Warning: this is a preliminary syllabus and subject to change. Stay Tuned! Office Hours: Tuesdays 3 to 5PM; by appointment; you are welcome to ask questions any time I am in my office. Exception: I do not have office hours on exam days. Office hours end at 5 PM on the day prior to each of the first two exams. You are also welcome to email questions until 5 PM the day before each of the first two exams. Please be aware that I have another class on Mondays from 1 to 4 PM and plan accordingly. Office hours end at 5 PM on the last day of class. There are no office hours during final exam week. Blackboard review questions shall not be available after 6 PM on exam days. E-mail: Imre.Karafiath@unt.edu You are welcome to send questions about course material by e-mail. Please note that the rules regarding e-mail during exam weeks. Also, be aware that I will only e-mail grades to your Eagle Connect account. Course Title: Financial Markets and Institutions Course objectives: at the end of the semester, you will understand and you will be able to explain the basic functions and operations of the financial system. You will understand and be able to explain the history and role of the Federal Reserve System. You will also have mastered basic interest rate and bond price calculations Prerequisites: Please note that I do not audit prerequisites; it is your responsibility to know whether this class is appropriate for you. Text: (optional) Financial Markets and Institutions, [6 th edition] by Saunders and Cornett. Note that the book is optional and is intended as reference book, albeit incomplete. Used copies of the 4 th and 5 th editions seem to be widely available from the wellknown internet vendors. The earlier editions cover perhaps 90 per cent of the content for as little as 10 per cent of the price of the current edition. There are two copies of the text on reserve at the library (Two hour reserve for use in the library only.) Warning: Reading the textbook is not a substitute for class attendance! There is a nontrivial amount of content that will not be found in the textbook, and not all the material from the text is required. Page 1 of 8
Exams: There will be two midterms and a final. The final exam will be a comprehensive and cumulative exam. Your grade will be calculated according to one of the following two methods: Method 1: each exam is one-third of your grade. Method 2: the final exam is 100 per cent of your grade. I will assign your grade using the method which is to your benefit. Each exam will consist of multiple choice questions. At my discretion, I may give pop quizzes. Pop quizzes, if given, shall be strictly extra credit. Please be remember that by definition, a pop quiz is a surprise. You must take each exam with the section in which you are enrolled. Students who arrive after the first student has completed the exam and left the room may (at my option) be given a different set of questions. I may direct you to move to a different seat at the start of an exam, or during an exam. If you are instructed to do so, move promptly and quietly. You are not being accused of cheating or unethical behavior if you are directed to a different seat. Calculator: You are required to have a calculator. Bring your calculator to each class. Use of financial calculators is permitted; however, you may not use a calculator which can display equations. This means you may not use a calculator with a display consisting of more than one row. I will not assist you with your calculator during an examination. Formula sheets: not permitted. Be prepared to know all equations from memory on exams. Missed exams: If you miss either of the first two exams for any reason, the grade on the final will replace the grade on the exam that you missed. Be aware that the final serves as your make-up exam. You must take the final exam at the scheduled time. If you miss the final exam due to extenuating circumstances outside of your control, you may request an incomplete. The incomplete is not automatic; you must state your reasons and provide documentation. Please be aware that extenuating circumstances outside of your control are events such as trips to the emergency room. Page 2 of 8
Examination dates: Tentative date for midterm 1: Tuesday, February 21, 2016 Tentative date for midterm 2: Tuesday, April 4, 2016 Unless otherwise stated in the university final exam schedule, the final exam will be given at the usual class time during final exam week. Each exam shall be two hours. There is no lecture after the exam. Do not leave the room without permission during an exam. If you leave the room you have finished taking the exam and I shall collect it. (Medical emergencies are an obvious exception to this rule.) Three final exams on one day: you must request that I reschedule your final no later than Friday, April 14, 2016. Requests made after that day will not be considered. Grading scale: 90 % = A, 80 % = B, 70 % = C, 60 % = D, < 60 % = F. Please do not ask for a curve. You won t get one. It is your responsibility to check your grades on Blackboard. If you believe I have recorded a grade incorrectly (other than the final exam) you must notify me no later than Thursday, May 4 th. After May 4 th you may not request a correction to your grades as recorded (other than the final exam). Note to students travelling at the end of the session: Now is the time to make travel arrangements such as airline reservations. Do not wait until the last minute and then ask to take the final exam early. This is very unfair to other students who may feel that they have an equally good reason to take an early test, and you will not be allowed to take the final exam early. Page 3 of 8
