257
audits, 174, 188
Australia
channel/corridor system, 436
indexed securities, 79
inflation targeting, 467, 471
mergers, 285
reserve requirements, 407, 436
Automated Clearing Settlement System
(ACSS), 284, 433
automated teller machine (ATM), 6,
260 261, 272
autonomous consumer expenditure, 574,
580 581, 584, 597
B
BAA-Treasury spread, 117
bailout package, 210
balance of payments, 522 523, 539 540
balance-of-payments crises, 532
balance sheet
of all banks in Canada, 315t
asset market effects, 197 199
asset write-downs, 198
assets, 317 318
bank capital, 316 317
Bank of Canada, 405 407
banker s risk, 317
borrowings, 316
cash items in process of collection,
317
chequable deposit, 315 316
currency value, unexpected decline
in, 198
demand deposits, 315 316
described, 314 315
desired reserve ratio, 317
desired reserves, 317
deterioration of bank balance sheets,
216
financial institutions, 198
fixed-term deposits, 316
interbank deposits, 317
liabilities, 315 317
loans, 318
notice deposits, 315 316
reserves, 317
secondary reserves, 317
securities, holdings of, 317 318
sources of funds, 315 317
stock market decline, 197
uses of funds, 317 318
vault cash, 317
balance sheet channel, 656 657
the Bank. See Bank of Canada
Bank Act, 1871, 256
Bank Act, 1936, 238t
Bank Act, 1967, 238t, 272
Bank Act, 1981, 238t, 280
Bank Act, 1992, 238 239t, 268
Bank Act, 1881-1913, 256 257
Bank Act Reform, 239t, 282 285
bank holding companies, 282 283
Canadian Payments Act, 284
defined, 282
implications for banking industry, 285
merger review policy, 284 285
National Financial Services
OmbudService (NFSO), 285
ownership rules, 283 284
permitted investments, 283
Bank Acts, 210, 275
bank-as-parent model, 282
bank audit, 257
bank balance sheet. See balance sheet
bank capital, 316 317
bank credit cards, 260
bank failures, 202, 211, 226, 326 327
bank float, 317
Bank for International Settlements, 230,
341, 394, 432, 490
bank holding company, 271 272, 274,
282 283
bank lending channel, 656
bank note issue, 384
Bank of America, 209, 261, 273, 432n
Bank of America National Association,
406n
Bank of British Columbia, 241
Bank of Canada
see also central banks; monetary
policy
accountability, 389, 390 391, 489
advances, 412 413, 457
approach to monetary policy, 439 443
asset-backed commercial paper, 208
asset-management services, 384
assets, 406 407
balance sheet, 405 407
bank note issue, 384
Bank of Canada watchers, 482
bank rate, 24, 324, 407
base money, 384 385
Board of Directors, 383
borrowed reserves, 407
borrowings from, 316
central banking services, 384 385
changing face of, 389 391
checklist approach, 487
communications activities, 389 390
conditional statements, 451
credibility, importance of, 688
credit easing, 451 452
debt-management services, 384
defined, 9
discretionary liquidity operations,
455 457
early years, 485
economists, largest employer of, 386
emergency lending assistance, 456
federal government s banker, 385
financial intermediaries, restrictions
on entry, 39
float, 413
formal structure, 383
functions, 383 386
Governing Council, 383
government deposits, 413
government securities, 406 407
government s fiscal agent, 384
governors, 383
independence, 386 388, 389, 399 401
inflation targeting from 1989 to
present, 487 489
international considerations, 490,
539 540
lender of last resort, 227 228, 257,
384, 454 455
lending, 452 459
liabilities, 405 406
liquidity provision during financial
crisis, 380
low inflation goal, 385
monetary aggregates, 50 53, 51t
monetary base, 408 414, 519
monetary liabilities, 405 406
monetary policy, 385 386
see also monetary policy
monetary targeting from 1975 to 1981,
485 487
national payments system, 385
nonborrowed monetary base, 414
open market buyback operations, 385
open market operations, 408 411
open market purchase, 408 410
open market sale, 408, 410 411
openness, 489
operating band, 434, 437
origins of, 381 382
overnight interest rate, 24 25, 431,
433, 437 439, 445 446
policy procedures, historical
perspective, 485 490
policy rate, 433 434
and political environment, 383
pre-emptive approach, 489
quantitative easing, 451
reference rate, 433
regulation of financial system, 38t
required reserves, 407
research staff, role of, 386
standing lending facility, 452 453
standing liquidity facilities, 436 437
theory of bureaucratic behaviour, 398
transparency, 390 391
Bank of Canada Act, 238t, 382, 388
Bank of Credit and Commerce
International, 240
Bank of England, 397, 451, 469
Index 729
Bank of Japan, 397, 451, 464
Bank of Montreal, 253
see also Big Six
Bank of New Brunswick, 253, 254
Bank of Nova Scotia. See Big Six
Bank of Upper Canada, 202, 255
Bank One, 262
bank panic, 198, 200, 226 227, 230,
425 427
bank panic of 1879, 202
bank rate, 24, 324, 407
Bank West, 270
banker s risk, 317
banking
asset management, 321, 325
bank balance sheet, 314 318
basic banking, 318 321
capital adequacy management, 321,
326 329
collateral requirements, 333
compensating balances, 333
credit rationing, 333 334
credit risk, 322
deposit outflows, 321
duration analysis, 336 338
fee income, 340
gap analysis, 334 335
general principles of bank
management, 321 330
interest-rate risk, 322
interest-rate risk management,
334 339
liability management, 321, 325 326
liquidity management, 321, 322 325
loan commitments, 332
loan sale, 340
long-term customer relationships, 332
monitoring, 331 332
off-balance-sheet activities, 340 342
reserves, role of, 322 325
restrictive covenants, enforcement of,
331 332
risk-management techniques, 341
screening, 330 331
specialization in lending, 331
T-account, 318
trading activities, 341
banking crises
Canada, 203, 237 241
described, 198
globally, 246 247, 247t, 248f
history repeated, 246 247
banking industry
see also banking; banks; chartered
banks
Bank Act Reform, 282 285
British-style universal banking system,
274
Canada s banking system, 212, 313
Canadian banking overseas, 279 280
convergence, 272 273
decline of traditional banking,
266 268
deposit creation, 415 418
e-finance, 6
financial consolidation, implications
for, 273
financial innovation, 258 268
foreign banks in Canada, 280 281
four-pillar approach, 272 275
free banking, 254 255
historical development of Canadian
banking system, 253 258, 253f
international banking, 277 281
Japan, 270
large, complex banking organizations
(LCBOs), 273
largest banks in the world, 281t
less-developed countries (LDCs) debt,
279 280
near banks, 275 277
ownership laws, 270, 283 284
preview, 252 253
separation of banking and other
financial services industries,
274 275
shadow banking system, 258 268
structure of Canadian chartered
banking industry, 268 270
study of, 5 6
United States, 270 272, 270t, 271t
universal banking, 274
virtual bank, 261, 269
virtual banks, 262
banking system. See banking industry
banknotes, 43, 254
banks
see also banking; banking industry;
chartered banks; financial
institutions
balance sheet. See balance sheet
Big Six. See Big Six
branches, 254, 255
capital requirements, 212, 230 231
chartering, 231 233
cooperative banks, 276 277
cost advantages of acquiring funds
(liabilities), 266
266 268
defined, 5
depository institutions, 34 35
described, 5 6
examination, 231 233
foreign banks, 268
income advantages on uses of funds
(assets), 266 267
investment bank. See investment
banks
money centre banks, 326
and money supply process, 404
multiple deposit creation, 414 420
near banks, 275 277
primary assets and liabilities of, 35t
reserve requirements, 263 264
state banks, 254
state-owned banks, 185
universal banking, 187n
virtual bank, 269
Barclays Capital, 208
Barings Bank, 233, 341, 342
Barnett, William, 54n, 569n
Barro, Robert, 679, 691n, 710n
barter economy, 44
base money, 384 385
Basel Accord, 230, 240
Basel Accord 2, 232
Basel Committee on Bank Supervision,
230, 232, 240
basic gap analysis, 335
basis points, 117
Baumol, William, 559, 559n
Baumol-Tobin model, 559 561, 560f
Bear Stearns, 5, 209, 227, 273
bearer deposit notes, 23
behavioural finance, 159 160
Belarus, high inflation in, 9
Belgium
bailouts, 211
real-time settlement systems, 432
Bent, Bruce, 264, 265
Bernanke, Ben, 204n, 440n, 467n, 475,
475n, 489n, 656n
Bernanke, Ben S., 109n
Big Six, 269, 273, 279t, 280, 406n, 432n,
433n, 443
Bill 198 (Ontario), 192, 234
Black Monday, 4, 158 159, 359
Blanchard, Olivier, 632n, 644n
Bliss, Robert, 131n
BNP Paribas, 406n, 432n
Board of Directors, 383
Board of Governors of the Federal
Reserve System, 391
Bolivia, hyperinflation in, 707
bond market
demand, shifts in, 88 91, 89t
demand curve, 85 86, 86n
importance of, 3
and interest rates, 3
interest rates on selected bonds, 19772009, 4f
market equilibrium, 86f, 87
supply, shifts in, 92 99
supply and demand, 85 88
supply and demand analysis, 88
supply curve, 86 87
bond prices
consol, 68n
and interest rates, relationship
between, 71
bond ratings, 115 116, 116t
bonds
see also bond market
call, 26
Canada bonds, 116, 116f
Canada Savings Bonds (CSBs), 26
Canadas, 26
consol, 67 68
730 Index
convertible bonds, 26
corporate bonds, 25 26
coupon bond, 62, 66 68, 66n, 67t,
75n, 124n, 126n
credit-rating agencies, 115 116
current yield, 68
default-free bonds, 114
default risk, 114 116, 115f
defined, 3, 3n
discount bond, 62, 68 70, 75n, 124n,
126n
Eurobond, 27 28
and expected returns, 90 91
as external financing source, 168
fallen angels, 116
government agency securities, 27
Government of Canada bonds, 26
indexed bonds, 79
interest-rate risk, 74 75, 75n
international bond market, 27 28
investment-grade securities, 115 116
junk bonds, 116, 261, 267
liquidity, 117 118
and liquidity, 91
long-term bonds, 74, 114f
maturity of bond returns, 74
municipal government bonds, 26
perpetuity, 67 68, 69
prices. See bond prices
provincial bonds, 26
rate of capital gain, 72 73
rate of return, 71 72
Real Return Bonds, 79
redemption, 26
registered bonds, 26
and risk, 91
risk premium, 114
shorter-term bonds, 74
speculative-grade bonds, 116
tax-exempt, 118
taxable, 118
volatility of bond returns, 74
and wealth, 90
yield to maturity, 63 71
zero-coupon bond, 62, 75n
Bordo, Michael D., 391n
borrowed reserves, 407, 420
borrowing costs, 235
borrowings, 316
Bosnia, currency board in, 544
Bouey, Gerald, 383, 464, 688
branches, 254, 255
Brazil
financial crises in, 218n
fiscal imbalances in, 199
Bretton Woods system, 485, 525 526, 529
British North America Act, 255
274
brokerage fees, 561n
brokerage firms, 301
brokers, 20, 300
Brown, Gordon, 397
Brown, Henry, 264
Bryant, Ralph, 654n
bubble
asset-price bubble, 202, 481 485
credit-driven bubbles, 482 483
defined, 159
explanations for, 160
high-tech bubble, 4
housing price bubble, 205, 206
irrational exuberance, 483
rational bubbles, 159
tech-stock bubble, 483
bubble economy, 464
budget deficit
and credibility, 708 709
defined, 10
financing a persistent deficit, 677
and inflation, 676 680
and interest rates, 679f
and money creation in Canada,
678 680
and money creation in other
countries, 678
as percentage of GDP, 10f
and supply of bonds, 93 94
budget surplus
defined, 10
as percentage of GDP, 10f
and supply of bonds, 93 94
Buffett, Warren, 375
building societies, 275
Bulgaria, currency board, 544
Bundesbank, 465, 531 532
Burns, Arthur, 463
Bush, George, 393
business cycles
