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vi Preface
markets as successful as possible. To that end, we worked hard to write in a clear and
understandable manner. Also, we put much effort into updating and improving features
such as Learning by Doing applications. Finally, we provide first‐rate teaching and learning
aids such as the instructor’s manual, test bank, study guide, and PowerPoint presentations
that accompany each chapter.
The Book’s Evolution. Our book, like the financial system, has had to adapt to the rapidly
changing economic environment. When we published our first edition, the existing text-
books were primarily descriptive, merely describing the activities of financial institutions, or
they were de facto money and banking texts, primarily focused on the banking system and
monetary policy. In our first edition, we broke new ground by emphasizing both financial
institutions and markets, and how monetary policy affected financial institutions. At that
time, our “free‐market” approach to regulation, which emphasized market‐oriented rather
than government‐imposed solutions to problems, was not mainstream and, to some, was
considered controversial.
As technology, regulation, and financial innovation changed the financial landscape, our
book has had to evolve. In subsequent editions, we increased our emphasis on how interest
rates are determined and on the structure of interest rates. We also increased our emphasis
on the risks faced by financial institutions and on how institutions manage these risks using
financial markets. Over the years, we expanded our coverage of financial markets, and now,
for example, the book has separate chapters on equity markets, mortgage markets, d erivatives
markets, and international markets.
The Competitive Edge. Our approach to the topic made our book very successful in the
early editions, and it continues to be successful today. Imitation is the sincerest form of flat-
tery, and we have seen a number of imitators of our approach, which, apart from the wide use
of this book, is the best evidence of its appeal to both students and faculty.
Our competitive edge, however, comes from our adherence to the approach for the book
that was set in the first edition. First, we stress the mastery of fundamental material, placing
an emphasis on how things really work in a market context. Second, we have a balanced
coverage of the U.S. financial system, with strong emphasis on both institutions and markets.
Third, we continually update the book to reflect major new developments in the financial
system or to highlight changing trends. Finally, we focus on writing a book for the students,
our most important audience, which facilitates learning and makes the study of financial
institutions and markets an enjoyable experience.
Let Us Hear from You. We thank the faculty who adopted our book and the students who
purchased our book. As you go through your course, we hope that we live up to our promise
of providing a clear, concise, well‐written, and academically sound text on the U.S. financial
system. If you find a mistake or have concerns about a particular section, we would like to
hear from you. Contact us via our e‐mail addresses, which are listed at the end of the preface.
WHY THIS EDITION IS BETTER THAN PREVIOUS ONES

We believe this edition of the book is better than the eleventh edition for a number of rea-
sons. Apart from the customary detailed updating of facts and exhibits throughout the book,
the material has been painstakingly updated to match the many changes in the rules and
regulations. In this edition, especially in the chapters on financial markets, we continue our
emphasis on how to read and interpret actual financial data, such as that reported in the Wall
Street Journal or the Financial Times. We have also substantially revised the chapter contents
Preface vii
to reflect the impact of the global financial crisis that began in 2007 and whose impacts
continue to be felt today.
PEDAGOGICAL FEATURES
This section summarizes the pedagogical features and highlights additions or improvements
in the twelfth edition.
Chapter Opening Vignette. Each chapter begins with an opening vignette that describes a
real company or business situation. The vignettes illustrate concepts that will be presented
in the chapter and are also meant to heighten student interest and demonstrate the real‐life
relevance of the chapter material.
Learning Objectives. The opening vignette is accompanied by a set of learning objectives

that identify the most important material for students to understand while reading the chap-
ter. At the end of the chapter appears a feature, “Summary of Learning Objectives,” high-
lighting the relevant chapter content.
Learning by Doing. Chapters with quantitative content now have more in‐text examples.
These chapters include a student application: Learning by Doing. These applications con-
tain quantitative problems with step‐by‐step solutions that provide guidance on how to
approach similar problems. By including several exercises in each chapter where applicable
we provide students with additional practice to hone their problem‐solving skills.
Do You Understand? Each chapter includes several “Do You Understand?” exercises that
consist of questions at the end of a major section. These questions check student under-
standing of critical concepts in the material just covered, or ask students to apply what they
have just read to real‐world situations. To give students feedback on these questions, we
include the answers on the book’s website (discussed later) and in the Instructor’s Manual.
People & Events. Each chapter includes at least one People & Events box. The People &
Events boxes describe current or historical real‐world situations to emphasize the applica-
bility of one or more key concepts developed in the chapter. The majority of the People &
Events boxes have either been replaced or substantially revised. In the twelfth edition, the
People & Events boxes continue to be particularly focused on the impacts of the financial
crisis and the 2007–2009 recession, the effect on financial institutions and markets, and the
continuing slow recovery.
Exhibit Captions. Where appropriate we provide captions for the exhibits to inform stu-
dents of the exhibits’ main points.
Summary of Learning Objectives. At the end of each chapter, you will find summaries of
the key chapter content relevant to each of the Learning Objectives.
Key Terms. We include a list of key terms at the end of each chapter. The terms appearing
in the list are printed in boldface in the chapter. The definitions of all key terms appear in
the glossary at the end of the book.
Questions and Problems. Each chapter ends with a set of questions and problems. Because
students rely heavily on example questions and problems with solutions as a learning device,
we have increased the number of end‐of‐chapter questions and problems. We have placed
viii Preface
particular emphasis on increasing the number of quantitative problems or questions to

correspond with the enhanced quantitative content as appropriate to the chapter. The
answers to questions and problems are in the Instructor’s Manual.
Glossary. The book contains an easy‐to‐use glossary defining the Key Terms listed at the
end of each chapter.
SUMMARY OF CONTENTS AND MAJOR CHANGES

All chapters in the book have been updated to reflect recent events. A major change in the
book is an increase in the quantitative content. We have noted that employers are increas-
ingly expecting students to be well versed in problem‐solving skills. As a result, we have
increased the computational skill level, while maintaining our historic strength of being a
conceptually focused book. Our goal is to provide students and instructors with a book that
strikes a balance between helping students understand key financial and economic concepts
and providing them with the necessary problem‐solving skills. Below we summarize the
contents and major changes to the twelfth edition.
Part 1: The Financial System. Chapter 1, providing an overview of the U.S. financial system,
has been updated to reflect ongoing changes in the financial system resulting from the 2007–
2008 global financial crisis. A new People & Events insert was added on systemically risky
banks and a new section was added on the importance of ethics in the modern financial sys-
tem. We have updated Chapter 2 about the Federal Reserve System and its impact on inter-
est rates. We provide data on Federal Reserve payments to the Treasury and data on the
growth of electronic payments. We also update the impact of the financial system bailout on
the Fed’s balance sheet and the Fed’s increase in regulatory power from the 2010 Regulatory
Reform Act, including its power to manage systemic risk in the financial system. We outline
the challenges faced by Janet Yellen, Chairperson of the Fed, in today’s environment.
Chapter 3 focuses on how the Fed conducts monetary policy. The chapter contains a discus-
sion of the Treasury Department’s role in financing the expenditures made by the federal
government, how the Treasury Department conducts fiscal policy, and the Treasury’s role in
stabilizing the economy. We included a broader discussion of the effectiveness of fiscal spend-
ing in this edition.
Part 2: How Interest Rates Are Determined. Chapter 4 discusses the role of interest rates in
the economy and how interest rates are determined. The discussion of the real rate of inter-
est and the impact of inflationary expectations on the level of interest rates is included. The
calculation of realized real rate of returns and the phenomenon of negative interest rates are
presented. A new People & Events on different inflation measures has been added as well as
a quantitative example of the relationship between interest rates and currency values.
Chapter 5 focuses on the determinants of bond prices and interest rate risk. The level of
interest rates is added as another variable that impacts bond price volatility. A closed form
version of the duration equation is now included and the duration matching example has
been extensively updated. The strategic impact of choosing portfolio duration in relation to
the investment horizon is now included. A new People & Events insert highlights the impact
of the Volcker rule on bond market liquidity. Chapter 6 explores the reasons that interest
rates vary among financial products on any given day and over the business cycle. More
discussion of forecasting interest rates has been included.
Part 3: Financial Markets. The chapters in this part have been revised to reflect the post‐
crisis financial environment, while maintaining their focus on the fundamental roles and
functioning of the various markets. Chapter 7 focuses on the economic role of money
Preface ix
arkets in the economy, the characteristics of money market instruments, and major partici-
m
pants. The chapter contains a discussion of the impact of the financial meltdown on the
money markets and the actions that the Fed took to stabilize the markets. The discussion of
bankers’ acceptances was shortened as their usage has continued to decline. Chapter 8
analyzes the debt securities sold in the capital markets. A new opener in this chapter describes
the impact of the Detroit bankruptcy. Additional discussion of the U.S. government’s debt
levels has also been added. Chapter 9 explains how the mortgage markets work and describes
the major mortgage market instruments. The chapter includes a thorough discussion of the
government’s takeover of the mortgage market that occurred in the aftermath of the sub-
prime mortgage crisis and the failures of Fannie Mae and Freddie Mac. A new discussion of
the pros and cons of eliminating the agencies is included. The definitions of Alt‐A and sub-
prime mortgages are now included and an example of a sequential pay CMO is provided.
Chapter 10 examines the market for equity securities. The chapter updates the changing
structure and global consolidation of secondary markets, including the NYSE’s hybrid sys-
tem and the increased competition between the markets. The impact of the JOBS Act on
capital raising and a synopsis of the retail brokerage industry has been added. An insert on
high-speed trading and the demise of Knight Capital is included. Material on short sales,
order types, equity valuation and risk has been moved to an appendix available online.
Chapter 11 describes the most important markets for financial derivatives. We have updated
the example of hedging a bank’s funding costs with futures and have updated the discussion
of swaps. Chapter 12 examines international financial markets, including foreign exchange
and international money and capital markets. The chapter includes a discussion of the func-
tions of foreign exchange markets and the determination of exchange rates, including how
purchasing power parity affects exchange rate expectations. The discussion of the Greek
crisis has been updated as well.
Part 4: Commercial Banking. Although the basic functions of commercial banks have not
changed, the environment has been dramatically altered. Chapter 13 has been updated and
revised to reflect recent changes in the banking industry. The chapter continues to provide
coverage of bank earnings and performance. Chapter 13 now provides comprehensive cov-
erage of commercial bank operations and how those functions are reflected in a bank’s finan-
cial statements in a single chapter. Chapter 14 covers international banking. The chapter
updates the overseas operations of U.S. banks, foreign banking activities in the U.S., inter-
national banking trends, and U.S. international banking regulations. A new discussion of the
LIBOR scandal has been added. Chapter 15 focuses on the regulation of financial institu-
tions and has been revised significantly to reflect the aftermath of the financial crisis of
2007–2008. Chapter 15 also discusses the too‐big‐to‐fail issue, safety and soundness regula-
tion, and the intent behind the Dodd‐Frank Wall Street Reform and Consumer Protection
Act of 2010. The new edition contains information on depository insurance reserves and
statements by the FDIC concerning the impact of the Dodd‐Frank bill on their regulatory
responsibilities. The capital requirements and definitions have been updated and include the
requirements on systemically risky institutions.
Part 5: Financial Institutions. The chapters in Part 5 discuss the activities and risks of non‐
bank financial institutions, including thrifts and finance companies, insurers and pension
funds, investment banks, and investment companies before wrapping up with a chapter on
the risks of financial institutions. Chapter 16 discusses thrift institutions and finance com-
panies. The chapter was updated and revised to reflect recent changes in those industries.
Where appropriate, the chapter has been shortened and streamlined for readability and the
discussion of stock versus mutual ownership structures has been shortened. GE’s recent
divestment of most of its finance company operations is discussed. Chapter 17 presents
insurance companies and pension funds. The chapter updates industry performance but
x Preface
still includes the impacts of the financial crisis, including a discussion of American
International Group (AIG). The inclusion of large global insurers as systemically risky
institutions is discussed. The impact of the 2010 Patient Protection and Affordable Care
Act (so‐called Obamacare) are updated from the prior edition. Quantitative examples
addressing insurance company capital and profitability were added to the chapter in the last
edition and are retained in the updated version. Chapter 18 covers investment banks.
During the financial crisis of 2007–2008, investment banks were “forced” (or “pressured”)
to adopt commercial bank charters and come under the regulation of the Federal Reserve
System. The chapter chronicles these events. The chapter offers a section on private equity
firms and an expanded discussion of investment banks’ trading and asset management oper-
ations, broker‐dealer functions, and prime brokerage functions. Bankers’ fees and their fee
structure have been updated in this version. Additional information about Social Security is
also provided. In the last edition, Chapter 19 on investment companies had a major reor-
ganization with a greater focus on the most important investment companies—open‐end
mutual funds and exchange‐traded funds. We have maintained this focus in the newer edi-
tion. As before, discussions of the Morningstar Equity Style and Debt Style boxes are
included. The chapter provides a detailed discussion of ETFs, REITs, and hedge funds.
Chapter 20 “Risk Management in Financial Institutions” was a new chapter in the last edi-
tion. As before the chapter includes coverage on liquidity, credit, and interest rate risks. The
chapter also includes an in‐depth discussion of managing credit risk at the individual loan
level and the loan portfolio level. It explains how credit derivatives such as swaps and futures
are used to limit institutional risks. A discussion of the pros and cons of rate sensitivity and
duration gaps has been added.
ORGANIZATION OF THE BOOK

