Introduction to financial markets

Teacher(s)

Praet Alain;

Language

Dutch

Learning outcomes

At the end of this learning unit, the student is able to :

This course provides a concise overview of the role and the institutional structure of the financial markets and institutions. Students learn the basic terminology of the financial world so they can easily understand financial economic reports. In order to encourage students to follow the financial press, they will be asked to link newspaper articles to various parts of the course. The main objective of the course is to enable students to understand and use introductory concepts such as the time value of money, the term structure of interest rates, pricing of financial instruments and the risk-return trade off.

Content

In a first part, money and the financial system will be introduced. In order to enable the pricing of financial instruments, the time value of money will be addressed. Present and future value calculations of a single cash flow, of cash flow streams, annuities and perpetuities will be taught.
Both money market (treasury bills, commercial paper, repo) and capital market products (bonds, stocks) will be discussed. We will go into the pricing and the risk of bonds and stocks.
Finally the importance of financial intermediaries is addressed, focussing on the structure of the financial industry, the depository institutions and the regulator.

Contents in detail:

Part 1: Introduction:
Why study money, banking and financial markets?
An overview of the financial system with a focus on the European and Belgian Markets
What is money?

Part 2: Financial Markets
The meaning of interest rates, annuities, perpetuities and loan tables
The behavior of interest rates
Risk structure of interest rates
Stock markets and the efficient market hypothesis

Part 3: Financial Institutions
An economic analysis of financial structure
An introduction to banking and general principles of bank management
Financial crises in advanced economies

Teaching methods

The lecture
During the lectures the theoretical concepts will be explained. Students will be encouraged to participate to class, answering to questions that will be raised.

TA sessions
Students will have the opportunity to solve problems under the guidance of an assistant. Students are encouraged to review the lecture before attending exercise classes.

Evaluation methods

During a two-hour written exam the knowledge of the theoretical concepts - presented during the lectures - as well as the ability of the student to solve problems related to those covered during the exercise sessions will be evaluated. It should be noted that for this course students are expected to follow the financial news. All documents (newspaper articles e.g.) that are mentioned in class will also be part of the exam material.

Other information

On the university’s electronic platform the following additional information will be offered:
- a copy of the slides used in class
- the exercises that will be solved during the exercise classes. Additional exercises will be added (partially with solutions).

Bibliography

Reference work : The Economics of Money, Banking and Financial Markets (11th Edition) (The Pearson Series in Economics) – Frederic S. Mishkin

Faculty or entity

ESPB