defined, 7
electoral business cycles, 400
expansion of, and interest rate, 95 97,
96f
and money, 6 7, 7f
partisan business cycles, 400
past business cycle episodes,
explanations for, 633 635
political business cycle, 399
real business cycle theory, 631 633,
650, 651
yield curve as forecasting tool, 132
Business Development Bank of Canada
(BDC), 308
business finance companies, 299 300
buy-and-hold strategy, 158
C
Caisse Centrale Desjardins du Qu bec,
406n, 432n, 433n
Caisse centrale Desjarins, 276
Caisse de d p t et placement du Qu bec,
208, 297
caisses populaires, 5, 35, 35t, 276 277
see also banks
call, 26
call option, 362 363, 363f
call premium, 362
call reports, 233
Calomiris, Charles, 204n
CAMELS rating, 231
Campbell, John Y., 131n
Campbell, Nile Stephen, 310n
Canada
asset-backed commercial paper
(ABCP) market, 207, 208 209
bank failures, 202
banking crisis, 203, 237 241
banking system, 212, 253 258, 253f
Constitution, 255
control attestation, 192
debt deflation, 203
deposit insurance, 242 246
external funds, sources of, 167, 167f
financial legislation, 238t
foreign banks, 280 281
Generally Accepted Accounting
Principles (GAAP), 236
gold standard, 256
inflation, rise in, 1960-1980, 680 683
inflation targeting, 467, 469, 471
lawyers in, 185
monetary targeting, 463 464
Montreal Accord, 209
mortgage insurance market, 210
negative supply shocks, 634 635
past Canadian financial crises,
199 203
perfect storm of adverse shocks, 549
savings rates, and interest rate, 98 99
subprime financial crisis in U.S., effect
of, 206 207
subprime mortgages, 210
Canada bonds, 116, 116f
Canada Deposit Insurance Corporation
Act, 238t, 385, 385n, 454
Canada Deposit Insurance Corporation
(CDIC), 242 246
described, 39
Differential Premiums By-law,
242 243
evaluation of, 244 246
limits on scope of deposit insurance,
244
Modernized Standards By-law, 245
Opting-Out By-Law, 243
other provisions, 245
premium structure and rates, 243t
prompt corrective action provisions,
244 245
risk-based insurance premiums, 245
as safety net, 226
Standards of Sound Business and
Financial Practices, 246
subject and nature of regulations, 38t
Canada Investment and Savings, 384
Canada Life, 289
Index 731
Canada Mortgage and Housing
Corporation (CMHC), 25, 210, 228,
231, 308
Canada Pension Plan, 297
Canada Revenue Agency (CRA), 158n,
297
Canada Savings Bonds (CSBs), 26
Canadas, 26
Canadian Bankers Association, 242, 285
Canadian Central, 276
Canadian Commercial, 240 241, 456
Canadian Dealing Network Exchange
(CDNX), 302
Canadian Derivatives Clearing
Corporation (CDCC), 349, 362
Canadian dollar
appreciation, 11
depreciation, 11
exchange rate, 1971-2008, 11f
symbol for, 496n
Canadian Life and Health Association of
Canada, 285
Canadian Life and Health Insurance
Compensation Corporation
(CompCorp), 38t, 289
Canadian Mint, 405n, 408n
Canadian Payments Act, 284
Canadian Payments Association, 284, 385,
432, 433, 454
Canadian Securities Administrators, 192
Canadian Tire, 270
Canadian Tire Bank, 270
cancellation of policies, 294
Capie, Forrest H., 382n
capital account, 523
capital account balance, 523n
capital adequacy management, 321,
326 329
capital buyout funds, 307
capital controls, 279, 534 535
capital gains taxes, 158n
capital inflows, 534 535
capital market
Canada Savings bonds, 26
consumer loans, 27
defined, 21
described, 21 22
instruments, 25 27, 25t
internationalization, 302
mortgages, 25
municipal government bonds, 26
provincial government bonds, 26
Sarbanes-Oxley Act, effect of, 193
securities, 22
stocks, 25
in the U.S., 28
capital mobility, 527 528
Capital One Financial Corporation, 269
capital outflows, 534
capital requirements, 230 231, 249, 328
Carlino, Gerald, 659n
Carney, Mark, 383
carried interest, 307
Carte Blanche, 260
cash flow channel, 657
cash flows, 59, 141
cash items in process of collection, 317
cashless society, 50
Cayman Islands, 306
CDIC. See Canada Deposit Insurance
Corporation (CDIC)
cease and desist orders, 231
Cecchetti, Stephen G., 656n
central bank independence, 401
central bank money, 465
Central Bank of Argentina, 545
central banks
see also Bank of Canada
asset-price bubbles, response to,
481 485
Bank of England, 397
Bank of Japan, 397
defined, 9, 254
establishment of selected central
banks, 382
European Central Bank, 394 396
European System of Central Banks
(ESCB), 394 395
explaining central bank behaviour,
398
Federal Reserve System, 391 394,
392f
goal independence, 386
independence of, 391 398
instrument independence, 386
lender of last resort, 227 228, 257
monetary policy, implementation
challenges, 455
and money supply process, 404
structure of, 391 398
certificate of deposit (CD), 23
Certification Instrument, 192
ceteris paribus, 85
chaebols, 219 220
Chan, Tracy, 51n
channel/corridor system, 436, 437 439,
449 450
channeling of funds, 18 19
Chant, John, 391n, 489, 489n
Chartered Bank of Upper Canada, 253,
255
chartered banks
see also banking; banking industry;
banks
balance sheet. See balance sheet
Big Six. See Big Six
call reports, 233
chartering, 231 233
commercial bank loans, 27
competition and technology, 269 270
consumer loans, 27
described, 5, 34
non-negotiable CDs, 23
relative shares, 36t
Schedule I banks, 268 269
Schedule II banks, 268 269, 280
Schedule III banks, 268 269, 280
structure of Canadian chartered
banking industry, 268 270
table of, 269t
term deposit receipts, 23
term notes, 23
chartering, 231 233
chequable deposit, 315 316
cheques, 48
Chicago Board of Trade, 259, 353
Chicago Mercantile Exchange, 353
Chile, foreign lending to, 279
China
financial development, 186
international reserves, 528 529
sovereign wealth funds, 304
China Investment Corporation, 304
Christiano, Lawrence J., 109n
CIBC, 212
see also Big Six
CIT Group, 270
Citicorp, 273
Citizen Bank, 269
Clarica, 289
classical economists, 555 556, 557n
Clinton, Bill, 393
Clinton, Kevin, 432n
closed-end fund, 303
coinsurance, 244, 295
collateral, 23, 169, 176 177, 180 181, 333
collateralized debt obligations (CDOs),
205, 208
collection of data, 13
Colosio, Luis, 220
commercial paper, 23
Commercial Paper Funding Facility, 459
commercial paper market, 262
Commodity Futures Trading Commission,
362
commodity markets, 88n
commodity money, 47 48
common stock
see also stocks
computation of price, 141 145
defined, 3 4
dividends, 141
residual claimant, 141
voting rights, 141
compensating balances, 333
compensation schemes, 249
competition, restrictions on, 235
complete crowding out, 606 607
computerized program trading, 359
conditional statements, 451
conflicts of interest, 186 192
auditing and consulting in accounting
firms, 188
control attestation in Canada, 192
credit assessment and consulting in
credit-rating agencies, 189
defined, 187
732 Index
global legal settlement of 2002,
191 192
how conflicts of interest are
produced, 187 188
mpact of, 187
policy measures, 189 192
Sarbanes-Oxley Act, 189 190
spinning, 188
underwriting and research in
investment banking, 187 188
universal banking, 187n
consol, 67 68, 68n
constant-money-growth-rate rule, 688
Constitution, 255
consulting, 188, 189
consumer durable expenditure, 651
consumer expenditure, 573, 574 575,
574n, 619, 655
consumer finance companies, 299
consumer loans, 27
consumer price index (CPI), 79, 439,
471n, 488, 620
consumer protection, 235, 237
Consumer Reports, 175
consumption function, 574 575, 575f, 655
contagion effect, 226
Continental Bank, 241
Contingent Credit Line, 538
control attestation in Canada, 192
convertible bonds, 26
cooperative credit associations, 36t
Cooperative Credit Associations Act, 239t
core CPI, 439
see also bonds
cost-push inflation, 673 674, 676
costly state verification, 178
costs
of borrowing, 235
opportunity cost, 100
production costs, 626
transaction costs, 31 32, 45, 169 171
welfare cost of inflation, 680, 681
counterparty, 348
coupon bond, 62, 66 68, 66n, 67t, 75n,
124n, 126n
coupon rate, 62
covenants. See restrictive covenants
covering the short, 160
Coyne, James, 383, 387 388
CPP Investment Board, 297
crawling target, 540
credibility, 688, 706 708
credit assessment, 189
credit boom, 200, 202
credit card debt, 169
credit cards, 260
credit channels, 659
credit default swap (CDS), 291, 292,
375 376
credit-default swaps, 250
credit derivatives
credit-linked notes, 375
credit options, 374
credit swaps, 374 375
described, 374
credit-driven bubbles, 482 483
credit easing, 451 452
credit event, 291
credit insurance, 291 292
credit-linked notes, 375
credit market instruments, 62 63
credit options, 374
credit-rating agencies, 115 116, 189, 190,
250
credit rationing, 333 334
credit risk, 322
credit spreads, 57, 374
Credit Union Central of Canada (CUCC),
276, 406n, 432n, 433n
credit unions, 5, 35, 35t, 276 277
see also banks
credit view, 652, 656 659
Criminal Code of Canada, 301
Crockett, Andrew, 187n
Crow, John, 383, 389, 389n, 390n
Crown finance companies, 308
currency
see also foreign exchange market;
money
anchor currency, 524
appreciation, 495, 497
banknotes, 43, 254
collapse of, 217
defined, 43
depreciation, 495, 497
Eurocurrencies, 27, 278
gold standard, 256
holders of currencies, 52
holdings, changes in, 421
reserve currency, 525
speculative attack, 216, 221, 531, 532,
541
speculators, 216
unanticipated decline in value, and
balance sheets, 198
currency boards, 544
currency crisis, 216
currency swaps, 370
current account, 522
current account balance, 523n
current account deficit in U.S., 524
current yield, 68
Cyprus, 395
Czech Republic, and European Monetary
Union, 396
D
DaiIchi Kangyo Bank, 281
Daiwa Bank, 342
Daniel, Fred, 282n
data lag, 685
dealers, 20, 300
debit card, 49
debit cards, 260
debt contracts
see also debt instruments
collateral, 169
collateralized debt obligations
(CDOs), 205, 208
contracts, 169
credit card debt, 169
vs. equity, and moral hazard, 177 180
vs. equity, and tax laws, 180n
incentive-compatible, 181
monitoring, 181 182
and moral hazard, 179 180
restrictive covenants, 169, 181 182
secured debt, 169
unsecured debt, 169
debt-currency swaps, 280
debt-debt swaps, 280
debt deflation, 203
debt-equity swaps, 280
debt instruments
see also debt contracts
advantages and disadvantages, 20
fixed-payment loan, 62, 64 65
fully amortized loan, 62
intermediate-term, 20
long-term, 20
maturity, 20
money market instruments, 22 25
short-term, 20
simple loan, 59, 62, 63 64
debt market
described, 20
in Mexico, 221
moral hazard, and financial structure,
180 183
deductible, 295
default, and treasury bills, 22
default-free bonds, 114
default risk, 114 116, 348
DeFina, Robert, 659n
defined-contribution plan, 296
deflation, 471 472
delayed signalling, 471
deleveraging, 200 202
Dell Financial Services, 270
demand
aggregate demand. See aggregate
demand
asset demand, 83 84
in bond market, 85 88
excess demand, 87
exchange rate, 502 504
financial innovations as response to
changes, 258 259
liquidity preference framework,
99 101
in market for money, 99 101
shifts in demand for bonds, 88 91, 89t
shifts in demand for money, 101 102,
103f
demand curve
Index 733
aggregate demand curve, 613 616
described, 85 86, 86n
domestic assets, 503, 505 507
and expected returns, 90 91
and liquidity, 91
reserves, 437 438
and risk, 91
shifts, and demand for bonds, 88 91,
89t, 90f
