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The Future of the Financial System and the Money and Capital Markets
Money and Capital Markets
Financial Institutions and Instruments in a Global Marketplace
Eighth Edition
Peter S. Rose
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Learning Objectives
To understand the economic, demographic, social, and technological forces reshaping the financial system today. To study where recent trends in the financial system appear to be leading us and how we may be affected. To understand how the problems of the financial system today may influence the shape of the financial marketplace of the future.
McGraw Hill / Irwin
2003 by The McGraw-Hill Companies, Inc. All rights reserved.
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Introduction
Powerful forces are reshaping the financial system today, as well as the publics demand for financial services. These forces for change include powerful new trends within the financial sector itself, major changes in the structure and functioning of the economy, and new social and demographic trends that are altering the publics need for innovative financial services.
McGraw Hill / Irwin
2003 by The McGraw-Hill Companies, Inc. All rights reserved.
4-4
Financial Forces
Reshaping the Financial System Today Financial innovation - the development of new financial services and instruments Service proliferation - the expansion of the menu of financial services offered Competition - the intense struggle for the customers business Homogenization - the blurring of the traditional distinctions among the different types of financial institutions
McGraw Hill / Irwin
2003 by The McGraw-Hill Companies, Inc. All rights reserved.
4-5
Financial Forces
Reshaping the Financial System Today
Consolidation and convergence - mergers and acquisitions across sectors have created financial giants and decreased the number of firms in the industry Deregulation - the lightening or elimination of government rules Globalization - the global expansion of operations and the falling of geographical barriers
McGraw Hill / Irwin
2003 by The McGraw-Hill Companies, Inc. All rights reserved.
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Financial Forces
Reshaping the Financial System Today
Harmonization - the coordination of financial and economic policies Market broadening - the expansion of traditionally local markets to become regional, national, or even international in scope Securitization - the pooling of loans and the issuance of securities as claims against the loan pool Greater emphasis on risk management
McGraw Hill / Irwin
2003 by The McGraw-Hill Companies, Inc. All rights reserved.
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Social, Economic, & Demographic Forces and Trends Reshaping the Financial System Today
Aging population - there is a greater need for retirement, tax and estate planning Changing basic family unit - the rise in the proportion of single-parent households, parents and children living apart, immigrants, and well-educated working women will increase the demand for new forms of housing, daycare facilities, flexible work schedules, and less expensive medical care.
McGraw Hill / Irwin
2003 by The McGraw-Hill Companies, Inc. All rights reserved.
4-8
Social, Economic, & Demographic Forces and Trends Reshaping the Financial System Today
Displacement of the manufacturing industries by service industries in more developed economies Technological innovation - the dissemination and storage of information today is broader, cheaper, faster, and more accurate Internationalization of markets - such as the formation of the European Community
McGraw Hill / Irwin
2003 by The McGraw-Hill Companies, Inc. All rights reserved.
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New Technology:
The Challenges and Opportunities
The technological revolution in information analysis, storage, and transfer is moving at an accelerating pace. Global integrated electronic networks are changing the design and delivery of financial services:
Internet or World Wide Web Cellular telephones and hand-held computers Smart cards
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New Technology:
The Challenges and Opportunities
However, the adjustment of the public to the unfolding technological revolution will probably be slower than the revolution itself. The areas to watch include:
friendliness of the user interface operating costs and service prices ease of technological upgrade data integrity and system security
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Banking Firms
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Securities Subsidiary
Insurance Subsidiary
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Bank
Securities Firm
Insurance Company
Bank Regulator
McGraw Hill / Irwin
Securities Regulator
Insurance Regulator
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Management Coordination
The difficulties of coordination and control in larger and more diversified financial institutions call for:
employees who are well trained in coordination and control skills, strong internal auditing procedures and management information systems, and continual evaluation of subsidiary firms, profit centers, and service functions for their contributions to the goals of the financial firm.
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http://www.ex.ac.uk/~RDavies/arian/money.html
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Chapter Review
Introduction Forces Reshaping the Financial System Today
Financial Forces Social, Economic, and Demographic Forces and Trends
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Chapter Review
The Challenges and Opportunities Presented by Recent Trends
Dealing with Risk in the Financial System: Ensuring the Strength and Viability of Financial Institutions The Effect of New Technology on the Design and Delivery of Financial Services The Changing Mix of Financial-Service Suppliers Consolidation and Convergence Trends Within the Financial System
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Chapter Review
A New Role for Financial Services Regulation in an Age of Financial-Service Consolidation and Convergence Management Coordination within Diversified Financial Institutions The Future of the Payments System The Future Need for Regulation of Financial Institutions
McGraw Hill / Irwin
2003 by The McGraw-Hill Companies, Inc. All rights reserved.