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Dietrich Weeks 14 November 23, 2005 Goals and Objectives Contrast the use of debt and equity as sources of corporate investment financing and discuss the reasons why each exist in developed capital markets| Discuss the role of corporate and personal taxation in the attractiveness of different corporate-financing vehicles and relate recent important changes affecting the market for corporate fixed-income securities List the major sources of short-term and long-term corporate debt financing Outline and describe the evolution of bank financing as a source of corporate funds in the post-war period in the United States Describe the main investors in corporate debt instruments and recent changes in the market Describe and evaluate the risks to issuers and investors in commercial paper conduits Define and interpret major stock market indices in the U.S. and abroad Describe and assess the advantages and disadvantages of market organization for trading equities, specifically analyzing organized versus over-the-counter markets and relate market organization to the issues associated with market fragmentation Define and discuss progress toward a national market system and assess current developments in equity market structure and organization on a global basis (10) Outline the major issues in the restructuring of equity markets around the world today Important Vocabulary List from Class GROSS VERSUS NET INVESTMENT, INTERNAL FUNDS, CAPITAL CONSUMPTION ALLOWANCES PECKING ORDER, PRINCIPAL-AGENT PROBLEMS INVESTMENT TAX CREDIT, PASSIVE INCOME BANK MONITORING OFF-BALANCE SHEET, ASSET-BACKED SECURITIES INDENTURE, COVENANTS CALLABLE, CONVERTIBLE BONDS, JUNK BONDS STRUCTURED NOTES COLLATERALIZED LOAN OBLIGATIONS (CLOs) SPECIAL PURPOSE VEHICLE, SPECIAL PURPOSE ENTITY (SPE) PRIVATE VERSUS PUBLIC EQUITY CLAIMS STOCK MARKET INDICES, DOW-JONES INDUSTRIAL INDEX, S&P 500, NYSE, NASDAQ, RUSSELL INDICES, WILSHIRE 5000, FOREIGN INDICES, MORGAN-STANLEY CAPITAL INTERNATIONAL (MSCI) INDICES MARKET INTEGRATION, FRAGMENTATION ORGANIZED EXCHANGE, LISTED SECURITIES, OVER-THE-COUNTER MARKET EXCHANGE SEATS, MEMBERSHIP, SPECIALISTS, FLOOR TRADERS, COMMISSION AND FLOOR BROKERS FLOOR TRADING, SECOND, THIRD, AND FOURTH MARKET TRADING NEW ERA, SPECULATIVE BUBBLE THEORIES OF STOCK VALUATION Suggested Wall Street Journal or other Articles Monday, November 14, 2005 New Theorem For Merging of Regulators: 1>2 (C1) Major change in regulation of equity trading proposed by combining NASD and NYSE functions Archipelago to Launch Its Own Brand of ETF (C9) New developments in the hot market for exchange-traded funds Tuesday, November 15, 2005 AIGs Profits Falls 36% Amid Catastrophe Losses (B3) Profits of insurers illustrated by impact of hurricanes NYSE Dissidents Gain Some Support in Court (C3) Fascinating fight for control and distribution of value of exchange as its converts its ownership structure as we discuss this weed NYSE Could Rule by Thanksgiving On Sovereign Deal (C6) Interesting use of NYSE rules by minority group opposing bank takeover, illustrating powers of self-regulatory organizations Wednesday, November 16, 2005 Bernanke Affirms His Support For Specific Inflation Target (A2) Theory of monetary policy discussed by candidate for Federal Reserve chairman Bonds Signal Challenges Ahead for Economy (C1) Good application of interest-rate determination discussion we had earlier this semester Santander-Sovereign Deal Gives NYSE A Shot at Proving Its Policing Prowess (C1) Story illustrates the above-mentioned importance of NYSE ruling on takeover bid Nasdaq Is Preparing for Life Beyond Folur-Letter Symbols (C3) Assignment of stock ticker symbols discussed in change in practice on Nasdaq NYSE Will Settle Archipelago-Deal Spat With an Outside Review (C3) Restructuring of the largest equity exchange involves fights between owners, resolution of which are described here Thursday, November 17, 2005 Insurance Helps Balance Risk in Retirement (A2) Describes an insurance product idea, giving an example of innovation in insurance services Pension Measure Passes in Senate, But Hurdles Loom (A5) Legislative fixes to impending crisis in defined-benefit plans discussed to limit public liability (but unlikely to avoid it altogether) Foreign Investors Chant USA, USA (Corporate Bonds) (C1) Discussion illuminates this weeks analysis of Flow of Funds data on corporate debt in U.S. Debit-Card Issuers Pile on Rewards, and Fret (C1) Another example of problems in pricing transactions-processing systems to attain optimal level of usage U.S. Approves Exchange Deals and Seats at NYSE Hit Latest Record (both C3) ICEs Shares Soar in Trading Debut (C4) More stories on changing structure of organized exchanges, including story on exchange IPOs including the ICE, an all electronic trading platform A Message In the Bond Market (D1) Interpretation of the term structure and risk spreads, providing an example and application of theories we discussed earlier in the semester Friday, November 18, 2005 Young Traders Thrive in the Stock/Bond Nexus (C1) Great story on role of credit options and the focus on stock-bond pricing relationships, illustrating strength of KMV approach to credit risk analysis Wary Eyes Focus on Flat Yield Curve (C4) More stories on interpretation of term structure, great review for final 524 Week 14 Objectives (F\q! + > Q R m op()m5CJ CJ 5>*CJ\ 5CJ\>*56]65CJ5 (EF\H# $  B R } 0^`0 & F h0@&`0 & F hh@&^h@&$@&a$m} ( L  [ ! 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