We organized this book to reflect a balanced approach to both financial markets and institu-
tions, which reflects a typical course outline. However, depending on individual preference
and course emphasis, there are alternative ways to organize the course, and our book is writ-
ten to allow for a reorganization of the chapters for professors who wish to give primary
focus to either institutions or markets. The only suggested constraint in our flexible design
is that Parts 1 and 2 should be assigned first, because they provide the conceptual foundation
and vocabulary for the financial system regardless of subsequent topic emphasis. The follow-
ing diagram shows the balanced approach and an alternative sequence that emphasizes
financial institutions:
1. Balanced Approach
Part III Part IV Part V

Financial Commercial Financial
Markets Banking Institutions
Part I Part II
The Financial How Interest Rates
System Are Determined
2. Financial Institutions Emphasis
Part IV Part V Part III

Commercial Financial Financial
Banking Institutions Markets
Preface xi
ANCILLARY PACKAGE
In the twelfth edition, we offer updated ancillary materials that will help both the students
and the instructors optimize learning and teaching.
INSTRUCTOR’S MANUAL
The Instructor’s Manual contains a wealth of useful teaching aids, including chapter‐by‐
chapter learning objectives, key points and concepts, answers to end‐of‐chapter questions
and problems, and an outline of changes from the previous edition.
TEST BANK
The Test Bank, which includes at least 75 examination questions per chapter and has been
updated to reflect the textbook’s greater emphasis on numeric problems. It consists of true/
false, multiple-choice, and essay‐type questions. A Computerized Test Bank is also available,
which consists of content from the Test Bank provided within a test‐generating program
that allows instructors to customize their exams.
POWERPOINT PRESENTATIONS
The PowerPoint presentations have been updated to reflect the updates within this revision.
These chapter presentations are available on the companion website. The presentation for
each chapter provides bulleted lecture notes and figures, tables, and graphs selected from the
text, ready for classroom presentation. Instructors with the full version of PowerPoint have
the ability to customize the lectures to reflect their personal course notes.
STUDENT PRACTICE QUIZZES

Student Practice Quizzes have been prepared to help students evaluate their individual pro-
gress throughout the chapter. Each quiz contains 15 multiple-choice questions of varying
difficulty so students can review key concepts and build test-taking confidence chapter
by chapter.
WEBSITE MATERIALS
A companion website for this text is located at www.wiley.com/college/kidwell. Here you
can find the resources listed above as well as answers to the Do You Understand? questions
found in each of the chapters of the text. There are additional supplemental materials avail-
able on the companion website as well. First is a chapter titled “History of the Financial
System,” which long‐time users of the book will recall from previous editions. Second, the
website contains technical notes on the deposit expansion process for instructors who wish
to go into more detail about how to measure changes in the money supply resulting from
Fed policy actions. We provide a set of Internet Exercises for each chapter online. These
exercises direct students to websites from which they can obtain additional information
about the chapter’s topic or analyze data that illustrate key points from the chapter.
ACKNOWLEDGMENTS
As with any textbook, the authors, owe an enormous debt of gratitude to many people. First,
we thank the reviewers who have contributed valuable suggestions for this twelfth edition:
xii Preface
James McNulty, Florida Atlantic University

Lanny Martindale, Texas A & M University
Vladimir Kotomin, Illinois State University
Tony Plath, UNC Charlotte
Robert L. Porter, Quinnipiac University
We also appreciate the many thoughtful comments we have received from reviewers over
the previous eleven editions. Although their names are too numerous to list here, we are
nonetheless grateful for their efforts and credit them with helping the book to remain
a success.
At John Wiley & Sons, we are grateful to Emily McGee, Acquisitions Editor, who pro-
vided many helpful suggestions and much support, guidance, and motivation. We also
applaud the efforts of Nichole Urban, Project Specialist, for her diligence in guiding the
manuscript through the production process. In addition, we appreciate the efforts of Arun
Surendar, Production Editor, and many others.
Dr. Timothy Manuel, the Rudyard B. Goode Professor of Finance at the University of
Montana, updated all 20 chapters of this edition of the text. His work included updating the
text itself plus all of the data in the text and exhibits and updating the People & Events
inserts. Dr. Manuel has taught financial markets, investments, derivatives, and international
finance over the last 29 years. He has won numerous teaching awards over his career. His
research interests are in corporate finance, ethics, teaching pedagogy, markets, and curricu-
lum internationalization. Any questions or comments on this edition should be addressed to
Dr. Manuel via email at tim.manuel@business.umt.edu.
We gratefully acknowledge those who assisted us in revising and updating several of the
book’s key chapters. In particular, James McNulty of Florida Atlantic University and Lanny
Martindale of Texas A & M University provided extensive and very helpful reviews of most
of the chapters in this edition. Finally, and most importantly, we thank our families and loved
ones for their encouragement and for t olerating our many hours at the writing table. To all,
thank you for your support and help.
David S. Kidwell
Minneapolis, Minnesota
david@dskidwell.com
David W. Blackwell
College Station, Texas
dblackwell@mays.tamu.edu
David A. Whidbee
Pullman, Washington
whidbee@wsu.edu
Richard W. Sias
Tucson, Arizona
sias@eller.arizona.edu
Contributed by
Timothy Manuel
Missoula, Montana
tim.manuel@business.umt.edu
A bout the A uthors
D AV I D S . K I D W E L L
Dr. David S. Kidwell is Professor of Finance and Dean Emeritus at the Curtis L. Carlson
School of Management at the University of Minnesota. He holds an undergraduate degree
in mechanical engineering from California State University at San Diego, an MBA from
California State University at San Francisco, and a PhD in finance from the University
of Oregon.
Before joining the University of Minnesota, Dr. Kidwell was Dean of the School of
Business Administration at the University of Connecticut. Prior to joining the University of
Connecticut, he held endowed chairs in banking and finance at Tulane University, the
University of Tennessee, and Texas Tech University. He was also on the faculty at the
Krannert Graduate School of Management, Purdue University, where he was twice voted
the outstanding undergraduate teacher of the year. Dr. Kidwell has published research in the
leading journals, including Journal of Finance, Journal of Financial Economics, Journal of
Financial and Quantitative Analysis, Financial Management, and Journal of Money, Credit,
and Banking.
Dr. Kidwell has been a management consultant for Coopers & Lybrand and a sales
engineer for Bethlehem Steel Corporation. He is an expert on the U.S. financial system and
is the author of more than 80 articles dealing with the U.S. financial system and capital mar-
kets. Dr. Kidwell has participated in a number of research grants funded by the National
Science Foundation to study the efficiency of U.S. capital markets, and to study the impact
of government regulations upon the delivery of consumer financial services.
Dr. Kidwell served on the board of the Schwan Food Company. He is the past secretary‐
treasurer of the board of directors of AACSB, the International Association for Management
Education. He is a past member of the boards of the Minnesota Council for Quality, the
Stonier Graduate School of Banking, and the Minnesota Center for Corporate Responsibility.
He has also served as an examiner for the 1995 Malcolm Baldrige National Quality Award,
on the board of directors of the Juran Center for Leadership in Quality, and on the board of
the Minnesota Life Insurance Company.
D AV I D W. B L AC K W E L L
Dr. David W. Blackwell is the James W. Aston/RepublicBank Professor of Finance and
Associate Dean for Graduate Programs at Texas A&M University’s Mays Business School.
Prior to joining Texas A&M, Dr. Blackwell worked several years as a consultant with
PricewaterhouseCoopers LLP and KPMG LLP. Before his stint in the Big 4, Dr. Blackwell
served on the faculties of the University of Georgia, the University of Houston, and Emory
University. He was also a visiting professor at the University of Rochester.
Dr. Blackwell’s areas of expertise include corporate finance, commercial bank manage-
ment, and executive compensation. His publications have appeared in the leading scholarly
journals of finance and accounting such as Journal of Finance, Journal of Financial Economics,
xiii

xiv About the Authors
Journal of Financial and Quantitative Analysis, Financial Management, Journal of Financial