shifts, and demand for money,
101 102, 103f
and wealth, 90
demand deposits, 315 316
demand-pull inflation, 673, 674 676
demand shocks, 622
democratization of credit, 205
demutualization, 289
Denmark, European Monetary Union, 396
Department of Finance, 210, 257, 384
Department of Insurance, 280
deposit creation, 414 415
see also multiple deposit creation
deposit insurance, 39, 226 227, 242 246,
247
deposit outflows, 321
deposit rate ceilings, 264
Deposit Receipts (DRs), 23
depositors, 404
see also banks
depreciation, 11, 495, 497
derivatives. See financial derivatives
desired reserve ratio, 317, 420 421
Desjardins, Alphonse, 276
Desjardins Credit Union, 277
Desjardins Financial Security, 276
Desjardins General Insurance, 276
Desjardins Securities and Disnat, 276
Desjardins Venture Capital, 276
Deutsche Bank, 208
devaluation, 527
Differential Premiums By-law, 242 243
Diners Club, 260
direct clearers, 433, 433n
direct finance, 18, 168
dirty float, 524
disclosure requirements, 39, 234 235
discount bond, 62, 68 70, 75n, 124n,
126n
discounting the future, 60
discretionary liquidity operations, 455 457
discretionary policy, 684 688
disintermediation, 264
disposable income, 574
dissaving, 574n
diversification, 32
dividends
constant dividend growth, 143, 144
defined, 20, 141
generalized dividend model, 142 143
Djoudad, Ramdane, 51n
Dodge, David, 383
dollar. See Canadian dollar; U.S. dollar
dollarization, 544 546
Dominion Bond Rating Service (DBRS),
115, 116t, 173
Dominion Notes Act, 255 256
Dornbusch, Rudiger, 510n
double coincidence of wants, 45
Dow Jones Industrial Average, 29, 140,
359
Drexel Burnham Lambert, 261
Dual Banking System, 254
duration, 74n, 336
duration analysis, 336 338
E
e-banking, 260 261
e-cash, 49
e-finance, 6
e-money, 49, 50
East Asia
debt market in, 221
econometric models, 109, 692
economic growth
and financial development, 184 185
and financial markets, 3
and inflation targeting, 472
Economic Recovery Act, 211
economics, and politics, 400
economies of scale, 31 32, 170, 273
economies of scope, 187
economists, 386
the economy, and monetary policy,
440 441
Ecuador
fiscal imbalances in, 199, 215
Edwards, Sebastian, 534n
effective lower bound, 450 451
effectiveness lag, 685
efficient market hypothesis, 151 159
Black Monday, 158 159
buy-and-hold strategy, 158
defined, 150
derivation of equation, 152
development of, 151n
empirical evidence, 155n
and guide to investment, 155 158
and hot tips, 156 157
and investment advisers reports, 155
prescription for the investor, 158
rationale behind the theory, 153 154
stock prices, and good news, 157
stronger version, 154
Tech Crash of 2000, 158 159
Egg, 262
Eichenbaum, Martin, 109n
electoral business cycles, 400
electronic banking, 260 261
electronic money, 49, 50
electronic payment, 49
Emergency Economic Stabilization Act,
210
emerging-market countries, 199, 354,
543 544
emerging-market financial crises, 212 222,
213f
additional factors, 215
deterioration of bank balance sheets,
216
financial globalization, 213 214,
219 220
foreign exchange crises, 533 534
full-fledged financial crisis, 216 217
initiation of financial crisis, 213 215
mismanagement of financial
liberalization/innovation, 213 215,
219 220
powerful business interests, 214 215
recession, 215
severe fiscal imbalances, 215
specific countries, 217 222
empirical evidence
early Keynesian evidence on
importance of money, 642 643
early monetarist evidence on
efficient market hypothesis, 155n
evaluation framework, 639 650
historical evidence, 649 650
money demand, 567 569
objections to early Keynesian
evidence, 643 645
reduced-form evidence, 639 640, 641,
650n
statistical evidence, 648 649
structural model evidence, 639, 640
timing evidence, 645 648
endowment insurance, 290
Engert, Walter, 454n, 455n
Enron Corporation, 174, 191
equation of exchange, 552 553
equilibrium
aggregate supply and demand
analysis, 627 633
aggregate supply shocks, 631
exchange rate, 504, 510 512
interest rates, 88 99, 101 109
and Keynesian cross diagram,
576 578
long-run equilibrium, 628 630
market equilibrium. See market
equilibrium
overnight interest rate, 439
short-run equilibrium, 627 628
equilibrium price, 87
equity
see also common stock
bank capital, effect of, 327 328
vs. debt, and moral hazard, 177 180
vs. debt, and tax laws, 180n
defined, 20
dividends, 20
734 Index
moral hazard in equity contracts,
177 178
principal-agent problem, 177 180
residual claimant, 20
safety/returns trade-off, 328
equity capital, 176 177
equity market, 20
equity multiplier (EM), 327 328
Estonia
currency board, 544
European Monetary Union, 396
Estrella, Arturo, 132n, 480n
the euro, 193, 495 496, 526
Eurobond, 27 28
Eurocurrencies, 27, 278
Eurocurrencies market, 278 279
Eurodollar market, 278
Eurodollars, 27
Europe
bailouts, 212
bank failures, 211
European Central Bank, 206, 386,
394 396
financial system in, 193
subprime financial crisis in U.S., effect
of, 206 207
European Central Bank, 206, 386,
394 396, 458, 464, 465
European Monetary System (EMS), 526,
530 531
European Monetary Union, 394, 396
European options, 362
European System of Central Banks
(ESCB), 394 395
Eurosystem, 395
evidence. See empirical evidence
ex ante real interest rate, 76
ex post real interest rate, 76
excess demand, 87, 628
excess supply, 87
Exchange Fund Account, 384, 447 448
exchange rate
see also foreign exchange market
asset market approach, 503n, 510n
Canadian dollar, 1971-2008, 11f
defined, 11, 494
demand curve for domestic assets,
503, 505 507
determination, 497
devaluation, 527
equilibrium exchange rate, 504,
510 512
expected future exchange rate,
506 507
explanation of changes, 504 508
factors that change the exchange rate,
508, 509f
fluctuations in, 11 12
forward exchange rate, 495
importance of, 496 497
interest rates, changes in, 510
kinds of exchange rate transactions,
495 496
law of one price, 498
long run, 498 502
long run factors, 500 502, 502t
money supply, changes in, 511
net exports, 654
over-shooting, 511 512
preferences for domestic vs. foreign
goods, 501
productivity, 501 502
publication of, 496
quotation of, 502n
quoting an exchange rate, 11
relative price levels, 501
revaluation, 527
shifts in demand, 505 507
short run, 502 504
spot exchange rate, 495
supply and demand analysis, 502 504
supply curve for domestic assets, 503
theory of purchasing power parity
(PPP), 499 500
trade barriers, 501
volatility of, 513
exchange rate mechanism (ERM), 526,
541
exchange rate over-shooting, 511 512
exchange-rate peg. See exchange rate
targeting
exchange rate regime
balance-of-payment considerations,
539 540
Bretton Woods system, 485, 525 526,
529
dirty float, 524
European Monetary System (EMS),
530 531
fixed exchange rate regime, 524,
526 529
flexible exchange rate regime, 485
floating exchange rate regime, 524
gold standard, 524 525, 530
managed float regime, 524, 530
special drawing rights (SDRs), 530
exchange rate regimes, 524 534
exchange rate targeting
advantages of, 540 541
as alternative monetary policy
strategy, 540 546
currency boards, 544
described, 540
disadvantages, 541 543
dollarization, 544 546
emerging-market countries, 543 544
industrialized countries, 543
exchanges, 21, 301 302
executive compensation, 249
exercise price, 361
expansionary policy, 696 697
expectations
adaptive expectations, 147, 148
forecast errors of expectations,
150 151
and nondiscretionary policy, 686 687
rational expectations, 147 149
and wage-setting process, 687
expectations theory, 121 126, 128f
expected future exchange rate, 506 507
expected inflation
change in, 91
Fisher effect, 94 95
and supply of bonds, 93
expected-inflation effect, 105, 107 108
expected price level, 626
expected profitability of investment
opportunities, 92 93
expected return
and asset demand, 83
calculation, 83n
defined, 83
demand for bonds, shifts in, 90 91
and higher expected interest rates, 91
expected return on goods relative to
money, 565
expenditure multiplier, 578 581
explicit nominal anchor, 472
Export Development Canada (EDC), 308
external financing
access to securities markets, 169
bonds, 168
direct finance, 168
financial intermediaries, 168
indirect finance, 168
marketable securities, 168
sources of, international comparison,
167, 167f
stocks, 167 168, 167n
F
face value, 62
factoring, 299 300
fads, 160
Fair Isaac Corporation, 204
fair value, measurement of, 236
fair-value accounting, 235
fallen angels, 116, 261
Fama, Eugene, 131n
Fannie Mae, 209, 249, 308, 309 310, 459
Farm Credit Canada (FCC), 308
the Fed, 391 394
Federal Advisory Council, 391
Federal Business Development Bank
(FBDB), 308
Federal Deposit Insurance Corporation
(FDIC), 211
Federal Open Market Committee (FOMC),
391, 392, 475
Federal Reserve Bank of New York, 306,
394, 459
Federal Reserve Bank of St. Louis, 650n
Federal Reserve Banks, 391
Federal Reserve System, 391 394, 392f,
395
F d ration des caisses Desjardins du
Qu bec, 276
fee income, 340
fiat money, 48
FICO score, 204
Index 735
Finance Act, 257
finance companies, 27, 37, 299 300
finance paper, 23
financial calculator, 60
financial consolidation, 229, 273
financial crises
asset market effects on balance
sheets, 197 199
asset price boom and bust, 202
balance-of-payments crises, 532
banking crises, 198, 203
causative factors, 197 199
debt deflation, 203
defined, 5, 196
described, 5
deterioration in financial institutions
balance sheets, 198
emerging-market economies, 212 222,
213f
financial globalization, 213 214
full-fledged financial crisis, 216 217
government fiscal imbalances, 199
Great Depression. See Great
Depression
initiation of financial crisis, 200 202,
213 215
interest rate, increases in, 199
interest rate, spikes in, 202
liberalization/innovation, 200 202,
213 215, 219 220
monetary policy, 453
past Canadian financial crises,
199 203, 201f
severe fiscal imbalances, 215
subprime financial crisis. See subprime
financial crisis
uncertainty, increases in, 198 200, 202
financial derivatives
credit derivatives, 374 376
described, 259
financial futures, 349 357
forward contracts, 347 348
hedging, 346 347
options, 361 370
regulation of, 250
stock index futures, 358 361
and subprime financial crisis, 375 376
swaps, 370 373
financial development
China, 186
and economic growth, 184 185
financial engineering, 205
financial futures, 349 357, 354t
financial futures markets, 353 357
financial futures options, 362, 365 369
financial globalization, 213 214, 219 220
financial innovation
automated teller machine (ATM),
260 261, 272
avoidance of existing regulations,
263 265
bank credit cards, 260
in banking industry, 258 268
changes in demand conditions,
258 259
changes in supply conditions,
259 263
commercial paper market, 262
debit cards, 260
266 268
electronic banking, 260 261
and financial crisis, 200 202
financial derivatives, 259
information technology, effect of,
259 263
interest rate volatility, 258 259
junk bonds, 261
money market mutual funds, 264
in mortgage markets, 204 205
securitization, 263
study of, 6
sweet accounts, 264 265
virtual banks, 262
why it occurs, 258 268
financial institutions
balance sheets, 198
banks. See banks
capital requirements, 230 231
chartering, 231 233
competition and technology, 269 270
deleveraging, 200 202
financial crises, 5
