Introductory description

After a short introduction to financial systems, we'll discuss interest rates and term structure, then think about the role that central banks play in influencing interest rates. After understanding the basics of interest rates, we'll learn about fixed-income securities. Next, we'll turn to equity markets and stocks, where we consider how stocks are priced and whether those prices are efficient. We then consider mortgage markets and securitization, and touch briefly on the financial crisis of the late 2000s. After mortgages, we turn to foreign exchange markets and currency exchange rates. To round out our coverage of financial markets and instruments, we'll discuss derivative instruments and their use in risk management. Finally, we'll turn to the topic of financial intermediation, where we'll learn about commercial and investment banking and mutual funds. In most weeks, you will have a set of problems to solve or a case study to consider, a few textbook chapters as primary reading, and an academic paper or two to provide background and depth.

Module web page

Module aims

Outline syllabus

This is an indicative module outline only to give an indication of the sort of topics that may be covered. Actual sessions held may differ.

Introduction to Financial System
Interest Rates and Term Structures
Federal Reserve and Monetary Policy
Money Markets and Bond Markets
Mortgage Markets
Equity Markets
Derivative Markets
Commercial Banking
Mutual Funds and Hedge Fund

Learning outcomes

By the end of the module, students should be able to:

• Demonstrate comprehensive knowledge of financial markets and instruments - especially mechanics, risks and motivations of different markets and instruments, e.g., equity, fixed-income, derivatives, and mortgage markets.
• Demonstrate a comprehensive understanding of financial systems, such as banking and financial intermediaries.
• Demonstrate a comprehensive knowledge of the role of Federal Reserve and the impact of monetary policy on interest rates and behaviour of financial markets
• Demonstrate a comprehensive understanding of the trading and portfolios by institutional investors such as mutual funds and hedge funds.
• Critically analyse the relation between federal funds rate and other various interest rates

Indicative reading list

Madura, J, 2013. Financial Markets and Institutions, 11th Ed., South-Western College Publishing.
Saunders, A. and M. M. Cornett, 2015. Financial Markets and Institutions, 6th Ed., McGraw-Hill Higher Education.
Fabozzi, F. J., ed., 2008. Handbook of Finance, Financial Markets and Instruments. Vol. 1. John Wiley & Sons.
Chacko, G., V. Dessain, P. Hecht, and A. Sjoman, 2006. Financial Instruments and Markets: A Casebook, 1st Ed., John Wiley & Sons.
Mishkin, F. S. and S. G. Eakins, 2006. Financial markets and institutions. Pearson Education.

Subject specific skills

Identify and evaluate the distinctive roles and motivations for the different financial markets
Evaluate the way of risk management by mutual funds and hedge funds
Evaluate the risk and return profiles of various investments made by mutual funds and hedge funds
Demonstrate the mechanics in details of instruments, such as stock, bond (government and corporate, nominal and real), option, futures, swaps, and structured-products (mortgage-backed securities)

Transferable skills

Written communication