Research, Journal of Accounting Research, and Journal of Accounting and Economics.
While in the Big 4, Dr. Blackwell consulted on a broad range of litigation matters
including securities, breach of contract, and intellectual property infringement cases.
He also consulted on matters involving securities and business valuation, corporate
governance, and executive compensation. In addition, Dr. Blackwell has delivered executive
education seminars in corporate finance and management of financial institutions for
Halliburton, IBM, Kaiser Permanente, Chemical Bank, Southwire Company, Georgia
Bankers Association, Warsaw Institute of Banking, Bratislava Institute of Banking, and the
People’s Construction Bank of China (PRC).
Dr. Blackwell earned his PhD in finance in 1986 and his BS in economics in 1981, both
from the University of Tennessee, Knoxville. He is a past president of the Southern Finance
Association, and a former associate editor of the Journal of Financial Research.
D AV I D A . W H I D B E E
Dr. David A. Whidbee is an associate professor of finance and the Associate Dean for Faculty
Affairs and Research in the College of Business at Washington State University. He received
his PhD in Finance from the University of Georgia and his MBA and BS in finance from
Auburn University. Dr. Whidbee has worked as a financial analyst in the Chief Economist’s
Office at the Federal Home Loan Bank Board and, subsequently, the Office of Thrift
Supervision (OTS). While on the staff at these regulatory agencies, he performed research
and analysis on the thrift industry and prepared congressional testimony concerning the
problems the industry faced in the late 1980s.
In 1994, he joined the faculty at California State University, Sacramento, where he
taught commercial banking and financial markets and institutions. In 1997, he left Cal State
Sacramento to join the faculty at Washington State University, where he continues to teach
commercial banking and financial markets and institutions. Dr. Whidbee’s primary research
interests are in the areas of financial institutions and corporate governance. His work has
been published in several outlets, including the Review of Financial Studies, Journal of Business,
Journal of Accounting and Economics, Journal of Banking and Finance, Journal of Corporate Finance,
Financial Management, the Financial Analysts Journal, and the Journal of Financial Services
Research. In addition, he has presented his research at numerous academic and regulatory
conferences.
R I C H A R D W. S I A S
Dr. Richard W. Sias is the Tyler Family Chair in Finance and head of the Department of
Finance at the Eller College of Management at the University of Arizona. He holds an
undergraduate degree in finance, insurance, and real estate from California State University,
Sacramento, and a PhD in finance from the University of Texas. Prior to joining the Eller
College, Dr. Sias served as the Gary P. Brinson Chair of Investment Management at
Washington State University. He has also taught courses at Bond University in Australia and
Cesar Ritz College in Switzerland.
Dr. Sias’s research interests primarily focus on investments. He currently serves on the
Editorial Board of the Financial Analysts Journal and has published numerous articles in the
leading finance journals, including the Journal of Financial Economics, Journal of Finance,
Review of Financial Studies, Journal of Business, Financial Analysts Journal, Journal of Banking
and Finance, Journal of Investment Management, Financial Review, Journal of Financial Research,
Journal of Business Research, Review of Quantitative Finance and Accounting, Journal of Investing,
and Advances in Futures and Options Research.
About the Authors xv
Dr. Sias has also garnered a number of teaching and research awards and is member of
the CFA Institute’s Approved Speakers List, which provides him an opportunity to link his
academic work with portfolio management in practice. In addition, Dr. Sias’s work has been
the focus of a number of popular press outlets, including articles in Forbes, U.S. News and
World Report, and the New York Times.
C ontents
PART I THE FINANCIAL SYSTEM 1

Chapter 1 An Overview of Financial Markets and Institutions 3
Chapter Preview 4
Learning Objectives 4
1.1 The Financial System 4
1.2 Financial Markets and Direct Financing 7
Do You Understand? 10
PEOPLE & EVENTS: A Brief Examination of the Causes and Effects
of the Global Financial Crisis of 2007 and 2008 11
1.3 Types of Financial Markets 12
1.4 The Money Markets 14
1.5 The Capital Markets 15
1.6 Financial Intermediaries and Indirect Financing 17
1.7 Types of Financial Intermediaries 23
1.8 The Risks Financial Institutions Manage 28
1.9 Regulation of the Financial System 29
PEOPLE & EVENTS: Systemically Risky Banks: What is the Solution? 33
1.10 Ethics and the Financial System 33
Summary of Learning Objectives 35
Key Terms 36
Questions and Problems 36
Chapter 2 The Federal Reserve and Its Powers 38

Chapter Preview 39
2.1 Origins of the Federal Reserve System 39
PEOPLE & EVENTS: Banking before 1933, Banking from 1933 to 1980,
and Banking in the Modern Era 43
2.2 The Current Structure of the Fed 44
2.3 Monetary Powers of the Board of Governors 47
2.4 The Fed’s Regulatory Powers 47
xvi
Contents xvii
2.5 Independence of the Fed 51

2.6 The Fed’s Balance Sheet 53
2.7 The Fed’s Role in Check Clearing and the Growth of Electronic Payments 59
Learning by Doing 2.1: Computing a Bank’s Excess Reserve Position 60
2.8 Federal Reserve Tools of Monetary Policy 61
PEOPLE & EVENTS: The Challenges of Fed Chair Janet Yellen 62
Learning by Doing 2.2: Calculating a Bank’s Reserve Position 66
Key Terms 69
Chapter 3 The Fed and Interest Rates 71

Chapter Preview 72
3.1 Federal Reserve Control of the Money Supply 72
3.2 The Fed’s Influence on Interest Rates 75
3.3 The Treasury Department and Fiscal Policy 79
3.4 Goals of Monetary Policy 82
PEOPLE & EVENTS: The Fed as Lender of Last Resort
During the Financial Crisis 87
3.5 The Fed and the Economy 88
PEOPLE & EVENTS: Black Monday 91
3.6 Complications of Monetary Policy 91
3.7 Anatomy of a Financial Crisis 93
PEOPLE & EVENTS: Good Work If You Can Get It: Executive Bonuses
During Bailouts? 100
Key Terms 102
HOW INTEREST RATES ARE DETERMINED 105 PART II

Chapter 4 The Level of Interest Rates 107
Chapter Preview 108
4.1 What are Interest Rates? 108
4.2 The Real Rate of Interest 109
4.3 Loanable Funds Theory of Interest 111
4.4 Price Expectations and Interest Rates 114
4.5 A Restatement of the Fisher Equation 116
PEOPLE & EVENTS: What Is the Actual Inflation Rate? 117
xviii Contents
PEOPLE & EVENTS: Estimating the Expected Rate of Inflation from TIPS 122
4.6 Forecasting Interest Rates 122
4.7 Interest Rates and Currency Values 124
Key Terms 126
Chapter 5 Bond Prices and Interest Rate Risk 127

Chapter Preview 128
5.1 The Time Value of Money 128
5.2 Bond Pricing 131
PEOPLE & EVENTS: Bond Market Liquidity and the Volcker Rule 132
Learning by Doing 5.1: Calculating the Price of a Bond Using a Financial
Calculator 135
5.3 Bond Yields 136
Learning by Doing 5.2: Calculating the Yield‐to‐Maturity on a Bond 137
5.4 Important Bond Pricing Relationships 140
5.5 Interest Rate Risk and Duration 144
Learning by Doing 5.3: Calculating the Duration of a Bond 146
PEOPLE & EVENTS: Betting the Farm on Interest Rates and Losing 155
Key Terms 157
Chapter 6 The Structure of Interest Rates 159

Chapter Preview 160
6.1 The Term Structure of Interest Rates 160
Learning by Doing 6.1: Using the Term Structure Formula to Calculate
Implied Forward Rates 165
PEOPLE & EVENTS: More on Forecasting Future Interest Rates 172
6.2 Default Risk 172
6.3 Tax Treatment 176
PEOPLE & EVENTS: The Credit‐Rating Club 177
6.4 Marketability 180
6.5 Options on Debt Securities 180
6.6 Behavior of Interest Rates over the Business Cycle 183
Key Terms 186
Contents xix
FINANCIAL MARKETS 189 PART III

