International Financial Markets

International Financial Markets Course Code: Please leave this blank. Language of Instruction: ENGLISH Course Instructor(s): Please provide a short bi...
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International Financial Markets Course Code: Please leave this blank. Language of Instruction: ENGLISH Course Instructor(s): Please provide a short bio as well as contact information(email). Piotr Łasak Education: 2010 – Associate Professor in Economics 2008 – PhD in Economics – Jagiellonian University, Faculty of Management and Social

Communication 2003 – MA in Economics – Cracow University of Economics, Faculty of Finance Academic interests: International finance, Financial crises, Financial markets supervision, Globalization

Contact: Email:

[email protected]

Description:

The aim of the course is to provide students with a general overview of the functioning of international financial markets. Among the main themes are: theory of financial markets, the structure and development of financial markets, types of exchange rate systems, the consequences of the global financial crisis for financial markets and economies in different countries (EU, US, Japan), main issues of financial market regulations, financialization of the economy and its consequences. Type of course: Please leave this blank, it will be filled out for you (mandatory, elective, depending on the programme).

Year of Studies: Please leave this blank. Number of ECTS points: 4,5 Prerequisites (if applicable): Basic knowledge of micro and macroeconomics

Intended Learning Outcomes: Please select up to 5 learning outcomes from the excel sheet provided, taking into consideration the different skill sets that the students will develop. EK1: Deepened knowledge about the financial architecture in the EU (K_W11 ++) EK2: An advanced and well-ordered scope of knowledge on the international financial markets terminology and the operating principles of the markets (K_W13 +++) EK3: An advanced scope of knowledge about the theory of European integration and the creation of a common market for financial services (K_W14 +++) EK4: Ability to analyse, compare and interpret facts and processes taking place in the international financial markets (K_U06 +++) EK5: Ability to prepare presentations and communicate information, ideas, problems and solutions relevant to financial markets and their functioning. (K_U10 +++) Notices and announcements: Consultations after prior appointment made via regular email. COURSE ORGANISATION Winter Semester Time and Place: will be posted by CES in the online calendar Course type: Lecture Contact hours: 30 Breakdown of ECTS credits: 1 ECTS = 30 h of lectures 2 ECTS = 60 h of students’ individual preparation for lectures (readings, discussion questions) 0,7 ECTS = 20 h - work on project 0,8 ECTS = 25 h – students’ preparation for final exam Total hours: 135 = 4,5 ECTS Didactic methods used: Lectures, discussions Mode and criteria of assessment of learning outcomes : Please indicate the mode and criteria for each learning outcome indicated above. EK1, EK2, EK3, EK4 – exam EK5 - project

Assessment Components of the final grade: 1. Active participation in class = 10% of final grade 2. Project (according to the selected topic, concerning current events in the financial markets) = 20 % of final grade 3. Final Exam = 70% of final grade Final Exam: the form of written test: multiple choice test - 50 questions fill-in-the blank test - 20 questions

COURSE STRUCTURE No.

Session Title

1.

Financial market structure, institutions and instruments

2.

Banking system

3.

The role of the central bank

4.

Money market and bond market

5. 6. 7. 8. 9. 10. ETC.

Capital market Foreign exchange European economic and monetary union Financial and currency crises Financial markets regulation The current situation on the global financial markets – financialisation and its cosnequences

DETAILED COURSE STRUCTURE Session no. 1 Financial market structure, institutions and instruments Format Lecture + conversation Aim of the session, main issues General characteristics of the financial market: discussed 1. Theory of financial markets 2. The structure of the financial market and the main players (lenders, borrowers and intermediaries) 3. Various forms of capital (e.g. bank loans, bonds, equity) Key readings for the session Stephen Valdez, Philip Molyneux, An Introduction to Global Financial Markets, Part One: Introduction

Questions for class (based on readings)

discussion 1. Discuss the difference between primary and secondary markets 2. Outline the main differences between bonds and equity 3. Are government bonds different to corporate bonds? Additional/further readings I. Hardie, S. Maxfield, What does the global financial crisis tell us about Anglo-Saxon financial capitalism?, Paper prepared for Workshop on The Financial Crisis, EMU and the Stability of Currencies and the Financial System University of Victoria, October 2010.

