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Money and Capital Markets: Financial Institutions and Instruments in a Global Marketplace, 8/e

Peter Rose, Texas A & M University

Standard & Poor's Questions

INTRODUCTION

Standard and Poor’s Market Insight, Educational Version contains key data and factual information on nearly 400 publicly traded companies (including nearly 60 leading domestic U.S. and international financial-service firms). Market Insight offers a wide range of learning opportunities for students and others seeking to broaden their knowledge of the money and capital markets and financial institutions. It can be a particularly effective educational tool for those instructors focused on encouraging their students to enthusiastically pursue knowledge about business decision-making, financial services, and the workings of the global financial markets.

Among the numerous sources of business and financial information that S&P’s Market Insight, Educational Version can provide students, teachers, and others anxious to learn more about finance are the following key elements:

Profiles on nonfinancial businesses and financial institutions and their industry groupings, including their history, operations, recent performance, and problems
Business and financial institutions’ quarterly and annual balance sheets, cash flow reports, and income statements
Financial ratios and stock price reports, kept timely by frequent updating
Trends in industry profitability and risk exposure
Recent business and financial news and unfolding news developments for key nonfinancial businesses, financial-service firms, and for whole industries
A professional assessment of the outlook for business and financial-services trade and sales growth for individual businesses, industries, and market areas around the globe
Information about acquisition and merger activity for leading businesses in the United States and abroad

USING STANDARD AND POOR’S MARKET INSIGHT, EDUCATIONAL VERSION IN CONJUNCTION WITH McGRAW-HILL/IRWIN’S MONEY AND CAPITAL MARKETS, Eight Edition

S&P’s Market Insight, Educational Version offers instructors in the fields of Money and Capital Markets, Banking, and Financial Institutions many options through which to pose intriguing questions for their students to research as well as presenting useful material for classroom testing purposes. A number of examples of questions, problems, and issues in the fields of business management, financial markets, and financial institutions that can be explored through S&P’s Market Insight, Educational Version are listed below. Some of these questions, problems, and issues apply to businesses, financial-service markets, and financial institutions as a whole and others focus upon problems and issues related to specific chapters in MONEY AND CAPITAL MARKETS, the new Eight Edition, 2003, written by Dr. Peter S. Rose and published by McGraw-Hill/Irwin. Hopefully you will find that both of these sets of questions, problems, and issues can significantly enhance the learning experience that students and others can achieve through the active use of this valuable S&P data and information resource.

GENERAL QUESTIONS ABOUT MARKET INSIGHT'S CONTENTS

After reviewing carefully the contents of S&P’s Market Insight, Educational Version, see how many of the questions listed below you can answer about this important new data and information resource:

Question 1

How many financial-service firms are represented on Market Insight? How many nonfinancial businesses are included in the Educational Version of S&P’s Market Insight? In total how many publicly traded firms are represented in Market Insight?

Question 2

How many different countries do Market Insight’s financial-service companies represent? Specifically, which countries are represented in this useful new database? How many financial firms are present in the S&P database from each country represented?

Question 3

What is a TIC? Why is this an important piece of information about each business firm on the S&P Market Insight list?

Question 4

What different financial-service industries are represented on the Market Insight database? And, which financial-service industries are NOT included in this S&P database? (You will find Part IV (Chapters 15-18) of MONEY AND CAPITAL MARKETS, 8th Edition, McGraw-Hill/Irwin, 2003) particularly useful in outlining an answer to this question.) How many financial firms appear in each financial-services industry represented on Market Insight?

Question 5

What is an SIC number as reported in S&P’s Market Insight? What do these numbers refer to? Why can it be important to know about SIC numbers? Explain the connection between SIC numbers, competition, and the possible application of the antitrust laws?

Question 6

Following up on Question #5 above, is there a relatively new code now scheduled to replace the SIC numbering system? What is this new numbering code and why can it be especially useful for studying businesses that are service providers (including financial-service firms)? (You may wish to check the Internet to help you answer this question, especially the National Technical Information Service (NTIS) at www.ntis.gov.)