Chapter 7 Money Markets 191
Chapter Preview 192
7.1 How the Money Markets Work 192
7.2 Economic Role of the Money Markets 193
7.3 Features of Money Market Instruments 194
7.4 Treasury Bills 194
Learning by Doing 7.1: Calculating the Discount Yield 199
Learning by Doing 7.2: Calculating the Bond Equivalent Yield 199
7.5 Federal Agency Securities 201
7.6 Federal Funds 203
7.7 Other Major Money Market Instruments 205
PEOPLE & EVENTS: Lehman Brothers’ “Creative” Accounting:
Repos 105 and 108 207
7.8 Money Market Participants 211
7.9 The Impact of the 2007–2008 Financial Crisis on the Money Markets 213
PEOPLE & EVENTS: How Breaking the Buck (Almost) Broke the
Commercial Paper Market 216
Key Terms 219
Chapter 8 Bond Markets 220

Chapter Preview 221
8.1 Functions of the Capital Markets 221
8.2 The U.S. Government and Agency Securities 223
PEOPLE & EVENTS: What Do Negative Yields on TIPS Tell Us? 226
8.3 State and Local Government Bonds 227
PEOPLE & EVENTS: Build America Bonds Keep Municipal
Finance Going During the Crisis 232
8.4 Corporate Bonds 232
8.5 Financial Guarantees 237
8.6 Securitized Credit Instruments 238
8.7 Capital Market Regulators 240
8.8 Bond Markets Around the World are Increasingly Linked 241
8.9 The Impact of the 2007–2008 Financial Crisis on the Bond Markets 242
Key Terms 245
xx Contents
Chapter 9 Mortgage Markets and Mortgage‐Backed Securities 247

Chapter Preview 248
9.1 The Unique Nature of Mortgage Markets 249
9.2 Types of Mortgages 249
9.3 Mortgage Qualifying 257
Learning by Doing 9.1: Determining How Much Home You Can Buy 259
9.4 Mortgage‐Backed Securities 261
9.5 Mortgage Prepayment Risk and Other MBS 265
9.6 Participants in the Mortgage Markets 271
PEOPLE & EVENTS: The Rise and Fall of Fannie and Freddie 273
9.7 Relationship Between Mortgage Markets and the Capital Markets 275
Key Terms 277
Chapter 10 Equity Markets 279

Chapter Preview 280
10.1 What are Equity Securities? 280
10.2 Equity Markets 282
PEOPLE & EVENTS: The Retail Brokerage Industry 287
10.3 Equity Trading 287
10.4 Global Stock Markets 291
10.5 Large-Scale and High Frequency Trading 292
PEOPLE & EVENTS: High Speed Trading and the Demise of Knight
Capital Group in 45 Minutes 293
10.6 Regulation of Equity Markets 294
10.7 Stock Market Indexes 295
PEOPLE & EVENTS: Circuit Breakers, Black Monday, and the Flash Crash 296
Key Terms 298
Chapter 11 Derivatives Markets 300

Chapter Preview 301
11.1 The Nature of Derivative Securities 301
11.2 Forward Markets 302
11.3 Futures Markets 304
11.4 Uses of the Financial Futures Markets 311
Learning by Doing 11.1: Hedging Risk in a Stock Portfolio 313
Contents xxi
11.5 Risks in the Futures Markets 318

11.6 Options Markets 319
11.7 Swap Markets 326
PEOPLE & EVENTS: Swap Market Regulation 329
Key Terms 331
Chapter 12 International Markets 332

Chapter Preview 333
12.1 The Difficulties of International Trade 333
12.2 Exchange Rates 334
12.3 Balance of Payments 337
12.4 Foreign Exchange Markets 341
12.5 Spot and Forward Transactions 343
Learning by Doing 12.1: Using Forward Contracts to Hedge
Exchange Rate Risks 343
PEOPLE & EVENTS: The Big Mac Test of Purchasing Power Parity 345
12.6 Capital Flows and Exchange Rates 346
PEOPLE & EVENTS: The Greek Crisis and Lessons for the U.S. 350
12.7 Government Intervention in Foreign Exchange Markets 351
Learning by Doing 12.2: Using Purchasing Power Parity to
Determine the Expected Exchange Rate 353
12.8 Financing International Trade 354
12.9 International Money and Capital Markets 355
12.10 The Globalization of Financial Markets 358
Key Terms 360
COMMERCIAL BANKING 363 PART IV

Chapter 13 Commercial Bank Operations 365
Chapter Preview 366
13.1 An Overview of the Banking Industry 366
13.2 Balance Sheet for a Commercial Bank 369
13.3 The Source of Bank Funds 370
13.4 Bank Uses of Funds: Bank Investments and Cash Assets 376
13.5 Bank Uses of Funds: Loans and Leases 378
13.6 Loan Pricing 381
xxii Contents
13.7 Analysis of Loan Credit Risk 384

PEOPLE & EVENTS: What’s Your Score? 385
13.8 Fee‐Based Services 386
13.9 Off‐Balance‐Sheet Banking 387
13.10 Bank Earnings 392
13.11 Bank Performance 396
Key Terms 398
Chapter 14 International Banking 400

Chapter Preview 401
14.1 Development of International Banking 401
14.2 Regulation of Overseas Banking Activities 404
14.3 Delivery of Overseas Banking Services 406
14.4 International Lending 409
PEOPLE & EVENTS: The LIBOR Scandal 411
14.5 Foreign Banks in the United States 416
14.6 Future Directions of International Banking 420
Key Terms 421
Chapter 15 Regulation of Financial Institutions 422

Chapter Preview 423
15.1 Reasons for Regulation 423
15.2 Bank Failures and Regulation 426
PEOPLE & EVENTS: WaMu and the Destructive “Power of Yes” 431
15.3 Safety and Soundness Regulation: Deposit Insurance 432
15.4 Deposit Insurance Issues 435
15.5 Safety and Soundness Regulation: Capital Requirements 439
15.6 Bank Examinations 447
15.7 Structure and Competition Regulations 450
15.8 Consumer Protection Regulations 452
PEOPLE & EVENTS: Excerpts from “What are the FDIC’s primary
new responsibilities under the new law?” 454
15.9 Bank Regulators 456
Contents xxiii

Key Terms 459
FINANCIAL INSTITUTIONS 463 PART V

Chapter 16 Thrift Institutions and Finance Companies 465
Chapter Preview 466
16.1 Historical Development of Savings Institutions 467
16.2 Operations of Savings Institutions 470
16.3 Credit Unions 478
PEOPLE & EVENTS: Demographic Change Brings Opportunity 479
16.4 Thrift Institutions Around the Globe 484
PEOPLE & EVENTS: Commercial Banks Versus Credit Unions 485
16.5 Finance Companies 486
PEOPLE & EVENTS: GE Divests Much of Its Finance Company Business 488
Key Terms 495
Chapter 17 Insurance Companies and Pension Funds 496

Chapter Preview 497
17.1 Insurance 497
PEOPLE & EVENTS: 9/11 and Katrina: Insurance Coverage Disputes 499
17.2 The Insurance Industry 501
PEOPLE & EVENTS: The Rise, Fall, and Return of American International
Group (AIG) 503
17.3 Life and Health Insurance Products 508
Learning by Doing 17.1: Calculating Policyholders’ Surplus 514
17.4 Property and Liability Insurance Products 515
Learning by Doing 17.2: Measuring Insurance Company Profitability with
the Combined Ratio 518
17.5 Pensions 519
Key Terms 525
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the “sublimis anhelitus” of Horace, in his famous ode entitled
“Nireus.” I have often wondered that such a learned physician as
Julius Cæsar Scaliger, in his celebrated critique on Horace in his
Poetics, should have remarked on this expression: “Ex toto
Galeno non intelligo quid sit sublimis anhelitus.” Galen, in fact,
treats fully of the “sublimis anhelitus” in various parts of his works.
See in particular On Difficulty of Breathing.
[694] Galen has given us a lengthy Commentary on this case,
but a great part of it relates to the characters and to other matters
not of any very great importance in this place. As he remarks, it is
a striking example of an acute fever induced by immoderate
fatigue. It appears from his Commentary, moreover, that some of
the older authorities had added “drinking” to the excesses which
induced his affection; that is to say, they proposed to read πότων
instead of πόνων. The symptoms, upon reference to the
Prognostics, are all such as indicated a fatal result, namely, the
blackish and thin urine, “the fumbling with the bedclothes,” the
coldness and lividity of the extremities, the meteorism, and so
forth.
[695] In Galen’s Commentary on this case there is not much of
any great interest to the professional reader of the present day.
He animadverts again on the omission of all mention of the
treatment, although, as he states, venesection and the other
usual means had no doubt been tried; indeed the report implies
as much. Hippocrates, he repeats, never thinks of mentioning the
usual routine of practice, as he takes it for granted that the reader
will understand that it was not neglected. It is only on special
occasions, then, that he thinks of making any particular reference
to the treatment. Galen remarks, that ileus being an inflammation
of the upper intestines, is a particularly dangerous affection.
[696] As remarked by Galen in his Commentary, this was no
doubt a case of ardent fever or caucus, complicated with an
incidental miscarriage. There is no reason for looking upon it as
being a case of puerperal fever. Galen thinks that the last word
(caucus) is an addition made by the copyists, having been
transferred from the Glossarium to the text in the course of
transcription. Galen, as usual, directs attention to the characters
of the urine, which in this case are particularly unfavorable, being
defective both in quantity and quality.
[697] Galen’s remarks on the circumstances of this case are
sufficiently to the purpose, but there is nothing very striking in
them. He states that the abortion may have been occasioned
either by external causes—such as the application of pessaries
for this purpose, and the like—or internal, such as hemorrhage
from the neck of the uterus. and so forth. As in the former case,
he pronounces the last word (phrenitis) to be an addition to the
text, as Hippocrates never enters upon the diagnosis of diseases,
as is done in the work On Diseases. I suppose he means that our
author’s real works are all founded on Prognosis; whereas the
other, being derived from the Cnidian school, is founded on
Diagnosis. See our observations on this subject in the Preliminary
Discourse, and the Argument to the Prognostics.
[698] Galen remarks, that with such a combination of fatal
symptoms, namely, coldness of the extremities, fetid vomiting,
etc., it is wonderful that this patient stood out until the fourteenth
day. He thinks, however, that this is to be explained from her age
and constitution. He justly remarks that the occurrence of the
epistaxis could not be supposed sufficient to carry of such a
combination of unfavorable symptoms. He once more protests
against the last word of the report (causus) being admitted as
genuine. He confesses himself unable to determine whether “The
Liars’ Market” was in Athens or elsewhere.
[699] This is entitled the pestilential constitution by Galen. By
constitution, he explains, is meant not only the preternatural state
of the atmosphere, but also of everything else which influences
the state of the general health.
[700] Galen remarks, that in the First Book of the Epidemics
three constitutions of the year are described and also that others
are described in the Second Book; but that these are not carefully
drawn out for publication like those of the First and Third. He
further remarks on this head, that the constitution of the season
might prepare us for the putrid diseases, which are described
below, as heat is the active, and humidity the material, cause of
all putrefaction.
[701] Galen remarks that erysipelas is occasioned by a bilious
defluxion, but that it is not always of a malignant and putrid
nature; on the contrary, when the defluxion is mild, and the bile
which produces it is natural, it is not attended with any
considerable injury to the body, if properly managed; but that the
humor which produced the erysipelas about to be described was
not such, but of a malignant, corrosive, and septic nature, being
engendered by the humid and calm state of the weather in such
persons as were of a choleric constitution.
[702] According to Galen, aphthæ in general are superficial
ulcerations in the mouth, produced by the acrimony of the nurse’s
milk, and which are easily removed by an astringent application.
But in the present instance the aphthæ were of a malignant
nature.
[703] The carbuncle (anthrax), Galen says, is always
dangerous, and the product of bad humors. See Paulus
Ægineta, Vol. II., pp. 78, 79. Galen, in his excellent work On the
Difference of Fevers, writes thus: “In constitutions of the year,
similar to those which Hippocrates describes as taking place in
Cranon (See Ep. ii.). I have known cases of anthrax prevailing
epidemically in no few numbers, the formation and other
symptoms of which were exactly as described by him.” (Tom. vii.,
p. 293; ed. Kühn.)
[704] Galen explains under this head that the term epidemic is
not applied to any one disease, but that when many cases of any
disease occur at the same time in a place, the disease is called
an epidemic; and that when it is remarkably fatal it is called a
plague.
[705] The history of the epidemical erysipelas here described
cannot fail to prove interesting to the modern reader. I need
scarcely remark that epidemics of a similar nature are
occasionally met with in Great Britain at the present day. I myself
have encountered two such epidemics in the locality where I am
now writing, the one in 1823, and the other in 1846. As described
by Hippocrates, the disease sometimes supervened upon a slight
injury, and generally terminated in gangrene. On epidemical
erysipelas, see De Haen (Ratio Medendi), Bartholinus (Hist.
Anatom. Rat. Hist., 56), Wells (Transactions of a Society for the
Improvement of Medical and Chirurgical Knowledge), Cooper’s
Surgical Dictionary; and Cyclopædia of Practical Medicine, under
Erysipelas.
[706] Galen amply confirms this statement, that when
erysipelas fixes on a particular part of the body it is more
formidable in appearance than in reality, and that the disease is
attended with most danger when it leaves an external member,
and is determined inwardly.
[707] The classical reader will here call to his recollection a
striking passage in the celebrated description of the Plague of
Athens, as given by Thucydides: “For the mischief, being at first
seated in the head, spread over the whole body, and if one
survived the most formidable symptoms, an attack on the
extremities manifested itself; for it was determined to the genital
organs and to the hands and feet, and many escaped with losing
them, and some with the loss of their eyes.” (ii., 49.) The passage
is thus rendered by Lucretius:
“tamen in nervos huic morbus et artus

