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Contemporary Financial Intermediation 3rd Edition Greenbaum Solutions Manual
Contemporary Financial Intermediation 3rd Edition Greenbaum Solutions Manual
( final version, Oct 11, 2015) Chapter 1: Basic Concepts Instructor Manual - 1
1. Risk preferences
2. Diversification
3. Riskless arbitrage
4. Options
5. Market efficiency
6. Market completeness
7. Asymmetric information and signaling
8. Agency and moral hazard
9. Time consistency issue
10. Nash Equilibrium
11. Revision of beliefs and the use of Bayesian rule
12. Liquidity
13. Systemic risk
14. Disagreement
15. Mark-to-market accounting
The first six sections are standard materials in an introductory finance course, so the
instructor can briefly review or even skip them completely. It is very helpful, however, to devote
more time to the last five sections which deal with the game theoretic concepts. The students
should be made comfortable enough with this part since they will be required to apply those
concepts in the subsequent chapters. Our recommendation, however, is that these concepts be
developed in class as and when they are needed, rather than all at the outset.
To assist the students in understanding of the game theoretic concepts at this stage, the
examples in the text should be worked out thoroughly. In addition, the instructor may wish to
provide some other examples (taken from the subsequent chapters) without going into detail with
the calculation. It is sufficient to discuss intuitively how the game theoretic concepts are used in
the ensuing analyses.
This chapter introduces the nature of services performed by financial intermediaries and the
variety of financial intermediaries that presently exist. It is divided into the following sections:
The sections above are the major part of the chapter. The role of the government,
financial intermediaries on the periphery, and the appendices can be skipped without loss of
continuity. However, if the instructor wishes to discuss the valuation of a banking firm,
Appendix 2.1 is useful in alerting the students about balance sheet distortions. Also, if the
( final version, Oct 11, 2015) Chapter 1: Basic Concepts Instructor Manual - 3
instructor wishes to discuss key banking regulations at this stage, Appendix 2.2 can either be
used by itself or in conjunction with Chapters 10 and 11.
1. Individual answers will vary, but students should focus on the brokerage and QAT
functions. Basically, Appleton is claiming that banks provide only a brokerage function.
This is wrong. They also provide QAT services, which is what Butterworth is alluding to.
It is the provision of both brokerage and QAT services that makes banks special.
Commercial banks: acquire funds in the form of (liquid) deposits and make (illiquid)
loans to individuals and corporations (domestic and foreign). They do pre-lending
screening and post-lending monitoring and through maturity, liquidity and credit risk
transformation, they expose their capital to risk. Thus, they provide both brokerage and
QAT services.
Finance companies: provide consumers and businesses with loans specially designed to
meet specific needs and raise funding in the capital market ⇒ brokerage with some QAT.
Venture capitalists: specialize in providing “seed money” for start-up companies. They
screen those they lend to, monitor them and provide guidance. Thus, they provide
brokerage and QAT services.
Hedge funds: actively manage funds that invest in companies and pursue nontraditional
investment strategies. They expose their capital to risk and serve a corporate governance
role, thus providing brokerage and QAT services.
Investment banks: specialize in the design and issuance of financial securities and help
companies seeking financing to use these securities to raise funds from investors. This
aspect of investment banking is brokerage.
4. Students can be asked to collect information from the library (or COMPUSTAT®). It is
worthwhile to point out the effect of regulation on the banking industry’s capital-to-total
asset ratios over time. The low capital-to-total asset ratios for banks are seen as
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375.2 Elliot, i. N.-W. Prov., 136. See also, ibid., 5, 121, 274, 326; N.
Ind. N. and Q., passim.
375.3 ii. N. Ind. N. and Q., 24.
375.4 i. Ibid. 157.
376.1 i. N. Ind. N. and Q., 84.
376.2 Biddulph, 76, 82; iii. N. Ind. N. and Q., 168.
376.3 Fosberry, in i. Journ. Ethn. Soc., N.S., 189.
376.4 Featherman, Drav., 558, 244. See Marco Polo, li., as to another
Tartar tribe.
376.5 Marsden, 220, 228. Cf. ii. L’Anthropologie, 257.
376.6 Modigliani, 553.
377.1 Modigliani, Isola delle Donne, 212, 215.
377.2 Parkinson, in ii. Internat. Arch., 39.
377.3 Man, in xii. Journ. Anthr. Inst., 139, 141.
377.4 Featherman, Oceano-Mel., 308.
377.5 Featherman, Nigr., 288, 290, 596, 762; Paulitschke, 205.
378.1 Ellis, Yoruba, 185.
378.2 Westermarck, 513, 514, quoting Shooter.
378.3 Featherman, Aoneo-Mar., 390. This liability is perhaps annexed
into a volcano or into the sea perhaps belongs to the class of superstitions
dealt with in the above paragraph. Ellis, Hawaii, 336.
439.3 Taylor, 208.
444.1 Fison and Howitt, 170.
PRESS NOTICES
‘An interesting study in comparative mythology. The old school of
interpreters explained the presence of irrational and repulsive elements in
classic legend as due to loss of the primitive purer meaning of the names
of the high-dwelling gods. But that has given place to a more rational
method. This explains the presence of the gross and barbaric as actual
survivals of beliefs and customs from the rude myth-making stage out of
which the higher races slowly emerged. Truly, a more excellent way.’—
Daily Chronicle.
‘A most scholarly and fascinating book. Those who have not followed
the progress of similar investigations will be startled by its
suggestiveness.’—The Nation.
‘Folklore, treated as it is in the scientific method employed in the
present work, is raised at once to a high level of importance, and is full
of possibilities in the near future. It is a new science, but it is one which
is already being elevated to a high standard of scholarly excellence by
the publication of such works as the one before us. We shall await the
appearance of the second volume of Mr. Hartland’s work with much
interest, when we shall hope to deal with the subject thoroughly as a
whole.’—Antiquary.
‘There will be agreement as to the skill with which he has
disentangled a mass of valuable material and produced it in lively
form.’—The Academy.
‘His book is one that no one interested in the early history of religion,
in folklore, or in anthropology can safely neglect.’—Manchester
Guardian.
‘The latter half of the book, which deals with the subject of
parthenogenesis and miraculous births generally throughout all literature,
is especially interesting, and makes one look forward to the second
volume.’—Pall Mall Gazette.
‘Mr. E. S. Hartland has placed himself on the trail of this venerable
and widespread tradition, and he follows it up with the scent of a sleuth-
hound, or of a born folklorist.’—Scotsman.
‘Mr. Frazer’s great book, “The Golden Bough,” began a new epoch in
the modern treatment of mythology. It showed us how to apply the
comparative method to the folklore and religious tales of all countries
and ages, with surprising results. Mr. Hartland is one of our most learned
and competent workers in this novel field, and he ably follows Mr.
Frazer’s footsteps.… Our author shows, with a marvellous array of
instances, that supernatural birth is almost invariably claimed as a
necessary attribute of the central figure in early myths: and he examines
minutely the various methods in which the marvel takes place, the
miraculous conception in a virgin being diversely caused by numberless
more or less tangible antecedents, from something half-magical eaten or
drunk to a shower of gold or a ray of sunlight.’—Westminster Gazette.
‘Crammed with good reading that is eminently thought-producing.’—
Speaker.
ERRATA
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