Question 7

What financial services do the different industries listed on the S&P database provide to the public? Please make a list of key services under the name of each financial-service industry represented on S&P’s Market Insight, Educational Version. (You will find Chapters 15-17 and 21-22 of McGraw-Hill/Irwin’s MONEY AND CAPITAL MARKETS, 8th Edition, 2003, especially useful in helping you enhance your answer to this particular question.)

Question 8

How does the makeup or composition of financial statements (particularly balance sheets) differ between financial-service firms and other, primarily nonfinancial businesses? In short, how is a financial-service provider fundamentally different from other types of companies, as reflected in the contents of their financial statements? You may find it useful to develop your own sample of financial-service and nonfinancial firms drawn from Market Insight and then compare the appearance and structure of their respective financial statements.

Examples of financial and nonfinancial business that are present in the Market Insight collection and whose financial statements present interesting contrasts between financial and nonfinancial businesses include Aetna Inc., American Airlines Inc., American Express, Coca-Cola Company, and Citigroup Inc. Viewing the financial statements of these firms what differences really stand out? (Chapters 15 through 17 of McGraw-Hill/Irwin’s MONEY AND CAPITAL MARKETS, 8th Edition, 2003 should also prove helpful as you approach this question.)

Question 9

What are the principal differences between four of the most important types of financial institutions in the money and capital markets--banks, securities firms, insurers, and finance/credit-card companies--as reflected in their financial statements? Compare the financial statements of these four groups of firms represented on S&P’s Market Insight, Educational Version and make a list of the principal differences you observe. You may find it especially insightful to compare the financial statements of such financially oriented companies as Bank of America Corp (BAC), KeyCorp (KEY), Bear Sterns Companies (BSC), Goldman Sachs Group (GS), Schwab (Charles) Corp. (SCH), MetLife Inc (MET), American International Group (AIG), and Capital One Financial Corp (COF).

What appears to be happening to the differences between these four important financial-service industries over time? Why is this change occurring and what are its implications for the public and for financial-service companies themselves? (You may also find that Chapters 15, 17, 21, and 22 of McGraw-Hill/Irwin’s MONEY AND CAPITAL MARKETS, 8th Edition, 2003, represent an important additional source of information for tackling this question.)

Question 10

Let’s explore in greater detail the performance and makeup of a representative company from each of the four key financial industries discussed above in Question #9—banks, security broker/dealers, insurance companies, and finance/credit-card firms. We begin with the recent performance of a major securities broker/dealer firm and see what we can learn about what’s been happening in this particular financial-services industry.

In this example we focus upon Bear Stearns Companies Inc. (BSC), one of the largest and best-known securities firms today. See how many of the following questions about Bear Stearns you can answer using Market Insight and other sources (such as the company’s web site which is linked to Market Insight):

a. What were Bear Stearns total assets near the close of year 2000?
b. About much did its total assets grow from mid-1998?
c. What are the three principal assets on Bear Stearns’ balance sheet?
d. Is Bear Stearns principally a short-term or a long-term borrower of funds? How do you know?
e. What is Bear Stearns' principal source of equity (owners' capital)?
f. How much in total equity capital does Bear Stearns hold?
g. How much did the firm’s equity capital increase from 1998 to 2000?
h. What has happened recently to the firm’s revenue growth?
i. What is its principal source of revenue?
j. What has happened to the firm’s interest expense lately and why?
k. What is Bear Stearns’ principal expense category?
l. What happened to Bear Stearns’ pretax income between 1999 and 2001? Why?

(You may find Chapters 17, 18, 21 and 22 in McGraw-Hill/Irwin’s Money and Capital Markets helpful in expanding your answers to some of the questions listed above.)