Ibat et in partes genitales corporis ipsas;
Et graviter partim metuentes limina lethi
Vivebant ferro privati parte virili:
Et manibus sine nonnulli pedibusque manebant
In vita tamen et perdebant lumina partim.”
(vi., 1203.)
Lucretius, it will be remarked, understands the historian to

mean that the mortified parts were amputated; and this opinion,
although rejected by most of our non-professional editors of
Thucydides, is confirmed by what Galen says in his Commentary
on this passage, namely, that in erysipelas of the genital organs
“we (meaning the physicians of his own time) are often obliged to
excise the putrid parts, and apply the cautery to them.” I would
here further point out a singular mistake into which Dr. Bloomfield
falls in his note on this passage of Thucydides; he says that the
words of the original (ἄκρας χεῑρας καὶ πόδας) “can only signify
the ends of or lower joints of the fingers and toes.” No one who is
acquainted with the language of our author will require to be told
that this is an entire misconception. In the works of Hippocrates
χεῖρες is often put for the arms, and χεῖρες ἄκραι are always
applied to the hands.
[708] Upon reference to the Glossary of Erotian, the
Commentary of Galen, and the Annotations of Foës and Littré,
the reader will see that there is great difficulty in determining the
text in this place. After examining all that has been written on the
subject, one cannot come to any satisfactory conclusion as to the
true reading. I have adopted the meaning which seems to suit
best with the passage. The professional reader will scarcely
require to be reminded that in cases of phthisis there is often a
notable impairment of the voice.
[709] Galen makes the important remark on this word, that, in
febrile diseases, epistaxis is always a bad symptom.
[710] This obliviousness is a feature of the plague, as
described by Thucydides: “And some, when they first left their
beds, were seized with an utter forgetfulness of all things, and
knew not themselves nor their relatives.” (l. c.)
[711] Our author alludes to the affection called coma vigil by
the later authorities. In this affection, as Galen remarks, the
patient lies with his eyes shut, but can get no sound sleep. This,
of course, is so much more the case provided pain be present, as
it necessarily will prevent the occurrence of sleep. See Galen’s
tract On Coma.
[712] The low muttering delirium of typhoid fevers is here
evidently alluded to. Galen, in his Commentary, guards the reader
against supposing that the fever passed into lethargus.
[713] This description apparently can refer to nothing but
pestilential buboes.
[714] It is impossible not to recognize this as a description of
purulent ophthalmia. Celsus thus describes the ficus: “Est etiam
ulcus quod a fici similitudine σύκωσις Græcis nominatur, ubi caro
excrescit; et id quidem generale est. Sub eo vero duæ species
aunt. Alterum ulcus durum et rotundum est: alterum humidum et
inæquale. Ex duro exiguum quoddam et glutinosum exit: ex
humido plus, et mali odoris.” See the Lexicons of Hesychius and
Phavorinus, and also Paulus Ægineta, Book III., 3. It will be
remarked that Hippocrates also makes mention of fungous
excrescences about the pudenda. Were they syphilitic? In other
words, did they derive their origin from elephantiasis? See the
Annotations on Paulus Ægineta, Book IV., 1, Sydenham
Society’s edition.
[715] The meaning of this term is not precisely determined.
Galen’s account of it may apply both to exanthemata, and
pustulæ. The description of the eruption in the Plague of Athens
is likewise vague and indeterminate. (Thucyd, ii., 49.)
[716] These intestinal complaints are all mentioned in the
description of the Plague at Athens. (l. c.) Upon reference to the
Commentary of Galen, the reader will remark that there is a
question here respecting the reading.
[717] Galen, in his Commentary, makes the remark that he
observed the same symptom in the plague which raged in his
time.
[718] It will readily be understood that a colliquative diabetes
would prove a very unfavorable complication of these complaints.
[719] By nocturnal fevers, according to Galen, was meant
quotidians, which had their paroxysms during the night. Foës
inclines to think that diurnal should also be inserted in this place.
These nocturnal fevers are thus described by D. Monro: “The sick
were restless and uneasy at night; but commonly felt themselves
cooler and lighter in the daytime: and although they had no cold
fit, as the fever came on at nights, and many of them no breathing
sweat, as they became cooler and freer from the fever in the
morning; yet the fits were so remarkable, that many of the
patients used to say that they had a regular fit of an ague every
night, and some few that they had the fit every second night.”
(Army Diseases, etc., p. 158.)
[720] The account of the origin and progress of consumption
here given is, upon the whole, wonderfully correct. Common
experience seems to have decided that spring and autumn are
the most fatal seasons to phthisical patients. Avicenna makes the
remark, which is very important, and deserves to be kept in mind,
that by phthisis, in this place, Hippocrates most probably meant
hectic fever, connected with disease of the internal viscera, which
had been in an inflamed state during the acute attack of the fever.
(iii., 1, 3, 67.)
[721] I shall not enter into a discussion of the different
readings of this interesting passage. I may mention that our great
pathological authority on phthisis, Dr. Louis, agrees with
Hippocrates in deciding that the lymphatic temperament
constitutes a more or less marked predisposition to the
development of phthisis. (p. 483.) Galen describes the phlegmatic
temperament as being attended with a soft and slightly tumid
skin. He attributes the disease in their case to a cacochymy, that
is to say, to cachexia. I need scarcely remark that this opinion is
strongly advocated by one of the highest authorities of the day, I
mean Sir James Clark. See his treatise on Tubercular Phthisis.
Galen gives a discussion on the color of the eyes, about which
there is some difficulty, as the ancient terms which relate to colors
are not very well defined. The term here used (χαροπὸς) may
signify either blue or gray. Galen considers this color of the eyes
as a symptom of a cold and humid temperament.
[722] There is an ambiguity in the part of the sentence which
relates to women, as Galen states in his Commentary. Galen
does not hesitate to declare that women are more subject to
phthisis than men, an opinion upon which modern authorities are
not at all agreed. See the recent publications of Louis and Clark
on Phthisis.
[723] The last paragraph, and the latter clause of the
preceding one, were at first attached to the end of the subsequent
cases, and were transferred to their present position by
Dioscorides the commentator a short time before Galen. They
evidently embody a most distinct and admirable enumeration of
the general facts with which the practical physician ought to make
himself acquainted.
[724] We learn from the Commentary of Galen that some of
the older critics supposed that the sixteen cases about to be
related had been selected by Hippocrates in illustration of his
doctrines, as laid down in the preceding description of what is
generally entitled the Pestilential Season. Galen, however, does
not incline to this opinion.
[725] This is an example of one of those protracted fevers of
an intermittent type, which, as I have been informed by an
intelligent physician who practiced for several years in the Ionian
Islands, are so common in the climate of Greece. There is not
much of any particular value in Galen’s Commentary on this case.
He informs us that one of the older commentators absurdly
maintained the opinion that the country of this patient was given
because, according to Asclepiades, the inhabitants of Paros were
most especially benefited by bleeding. But, as Galen says, this
remark is particularly out of place here, since no mention of
venesection occurs in the report. Galen, and after him Foës, have
given very lengthy and elaborate disquisitions on the nature of
oily urine. The result is, that it is an unfavorable, but not
necessarily a fatal, character. It is minutely described by the later
authorities on urology, namely, Theophilus and Actuarius. See
also the Commentary on Paulus Ægineta, Book II., 14,
Sydenham Society’s edition.
[726] This appears clearly to be a case of fever, complicated
with, but not produced by parturition. Galen, however, seems to
ascribe the fever and its fatal results to the retention of the lochial
discharge. The characters of the urine, he properly remarks, are
unfavorable, being copious, thin, and black. He also calls
attention to the want of proper concoction in the sputa, to which
he attributes the fatal relapse.
[727] Galen’s Commentary on this case is written in his usual
light and diffuse style, but contains very little which is calculated to
throw light on the text, or on the nature of the disease which is
here described. If any one find difficulty in comprehending the
characters of the respiration, as given in this narrative, he can
turn to Galen’s work, On Difficulty of Breathing, where they are
explained very fully. I may just mention that by shortness of breath
(βραχύπνοος) was understood, by Hippocrates and Galen,
frequency of the act of respiration.
[728] This case, as Galen remarks, is an instance of the most
acute form of phrenitis. He states that he himself had met with
cases of phrenitis in which the patients had died on the fourth and
fifth day, but that he had never seen a case which proved so
suddenly fatal as the present one. He further makes some very
interesting reflections on the suddenness of the attack in such
cases, which is the more wonderful, as the exciting cause of them
must be gradually collecting in the system, and acquiring strength
and intensity, and it is singular that it should then be developed all
at once, and cut off the patient in a very short time, as if he had
swallowed poison, or had been stung by a venomous animal. He
compares the latency of the febrile humor in the system to that of
the mad dog, which will remain for a long time in the body of a
person who had been bitten, and then all at once will manifest its