investment bank, 3
limit on risk taking, 250
nonbank financial institutions. See
nonbank financial institutions
structure of the financial system, 5
study of, 5 6
types of, 5 6
Financial Institutions and Deposit
Insurance System Amendment Act,
238
financial instruments. See financial
derivatives; securities
financial intermediaries
and adverse selection, 32 33, 175 176
asset transformation, 32
and asymmetric information, 32 34
banks. See banks
contractual savings institutions, 35 36
defined, 5
deposit insurance, 39
disclosure requirements, 39
diversification, 32
economies of scale, 31 32, 170
expertise, 170 171
as external financing sources, 168
financial soundness of, 38 40
free-rider problem, 182
function of, 29 34
government financial intermediation,
307 310
importance of, 5
and indirect finance, 29 34
interest-rate swaps, 373
international comparison of
importance, 31
investment intermediaries, 37
limits on competition, 39 40
liquidity services, 32, 171
and moral hazard, 33 34, 179, 182
nonbank. See nonbank financial
institutions
regulation of, 38 40
restrictions on assets and activities, 39
restrictions on entry, 39
restrictive covenants, 182
risk sharing, 32
transaction costs, 31 32, 170 171
types of, 34 37
financial legislation in Canada, 238t
financial liberalization, 200 202, 213 215,
219 220
financial markets
asymmetric information, 32 34, 37
bond market, and interest rates, 3
Canadian-style reforms, 212
capital market, 21 22
capital market instruments, 25 27, 25t
categorizations of, 20 22
commodity markets, 88n
debt markets, 20
defined, 2
and economic growth, 3
equity markets, 20
exchanges, 21
financial futures markets, 353 357
financial market instruments, 22 27
function of, 18 19
globalization of, 10
see also international finance
gold market, 88n
internationalization, 27 29
money market, 21 22
money market instruments, 22 25
necessity of, 2 3
over-the-counter (OTC) market, 21
and poor nations, 3
primary market, 20 21
secondary market, 20 21
stable relationships, collapse of, 442
stock market, 3 5
structure of, 20 22
study of, 2 5
term interbank market, 453
transaction costs, 169 171
financial panic, 38
financial regulation
and asset-driven bubbles, 484
and asymmetric information, 225 237
avoidance of existing regulations,
263 265
736 Index
Bank Act Reform, 282 285
bank panics and the need for deposit
insurance, 226 227
capital requirements, 230 231, 249
CDIC developments, 242 246
chartering, 231 233
compensation schemes, 249
consumer protection, 235, 237
derivatives, 250
described, 38 40
disclosure requirements, 234 235
financial consolidation, 273
and financial innovation, 263 265
financial supervision, 231 233
of financial system, 37 40, 168
government safety net, 226 229
insurance, 292 293
international financial regulation, 240
life insurance companies, 289
loophole mining, 263
macroprudential regulation, 484
major financial legislation in Canada,
238t
mortgage brokers, 249
mutual funds, 303
national regulatory system, 285
near banks, 275 277
option markets, 362
overregulation, danger of, 250
privately owned government
sponsored enterprises, 249
prompt corrective action, 231
prudential supervision, 231 233
regulatory consolation, 246
regulatory forbearance, 241
restrictions on asset holdings, 229 230
restrictions on competition, 235
risk management, assessment of,
233 234
securities trading, 301
subprime financial crisis, effect of,
248 250
subprime mortgage products, 249
too-big-to-fail policy, 228 229
financial repression, 184
financial services industries, 269, 274 275
financial stability, 236
financial structure
adverse selection, influence of,
171 177
asymmetric information, 171
basic facts, 166 169
complexity of, 166 169
described, 5
moral hazard, and debt markets,
180 183
transaction costs, influence of,
169 170
financial supervision, 231 233
financial system
European financial system, 193
financial intermediaries, and indirect
finance, 29 34
financial intermediaries, financial
soundness of, 38 40
financial intermediaries, types of,
34 37
financial market instruments, 22 27
financial markets, function of, 18 19
financial markets, structure of, 20 22
flows of funds, 18, 18f
information available to investors,
37 38
international financial system. See
international financial system
internationalization of financial
markets, 27 29
principal regulatory agencies, 38t
regulation, 37 40, 168
structure of. See financial structure
in transition countries, 184 185
Financial Times-Stock Exchange 100Share Index, 29
financing rate, 24
Finland, inflation targeting in, 467
First-e, 262
fiscal policy
aggregate output , response of,
602 603
aggregate output in long run, 612
defined, 10, 596
and inflation, 670 671
interest rate, response of, 602 603
vs. monetary policy, effectiveness of,
603 610
policy mix, 605
Fisher, Douglas, 54n, 569n
Fisher, Irving, 76, 551, 552, 552n, 553,
554n
Fisher equation, 76 77, 76n, 78n
fit and proper person test, 283
Fitch, 206
fixed exchange rate regime, 524, 526 529
fixed investment, 575
fixed-term deposits, 316
Fleming, Donald, 388
flexible exchange rate regime, 485
flight to quality, 117
float, 50, 413
floating exchange rate regime, 524
flows, and supply and demand analysis,
88
Ford Credit, 270
forecast error of expectations, 698n
forecast errors of expectations, 150 151
forecasting interest rates, 109, 133 135
foreign banks, 268, 280 281
foreign bonds, 27 28
foreign exchange interventions
defined, 518
and money supply, 518 520
sterilized foreign exchange
intervention, 520, 522, 522n
unsterilized foreign exchange
intervention, 520 522, 520n
foreign exchange market
see also exchange rate
defined, 11, 494
described, 11
equilibrium, 504, 504f
forward transactions, 495
intervention in, 518 522
money supply, direct effects on, 539
speculative attack, 216, 221
spot transactions, 495
trades, 497
turmoil, 493
Wall Street Journal Currency Trading
column, 514 515
foreign exchange rate. See exchange rate
foreign exchange risk, 357 358
foreign financial markets, deregulation of,
27
foreign stock market indexes, 30
foreign stock markets, 28 29
Fortis, 211
forward exchange rate, 357, 357n, 495
forward rate, 134, 136
forward transactions, 495
France
exchange-rate pegging, 542
fraternal benefit societies, 36t
fraud prevention, 294
Fred, Daniel, 454n
Freddie Mac, 209, 249, 308, 309 310, 459
free banking, 254 255
Free Banking Act, 255
free-rider problem, 173, 178 179, 182, 234
Freedman, Charles, 489n
Friedman, Milton, 9n, 105, 387, 387n, 425,
472, 551, 563 567, 563n, 564n,
565n, 642, 643, 643n, 645n, 648n,
649, 667, 669, 672
Fuji Bank, 281
fully funded, 296
futures contracts, 259
futures markets, 353 357
futures options, 362, 365 369
G
G-7 Halifax Summit, 490
gap analysis, 334 335
GDP deflator, 620
Index 737
GE Capital Group, 270
General Agreement on Tariffs and Trade
(GATT), 525
General Bank of Canada, 270
General Electric, 210
general insurance companies. See
property and casualty (P&C)
insurance companies
General Motors, 260
General Motors Acceptance Corporation,
270, 299
General Theory of Employment, Interest,
and Money (Keynes), 556, 572
Generally Accepted Accounting Principles
(GAAP), 236
Genworth Mortgage Insurance Co., 210
Germany
bailouts, 211
Bundesbank, 465, 531 532
financial regulation, 40
foreign exchange crisis, 531 532, 541
hyperinflation, 47, 667, 678
mergers, 285
policy mix, and unification, 605
Gertler, Mark, 171n, 656n, 659n
Gilchrist, Simon, 659n
Ginnie Mae, 308
Glass-Steagall, 273, 274
Global Crossing, 191
Global Legal Settlement of 2002, 191 192
globalization, 490
see also international finance
goal independence, 386
gold market, 88n
gold standard, 256, 524 525, 530
Goldman Sachs, 273
Gomes, Tamara, 304n
good news, 157
goods market equilibrium, 587 590
Gordon, David B., 109n
Gordon, H.S., 387n
Gordon, Robert J., 710n
Gordon growth model, 143, 146, 147
Governing Council, 383, 395 396
government
aggregate output, role in, 581 583
bailouts, during subprime financial
crisis, 211
deposit insurance, 226 227
fiscal imbalances, 199
government-sponsored enterprises
(GSEs), 308 310
public pension plans, 297 299
regulation. See government regulation
safety net, 200, 226 229
social security, 297 299
government budget, and supply of bonds,
93 94
government budget constraint, 676 677
government deposits, 413
Government of Canada treasury bills, 22
Government of Singapore Investment
Corporation, 304
Government Pension Fund of Norway,
304
government regulation
of the financial system, 37 40, 168
to increase information, 174 175, 179
government retirement funds, 36
government savings institutions, 277
government securities, 406 407
government spending, 573, 581 583,
584 585, 598, 603, 620
(GSEs), 308 310
Gramm-Leach-Bliley Financial Services
Modernization Act, 273, 282
graphing of data, 13
Great Depression, 57, 196, 203 204, 204n,
217, 222, 381 382, 425 427, 555,
572, 580 581, 642
Greece, guarantees by government, 211
Greenberg, Maurice, 292
Greenspan, Alan, 196, 202, 393
Greenwald, Bruce, 172n
gross domestic product (GDP), 653f
group life insurance, 289
Guaranteed Income Supplement (GIS),
297
Guaranteed Investment Certificates
(GICs), 23
Guaranteed Investment Receipts (GIRs),
23
Guaranteed Trust Certificates (GTCs), 23
H
Hamanaka, Yasuo, 342
Harris, Trevor, 187n
headline CPI, 439, 488
hedge, 259
hedge funds, 305 307
hedging
described, 346 347
futures contracts, 358
futures options, 368 369
interest-rate forward contracts,
347 348
interest-rate futures, 352 353
interest-rate swaps, 371 372
macro hedge, 353
micro hedge, 353
stock index futures, 361
Hicks, John, 572, 572n
high-powered money, 408
high-tech bubble, 4
Hill, G. Christian, 356n
historical evidence, 649 650
holding company regime, 282 283, 282n
holding periods, 75, 75n
Home Bank, 202
home banking, 261
Hong Kong
currency board, 544
Hongkong and Shanghai Banking Corp.,
280
Hongkong Bank of Canada, 241
Hooper, Peter, 654n
hot investment tips, 156 157
House of Commons Standing Committee
on Finance, 284
household liquidity effects, 658 659
housing market in U.S., 1
Howard, Donna, 432n, 435n
HSBC, 208, 283n
HSBC Bank Canada, 280, 406n, 432n,
433n
Hubbard, R. Glenn, 656n
Huizinga, John, 644n
Hungary, and European Monetary Union,
396
Hunt brothers, 356
hyperinflation, 47, 667, 678, 707n
Hypo Real Estate Holdings, 211
hysteresis, 631 633
I
Iceland, and banking system collapse, 211
Iguchi, Toshihide, 342
illegal activity, 52
implementation lag, 685
implicit nominal anchor, 472 475
in the money option, 363
incentive-compatible, 181
income
defined, 44
disposable income, 574
equilibrium interest rate, changes in,
102
fee income, 340
investment income, 523
income effect, 101, 105
income gap analysis, 334 335
income tax
aggregate output, 582f, 585
bonds, 118
Bush tax cut in U.S., effect of, 119
capital gains taxes, 158n
changes in, 599
debt vs. equity, 180n
and interest income, 78n
and risk structure of interest rates,
117 118
indebtedness, 280
independence
738 Index
Bank of Canada, 386 388, 389,
399 401
Bank of England, 397
Bank of Japan, 397
of central banks, 398, 401
European Central Bank, 396
Federal Reserve System, 292 293
indexed bonds, 79
indirect finance
importance of, 168
meaning of, 29
individual life insurance, 289