Session no. 2 Banking system Format Lecture + conversation Aim of the session, main issues General characteristics of the banking: discussed 1. Types of bank 2. The bank’s balance sheet and the creation of credit 3. Commercial banking and investment banking – main issues 4. Major world banks Key readings for the session Stephen Valdez, Philip Molyneux, An Introduction to Global Financial Markets, Part Two: Banking Questions for class (based on readings)

discussion

Additional/further readings

1. Examine the role of liquidity in banking. How is liquidity linked to capital/ solvency? 2. Discuss the key challenges faced by retail banks. 3. Examine how new technology impacts on retail banking activity. 4. Outline the main roles played by investment banks. Explain how their activities may complement traditional commercial banking. S. Heffernan, Modern Banking, John Wiley & Sons Ltd., West Sussex 2005.

Session no. 3 The role of the central bank Format Lecture + conversation Aim of the session, main issues The role and importance of central banks: discussed 1. History of central banking 2. Central banks activities 3. The position of central banks today 4. Unconventional monetary policy – case studies (FED, Bank of England, ECB) Key readings for the session 1. Stephen Valdez, Philip Molyneux, An Introduction to Global Financial Markets, Part Two: Banking. 2. Monetary policy and the economy, available at: http://www.federalreserve.gov/pf/pdf/pf_2.pdf Questions for class discussion 1. Discuss whether it matters if a central bank is independent or (based on readings) not? Can a central bank ever be truly independent from political influence? 2. Evaluate the role of the central bank as a lender of last resort and explain the role of moral hazard. 3. Discuss whether monetary policy can be effective when interest rates are close to zero, making brief reference to the role of quantitative easing. Additional/further readings M. Joyce, D. Miles, S. Scott, D. Vayanos, Quantitative easing and unconventional monetary policy – an introduction, “The Economic Journal”, November 2012.

Session no. 4 Money market and bond market Format Lecture + conversation Aim of the session, main issues The role and importance of money market and bond market: discussed 1. The main features of the money market (the rate of interest, credit ratings etc.) 2. The main features of the bond market (types of bonds, bond

market participants, distinction international bond markets)

between

domestic

and

Key readings for the session

Stephen Valdez, Philip Molyneux, An Introduction to Global Financial Markets, Part Three: The Money and Bond Markets

Questions for class (based on readings)

1. Outline the main types of bonds and their different features. Highlight the main differences between corporate bonds and government bonds. 2. Examine the role of Euromarkets and discuss the main debt instruments linked to these markets. 1. H. Mai, Money market funds – an economic perspective, ‘EU Monitor. Global financial markets’, Deutsche Bank 2015. 2. Economic Importance of the Corporate Bond Markets, International Capital market Association, March 2013.

discussion

Additional/further readings

Session no. 5 Capital market Format Lecture + conversation Aim of the session, main issues Capital market characteristics: discussed 1. History of capital markets in different countries 2. Efficient market hypothesis 3. Main stock exchanges and the processes of their development 4. The listing process and trading systems 5. Hedge funds and their strategies 6. Private equity Key readings for the session Stephen Valdez, Philip Molyneux, An Introduction to Global Financial Markets, Part Three: Stock Exchanges, Hedge Funds and Private Equity. Questions for class (based on readings)

discussion 1. Outline the major market indices and briefly explain how they are constructed. 2. What is the difference between exchange traded and OTC transactions? 3. What are the differences between stock exchanges and alternative trading systems? 4. Analyse the main characteristics of hedge funds and explain their role in modern financial markets 5. Examine the main differences between hedge funds and private equity firms. Additional/further readings D. Lacalle, Life in the Financial Markets, John Wiley & Sons, West Sussex 2015, Part III: Hedge funds and the stock market.

Session no. 6 Foreign exchange Format Lecture + conversation Aim of the session, main issues Basic issues concerning exchange rates discussed 1. Type of exchange rate 2. Exchange rate regimes 3. Exchange rate determinants 4. Foreign exchange market (buyers/sellers, calculation, forward rates calculation. 5. Impact of the exchange rates on the economy.

cross

rates

Key readings for the session

Stephen Valdez, Philip Molyneux, An Introduction to Global Financial Markets, Part Four: Foreign Exchange.

