Financial Markets

Main theme is societies' dependency on capital markets and capital market institutions to facilitate orderly transfers of savings from surplus-spending units ('savers') to deficit-spending units ('borrowers') undertaking real investments.

The process allows for desynchronization (ie. separation) of income from consumption across time and economic states of nature, as well. Firms' issuance of debt and equity is in this context rationalized as contributing towards market completeness allowing risk-adverse investors to diversify their holdings of securities with unique, state-dependent payoffs, and thus consumption, across time and economic states.

Course outline

The course consists of two integrated modules:

Module 1: Introduction to Financial Markets and Institutions

  • Supply and demand for savings: Determination of the general level of interest rates
  • Loanable funds, interest rates and security valuation

Module 2: Major Financial Markets and Securities

  • The bond market (the trading place for public and corporate debt)
  • The stock market (the trading place for corporate equity)
  • The foreign exchange market (the trading place for foreign currencies)

 

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