Indonesia
stock market declines in, 220
Industrial-Alliance, 289
Industrial Bank of Japan, 281
Industrial Development Bank (IDB), 308
industrial production, 620
industrialized countries, and exchange
rate targeting, 543
inflation
adaptive expectations, 147
animal spirits, 671n
and budget deficits, 676 680
consumer price index (CPI), 471n
cost-push inflation, 673 674, 676
credibility, 688, 706 708
defined, 7
demand-pull inflation, 673, 674 676
expected inflation. See expected
inflation
explanations for, 8
fiscal policy, effect of, 670 671
and high unemployment targets,
673 676
hyperinflation, 47, 667, 678, 707n
meaning of, 668 669
and money, 7 9, 667 668
and money growth, 669 670
negative inflation, 97
Phillips curve theory, 480
recent episodes of rapid inflation, 668
rise in Canadian inflation, 1960-1980,
680 683
supply-side phenomena, 671 672
targets, 1980-2008, 440f
views of, 669 672
yield curve as forecasting tool, 132
zero inflation, 488, 488n
inflation-control agreements, 488n
inflation rate
average, vs. average rate of money
growth, 8f
for Canada, 1980-2008, 440f
defined, 8
NAIRU (nonaccelerating inflation rate
of unemployment), 480
inflation targeting, 466 472
from 1989 to present, 487 489
advantages, 469 470
Australia, 471
Canada, 469, 471
delayed signalling, 471
disadvantages, 470 472
elements of, 467
low economic growth, 472
New Zealand, 467 468, 471
potential for increased output
fluctuations, 471 472
rigidity, 471
Sweden, 471
United Kingdom, 469, 471
inflationary monetary policy, 673 683
budget deficits and inflation, 676 680
high employment targets and
inflation, 673 676
information
asymmetric information. See
asymmetric information
collection, in insurance industry,
293 294
government regulation to increase,
174 175, 179
problems, in mortgage market, 206
production of information, 178 179
sale of, 173
information technology, 259 263, 283
ING Canada, 211, 269
initial public offerings (IPOs), 188, 300,
307
initiation of financial crisis, 200 202
insider information, 301
Inspector General of Banks, 241, 280
institutional investors, 303
instrument independence, 386
insurance, 288 295
cancellation, 294
coinsurance, 295
credit insurance, 291 292
deductible, 295
fraud prevention, 294
information collection and screening,
293 294
legislative framework, 292 293
life insurance, 289 290
limits on amount of insurance, 295
management, 293 295
property and casualty insurance,
290 291
restrictive provisions, 294
risk-based insurance premiums, 245,
294
Insurance Bureau of Canada, 285
Insurance Companies Act, 239t
insurance holding companies, 282n
interbank deposits, 52, 317
interest rate
after-tax real interest rate, 78n
annual percentage rate (APR), 235
bank rate, 24, 324, 407
and bond market, 3
and bond prices, 71
business cycle expansion, 95 97, 96f
changes, impact of, 3, 510
changes in equilibrium level of,
601 603
credit market instruments, types of,
62 63
and default risk, 114 116
defined, 3
and demand for bonds, 91
and demand for money, 566, 568
and equilibrium exchange rate, 510
equilibrium interest rates, changes in,
88 99, 101 109
ex ante real interest rate, 76
ex post real interest rate, 76
expectations theory, 121 126
and expected inflation, 94 95
and expected return, 91
financing rate, 24
602 603
Fisher equation, 76 77, 76n, 78n
forecasting interest rates, 109, 133 135
forward rate, 134, 136
government spending, 603
and higher money supply growth rate,
106 109, 107f, 108f
importance of, 3
income effect, 101
increases in, and financial crises, 199
interest-rate risk, 74 75
and ISLM model, 592 593, 592f
Japan, low interest rates in, 97 98
and liquidity of bonds, 117 118
London interbank offer rate (LIBOR),
24
mean-reverting, 125n
measurement of interest rates, 59 71
in, 601 602
and money, 9, 9f, 105
and money supply, 590n
and net exports, 588
nominal interest rate, 76 79, 78f,
441 443, 645, 660 661
overnight interest rate, 24 25, 433,
437 439, 445 446
overnight money market rate, 24
overnight rate, 431
and planned investment spending,
587 588
price-level effect, 102
prime rate, 24
real interest rate, 76 79, 78f, 644n,
645
reference rate, 433
vs. returns, 71 76
risk structure of interest rates, 113 119
and savings rates, 98 99
selected bonds, 1977-2009, 4f
selected U.S. interest rates, 24
simple interest rate, 59
Index 739
spikes in, and financial crises, 202
spot rates, 134
targeting, vs. money supply, 608 610
taxes, 603
term structure of interest rates, 113,
119 136
traditional interest-rate channels,
651 653
treasury bill rate, 24
volatility, 258 259
yield to maturity, 63 71
interest-rate forward contracts, 347 348
interest-rate futures contract, 349 353
interest-rate risk, 74 75, 74n, 75n,
258 259, 322
interest-rate risk management, 334 339
intermediate target, 476
intermediate-term debt instruments, 20
Internal Control Instrument, 192
International Accounting Standards Board
(IASB), 236, 240
international banking, 277 281
Canadian banking overseas, 279 280
Eurocurrencies market, 278 279
Eurodollar market, 278
foreign banks in Canada, 280 281
largest banks in the world, 281t
279 280
offshore deposits, 278 279
reserve requirements, 436
international finance
average inflation rate vs. average rate
of money growth, 8f
banking, 277 281
banking crises, 246 247, 247t, 248f
central banks. See central banks
267 268
financial futures markets, globalization
of, 353 354
financial intermediaries, importance
of, 31
financial markets, internationalization
of, 27 29
financial regulation, 40, 240
financial structure, 166 169
foreign exchange market, 11 12
foreign financial markets, deregulation
of, 27
Global Legal Settlement of 2002,
191 192
government safety nets, 227 228
high inflation, 9
long-run monetary neutrality, 613
separation of banking and other
financial services industries,
274 275
study of, 10 12
transition countries, 184 185
world stock markets, 28 29
international financial regulation, 240
International Financial Reporting
Standards (IFRS), 236
international financial system
balance of payments, 522 523
capital controls, 534 535
described, 12
exchange rate regimes, 524 534
exchange rate targeting, 540 546
foreign exchange interventions,
518 522
International Monetary Fund, role of,
535 538
lender of last resort, 535 536, 538
monetary policy, 490, 539 540
International Monetary Fund (IMF), 222,
385, 490, 493, 525, 535 538
international policy coordination, 490
international reserves, 518
Internet
e-cash, 49
e-money, 49, 50
as information resource, 13
virtual bank, 261
intrinsic value, 363
inventory investment, 575
inverted yield curve, 120
investment, 576, 619n
investment advisers, 155 156
investment bank failures, 209, 274
investment banking, 300 301
investment banks, 20, 187 188, 191 192
investment dealers, 300
Investment Dealers Association of
Canada, 285, 304
Investment Funds Institute of Canada,
285, 304
investment income, 523
investment intermediaries, 37
investment spending. See planned
investment spending
Ireland, guarantees by government, 211
irrational exuberance, 202, 483
IS curve
defined, 587
deriving, 588, 589f
equilibrium in the goods market,
587 590
factors that cause shift, 597 599, 598f,
604t, 614 615
money supply vs. interest rate target,
609 610, 610n
usefulness of, 588 590
ISLM model
and aggregate demand curve, 613 616
aggregate output, approach to,
592 593, 592f
aggregate output equilibrium, changes
in, 601 603
described, 572, 586 587
602 603
interest rate equilibrium, changes in,
601 603
interest rates, approach to, 592 593,
592f
IS curve, 587 590, 589f, 609 610,
610n
IS curve, shift in, 597 599, 598f, 604t
LM curve, 587, 590 592, 591f,
609 610, 610n
LM curve, shifts in, 599 600, 604t
long run, 611 612, 611f
in, 601 602
monetary vs. fiscal policy,
effectiveness of, 603 610
money demand function, 557 558
natural rate level of output, 611
Italy, and real-time settlement systems,
432
items in transit, 317
J
Japan
Bank of Japan, 397, 451, 464
banking industry, 270
bubble economy, 464
deflation, 471 472
Deposit Insurance Corporation,
246 247
legal separation of banking and other
financial services, 274 275
lost decade, 464
low interest rates, 97 98
monetary policy, 662 663
monetary targeting, 464
negative T-bill rates, 70
recession, 97
savings in, 27
stock market in, 29
jobbers, 443
J.P. Morgan, 209, 273
junk bonds, 116, 261, 267
just do it approach, 472 475
K
Kane, Edward, 263
Kerriel, Jerome, 342
Keynes, John Maynard, 99, 100n, 556,
572, 642
see also Keynesian approaches;
liquidity preference framework
Keynesian approaches
aggregate output, determination of,
573 586
early Keynesian evidence on
fixed price level, 573
740 Index
vs. Friedman s theory, 565 567
further developments, 559 563
interest sensitivity of consumer
expenditure, 587n
liquidity preference theory, 556 559
precautionary demand, 561 562
speculative demand, 562 563
transactions demand, 559 561
Keynesian multiplier, 418n
Keynesians, 630
King, Robert, 651n
Kornblith, Edith, 649n
Krugman, Paul, 503n, 522n
Kuwait Investment Authority, 304
Kydland, Finn E., 683n
L
La Porta, Rafael, 185n
labour market tightness, 625 626
lags, 472, 685
Laidler, David, 391n
large, complex banking organizations
(LCBOs), 273
large-denomination time deposits, 316
Large Value Transfer System (LVTS), 284,
406, 406n, 432 433, 435
Latvia, and European Monetary Union,
396
Laubach, Thomas, 440n, 467n, 475n,
489n
Laurentian Bank of Canada, 406n, 432n,
433n
law of one price, 498
lawyers, 185
Leeper, Eric M., 109n
Leeson, Nick, 342
legislation. See financial regulation
legislative lag, 685
Lehman Brothers, 209, 227, 265, 273
Leiderman, Leonardo, 467n
lender of last resort, 227 228, 257, 384,
454 455, 458 459, 535 536, 538
279 280
leverage ratio, 230
leveraged buyout (LBO), 307
liabilities
on bank balance sheet, 315 317
on Bank of Canada s balance sheet,
405 406
defined, 18
liability management, 321, 325 326
liar loans, 237
life insurance companies, 35 36, 36t,
289 290
Lindsey, David, 463n
liquid, 21
liquidity
of bonds, 117 118
defined, 47, 83
demand for bonds, shifts in, 91
forward contracts and, 348
liquidity effect, 105, 106 107
liquidity management, 321, 322 325
liquidity preference, 590
liquidity preference framework
defined, 99
demand for money, shifts in, 101 102
described, 99 101
equilibrium interest rates, changes in,
101 109
liquidity preference function, 557
liquidity premium theory, 127 131, 128f,
130f
liquidity services, 32, 171
Lithuania
currency board, 544
Lloyds Bank of Canada, 241
Lloyds of London, 291
LM curve
defined, 587
deriving, 590 591, 591f
equilibrium in market for money,
590 592
factors that cause shift, 599 600, 604t,
615 616
money supply vs. interest rate target,
609 610, 610n
usefulness of, 591 592
load funds, 303
loan commitments, 332
loan sale, 340
loan-to-value ratio (LTV), 206
loans
see also debt instruments
as bank assets, 318
collateral requirements, 333
contractual savings institutions, 35 36
debt instruments, 59
liar loans, 237
loan contracts, 169
NINJA loan, 237
no-doc loans, 237
overdraft loans, 316
simple loan, 62, 63 64
sovereign loans, 279
Loblaws, 270
Loi, Jackson, 51n
London interbank offer rate (LIBOR), 24
London International Financial Futures
Exchange, 353 354
long in a call, 362