Question 11

Continuing our exploration of four of the most important types of financial-service providers within the money and capital markets today let’s take a close look at a representative of the huge insurance industry. See how many of the questions listed below you can answer about one of the largest insurance companies by examining the recent financial statements of American International (AIG), a major insurer firm based in the United States.

a. What was the total of all assets at AIG in 2000?
b. How did AIG’s assets change between 1998 and 2000?
c. What proportion of total assets are held in AIG’s fixed assets?
d. What is the principal kind of asset held by AIG?
e. What are AIG’s three most important asset types or categories?
f. What are “separate accounts” and how have they grown?
g. What is the firm’s principal liability item?
h. Is AIG principally a long-term or a short-term borrower? How do you know?
i. What is the size of the company’s equity capital and how much did it grow between 1998 and 2000?
j. What has happened to AIG’s capital ratio in recent years?
k. Why did the firm’s pretax income fall between 2000 and 2001?
l. What has been their principal revenue source recently?
m. How fast have the firm’s total expenses grown?
n. Which AIG revenue source increased the most?
o. Why did expenses rise in the most recent period? Is this a cause for concern?
p. What happened to the firm’s cash account between 1998 and 2000? Can you figure out why?

(You may find Chapters 17, 18, and 21 in McGraw-Hill/Irwin’s Money and Capital Markets particularly useful in helping you develop your answers to the above questions.)

Question 12

Continuing our overview of representative companies from each of the four key types of financial-service firms let’s look at a commercial bank. The banking industry has passed through great changes in its structure and organization and in its financial reports in recent years. We examine what has happened recently to one of the largest and most respected banks in the U.S. and the world, the Bank of America(BOA). See how many of the questions listed below you can answer.

a. What were BOA’s total assets in 2000?
b. Did the firm’s assets rise or fall between 1999 and 2000?
c. What were the principal reasons behind BOA’s change in total assets?
d. What happened to BOA’s investments in securities and why?
e. What proportion of BOA’s total assets are fixed assets? Why is this proportion so low? Is this typical of most banks?
f. What is BOA’s principal kind of deposit?
g. How much did its deposits rise from 1999 to 2000?
h. Where did the rest of BOA’s operating funds come from?
i. What has happened recently to BOA’s reserve for credit losses?
j. What has been the trend in the firm’s equity capital?
k. Did their risk-adjusted capital ratio rise or fall?
l. How has the margin between interest revenue and expense changed recently at BOA? Why do you think this is so?

(You may find Chapters 15 and 18 in McGraw-Hill/Irwin’s Money and Capital Markets helpful in building your answers to the questions listed immediately above.)

Question 13

In addition to security broker/dealers, banks, and insurance companies a variety of other financial firms have grown to prominence in recent years, particularly finance and credit card-focused firms. One good example is Capital One Financial Corp(COF). Let’s examine some of the interesting features of some of its most recent financial statements by answering the following questions:

a. What appears to be Capital One’s principal service line?
b. What has occurred in the firm’s cash and investments accounts and can you guess why?
c. What has happened to Capital One’s credit losses recently? Can you assess the reason or reasons?
d. What has happened to the firm’s fixed assets over the 1998-2000 period? Can you explain why?
e. How have Capital One’s total assets changed recently?
f. What is Capital One’s principal type of deposit?
g. Has there been substantial growth in its nondeposit borrowings?
h. What is Capital One’s principal source of equity capital?
i. Did the firm’s equity capital rise or fall between 1998 and 2000?
j. What has happened to its revenue growth?
k. What is Capital One’s major revenue source?
l. What has happened recently to the firm’s expenses?
m. What is Capital One’s number one expense item?
n. How have Capital One’s earnings done in recent years?

(You will discover that Chapters 15, 17, and 23 from McGraw-Hill’s Money and Capital Markets can be helpful in answering some of the questions listed above.)

Question 14

Before we leave this section let’s conduct an overview of a foreign-based financial-service firm contained in the Market Insight list of companies. One of the best known in the international financial marketplace today is Barclays PLC, based in Great Britain, a leading multinational bank. Is Barclays PLC of London more profitable or less profitable than banking industry as a whole? Why do you think this is so? Where did you find the information needed to answer this question? (Note: you may find Chapters 15 and 26 in McGraw-Hill/Irwin’s Money and Capital Markets useful in exploring this question.)

PROBLEMS AND ISSUES FOR SELECTED CHAPTERS

For chapter-specific problems, please click on a chapter in the left-hand menu and choose Standard & Poor's Questions.

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