effects, by inducing the rage. For the ancient views on the subject
of Hydrophobia, see Paulus Ægineta, Book V., 4, Sydenham
Society’s edition.
[729] Galen, in his Commentary on this case, enters into a
train of reflections how a physician ought to proceed when called
in to a patient so circumstanced. He ought, in the first place, as
the Commentator properly remarks, to make careful inquiry, in
order to find out whether the pain in the limb be occasioned by
any external cause, as persons often meet with local injuries by
sudden twisting and movements of their limbs, or even by laying a
limb uncomfortably in bed, without being aware of it. When no
such cause of the complaint can be discovered, Galen says the
physician should try to ascertain whether or not it be connected
with the regimen or temperament of the patient. If it shall turn out
that the body is in a plethoric state, general bleeding must be had
recourse to, before any local applications are made to the part. It
is then to be fomented, and liquid and heating medicines applied
to it. Whether or not this was the mode of treatment which
Hippocrates adopted in this case, Galen cannot take upon himself
to affirm, as no mention is made in the report of venesection, nor
of the particular remedies which were used. I am of opinion that
this is one of the most interesting cases in the whole Collection,
for I believe it to be a faithful report of a disease which on three
several occasions I have met with during an active professional
practice of thirty years, and which I have not seen described
elsewhere. In all my cases, indeed, the patients were from twelve
to sixteen years old, but in other respects the symptoms were the
same as here described by Hippocrates. In every one of the
cases the patient was seized with pain and swelling of the thigh,
attended with high fever, great jactitation, and partial delirium.
They all proved fatal in the course of three or four days. Whether
the disease be connected with diffuse inflammation of the areolar
substance, or with inflammation of the veins, or whether it be a
general fever complicated with a local affection of the limb, or
what may be the exact nature of the affection, I have not been
able to determine. From what is stated above, it will be clearly
seen how justly Hippocrates deserves the compliment paid to him
by Galen, of having been, of all medical authorities, the most
careful in observing the phenomena of disease. (Opera Galeni,
tom. vii., p. 829, ed. Kühn.)
[730] Galen remarks, that this is one of those cases which
appear formidable to the inexperienced, but which those who are
practiced in the art judge of as being likely to come to a speedy
crisis. He adverts to the slight swelling of the spleen and the
characters of the urine, which soon showed a proper sediment, as
being particularly favorable symptoms. The more that we study
Hippocratic medicine, we shall be the more convinced that too
little attention has been paid of late years to the physical
characters of the urine in all febrile complaints.
[731] Galen’s Commentary on this case is unusually brief. He
holds it to be a case connected with general plethora, as
indicated by the good color of the urine. He once more makes the
remark that a favorable issue of the case might have been
anticipated, from the characters of the urine.
[732] Galen remarks in his Commentary, that of all the cases
related in the First and Third Books of the Epidemics, this is the
only one in which Hippocrates says that the patient was bled, not,
he adds, that this was the only case in which venesection was
adopted, but because, although the general rule was not to bleed
after the fourth day, the patient, in the present instance, was bled
on the eighth. Many others, he says, were no doubt bled on the
second, third, and fourth days, but of these bleedings, and the
other means used, Hippocrates in general takes no notice, except
that he sometimes states, in order to render the malignity of the
disease more apparent, that it was nowise benefited by the
remedies applied. In other cases he adds, he would appear, from
the words he uses (such as “as far as I am aware”), not to have
attended the patient at the commencement. Galen further directs
attention to the characters of the expectoration, the concoction of
which he looks upon as having proved the means of carrying off
this fever. Galen has reviewed the symptoms of this case very
fully, and in a most interesting manner, in the Second Book of his
work, On Difficulty of Breathing, see ed. Kühn, tom. vii., p. 854,
etc. That it was a case of fever complicated with pleurisy seems
clear, as Galen remarks. Galen further treats of the characters of
the sputa in this case, in the First Book of his work, On Crises.
Upon reference to the edition of Littré, it will be seen that
unfortunately there is considerable variation in the readings of this
passage.
[733] On this case Galen makes the remark that this patient
must have had a strong constitution, otherwise it could not have
withstood such an affection. He adds that, moreover, his pulse
must have possessed strength, but that, as formerly said by him,
this department of prognostics is altogether omitted by
Hippocrates, in his reports of febrile cases. He further remarks
that the respiration and appetite were not to complain of, and the
only bad symptom was the thinness and blackness of the urine,
which therefore required a long time for nature to overcome, by
occasioning hemorrhage, pain of the hip-joint, and determination
downwards. He adds, that great diseases require decided crises,
and that even with those now mentioned, the disease was not
entirely removed in this case, until concoction in the urine took
place.
[734] Galen passes over this case without any remark worth
mentioning. I cannot but think that the abundant sediment in the
urine, which preceded the favorable crisis, is a fact in the case
well deserving to be noticed. Galen, however, in the present
instance, omits all notice of it, and ascribes the recovery to the
profuse sweat.
[735] The only thing of importance in Galen’s Commentary on
this case is the remark that this woman’s melancholy was most
probably connected with suppression of the menses, and that to
this cause the dark color of the urine in the present instance is
most probably to be ascribed. To the critical evacuations by the
sweat and menstruation he attributes the recovery.
[736] There were several ancient cities of this name, but there
can be no doubt that the one here referred to is the celebrated
city of Thessaly. See Strabo, Geograph. ix.
[737] Galen considers it a remarkable feature in this case that
although the crisis occurred on the sixth day, there was no
relapse. The recovery he ascribes to the copious menstruation
which then took place for the first time. He also calls attention to
the characters of the urine, which, he says, are those which
usually accompany delirium, although this is omitted in the
Prognostics.
[738] Galen, in his Commentary, merely remarks that
Hippocrates, at the conclusion of the report, briefly enumerates
the more prominent symptoms from which a fatal result might
have been confidently prognosticated. By enlarged viscera, in this
case, we are informed by Galen in another place, that our author
meant inflammation and swelling (Comment. in Rat. Vict. in Acut.
c. iii.) There can be no doubt that by viscera Hippocrates meant
the liver and spleen (see the work just referred to). Galen briefly
remarks on this case towards the end of the Second Book of his
work, On Difficulty of Breathing.
[739] Cyzicus was a flourishing city on the Propontis. See
Strabo, Geogr. xii.; and Pliny, H. N. v. 32.
[740] Galen, in his Commentary, accounts for this fatal disease
upon the supposition that the uterus was inflamed, and affected
the brain by sympathy, hence maniacal delirium and convulsions
were the consequence. Galen, both in his Commentary, and in his
work On Crises, refers to this case, in confirmation of his doctrine
of critical days.
[741] I will venture to affirm, without much fear of contradiction,
that in all the works on medicine, both ancient and modern, there
is not to be found so vivid a delineation of the symptoms of fever,
complicated with effusion on the brain. Those who have added
new features to the picture, have thereby detracted from the
general effect. Galen, in his Commentary, insists more especially
on the character of the respiration, but there does not appear to
me to be any particular obscurity about it. He also touches on this
case towards the end of the Second Book, On Difficulty of
Breathing. After reading all his prolix disquisition on the subject,
one does not feel much better instructed on the subject. Galen, at
times, nay, very frequently, seems to forget a favorite saying of his
own, namely. that he who would wish to lay in a copious store of
knowledge during life, should trouble himself little about words,
and attend principally to things.
[742] There were two Thessalian cities of this name, the one
in Estiæotis, and the other in Magnesia. This would appear to be
the latter. See Pliny, H. N. iv., 9; and Livy, xliv., 13.
[743] Galen’s Commentary contains few observations of much
interest, and which are not sufficiently obvious. Excesses in
drinking and debauchery, he remarks, hurt the nerves and the
origin of them, that is to say, the brain. Thus he accounts for the
delirium with which this case of fever was attended. All the other
prominent symptoms, such as the palpitation in the epigastric
region, the swelling of the hypochondrium, and the like, were
noticed previously. Galen also reviews the symptoms of this case
in his work On Difficulty of Breathing, II.
[744] “Hippocrates qui tam fallere quam falli nescit.”
(Macrobius in Somn. Scipionis, i., 6.)
[745] Hippocratis Coi de Cap. Vuln., etc., a Francisco
Vertuniano. Ejusdem textus Græcus a J. Scalig. Castigatus, etc.
[746] Comment. de Ossibus.
[747] Hist. Animal., i., 7. In reference to this description, it is
stated by Vesalius, who in the course of his life had examined a
great number of crania, that it is very rare indeed to meet with a
skull in which the sutures are wanting. He accounts for the
statement made by Herodotus (Hist. ix.) and Aristotle (1. c.),
respecting skulls without sutures, upon the supposition that the