Questions for class (based on readings)

1. Enumerate and briefly explain the main factors affecting the exchange rate. 2. Enumerate and briefly explain the main types of exchange rates regimes. 3. What were the main objectives of the Bretton Woods System? 4. What does the term ‘currency wars’ mean? Is it a real threat to the economy today? J. Rickards, Currency wars, Portfolio/Penguin, London 2011.

discussion

Additional/further readings

Session no. 7 European economic and monetary union Format Lecture + conversation Aim of the session, main issues The process of economic, financial and monetary integration in discussed Europe: 1. Brief history of the European Union and its financial policy. 2. The steps towards the European Monetary Union (Werner Reoprt, European Monetary System, the Delors Plan, the Maastricht Treaty, EMU, ERMII). 3. Legislation impacting on the EU financial sector. 4. Structural indicators of EU financial market. 5. The main EU institutions and their role 6. Eurozone sovereign debt crisis – its causes, courses in selected countries and consequences. Key readings for the session Stephen Valdez, Philip Molyneux, An Introduction to Global Financial Markets, Part Four: European Economic and Monetary Union. Questions for class (based on readings)

discussion 1. Examine the impact of the EU on European financial markets and institutions. 2. Analyse the main features of EU banking systems and highlight recent trends. 3. Examine the main features of the eurozone sovereign debt crisis. Will it lead to the break-up of the monetary union? Additional/further readings Optionally: F. P. Mongelli, European economic and monetary integration and the optimum currency area theory, European Commission ‘Economic Papers’ no 302, February 2008.

Session no. 8 Financial and currency crises Format Lecture + conversation Aim of the session, main issues Anatomy of the most important types of financial crises: discussed 1. Theories and models of financial crises (three generations of currency crises, banking crises, Minski’s theory of financial crises) 2. Historical examples of financial crises 3. Financial crisis of 2007-2008 - its main causes and consequences (moral hazard, liquidity trap, debt deflation, shadow banking, securitization) 4. Development of the last crisis in different countries – case studies

Key readings for the session

1. N. Roubini, S. Mihm, Crisis Economics: A Crash Course in the Future of Finance, Penguin Books 2011. 2. K. Rogoff, C. Reinhart, This Time is Different: Eight Centuries of Financial Folly, Princeton University Press 2011. Questions for class discussion 1. What are the main causes of the 2008 global financial crisis? (based on readings) 2. Discuss how much was lending to the property sector in US to blame for the last crisis? 3. Examine the role of too big to fail in banking. 4. Explain the main causes of the banking and debt crisis. Are there any correlations? Additional/further readings Financial crises, “The Economist”, 12 April 2014.

Session no. 9 Financial markets regulation Format Lecture + conversation Aim of the session, main issues The essence of the present regulation of financial markets: discussed 1. Brief history and main models of the financial market regulation. 2. Rationale for bank regulation. 3. The rise of Systematically Important Financial Institutions (SIFIs) and the definition of ‘systemic risk’. 4. US and EU regulatory response to the crisis of 2007-2009. 5. The main issues of global financial regulation(approach, architecture, implementation). Key readings for the session 1. H. Davies, Global Financial Regulation after the Credit Crisis, ‘Global Policy’ Vol. 1, Issue 2, May 2010. 2. Stephen Valdez, Philip Molyneux, An Introduction to Global Financial Markets, Part Two: Regulation Questions for class discussion 1. What is the structure of global financial regulation after the (based on readings) crisis of 2007-2009? 2. Outline the major features of the ‘post crisis’ regulation in EU and USA. How is it expected to impact the banks behaviour? 3. What are SIFIs? Why and how should they be regulated? 4. Describe the ‘post crisis’ way of financial market regulation in European Union. 5. Briefly explain why EBA is undertaking ‘stress tests’ on European banks. 6. What are the pros and cons of ‘banking union’? Additional/further readings H. Davies, Global Financial Regulation: The Essential Giude, Polity 2008 (selected fragments). The current situation on the global financial markets – financialisation and its cosnequences Format Lecture + conversation Aim of the session, main issues The role of financial markets in the global economy: discussed 1. The anatomy of financialization. 2. Impact of financialization on different aspects of the economy. Session no. 10

Key readings for the session

1. R. Greenwood, D. Scharfstein, The Growth of Finance, ‘Journal of Economic Perspectives’, Vol. 27, No. 2/2013. 2. Optionally: T. I. Palley, Financialization: What It Is and Why It Matters, The Levy Economics Institute ‘Working Paper No. 525. 3. Optionally: N. van der Zwan, Making sense of financialization, ‘Socio-Economic Review’ No 12/2014. Questions for class discussion 1. How do you understand the concept of financialization? (based on readings) 2. Give examples of the impact of financialization on the everyday life. Additional/further readings P. H. Dembinsky, Finance: Servant of Deceiver? Financilization at the Crossroads, Palgrave Macmillan 2008. Please fill in the details of each session you will have.