Course info

Financial markets represent the lifeblood of our global economy. These mechanisms promote greater economic efficiency by transferring funds from individuals, businesses and governments with an excess of available funds to those with a shortage. Funds are transferred in the financial markets through the purchase and sale of financial instruments (such as stocks and bonds). Short-term financial instruments are available in money markets, while longer-term financial instruments are purchased and sold in the world’s capital markets. Many financial markets have been in existence for hundreds of years; however, the modern era has brought along many new innovations such as securitizations, derivatives, and cryptocurrencies.

This course reviews the economic variables that influence financial market activity. The first part of the course covers interest rates: what they are, how they are calculated, and some of the theories behind. It reviews the different types of interest and how interest rates affect the pricing of interest-bearing financial instruments, such as bonds. It also discusses how interest rates are derived under the ‘loanable funds theory’. It also looks at the risk structure of interest rates and illustrates how to calculate a bond’s yield given specific information regarding its risk structure.

The second part of this course covers central banking and monetary policy. It reviews the role that the Federal Reserve System (a.k.a. the Fed) plays in financial markets. It also looks at the tools used by the Fed to conduct its monetary policy and explains how these tools impact the U.S. money supply. Finally, it reviews the two measures used by the Federal Reserve to estimate the U.S. money supply (M1 & M2).