long in a put, 364
long position, 346, 351
long-run aggregate supply curve,
622 624, 629, 631 633
long-run equilibrium, 628 630
long-run monetary neutrality, 612, 613
long-term bonds, 74
Long-Term Capital Management, 305, 306
long-term customer relationships, 332
long-term debt instruments, 20
loophole mining, 263
Lopez-de-Silanes, Florencio, 185n
loss aversion, 160
Lucas, Robert E. Jr., 681, 691, 692
Lucas critique of policy evaluation,
692 693
Lundrigan, Eugene, 433n
Luxembourg, and bailouts, 211
LVTS participants, 432
M
M1+, 51t, 52
M1++, 51t, 52, 53f
M2, 51, 51t, 53f
M2+, 51t, 52
M2++, 51t, 52, 53f
M3, 51 52, 51t
Maastricht Treaty, 394, 396
MacKay Task Force, 246
macro hedge, 353
macroeconomic performance, 401
macroprudential regulation, 484
Majluf, N.S., 172n
Malaysia
stock market declines, 220
Malta, 395
managed float regime, 524, 530
mandate-consistent inflation objective,
475
Mankiw, N. Gregory, 131n
Mann, Catherine, 654n
Manulife Financial, 289
March
Terme International de France,
353, 354
margin requirement, 355 356
marginal propensity to consume, 574
mark-to-marketing accounting, 235, 236
marked to market, 355
the market. See stock market
market equilibrium
in bond market, 86f, 87
defined, 87
foreign exchange market, 504, 504f,
510 512
goods market, 587 590
market for money, 100 101, 100f
market for money
equilibrium, 100 101, 100f, 590 592
99 101
vs. money market, 99n
supply and demand, 99 101
market for settlement balances, 437 439
market fundamentals, 154
Index 741
market-neutral strategies, 305
Market Risk Amendment, 230
Marshall, Alfred, 551
Martin, William McChesney Jr., 393n
MasterCard, 260
maturity, 20
maturity bucket approach, 335
maturity buckets, 335
maturity date, 59
Mayer, Colin, 31n
MBNA, 269
McCallum, Bennett, 688, 691n
mean-reverting, 125n
measurement
of interest rates, 59 71
of money, 49 54
medium of exchange, 44 45
Meiselman, David, 648n
Meltzer, Alan, 688
Mercantile Bank, 241
Meriwether, John, 306
Merrill Lynch, 208, 209, 273, 283n
Merrill Lynch HSBC, 283n
Merton, Robert, 306
Mexico
debt market, 221
micro hedge, 353
Microsoft Excel, 13
Mihov, Illian, 109n
Milken, Michael, 261
Miller, Merton, 359
Mills, Terence C., 382n
Mishkin, Frederic S., 78n, 132n, 187n,
440n, 467n, 475n, 480n, 489n,
510n, 644n, 658n, 710n
liberalization/innovation, 200 202
modern quantity theory of money,
563 567
Modernized Standards By-law, 245
Modigliani, Franco, 649n, 655n
Molik, Terence E., 54n
monetarism, 485
monetarist evidence, 645 650
monetarists, 630
monetary base, 385, 405, 408 414, 519
monetary conditions, 440
A Monetary History of the United States
(1867-1960) (Friedman and
Schwartz), 425 426, 649 650
monetary neutrality, 511
monetary policy
see also Bank of Canada
aggregate output, response of,
601 602
aggregate output in long run, 612
asset-price bubbles, 483 484
Bank of Canada s policy rate, 433 434
channel/corridor system, 436,
437 439, 449 450
conduct of, 9
defined, 9, 596
and differential regional effects, 659
discretionary/nondiscretionary policy
debate, 684 688
economic fluctuations and, 642
and the economy, 440 441
at effective lower bound for the
overnight rate, 450 451
exchange rate considerations, 540
exchange rate targeting, 540 546
vs. fiscal policy, effectiveness of,
603 610
and GDP, 653f
goal of, 439
implementation framework, 432 437
with implicit nominal anchor, 472 475
inflation targeting, 466 472
inflationary monetary policy, 673 683
interest rate, response of, 601 602
international considerations, 539 540
Japan, 662 663
just do it approach, 472 475
Large Value Transfer System (LVTS),
432 433, 435
lessons for, 660 662
market for settlement balances,
437 439
monetary targeting strategy, 462 466
and nominal interest rates, 441 443,
660 661
non-LVTS (ACSS) transactions, 433
operating band for the overnight
interest rate, 434, 437
policy instrument, choice of, 476 479
policy mix, 605
policy procedures, historical
perspective, 485 490
Receiver General auctions, 446 447
settlement balances management,
445 452
settlement balances target level,
448 449
and stock prices, 146
strategies, advantages and
disadvantages of, 474t
study of, 7, 9 10
swaps with Exchange Fund Account,
447 448
tactics, 476 481
Taylor rule, 479 481
at times of crisis, 453
transmission mechanisms. See
transmission mechanisms of
monetary policy
unanticipated price level fluctuations,
662
uncertainty over conduct of, 398n
Monetary Policy Report, 383, 389
from 1975 to 1981, 485 487
Canada, 463 464
described, 462
Germany, 464 466
Japan, 464
United States, 463
monetary theory
defined, 7, 551
Keynesian approach, 556 563
modern quantity theory of money,
563 567
quantity theory of money, 552 554
velocity, as constant, 555 556
monetizing the debt, 677
money
base money, 384 385
and business cycles, 6 7, 7f
cashless society, 50
cheques, 48
commodity money, 47 48
defined, 6, 43 44
demand for money. See money
demand
e-money (electronic money), 49
and economic activity, 651
electronic payment, 49
equation of exchange, 552 553
fiat money, 48
functions of money, 44 47
growth of, and inflation, 669 670
growth of, and interest rates, 106 109,
107f, 108f
high-powered money, 408
importance of, 642 643, 645 650
and inflation, 7 9, 667 668
and interest rates, 9, 9f, 105
M1+, 51t, 52
M1++, 51t, 52, 53f
M2, 51, 51t, 53f
M2+, 51t, 52
M2++, 51t, 52, 53f
M3, 51 52, 51t
market for money. See market for
money
meaning of money, 43 44
measurement of, 49 54
as medium of exchange, 44 45
in modern prisons, 46
monetary theory. See monetary theory
money market. See money market
need for money, 45
payments system, evolution of, 47 49
in prison-of-war camps, 46
real money balances, 557 558
reliability of money data, 54
as store of value, 46 47
study of, 6 10
supply of money. See money supply
as unit of account, 45 46
742 Index
velocity of money, 552 553
as weighted aggregate, 53 54
money centre banks, 326
money demand
see also monetary theory
autonomous changes in, 600
empirical evidence, 567 569
income effect, 101
and interest rate, 566, 568
and interest-sensitivity, 607, 607n
precautionary demand, 561 562
precautionary motive, 556
quantity theory of money demand,
553 554
shifts in, 101 102
speculative motive, 556 557
stability of, 568 569
transactions motive, 556
money demand function, 563, 565,
567 568
money market
commercial paper, 23
defined, 21
described, 21 22
Government of Canada treasury bills,
22
instruments, 22 25, 22t
vs. market for money, 99n
overnight funds, 23 25
repurchase agreements (repos), 23
money market mutual funds, 37, 262, 264,
265, 305
money multiplier, 422 424
money supply
see also money supply process
and aggregate price level, 8f
borrowed reserves, change in, 420
changes in, and equilibrium interest
rate, 103 104
changes in, and LM curve, 599 600
currency component, 406n
currency holdings, changes in, 421
desired reserve ratio, change in,
420 421
and exchange rate, 511
expected-inflation effect, 105
factors that determine, 420 421
and foreign exchange interventions,
518 520
foreign exchange market, direct
effects of, 539
higher growth rate, and interest rates,
106 109, 107f, 108f
income effect, 105
and inflation, 8 9, 8f
and interest rates, 590n
liquidity effect, 105
longer-run movements, 54
nonborrowed monetary base, change
in, 420
response to changes in factors, 424
shifts in, 102 106
short-run movements, 54
targeting, vs. interest rates, 608 610
money supply process
advances, 407
Bank of Canada advances, 412 413
Bank of Canada s balance sheet,
405 407
cast of players, 404 405
factors that determine the money
supply, 420 421
monetary base, control of, 408 414
money multiplier, 422 424
overview, 421, 421t
shifts from deposits into currency,
411 412
monitoring, 178 179, 181 182, 331 332
monoline insurance companies, 291 292
Montreal Accord, 209
Montreal Exchange (ME), 21, 302, 349,
353, 362
Moody s Investor Service, 115, 189
moral hazard
see also asymmetric information
collateral, 180 181
credit rationing, 333
debt contracts, 179 180
debt vs. equity, influence on choice,
177 180
defined, 171
described, 33 34
in equity contracts, 177 178
financial intermediation, 179, 182
financial supervision and, 231
free-rider problem, 178 179
government regulation to increase
information, 179
and government safety net, 228
monitoring, 178 179, 181 182
and net worth, 180 181
principal-agent problem, 177 180
restrictive covenants, 181 182
Morgan Stanley, 188, 273
mortgage-backed securities, 57, 205
mortgage brokers, 249
mortgage insurance market, 210
mortgage loan companies. See trust and
mortgage loan companies (TMLs)
mortgage market
agency problems, 205 206
and financial innovations, 204 205
information problems, 206
structure of Canadian mortgage
market, 212
mortgages
alt-A mortgages, 204
described, 25
residential mortgage market, 25
subprime mortgages in Canada, 210
underwater, 206
Mugabe, Robert, 668
Mullins, David, 306
multilateral netting, 433
banking system, 415 418
critique of simple model, 419 420
defined, 414
deriving the formula for, 418 419
simple deposit multiplier, 418
single bank, 414 415
municipal bonds, 26
municipals, 26
Muth, John, 148n, 151n
mutual funds, 302 307
closed-end fund, 303
defined, 170, 302
described, 37
economies of scale, 170
hedge funds, 305 307
load funds, 303
money market mutual funds. See
money market mutual funds
no-load funds, 303
open-end fund, 303
Mutual Funds Dealers Association, 285,
304
Myers, Stewart, 172n
N
NAIRU (nonaccelerating inflation rate of
unemployment), 480, 623n
NASDAQ, 140, 156, 301
National Association, 432n
National Bank Act, 254
National Bank of Canada, 208, 241
see also Big Six
national banks, 254
National Central Banks, 394
National Financial Services OmbudService
(NFSO), 285
National Housing Act, 210
national regulatory system, 285
natural disasters, 291, 291n
natural rate level of output, 611
natural rate of output, 624
natural rate of unemployment, 622 623,
683, 683n
near banks
government savings institutions, 277
regulation, 275 277
structure, 275 277
trust companies, 275
negative inflation, 97
negative T-bill rates, 70
negotiable CDs, 326, 326n
Index 743
net exports, 573, 573n, 586, 588, 599, 620,
654
net worth, 176 177, 180 181, 336n
the Netherlands
bailouts, 211
mergers, 285
new classical macroeconomics, 687n,
694 698
new Keynesian assumption of sticky
prices, 441
new Keynesian model, 698 700
New York Stock Exchange (NYSE), 301,
359
New Zealand
inflation targeting, 466, 467 469, 471
Nexen Inc., 156
Nikkei 225, 354
Nikkei 225 Average, 29
NINJA loan, 237
no-doc loans, 237
no-load funds, 303
nominal interest rate, 76 79, 78f,
441 443, 645, 660 661
non-depository credit intermediaries, 299
non-LVTS (ACSS) transactions, 433
non-negotiable CDs, 23
nonaccelerating inflation rate of
unemployment (NAIRU). See
NAIRU (nonaccelerating inflation
rate of unemployment)
nonbank financial institutions
capital buyout funds, 307
finance companies, 299 300
government financial intermediation,
307 310
insurance, 288 295
mutual funds, 302 307
pension funds, 296 299
private equity funds, 307
securities market operations, 300 302
venture capital funds, 307
nonborrowed monetary base, 414, 420
nonborrowed reserves (NBR), 439
nondiscretionary policy, 684 688
Northern Rock, 207
