Course BA 4345 Financial Markets and Institutions

Professor Michael Keefe, Ph.D. Candidate Finance

Term Fall 2009
Meetings TR, 10:00-11:15 AM in SOM 2.804

Professor’s Contact Information

Mobile Phone 972-333-0377
Office Location SOM 3.428
Email Address mok051000@utdallas.edu
Office Hours Tuesday – 2:00-4:00 P.M. and by appointment.

General Course Information

Pre-requisites, Prerequisite: BA 3341 Business Finance.
Co-requisites,
& other You are expected to have proficiency in time value of money concepts and calculations,
restrictions spreadsheet modeling and Internet skills.
This course focuses on money, financial markets and institutions. The objectives are: to
provide a perspective on how financial markets and institutions fit in to the economy; to
help you understand the importance of money, credit, and interest rates; to describe the
Course function of various financial markets - money markets, capital markets, foreign exchange
Description markets, derivatives markets, and their numerous financial instruments; to provide a
perspective on the business of financial institutions such as commercial/investment
banks, investment funds and their regulation; to help you understand the Federal Reserve
System and how it impacts monetary policy.
1. Students will internalize and become fluent in the language of financial institutions,
markets and their regulations.
2. Students will interpret current issues in financial markets using theories of risk,
information asymmetry, regulatory structure, and macro-economic models.
3. Students will download and interpret the relationship and time variation of financial
and economic data related to interest rates, risk, and money supply using Excel.
4. Given data on the term structure of interest rates, students will evaluate the
implications of shape of the yield curve on the U. S. economy.
5. Students will critically review a book and apply the author’s viewpoint to the current
Learning
financial crisis.
Outcomes
6. Students will exercise and refine presentation skills during presentations to the class.
7. Students will be able to differentiate between the various financial markets (money,
capital, spot, future, derivative, foreign currency, stock, bond) and their financial
instruments.
8. Students will appraise the Treasury Department’s White Paper on Financial Reform
and develop their own assessments regarding the proposal.
9. Students will evaluated the proposed Consumer Financial Protection agency using the
principals of behavioral finance.

Ritter, Silber, and Udell Principles of Money, Banking, & Financial Markets, Addison-
Wesley, 12th Edition, 2009
Required Texts
Tentative Books for Group Projects – One Per Student
& Materials
Akerlof, George A. and Robert J. Shiller Animal Spirits: How Human Psychology Drives
the Economy, and Why it Matters for Global Capitalism. Princeton, NJ: Princeton
University Press, 2009.

Bernstein, Peter L. The Power of Gold: The History of an Obsession. Wiley, 2000.

Bruner, Robert F., and Sean D. Carr. The Panic of 1907: Lessons Learned from the
Market's Perfect Storm. Hoboken, N.J.: John Wiley & Sons, 2007.

Delhaise, Philippe. Asia in Crisis : The Implosion of the Banking and Finance Systems.
Singapore; New York: J. Wiley & Sons (Asia), 1998.

Galbraith, John Kenneth. The Great Crash of 1929. Mariner Books, 1997.

Greenspan, Alan. The Age of Turbulence: Adventures in a New World. Penguin Press
HC, 2007.

Keynes, John Maynard. The Economic Consequences of the Peace. Skyhorse Publishing,
2007.

Kindleberger, Charles Poor. Manias, Panics, and Crashes : A History of Financial Crises.
New York: 3rd Edition, John Wiley and Sons, 1996

King, Tom S. The Great Texas Savings & Loan Financial Debacle : An Insider's
Perspective, 1984-1992. Bloomington, IN: AuthorHouse, 2006.

Lowenstein, Roger. When Genius Failed: The Rise and Fall of Long-Term Capital
Management. Random House, 2001.

Nayak, Satyendra. Globalization and the Indian Economy. New York: Routledge, 2008.

Shiller, Robert J. Irrational Exuberance. Doubleday Business, 2006.

Other Books of Interest

Allen, Franklin and Douglas Gale Understanding Financial Crises. New York: Oxford
University Press, 2009

Bernstein, Peter L. Against the Gods: The Remarkable Story of Risk. New York: John
Wiley & Sons, 1996.

Bernstein, Peter L. Capital Ideas: The Improbable Origins of Modern Wall Street. New
York; Toronto; New York: Free Press; Maxwell Macmillan Canada ; Maxwell
Macmillan International, 1992.

Biggs, Barton. Hedge Hogging. Hoboken, N.J.: Wiley, 2006.

Soros, George. The New Paradigm for Financial Markets: The Credit Crisis of 2008 and
what it Means. PublicAffairs, 2008.

