Course description

Financial Markets and Institutions

Introduction

Financial markets are instrumental to the workings of the economy. However, these markets do not exist 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, if measured by volume traded or the share of the total output of the economy. This and the recent financial crisis have brought into light the importance how financial markets actually work.

The objective of this course is to provide an in-depth introduction into the workings of modern financial markets. There are many different “players” using these markets. On one hand, corporations, governments, and other institutions use the financial markets to raise funds (issue equity and debt) for capital investments. On the other hand, these funds are provided by private and institutional investors as well as intermediaries, banks, pension, mutual funds, etc.

More specifically, the course focuses on the mechanisms by which securities are issued and traded in modern financial markets and the implications for the efficiency and liquidity of markets. It covers all major asset classes (money markets, bonds, equities, FX, and derivatives), with a special emphaisis on interaction between financial analysis and institutional characteristics.

Course content

  1. Introduction to financial markets
  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  and money markets
  6. Financial markets: Instruments, Primary vs. Secondary markets
  7. Generic market structures (secondary markets)
  8. Market liquidity
  9. Financial crises
  10. Pension and mutual funds

Learning outcome knowledge

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

  • Sources for demand and supply of capital to financial markets
  • Trading of financial assets
  • Participants in financial markets
  • Major financial assets and institutions relevant to all households

Exam organisation

  • Written assignment: 20%
  • Written assignment: 10%
  • Written exam: 70%