observations of these authors must have been made upon those
of old persons, in whom the sutures are often very indistinct.
(Chirurg. Magn., i., 17.)
[748] H. N., xi., 48; ed. Hardouin.
[749] De Partib. Animal., p. 34; ed. Londin.
[750] Φοεός. The exact meaning of this term is well defined by
Eustathius in his Commentary on Homer (ad Iliad., ii., 219), ό ἐις
ὀξὺ λήγονσαν ἔχων τὴν κεφαλήν. It is excellently expressed by
Damm as follows: “One whose head diminishes towards the top
like a sugar-loaf.” (Lexicon Homericum in voce Φοεός.)
[751] De Usu Partium, ix., 17.
[752] Surgery, v., 4.
[753] Chirurg. Mag., i., 17.
[754] It is well known that in very advanced age the sutures
get nearly effaced. See the Cyclopædia of Anatomy, vol. i., p.
745.
[755] Comment. de Ossibus.
[756] Obs. Anatom.
[757] This letter was very varied in form. See Galen and Foës.
[758] The operation consisted in sawing the bone nearly
through, and leaving it in this state until it exfoliated, or until the
bone could be separated from the dura mater without violence.
See below.
[759] It is no doubt true that a simple cut in the outer table of
the bone, when accompanied with concussion or contusion, may
produce fatal effects within, and this, in fact, is stated by our
author; but, of itself, as he says, the simple incision or hedra
cannot be of a dangerous nature, nor require any recourse to
instruments. The cases related by M. Littré in the Argument were
all evidently complicated with contusion, and are thus referable to
the second class of these injuries. It is most worthy of remark,
that in the very interesting account of “slicing cuts,” given in Mr.
Guthrie’s excellent work, On Injuries of the Head, the result,
without any operation, by the most simple system of treatment,
was in general very favorable. (pp. 95, 96.) On these cuts and
superficial injuries of the skull, see further Hennen (pp. 283, 284),
Thomson (pp. 51, 52), and Chelius (vol. i., p. 388).
[760] London and Edinburgh Medical Journal, 1844.
[761] Although, as we have stated, Dr. Laurie’s rule of practice
now be to use the trephine on the preventive principle, it is
probable that most of his cases occurred at a period when the
practice of Mr. Abernethy was universally followed. His statistics
therefore are no test of the results of the operation, when
performed on the preventive principle.
[762] See Lawrence’s Clinical Lecture in the Medical Gazette,
vol. xxi., p. 345; and Guthrie’s work, On Injuries of the Head, p.
113.
[763] See De Articulis, § 50; and Mochlicus, § 36.
[764] On hypertrophy and swelling of the brain after injuries,
see the very interesting observations made by Mr. Guthrie, in his
work on Injuries of the Head, p. 125.
[765] It is proper to mention in this place that Quesnay, with
great good sense, discusses the question, whether or nor the
separation of the pericrunium in this case be a sure indication of
matter being collected within the cranium. He decides in the
negative. (p. 17, Syd. Soc. edition of Selected Mem. of the Acad.
of Surgery.)
[766] I ought to mention, however, in this place, that in simple
undepressed fractures, Pott allows of the operation as a
preventive; that, at least, is one of his objects in having recourse
to the operation. (p. 130.)
[767] Ambrose Paré expresses very strongly the difficulty of
forming a correct prognosis in injuries of the head: “Ex quo
intelligere licet, multos ab exiguis vulneribus mortem oppetere,
alios ex ingentibus et penitus magnis desperatisque
convalescere.” (Opera, ix., 9.)
[768] Injuries of the Head, p. 148.
[769] Aphor. v., 68.
[770] See the Argument to the treatise, On Regimen in Acute
Diseases.
[771] Opera, ix., 10.
[772] Sir Astley Cooper mentions an instance in which 208
ounces of blood were abstracted from a patient!! In Quesnay’s
Memoir there is nothing more common than to find it reported that
he had bled a patient three or four times in the course of a day. In
one case 160 ounces were taken in nine days; “but,” it is gravely
added, “two years elapsed before she was quite well again.”
[773] IV., 5, 3, 1.
[774] The principles upon which depletion by bleeding and
purging should be regulated are fully stated and discussed by
Galen, in the Fourth Book of his great work on Therapeutics. The
rule is briefly given by Hippocrates in his Second Aphorism:
“respect being paid to place, season, age, and the disease in
which it is proper or not.”
[775] See Aphor. v., 18, 22; and § 12 of this treatise. The
professional authorities of the present day are not agreed as to
the expediency of using poultices or cold lotions in injuries of the
scalp. Guthrie and Hennen recommend the latter; but South, in
the edition of Chelius, prefers the former.
[776] This is related of Philagrius in a very interesting scholium
on the Aphorism just quoted. See Scholia in Hippocrat. et Galen.,
tom. ii., p. 457; ed. Dietz.
[777] Perhaps the meaning here is, that when the forehead is
much elevated, and the occiput much depressed, if one looks
down upon the skull from above, the sagittal and coronal sutures
will present the appearance of the letter Τ.
[778] The meaning, I suppose, may be, that when the
forehead is very low, and when the occiput is protuberant, if one
looks down upon the skull from above, the sagittal and lambdoidal
sutures will present the appearance of the letter Τ reversed.
[779] The meaning would appear to be, that in a square-built
head, that is to say, when it is prominent both before and behind,
the coronal and sagittal sutures run nearly parallel to one another,
and the sagittal connects them together in the middle. In this case
they would present the appearance of the letter Η reversed.
[780] Perhaps this alludes to the form of the head in which the
sagittal suture passes through the middle of the os frontis down to
the nose, in which case we may imagine that the coronal suture
intersects the lambdoidal in such a manner as to have some
resemblance to the letter χ. It is to be borne in mind, that the
character of this letter was very variable in ancient writing. Ruffus
Ephesius describes the sagittal suture as sometimes passing
down the middle of the frontal bone.
[781] This passage was considered by Scaliger as a gloss, but
as interpreted by M. Littré, whom I have followed, the meaning is
quite suitable. See his note, h. 1.
[782] It is difficult to say what can be meant by caruncles in
this place, but still I agree with M. Littré that Scaliger was not
warranted in proposing to eject the passage from the text as an
interpolation. Unless the glandulæ Pacchioni are meant (and the
description must be admitted not to be quite applicable to them), I
cannot pretend to explain or account for the description.
[783] I need scarcely remark, that if by this is strictly meant
that wounds in the posterior part of the head are less dangerous
than those in the anterior, the statement is at variance with the
experience of certain modern authorities. See, in particular, Pott
and Liston, p. 46. At the same time, it is, no doubt, anatomically
correct, that the occipital bone can bear more violence, without
being seriously fractured, than the frontal or parietal bones, and it
is worthy of remark, that the views and experience of Mr. Guthrie
are very consonant with those of Hippocrates. He says: “The
result of my experience on this point is, that brain is more rarely
lost from the fore part of the head with impunity, than from the
middle part; and that a fracture of the skull, with even a lodgment
of a foreign body, and a portion of the bone in the brain, may be
sometimes borne without any great inconvenience in the back
part.... I have never seen a person live with a foreign body lodged
in the anterior lobe of the brain, although I have seen several
recover with the loss of a portion of the brain at this part. My
experience, then, leads me to believe, that an injury of apparently
equal extent is more dangerous on the forehead than on the side
or middle of the head, and much less so on the back part than on
the side. A fracture of the vertex is of infinitely less importance
than one of the base of the cranium, which, although not
necessarily fatal, is always attended with the utmost danger.” (On
Injuries of the Head, p. 3.) I feel difficulty in reconciling these
discordant results of modern experience. Perhaps the fact of the
matter is, that injuries on the upper part of the occipital region are
the least dangerous of any, whereas those in the lower part of it,
are particularly fatal.
[784] Vidus Vidius thus explains the hedra or sedes: “Inciditur
os ita ut teli vestigium remaneat, quod genus fracturæ appellatur
a Hippocrate ἒδρα, id est sedes, quum (ut ipse inquit) appareat in
osse qua telum insederit; fit autem ab acuto telo, quod et ipse in
sequentibus, et Galenus, in Commentario, in librum memoriæ
prodidit, quum sub telo acuto incidi os dixit. Requirit autem sedes
ut incisum os nullo modo ad cerebri membranam inclinatur.”
(Chirurg. Græc., p. 71.) Andreas à Cruce defines it thus:
“Potissimum vero sedes vocatur ubi osse in suo statu remanente
qua parte telum insederit apparet.” (De Vulneribus, 1. 2.) By
hedra would appear to have been understood a dint, or
impression, left in a bone by a blow which has not produced
fracture or depression. It was also applied to a cut or slash
affecting only the outer plate of the skull. Hippocrates, it will be
remarked, pronounces this sort of injury not to be dangerous of
itself, but M. Littré relates a case taken from the “Journal de
Médecine,” in which a sabre-cut, which only penetrated through
the external plate of the cranium, and did not touch the internal,
proved fatal. (Op. Hippocrat. iii., p. 170.) Our author, in the latter
part of this paragraph, mentions cursorily injury of the skull at a
suture, and more circumstantially in the twelfth paragraph. This
accident is very correctly described by the later writers, under the
name of diastasis. See Heliodorus (ap. Chirurg. Veteres, p. 100),
and Archigenes (ibid., p. 117). Pott declares that he did not
remember having ever seen a single instance of recovery when
there was separation of the bones at a suture. Morgagni, in like
manner, represents the case as being of a particularly serious
character. (De Caus. et Sed. Morb.) I once saw a strongly marked
case in which there was a considerable separation of the bones