Northland Bank, 240 241, 456
notes in circulation, 405, 406n
notice deposits, 315 316
notional principal, 371
Nott, Loretta, 52n
O
Obstfeld, Maurice, 503n, 522n
off-balance-sheet activities, 230, 340 342
Office of Federal Housing Oversight, 309
Office of the Superintendent of Financial
Institutions Act, 238
Office of the Superintendent of Financial
Institutions (OSFI), 38t, 39, 210,
212, 275, 280, 285, 289, 385, 385n
official reserve transactions balance, 523
offshore deposits, 278 279, 279
oil price shocks, 279
Old Age Security (OAS), 297
one-period valuation model, 141
Ontario Municipal Employees Retirement
Board, 297
Ontario Municipal Improvement
Corporation, 27
Ontario Securities Act, 301
Ontario Securities Commission (OSC),
37 38, 234, 301
Ontario Teachers Pension Plan Board,
297
open-end fund, 303
open interest, 353
open market buyback operations, 385
open market purchase, 408 410
open market sale, 408, 410 411
operating band, 434, 437
operating instrument. See policy
instrument
opportunity cost, 100
optimal forecast, 148, 154
Opting-Out By-Law, 243
options, 361 370
American options, 362
call option, 362 363, 363f
call premium, 362
credit options, 374
defined, 361
European options, 362
exercise price, 361
financial futures options, 362, 365 369
futures options, 362, 365 369
intrinsic value, 363
long in a call, 362
long in a put, 364
at the money, 363
in the money, 363
option premium prices, factors
affecting, 369 370
out of the money, 363
premium, 362
put options, 363 364, 364f
put premium, 364
short in a call, 362
short in a put, 364
stock options, 362 364
strike price, 361
term to expiration, 361
trading at par, 363
writer, 361
Organisation for Economic Co-operation
and Development (OECD), 230
organized exchanges, 301 302
originate-to-distribute, 205
Osaka Securities Exchange, 354
other things being equal, 85
out of the money option, 363
over-the-counter (OTC) market, 21
overconfidence, 160
overdraft loans, 316
overnight funds, 23 25
overnight interest rate, 24 25, 431, 433,
437 439, 445 446
overnight money market rate, 24
overregulation, danger of, 250
ownership rules (bank), 270, 283 284
P
Pagan, Adrian, 109n
par value, 62
Parmalat, 174
partisan business cycles, 400
Paulin, Graydon, 390n
payments system, evolution of, 47 49
payoff method, 226
P&C Insurance Compensation
Corporation (PACIC), 38t
peg, 540
pension funds, 296 299
defined-benefit plan, 296
defined-contribution plan, 296
described, 36
fully funded, 296
personal pension plans, 299
private pension plans, 297
privatization, 298
registered pension plans (RPPs), 297
relative shares, 36f
underfunded, 296
vesting, 296 297
perfect storm of adverse shocks, 549, 635
permanent life insurance, 289
perpetuity, 67 68, 69
personal pension plans, 299
Peru, foreign lending to, 280
Phelps, Edmund, 387, 387n
Philippines
stock market declines in, 220
Phillips, A.W., 387, 387n
Phillips curve theory, 480
Pigou, A.C., 551
plain vanilla assets, 208
plain vanilla swap, 371
planned investment spending, 573,
575 576, 579, 579f, 584, 587 588,
597 598, 619
Plosser, Charles, 632n, 651n
Poland, European Monetary Union, 396
policy evaluation, 692 693
policy ineffectiveness proposition, 696
policy instrument
choice of, 476 479
controllability, 478
criteria for choosing, 478 479
defined, 476
intermediate target, 476
measurability, 478
744 Index
observability, 478
predictable effect on goals, 478 479
policy mix, 605
policy procedures, historical perspective,
485 490
political business cycle, 399
political environment, 383
politics, and economics, 400
Poole, William, 608n, 649n
portfolio, 32
portfolio balance effect, 522n
portfolio insurance, 359
Posen, Adam, 401n, 440n, 467n, 475n,
489n
post hoc, ergo propter hoc, 645 646
PRAs. See Purchase and Resale
Agreements (PRAs)
precautionary demand, 561 562, 562n
precautionary motive, 556
preferences for domestic vs. foreign
goods, 501
preferred habitat theory, 127 131, 128f,
130f
premium, 362
Prescott, Edward C., 683n, 691n
present discounted value, 59 62
present value, 59 62
President s Choice Bank, 270
price
bonds. See bond prices
equilibrium price, 87
price earnings ratio (PE), 144
price earnings valuation method, 144, 145
price level. See aggregate price level
price-level effect, 102, 105
Primary Dealer Credit Facility (PDCF), 458
primary dealers, 443
primary market
defined, 20
described, 20 21
prime rate, 24
principal, 59
principal-agent problem, 177 180, 341
printing money, 677
prison-of-war camps, 46
prisons, 46
private equity funds, 307
private pension plans, 297
private production, 173
privately owned government sponsored
enterprises, 249
producer price index (PPi), 620
production costs, 626
productivity, and exchange rates,
501 502, 502n
program trading, 359
prompt corrective action provisions,
244 245
prompt of corrective action, 231
property and casualty (P&C) insurance
companies, 36, 36t, 289t, 290 291
property rights, 185
Province of Ontario Savings Office, 277
provincial bonds, 26
Provincial Notes Act, 1866, 255
provincial securities commissions, 37 38,
38t
provincials, 26
Prudential, 262
prudential supervision, 231 233
Public Accounting Reform and Investor
Protection Act. See Sarbanes-Oxley
Act
public interest impact assessment (PIIA),
284
public interest view, 398
purchase and assumption method,
226 227
Purchase and Resale Agreements (PRAs),
411
The Purchasing Power of Money (Fisher),
552
purchasing power parity (PPP), 499, 500
pure arbitrage, 153
put options, 363 364, 364f
put premium, 364
Q
quantitative easing, 451
quantity theory of money, 552 554, 621
quantity theory of money demand,
553 554
Qu bec Deposit Insurance Board, 38t, 39,
242, 276
Quebec Pension Plan, 297
quotas, 501
Qwest, 191
R
Radford, R.A., 46
random-walk behaviour, 157
Rasminsky, Louis, 383, 388
rate of return
bonds, 71 72, 74
calculation of, 72
defined, 71
standard deviations of returns that
measure risk, 83n
rational bubbles, 159
rational expectations revolution
anti-inflation policies, 704 706
comparison of new models with
traditional model, 701 707, 701t,
702f
credibility in fighting inflation,
706 708
described, 691
impact of, 709 710
692 693
new classical macroeconomics,
694 698
new Keynesian model, 698 700
short-run output and price responses,
701 703
stabilization policy, 703 704
rational expectations theory
Black Monday, 158 159
change in movement of variable, 150
forecast errors of expectations,
150 151
formal statement of the theory, 149
implications of the theory, 150 151
rationale behind the theory, 149 150
Reagan, Ronald, 393
real assets, 91
real business cycle theory, 631 633, 650,
651
real GDP, 620
real interest rate, 76 79, 78f, 644n, 645
real money balances, 557 558
Real Return Bonds, 79
real terms, 77
Receiver General auctions, 446 447
recessions
defined, 7
Japan, 97
subprime financial crisis, 660
recognition lag, 685
redemption, 26
Redish, Angela, 391n
reduced-form evidence, 639 640, 641,
650n
reference rate, 433
registered bonds, 26
registered pension plans (RPPs), 297
Registered Retirement Savings Plans
(RRSPs), 299
regulation. See financial regulation
Regulation Q, 264
regulatory arbitrage, 231
regulatory consolidation, 246
regulatory forbearance, 241
reinsurance, 291
reinvestment risk, 75n
repos, 23, 443 444
repurchase agreements (repos), 23
repurchase transactions, 411
research companies, 187 188
Reserve Bank of New Zealand Act, 467
reserve currency, 525
Reserve Primary Fund, 209, 265
reserve requirements, 263 264, 407, 436,
649
reserves
on Bank of Canada balance sheet, 406
borrowed reserves, 407, 420
China, and international reserves,
528 529
defined, 317
demand curve, 437 438
Index 745
international reserves, 518
nonborrowed reserves (NBR), 439
role of, 322 325
residual claimant, 20, 141
restrictions
on asset holdings, 229 230
branching restrictions, 255, 271 273
on competition, 235
on entry, 39
restrictive covenants, 169, 181 182,
331 332
restrictive provisions in insurance
policies, 294
return. See rate of return
return on assets (ROA), 327
return on equity (ROE), 327
revaluation, 527
reverse causation, 641
reverse repos, 443, 444 445
Ricardian equivalence, 679
Ricardo, David, 679
risk
see also financial derivatives
and asset demand, 83 84
credit risk, 322
default risk, 114 116, 348
defined, 32, 83
interest-rate risk, 74 75, 74n, 75n,
258 259, 322
reinvestment risk, 75n
measure risk, 83n
stock market risk, 358
systemic risk, 432
risk-averse person, 84
risk-based insurance premiums, 245, 294
risk lover, 84
risk management
assessment of, 233 234
financial futures, 349 357
hedging, 346 347
options, 361 370
swaps, 370 373
techniques, 341
risk of default. See default risk
risk preferrer, 84
risk premium, 114
risk sharing, 32
risk structure of interest rates, 113 119
default risk, 114 116
defined, 113
income tax considerations, 117 118
liquidity of bonds, 117 118
risky assets, 229 230
Robertson, John C., 109n
Romania, high inflation in, 9
Romer, Christina, 650n
Romer, David, 650n
Royal Bank of Canada, 261
Royal Trust, 297
rule of law, 227
Rush, Mark, 710n
Russia
financial crisis in, 218n
financial repression, 184
fiscal imbalances, 199, 215
high inflation, 9
sovereign wealth funds, 304
S
safety net, 200, 226 229
Sale and Repurchase Agreements (SRAs),
411, 443, 444 445
sale of information, 173
sales finance companies, 23, 299
Salomon Smith Barney, 273
Sarbanes-Oxley Act, 28, 189 190, 193
Sargent, Thomas, 691, 696n, 707n, 709n,
710n
savings accounts, 316
Savings and Credit Union Act (Qu bec),
238t
Schedule I banks, 268 269
Schedule II banks, 268 269, 280
Schedule III banks, 268 269, 280
Schoenholtz, Kermit L., 131n
Scholes, Myron, 306
Schwartz, Anna, 425, 643, 643n, 645n,
649
screening, 293 294, 330 331
Sears Roebuck Acceptance Corporation,
299
seasoned issues, 300
secondary loan participation, 340
secondary market, 20 21
secured debt, 169
securities
banks holdings of, 317 318
brokers, 20
dealers, 20
defined, 3
as external financing source, 168
flow of funds through financial
system, 18, 18f
investment bank, 3
regulation of securities trading, 301
underwriting, 3
securities brokers, 300
securities dealers, 300
securities market operations, 300 302
securitization, 204, 263
Security First Network Bank, 261
segmented markets theory, 126 127
seigniorage, 256, 546
self-correcting mechanisms, 630
Selody, Jack, 455n
separation of banking and other financial
services industries, 274 275
Serletis, Apostolos, 54n, 400, 569n, 681
service transactions, 523
settlement balances, 316, 406, 437 439
settlement balances management,
445 452
settlement balances target level, 448 449
settlement price, 356
shadow banking system, 258 268
shareholders, 141
Shefrin, Hersh, 159n
Shiller, Robert J., 131n, 159n, 160n
Shleifer, Andrei, 159n, 185n
shocks
adverse shocks, 549
demand shocks, 622
oil price shocks, 279
perfect storm of adverse shocks, 549,
635
supply shocks, 626, 634 635, 671 672,
691n
short in a call, 362
short in a put, 364
short position, 346, 351
short-run aggregate supply curve,
624 626, 670n
short-run equilibrium, 627 628
short sales, 160
short-term debt instruments, 20
shorter-term bonds, 74
silver crash, 356
simple deposit multiplier, 418
simple interest rate, 59
simple loan, 59, 62, 63 64
simple present value, 61