DISABILITY ACCOMODATION The University of North Texas is on record as being committed to both the spirit and letter of federal equal opportunity legislation; reference Public Law 92-112 The Rehabilitation Act of 1973 as amended. With the passage of new federal legislation entitled Americans with Disabilities Act (ADA), pursuant to section 504 of the Rehabilitation Act, there is renewed focus on providing this population with the same opportunities enjoyed by all citizens. As a faculty member, I am required by law to provide "reasonable accommodations" to students with disabilities, so as not to discriminate on the basis of that disability. Student responsibility primarily rests with informing faculty of their need for accommodation and in providing authorized documentation through designated administrative channels. Information regarding specific diagnostic criteria and policies for obtaining academic accommodations can be found at http://www.unt.edu/oda/apply/index.html. Also, you may visit the Office of Disability Accommodation in the University Union (room 321) or call them at (940) 565-4323. If you need an accommodation, please contact me as soon as possible but at the latest by the second week of class. ACADEMIC DISHONESTY Academic dishonesty is defined in the UNT Policy on Student Standards for Academic Integrity. Any suspected case of Academic Dishonestly will be handled in accordance with the University policy and procedures. Possible academic penalties include a grade of F in the course. You will find the policy and procedures at https://policy.unt.edu/sites/default/files/untpolicy/pdf/7-student_affairs- Academic_Integrity.pdf If I suspect that you have engaged in academic dishonesty, I will deal with the situation as outlined in the University Policy shown above. EAGLE CONNECT ACCOUNT All students should activate and regularly check their EagleConnect (e-mail) account. EagleConnect is used for official communication from the University to students. Many important announcements for the University and College are sent to students via EagleConnect. For information about EagleConnect, including how to activate an account and how to have EagleConnect forwarded to another e-mail address, visit https://eagleconnect.unt.edu/ Page 4 of 8
STUDENT PERCEPTION OF TEACHING EFFECTIVENESS (SPOT) The Student Evaluation of Teaching Effectiveness (SPOT) is a requirement for all organized classes at UNT. This short survey will be made available to you at the end of the semester, providing you a chance to comment on how this class is taught. I am very interested in the feedback that I get from students, as I work to continually improve my teaching. I consider participation in the SPOT to be an important part of your involvement in this class and in all of your classes so please participate in the SPOT process. The administration of the SPOT will begin a couple of weeks before the end of the semester. You can access the SPOT instrument by going to http://www.my.unt.edu 1: Review of present value. (Chapter 2) Topics a. Present value of a single amount. b. Present value of an annuity. c. Present value of a perpetual annuity. d. Future value. e. The effect of compound interest. 2. Bond yields. (Chapters 2 and 6.) a. Treasury Bills, Notes, and Bonds. b. Corporate bonds and commercial paper. c. Bond ratings d. Coupon rate vs. yield to maturity; current yield. e. High yield bonds. f. Effective annual yield, bond equivalent yield, and discount yield. 3. Inflation and interest rates. (Chapter 2.) a. Fisher's equation: real and nominal rates. b. Inflation-indexed bonds. Page 5 of 8
4. Introduction to central banking. (Chapter 4.) a. The organizational structure of the Federal Reserve System: the Board of Governors and the Federal Reserve Banks. b. William Jennings Bryan, The Crime of 1873, the Cross of Gold and the Federal Reserve Act (1913) c. The discount window, the discount rate, the federal funds rate, open market operations, and the Federal Open Market Committee [FOMC.] d. Wicksell s insight: the natural rate and the market rate. e. Executive Order 6102, the Gold Reserve Act of 1934, and Bretton Woods (1944-1971) f. The independence of the Federal Reserve System, bond price supports 1942-51 and the accord. g. Reserve requirements and interest on reserves 5. Exam 1 about here. (Refer to page 3 and pay attention in class for more information.) 6. The Yield Curve. (Chapter 2) a. yield to maturity. b. STRIPS. c. forward rates. d. expectations and liquidity (term) premiums. e. forward rates as biased predictors of future spot rates. f. Interpreting the slope of the yield curve and changes in the slope. 7. Fiscal Policy and the Bond Market. a. Understanding the Monthly Statement of the Public Debt. b. The Fiscal Tsunami: unfunded liabilities of the federal government. 8. The Great Inflation 1 (1964-1979). a. Keynes in the driver s seat: economic policy during the Kennedy/Johnson administration. b. Milton Friedman, the rise of monetarism and the failure of Keynesian policy. c. Paul Volcker, and the October, 1979 regime change. d. The Phillips curve. 1 The Great Inflation is the title of a recent book by Robert Samuelson. Page 6 of 8
9. The Great Contraction: 2 1928-32 (Chapter 4.) a. The deposit multiplier: the relationship between total money, the currency ratio, the reserve ratio, and open market operations. b. Bank failures, the currency ratio, the reserve ratio, and the collapse of the money stock c. Open market operations 1930-32: the failure of the lender of last resort. d. Congress threatens to take control: the Thomas Inflation Amendments, 1933 e. The Roosevelt Recession and reserve requirements, 1935-37. 10. Exam 2 about here. (Refer to page 3 and pay attention in class for more information.) 11. The Norman Conquest of $ 4.86: England returns to gold 3, 1925 a. Foreign exchange: a.1 direct and indirect quotes, a.2 the mint parity, export point, and import point. b. The interwar gold standard, 1925-1931 b.1 the rules of the game b.2 the effects of an overvalued currency. 12. Duration and convexity. (Chapter 3.) a. calculating duration b. immunizing portfolios. c. usefulness of duration with shifts in the yield curve. 2 The Great Contraction is the title of a chapter from A Monetary History of the United States by Milton Friedman and Anna Schwartz. 3 The Norman Conquest of $ 4.86 is the subtitle of a book on this topic by Donald Moggridge. You may also be interested in reading Lords of Finance: The Bankers Who Broke the World, by Liaquat Ahamed. Page 7 of 8
13. Bank failures, deposit insurance reform, capital adequacy, and TARP: (Chapter 13.) a. Penn Square, Continental Illinois, and 'too big to fail.' [TBTF.] b. Risk based capital ratios: Basel I, II and III. c. FDICIA and regulatory forbearance. d. Senseless Panic 4 e. The Big Short: credit default swaps, leverage, hedge funds, and the financial crisis. 5 14. Review if time permits. 15. Final Exam 4 Senseless Panic is the title of a recent book by William Isaac, chairman of the FDIC during the 1980 s. 5 The Big Short is the title of a recent book by Michael Lewis. Page 8 of 8