This course introduces students to the financial system in the United States. It discusses the fundamentals and role of money and capital markets, including the variety of financial institutions operating in these markets, the financial instruments being traded, and the rules and regulations governing both the institutions and the markets. Particular attention is devoted to the management, structure, and regulation of commercial banks, including the management of risk and the development of public policy towards banking. The factors determining the level and structure of interest rates and the relationship of interest rates and bond prices are examined. The globalization of financial markets is examined, as are the fundamentals of international finance and exchange rates. The course also discusses the organization, functioning, and operation of the Federal Reserve System and how the “Fed” interacts with the private financial sector and the macroeconomy through regulatory and monetary policies to achieve the goals of the economy. The theory developed in the class is brought to bear on recent Fed actions and important current financial problems, such as financial crises, bank failures, inflation, mortgage market problems, and bank regulation (deregulation).
The basic textbook and study guide, plus supplementary handouts on current developments.
What the Student "Takes-Away" from the Course:
1. An understanding of the
U.S. financial system.
2. The basics of the U.S. money and capital markets.
3. The fundamentals of interest rates and bond pricing.
4. What banks are and how do they work.
5. The operation of and differences between different types of financial institutions, e.g., commercial banks, savings and loan associations, pension funds, insurance companies, mutual funds, and so on.
6. Basic elements of managing financial institutions.
7. How and why and by whom financial institutions and markets are regulated by the government, recent changes in regulation (deregulation), and the structure of the regulatory agencies.
8. The fundamentals of international finance and exchange rates and how domestic and foreign financial markets are interrelated.
9. The purpose, organization, and function of the Federal Reserve
10. How the Fed formulates and conducts monetary policy.
11. How the Federal Reserve impacts the economy through monetary policy.
12. Current financial and monetary issues, including the financial crisis of 2007-09.
Lectures and class discussion; homework assignments from study guide; visit to Federal Reserve Bank of Chicago.
Quizzes: Nearly every class (5 minute at class-end)
Two mid-terms and a final examination.
Final Examination ................ 30%
Two mid-terms ....................40%
Quizzes ............................... 25%
Class performance and
Homework assignments.......... 5%
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