Zandi, Mark. Financial Shock:Global Panic and Government Bailouts – How We Got
Here and What Must Be Done to Fix It 2nd ed. FT Press, 2009.
 Ross, Westerfield, and Jordan, Fundamentals of Corporate Finance, 8th Edition
Suggested
Texts,
Financial Calculator.
Readings, &
Materials
Wall Street Journal(Available in the library if you do not subscribe)
Practice The problems at the end of each chapter provide an excellent review of the material. I
Problems have assigned selected problems for collection, but would strongly encourage you to
think through the other problems as well.
Readings In the course outline below, I assign chapters to read from Ritter, Silber, and Udell
(2009) as well as articles, which I will place on WebCT.
Tentative Course Outline
Banking Other HW Due
Week Date Topic Chapter Reading Quiz Question Assignments
0 20-Aug Introduction 1
1 25-Aug Role of Money 2 1,2
27-Aug Financial Instruments, Markets, and 3 2.1 Excel 1
Institutions
2 1-Sep Interest Rate Measurment and 4 3,4
Behavior
W 3-Sep The Term Structure of Interest Rates 5 3.4, 4.5 Excel 2&3

3 8-Sep 5
10-Sep Group Presentations - Bond Funds

4 15-Sep Exam I (Ch. 1-6)

WP/WF 17-Sep The Structure and Performance of 6 5.4
Securities Markets
5 22-Sep The Pricing of Risky Financial 7,8 6,7 6.2, 6.4
Assets
24-Sep Derivatives 9 7.6, 8.6, 8.8
6 29-Sep CDOs and the Fiancial Crisis 8,9 9.5
1-Oct Group Presentations - Equity
Funds
7 6-Oct Exam II (Ch. 6-10)
8-Oct Behavioral Finace Nudge Readings

8 13-Oct Treasury Proposal for a Consumer White Paper Nudge Essay Part
Protection Agency 1
15-Oct The Nature of Financial 11 Nudge Essay Part
Intermediation 2
9 20-Oct Depository Finacial Institutions 12 11,12 11.1, 11.6, 12.5

WP/WF 22-Oct Exam III (Ch 11-13)

10 27-Oct Group Book Presentations Book Reviews Due
(Individual
Assignment)
29-Oct Financial Contracts 14 14 14.1, 14.5
11 3-Nov Group Thesis & Article Review Thesis Statement
Presentations w/ Article Review

5-Nov Regulation 15 15 15.1,15.4

12 10-Nov Financial Design 16,17 16.1, 16.3,16.4

12-Nov Who is in Charge Here 17.1, 17.4

13 17-Nov Treasury White Paper Discussion White Paper Figures and Charts
with Captions in
Excel

19-Nov Foreign Exchange 10 10.4, 10.7

14 24-Nov Exam IV
1-Dec Group Project Presentations
15 3-Dec Group Project Presentations
10-Dec Final Paper Due (Final Exam) Final Paper Due
Course Policies

There are four midterm exams. You will be given credit for the best three out
of the four midterm exams. Points for class deliverables are listed below.

Assessment Points
Homework 20
Quizzes 10
Midterms (Best 3/4) 60
Solo Book Review 25
Group Presentations 15
Thesis Statement w/ Article Review 10
Figure w/ Caption 10
Final Paper 25
Total 175

Grades are awarded for points as noted below. If you have points equal to the
top end of one range, you will earn the next grade. For example, a
Grading (credit)
Criteria
performance of 161 points earns an A for the class.

Range
Grade Low High
A+ 168 175
A 161 168
A- 154 161
B+ 147 154
B 140 147
B- 133 140
C+ 126 133
C 119 126
C- 112 119
D 105 112
F 96 105

If you have a conflict with an exam and arrange with me in advance, I will allow you
Make-up Exams to take an exam early if possible. Otherwise any missed exam will count as the exam
that you drop.
Extra Credit None.
Late work will not be accepted. Homework must be turned in at the beginning of
Late Work
class. Quizzes start at the beginning of class
I will assign each student to a group that will be responsible for one of the 10 books
listed on the syllabus. Each member of the group will write a review of the book.
Please note the Book Review is an individual assignment. However, in order to share
Special
the book with the class each group will briefly present their assigned book in class.
Assignments
As a group project, each team will apply the author’s ideas to a current issue in
financial markets and set forth a proposition (thesis statement), explain the author’s
position regarding that statement, review current articles about the proposition,
 identify historical and current data, and conclude with whether your gathered
evidence supports or contradicts your thesis proposition. More specific details will
be provided in class, but the finished product will be a 5 page paper (double spaced
with Times New Roman 11 point font) plus a cover page, references, and one
chart/table. The last two classes of the semester will involve group presentations.

In class you will have the opportunity to interpret current financial market issues and
articulate positions on policy. You should view this class as a safe environment to
development both your critical thinking skills and your ability to articulate your
position on a subject. Likewise, please be respectful of your classmates position;
Class Attendance
however, respect of an opinion does not mean you agree. In fact, I encourage you to
and Participation
both support and build upon your classmate’s argument as well as develop alternative
positions

Laptops are allowed in the classroom; however, if laptop use tends to stifle class
participation I will limit their use
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Class
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