at the upper part of the temporal suture, along with an extensive
wound, unguardedly inflicted by the scalpel of a juvenile surgeon,
in order to explore the nature of the accident. As might have been
expected, under these circumstances, the case had a fatal issue.
Mr. Guthrie writes thus of diastasis: “It is well known, that when a
violent shock has been received on the head, particularly by a fall
on the vertex, the sutures are often separated to a considerable
extent; these cases usually terminate fatally.” (p. 135.)
[785] The meaning here is somewhat obscure, but as Arantius
states in his commentary on this tract, our author probably means
that a fissure is necessarily complicated with a contusion, or, in
other words, that there can be no fissure without contusion.
[786] Arantius and Porralius, in their conjoined commentary on
this treatise, mention that in contusion sometimes only the outer
plate of the skull is contused, but the inner is depressed upon the
dura mater. This is a case of which we have examples in modern
surgery; but it does not appear clearly to be alluded to in this
place by our author. Mr. Guthrie, indeed, understands the
ἀπήχημα of the Greek authors, and resonitus of the Latin, to
apply to this variety of fracture; but he appears to me to be
mistaken, for these terms unquestionable refer to the contre-
coup, of which we will treat presently. Quesnay, indeed, uses the
term contre-coup in this double sense, but, as I think, very
injudiciously, as it tends to introduce confusion of ideas; for
assuredly the case of a fracture on a different part of the head
from that which received the blow, and a fracture on the inner
plate of the skull from an injury on the outer, are quite different
cases. See Quesnay, etc., p. 20, Syd. Soc. edit.
[787] The expressions in this place are somewhat confused,
but the meaning evidently is, that without fracture there can be no
depression.
[788] This third mode of fracture is thus defined by Celsus: “At
ubi medium desedit, eandem cerebri membranam os urget;
interdum etiam ex fractura quibusdam velut aculeis pungentibus,”
(viii., 4.) Hippocrates, it will be remarked, makes no mention of
spiculæ in his description of depression. Galen describes two
varieties of depression; in the one the depressed portion retains
its situation, and in the other it rises again to its former level. (De
Caus. Morb.) Hippocrates does not appear to have been
acquainted with the latter. Modern experience has shown that it
sometimes occurs in children.
[789] It is almost impossible to know what to make of this
passage, owing to the corrupt state of the text.
[790] The nature of this mode of injury is explained in the
annotations on the third paragraph. It does not appear clear why
our author has given two separate descriptions of this injury. He
describes, it will be remarked, several varieties of it, according as
it is complicated or not with contusion and fracture. Galen uses
hedra in one place. (Meth. Med. vi.) The term hedra is rendered
teli sedes by the Latin translators of the Greek medical authors.
(See Asellii Comment. in Hippocrat. de Vuln. Capit.) It is used
also by Ambrose Paré, Wiseman, and all our earlier writers on
surgery. Wiseman thinks the term most appropriate when applied
to wounds inflicted by a pole-axe, halberd, or the like. (v. 9.) Paré
applies it to a kind of injury, in which the bone is not broken
through, but the print of the weapon is left on the skull. (xx., 7.)
Fallopius gives an interesting discussion on it. (In librum
Hippocrat. de Vuln. Capit.) The term incision, borrowed from
Paulus Ægineta, has been since used in its stead. See Quesnay,
on the Use of the Trepan, p. 29, Syd. Soc. edition; and on simple
incisions or sabre-cuts, see, in particular, Mr. Guthrie, Injuries of
the Head, p. 86.
[791] This, it will readily be perceived, is the fractura per
resonitum, that is to say, the fracture par contre-coup, or counter-
fissure of modern authorities. Except Paulus Ægineta, I am not
aware that any of the ancient authorities question the occurrence
of this species of the accident, and with the exception of Vidus
Vidius, Guido, Fallopius, and Dinus de Garbo, it is generally
recognized by the best modern authorities, from Bertaphalia and
Andreas à Cruce, down to Sir Astley Cooper and Mr. Liston. Mr.
Guthrie, indeed, remarks, that in recent times there has been no
well-authenticated instance of fracture on the one side of the
head from a blow on the other. Such cases, however, are not
wanting in the works of the earlier modern authorities. Quesnay
writes thus: “We find in authors, also, many cases of fracture by
contre-coup, from one part of the head to the part opposite: and in
honor of the ancients we may cite the case related by Amatus,
who applied the trepan to the part of the head opposite to the
wound, when he found that the symptoms were not relieved by
applying it on the side wounded, and that the patient suffered
from severe pain on the other side. This second trepan proved
very apropos, for it allowed the escape of pus, which had
collected under the skull.” (On the use of the Trepan.) All our
modern authorities, including Mr. Guthrie, admit the reality of the
case in which fracture of the base of the skull is produced by a
blow on the upper part of the head. In imitation of our author, this
case was denominated “infortunium” by the earlier authorities,
such as Asellius and Porralius, being accounted an irremediable
misfortune, because its seat could not be detected; and it is
noticed in the following terms by Sir Astley Cooper, who did not
trouble himself much about the writings of his predecessors, but
formed his opinions from actual observation: “When the basis of
the skull is fractured from a high fall, from the whole pressure of
the body resting upon that part, on opening the brain and tearing
up the dura mater, extravasated blood is commonly observed; this
kind of fracture must inevitably prove fatal, nor can it be
discovered till after death.” (Lectures, xiii.)
[792] Whatever opinion may now be formed of the rule of
practice here laid down, all must admit that it is clearly stated and
distinctly defined. We have seen above that our author describes
five modes of injury in the skull, namely, the incision or
indentation, confined to its outer table; the contusion; the direct
fracture; the fracture par contre-coup; and the depression. He
now states decidedly that it is only in the case of contusion and
simple fracture, that the trepan can be applied with advantage. I
have entered so fully into the rationale of this practice in the
Argument, that I do not think it necessary to say more on the
subject in this place.
[793] This passage indicates strongly our author’s partiality for
prognostics, or rather, I should say, for prorrhetics. It would
appear to have been a primary consideration with him, in all
cases, to secure the physician from blame, and to teach him how
to gain the confidence of the patient and his attendants. Few who
have practiced medicine for a great many years, will question the
propriety of these rules of conduct, or doubt the importance of
taking all honorable steps to ensure the confidence and good-will
of patients and their friends.
[794] There is a remark made by Arantius and Porralius on the
latter part of this paragraph, which, although it appears to be
scarcely warranted by anything in the text of our author, I quote
for its importance, as showing that the earlier authorities were
well aware of the danger and impropriety of treating injuries of the
head in children by instruments: “Sed præ ceteris illud notandum
quod dixerit (nudato osse) quasi dicat, eo non denudato quamvis
calliso aut fisso, quod raro accidit, non esse tamen sectione
denudandam calvariam: nam in pueris, ubi decidunt non raro
accidit ut eorum collidatur calvaria, frangaturque, cute integra,
quod etsi accidat, et tactu hoc probe precipiatur, sanguisque e
venis effusus sub cute fluctua, abstinendum tamen a sectione est,
neminem enim servatum vidi, cui sectio adhibita sit, propterea
quod eorum calor facile dissipetur, eoque magis, quum gemitu et
clamore caput valdè incelescat, et ad fluxiones suscipiendas
proclive reddatur,” (Comm. in Hip. de Vuln. Cap.) It will be seen at
§ 18, that our author allowed the application of a small trepan in
children when strongly indicated.
[795] This passage is rendered as follows by Celsus: “Igitur,
ubi ea percussa, protinus requirendum est, num bilem is homo
vomuerit; num oculi ejus obcæcati sint; num obmutuerit; num per
nores auresque sanguis ei effiuxerit: num conciderit, num sine
sensu quasi dormiens jacuerit. Hæc enim non nisi osse fracto
eveniunt; atque, ubi inciderunt, scire licet, necessariam, sed
difficilem curationem esse.” (viii., 4.) Now, although it is no doubt
true, as remarked by Pott (Injuries of the Head, § 4), that these
symptoms sometimes take place, without there being any fracture
of the skull, and that, on the other hand, as had been previously

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Part III Part IV Part V

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STUDENT PRACTICE QUIZZES

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Journal of Financial and Quantitative Analysis, Financial Management, Journal of Financial

PART I THE FINANCIAL SYSTEM 1

Chapter 2 The Federal Reserve and Its Powers 38

2.5 Independence of the Fed 51

Chapter 3 The Fed and Interest Rates 71

HOW INTEREST RATES ARE DETERMINED 105 PART II

Chapter 5 Bond Prices and Interest Rate Risk 127

Chapter 6 The Structure of Interest Rates 159

FINANCIAL MARKETS 189 PART III

Chapter 8 Bond Markets 220

Chapter 9 Mortgage Markets and Mortgage‐Backed Securities 247

Chapter 10 Equity Markets 279

Chapter 11 Derivatives Markets 300

11.5 Risks in the Futures Markets 318

Chapter 12 International Markets 332

COMMERCIAL BANKING 363 PART IV

13.7 Analysis of Loan Credit Risk 384

Chapter 14 International Banking 400

Chapter 15 Regulation of Financial Institutions 422

Do You Understand? 458

FINANCIAL INSTITUTIONS 463 PART V

Chapter 17 Insurance Companies and Pension Funds 496

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Lucretius, it will be remarked, understands the historian to

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