simple-sum money aggregates, 569n
Slovakia, 395
Slovenia, 395
smart card, 49
smart money, 154, 159
social contagion, 160
Soci t G n rale, 342
South Korea
bailout plans, 211
chaebols, 219 220
financial crises, 219 220
sovereign loans, 279
sovereign wealth funds, 303, 304
Soviet Union, 186
see also Russia
S&P/TSX Composite, 4, 140
Spain
bailout package, 211
inflation targeting, 467
special drawing rights (SDRs), 530
special Purchase and Resale Agreements
(special PRAs or SPRAs), 411,
443 444
746 Index
Special Purpose Vehicles, 208
specialist, 302
speculative attack, 216, 221, 531, 532, 541
speculative-grade bonds, 116
speculative motive, 556 557
speculators, 216
spinning, 188
Spitzer, Eliot, 191
spot rates, 134
spot transactions, 495
Spouse s Allowance (SPA), 297
SPRAs. See special Purchase and Resale
Agreements (special PRAs or
SPRAs)
SRAs. See Sale and Repurchase
Agreements (SRAs)
St. Louis model, 650n
stabilization fund, 276 277
Stabilization Fund of the Russian
Federation, 304
stabilization policy, 703 704
Standard & Poor s Corporation (S&P),
115, 116t, 173, 189, 206
measure risk, 83n
standardized gap analysis, 335
Standards of Sound Business and
Financial Practices, 242 243, 246
standing lending facility, 452 453
Standing Senate Committee on Banking,
Trade, and Commerce, 284
state banks, 254
State Street Bank and Trust Company,
406n, 432n
statistical evidence, 648 649
statistical models, 109
sterilized foreign exchange intervention,
520, 522, 522n
sticky prices, 441
Stiglitz, Joseph E., 172n
stock market
Black Monday, 4, 158 159, 359
bubble. See bubble
decline of, and balance sheets, 197
described, 3 5
efficient market hypothesis, 151 159
importance of, 4 5
investment advisers reports, 155 156
practical guide to investment, 155 158
setting stock prices, 145 147
and subprime financial crisis, 147
theory of rational expectations,
147 151
top ten stock exchanges, 29t
volatility of stock prices, 4
stock market crashes, 57
stock options, 362 364
stock prices
see also stock valuation
and good news, 157
and investment spending, 655, 655n
and monetary policy, 146
quotations, 156
random-walk behaviour, 157
setting stock prices, 145 147
volatility, 4, 4f
stock valuation
see also stock prices
computation of common stock price,
141 145
and constant growth, 143, 144
Gordon growth model, 143, 146, 147
one-period valuation model, 141
price earnings valuation method, 144,
145
stocks
see also common stock
as capital market instrument, 25
defined, 18
described, 25
as external financing source, 167 168,
167n
short sales, 160
supply and demand analysis, 88
store of value, 46 47
stored-value card, 49
Strauss, Kahn, Dominique, 538
stress testing, 234
strike price, 361
Strongin, Steven, 109n
structural model, 639
structural model evidence, 639, 640
structured credit products, 205, 206
structured investment vehicles, 207, 249,
330, 340
subprime financial crisis, 204 212
agency problems, 205 206
asset-price bubbles, response to,
481 485
and BAA-Treasury spread, 117
bailout package, 210, 211
bailout packages, 165
causes, 1
and consumer protection regulation,
237
deterioration of banks balance sheets,
207
failure of high-profile firms, 209
financial derivatives, 375 376
financial innovations in mortgage
markets, 204 205
financial regulation, effect on,
248 250
global spread of crisis, 206 207
information problems, 206
and International Monetary Fund, 538
large, free-standing investment banks,
demise of, 274
lender-of-last-resort facilities, 458 459
mark-to-market accounting, criticisms
of, 236
and negative supply shocks, 635
recession, 660
recovery, 210
and stock market, 147
and the U.S. dollar, 513 514
volatility of financial markets, 57
subprime mortgage products, 249
subprime mortgages in Canada, 210
Sumitomo Corporation, 342
Summers, Lawrence H., 131n, 401n,
510n, 632n, 644n
Sun Life, 289
supply
aggregate supply. See aggregate
supply
in bond market, 85 88
changes in, and financial innovation,
259 263
excess supply, 87
exchange rate, 502 504
99 101
in market for money, 99 101
shifts in supply of bonds, 92 99
shifts in supply of money, 102 106,
103f
supply curve
described, 86 87
domestic assets, 503
expected inflation, 93
expected profitability of investment
opportunities, 92 93
and government budget, 93 94
settlement balances, 438 439
shifts in supply of bonds, 92 99, 92t,
93f
shifts in supply of money, 102 106,
103f
supply shocks, 626, 634 635, 671 672,
691n
supply-side phenomena, 671 672, 672n
Sutton, Willy, 215
Svensson, Lars E.O., 467n
swaps
currency swaps, 370
defined, 370
with Exchange Fund Account,
447 448
notional principal, 371
plain vanilla swap, 371
Sweden
bailout plans, 211
inflation targeting, 467, 471
Index 747
sweet accounts, 264 265
SWIFT telecommunications network, 432
Swiss National Bank, 458
Switzerland
mergers, 285
synergies, 273
systemic risk, 432
T
T-account, 318, 408
tariffs, 501
tax-exempt bonds, 118
taxable bonds, 118
taxation. See income tax
Taylor, John, 479, 479n, 652n, 654n, 707,
707n
Taylor rule, 479 481
tech-stock bubble, 483
technical analysis, 158
Temasek Holdings, 304
temporary life insurance, 290
Term Auction Facility (TAF), 458
term deposit receipts, 23
term insurance, 290
term interbank market, 453
term notes, 23
term Purchase and Resale Agreements,
455, 456
term securities lending, 457
Term Securities Lending Facility, 458
term structure of interest rates, 119 136
defined, 113
forecasting interest rates, 133 135
liquidity premium theory, 127 131,
128f, 130f
693
predictive power of the yield curve,
131
preferred habitat theory, 127 131,
128f, 130f
yield curve, 119 121
term to expiration, 361
Texas Instruments BA-35, 60
Thailand
financial crises in, 220
theory of asset demand, 84, 84t, 88
theory of bureaucratic behaviour, 398
theory of efficient capital markets. See
efficient market hypothesis
theory of purchasing power parity (PPP),
499 500
theory of rational expectations. See
rational expectations theory
Thiessen, Gordon, 383, 387, 388n, 390n,
489n
time deposits, 316
timing evidence, 645 648
TIPS (Treasury Inflation Protection
Securities), 79
TMX Group of Companies, 302
Tobin, James, 559, 559n, 562 563, 562n,
646n, 655n
Tobin s q theory, 654 655
Tokyo Stock Exchange, 302, 354
Toll, Sari, 433n
too-big-to-fail policy, 228 229, 244
Toronto Dominion Bank. See Big Six
Toronto Stock Exchange (TSX), 20, 21, 29,
156, 301 302, 362
Towers, Graham, 383, 387
trade balance, 522
trade barriers, 501
trading at par, 363
traditional interest-rate channels, 651 653
transaction costs, 31 32, 45, 169 171
transactions motive, 556
transition countries, 184 185
transmission mechanisms of monetary
policy, 650 660
asset price channels, 654 655
balance sheet channel, 656 657
bank lending channel, 656
cash flow channel, 657
credit channels, 659
credit view, 656 659
defined, 639
exchange rate effects on net exports,
654
household liquidity effects, 658 659
monetary policy and GDP, 653f
Tobin s q theory, 654 655
traditional interest-rate channels,
651 653
657 658
wealth effects, 655
transparency, 390 391
Travelers Group, 273
Treasury Asset Relief Plan (TARP), 211
Treasury bill rate, 24, 70
Treasury bills, 22
Trust and Loan Companies Act, 239t, 275
trust and mortgage loan companies
(TMLs)
see also banks
described, 5, 34 35
regulation and structure, 275 276
relative shares, 36t
trustees, 275
trustees, 275
truth in lending, 235
TSX Venture Exchange, 20, 29, 156, 302,
362
Turkey
fiscal imbalances in, 199, 215
U
unanticipated policy, 694 696, 699
657 658, 662
uncertainty, 198 200, 202
underfunded, 296
underwater mortgages, 206
underwriters, 301
underwriting, 3, 187 188
unemployment
high unemployment targets and
inflation, 673 676
responses to high unemployment,
684 685
unemployment rate
defined, 6
NAIRU (nonaccelerating inflation rate
of unemployment), 480, 623n
natural rate of unemployment,
622 623, 683, 683n
publication of, 620
unexploited profit opportunities, 153
unilateral transfers, 523
unit of account, 45 46
United Kingdom
bailout plan, 211
bank failure in, 206 207, 240
Bank of England, 397, 451, 469
274
building societies, 275
and exchange-rate peg, 542
inflation targeting, 467, 469, 471
mergers, 285
reserve requirements, 436
United States
autonomous consumer expenditure,
collapse of, 580 581
BAA-Treasury spread, 117
bailout packages, 165, 212
balance-of-payments deficits, 539
bank holding company, 271 272
banking industry, 270 272, 270t, 271t
Bush tax cut, effect of, 119
capital markets, dominance of, 28
current account deficit, 524
dollar. See U.S. dollar
Dual Banking System, 254
Federal Reserve. See U.S. Federal
Reserve
Federal Reserve System, 391 394,
392f
financial futures, 354t
748 Index
Generally Accepted Accounting
Principles (GAAP), 236
(GSEs), 308 310
Great Depression, 203 204, 217, 222
housing market, 1
implicit nominal anchor, 472
lawyers in, 185
mergers, 285
money market mutual funds, 264, 305
municipal bonds, 118
option markets, 362
Regulation Q, 264
reserve requirements, 263 264, 407,
649
Sarbanes-Oxley Act, 189 190, 193
selected U.S. interest rates, 24
stock market crash, 57
subprime financial crisis. See subprime
financial crisis
TIPS (Treasury Inflation Protection
Securities), 79
Vietnam War buildup, 633 634
universal banking, 187n, 274
unsterilized foreign exchange
intervention, 520 522, 520n
Update, 383, 389
U.S. dollar
the euro s challenge to, 526
and subprime crisis, 513 514
symbol for, 496n
U.S. Federal Reserve, 202, 206, 209, 264,
265, 273, 292, 386, 451, 458 459,
475, 537
U.S. Securities and Exchange Commission
(SEC), 190, 212, 362
U.S. Treasury, 265, 292
U.S. Treasury bill to Eurodollar rate
(TED), 57, 206, 209, 210
uses of funds, 317 318
V
value-at-risk (VaR) calculations, 234
Vancouver City Savings Credit Union, 269,
276
Vanguard Group, 75
vault cash, 317
velocity, as constant, 555 556
velocity of money, 552 553
Venezuela
foreign lending to, 279
high inflation, 9
venture capital firm, 179
venture capital funds, 307
vesting, 296 297
Vietnam War buildup, 633 634
virtual bank, 261, 269
Visa, 260
Vishny, Robert W., 185n
Volcker, Paul, 393n, 463
W
wage-price stickiness, 698
wage push, 626
Wall Street Journal, 514 515
Wallace, Neil, 691n, 696n
Walmart, 260
Washington Mutual, 209
wealth
defined, 44, 83
effects, 655
weighted monetary aggregates, 53 54
Weiss, Andrew, 172n
Wells Fargo, 261, 269
Western Financial Group, 270
Wheaton Group, 270
White, Eugene, 187n
Wilkins, Carolyn, 455n
Wingspan, 262
Winnipeg Commodity Exchange, 21
Wood, Geoffrey E., 382n
Woodford, Michael, 436n, 439n
Woodward, Bob, 393n
World Bank, 184n, 227, 227n, 525
World Trade Organization (WTO), 525
World War II, 485
WorldCom, 174, 191
Y
Yavari, Kazem, 681
yield curve
defined, 119
described, 119 121
as forecasting tool, 132
interpretation of, 1990-2009, 132 133,
133f
inverted yield curve, 120
liquidity premium theory, 127 131,
128f, 130f
predictive power of, 131
preferred habitat theory, 127 131,
128f, 130f
yield to maturity
coupon bond, 66 68, 67t
defined, 63
discount bond, 68 70
fixed-payment loan, 64 65
simple loan, 63 64
Z
zero-coupon bond, 62, 75n
zero inflation, 488, 488n
Zimbabwe, hyperinflation in, 668, 678

A-paper, 204 ABN AMRO Group, 208 Abu Dhabi

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