APPLIES TO ACADEMIC YEAR 2016/2017

EXC 3670 Financial Markets and Institutions

Responsible for the course
Dagfinn Rime

Department
Department of Finance

Term
According to study plan

ECTS Credits
7,5

Language of instruction
English

Introduction
Financial markets are instrumental to the workings of the economy. However, these markets do not exists in a vacuum but evolve from the interactions of market participants within the boundaries of market institutions. The importance of financial markets have grown over time, measured e.g by volume traded or the share of the total output of the economy. This, together with the recent financial crisis, has brought into light the importance how financial markets actually work.

The objective of this course is to provide a in-depth introduction to the workings of modern financial markets. There are many different “players” using these markets. On the one hand, corporations, governments, and other institutions use the financial markets to raise funds (i.e. borrow money) for capital investments. On the other hand, these funds are provided by private and institutional investors (by buying securities issued by corporations, or depositing money with banks, etc.) Banks and other financial institutions (e.g. pension or mutual funds, etc.) act as intermediaries between investors and borrowers.

More specifically, the course focuses on the mechanisms by which securities are traded in modern financial markets and the implications for the efficiency and liquidity of markets. It covers all major asset classes (money markets, equities, FX and bonds), but with a special emphaisis on the role of central banks and money markets.

Learning outcome
Acquired Knowledge
The students will acquire a good understanding of how different financial markets work. More specifically the students will develop their understanding with respect to the following topics:

• Understand sources for demand and supply of capital to financial markets
• Know who is participating in financial markets, and understand how financial assets are traded.

Prerequisites
EXC 2910 Mathematics, EXC 2904 Statistics, EXC, 2110 Basic Financial Management, or equivalent.

Compulsory reading
Books:
Bodie, Zvi, Alex Kane, Alan J. Marcus. 2013. Essentials of investments. 9th ed. McGraw-Hill
Saunders, Anthony, Marcia Millon Cornett. 2015. Financial markets and institutions. 6th ed., international ed. McGraw-Hill/Irwin

Other:
Lecture notes, cases, additional exercises and examples will be available on the course-website on itslearning. List of papers will be necessary because the books are too non-technical.
Markus K. Brunnermeier, Isabel Schnabel.. 2015. Bubbles and Central Banks: Historical Perspectives
Tom Bernhardsen, Arne Kloster and Olav Syrstad. 2012. RISK PREMIUMS IN NIBOR AND OTHER COUNTRIES’ INTERBANK LENDING RATES. Norges Bank Staff Memo. 21


Recommended reading
Books:
Valdez, Stephen, and Philip Molyneux. 2013. An introduction to global financial markets. 7th ed. Palgrave MacMillan

Course outline

1. Introduction to financial markets:Fundamental principles of finance
2. The financial system
3. Market participants: Governments, firms, funds, asset managers, banks, central banks, regulators, etc.
4. Intertemporal consumption (Fisher model)
5. Interest rates: Loanable funds equilibrium
6. Central banks and money markets
7. Financial markets: Instruments, Primary vs. Secondary markets
8. Generic market structures (secondary markets)
9. Market liquidity
10. Financial crises
11. Other Issues and controversies in financial markets