FIN644 Syllabus Fall 2014 1

Lubin School of Business
Pace University
Fall 2014 Course Information

FIN 644 - Money and Capital Markets

Instructor Information

Arthur L. Centonze, PhD
Telephone: 212-618-6566
Email: acentonze@pace.edu
Office: W- 443
Office Hours: Monday 4:30-5:30 WPGC; Wednesday 10:00-1:00; 4:30-5:30 NYC

Required Materials

Mishkin, Frederic, Economics of Money, Banking, and Financial Markets; Business School Edition; 3rd ed., Pearson, 2013. ISBN: 0132961970

Relevant articles are assigned in the course outline that follows. They may be accessed through institutional websites and the Pace University Library.

Students are expected to read the assigned materials prior to class. Class discussion will usually cover the most challenging concepts and issues, and serve to reinforce and extend the material in the readings.

You are expected to remain current on business, finance, and economic developments by reading relevant articles in newspapers such as The Wall Street Journal, New York Times and Financial Times, and weekly magazines such as Business Week and the Economist. Watch CNBC. You are also encouraged to bring up relevant current events and issues for class discussion.

Recommended Reading

The Federal Reserve Bank of New York has a number of free publications that explain the structure and functions of the Federal Reserve System and the economic concepts relevant to its work. For example:
The Federal Reserve System: Purposes and Functions, Board of Governors, 9th Edition, June, 2005; and The International Journal of Central Banking. Other free web sources for economic data and research articles are listed elsewhere in this syllabus. Course Description

Studies the flow of funds in the short-term and long-term financial markets. Sources and uses of funds, interest rate theory, the role of the Federal Reserve System and the U.S. Treasury are studied to provide the background for interpretations of current developments.

Course Overview

The economic and financial principles covered in this course are essential to understanding financial markets and institutions and the role of central banking and monetary policy, domestically and internationally. The course is designed to provide masters level students with the economic and financial tools and conceptual framework to better understand and analyze the structure of financial systems, and the government policy environment in which financial systems operate. Students are encouraged to consider the effects of the financial system on society at large and on business investment decisions in particular. The course develops the theoretical and policy framework useful to the study of advanced topics in finance and banking.

Learning Objectives

1. Understand money; interest rates; financial instruments, markets and institutions; and central banking.
2. Understand and evaluate the implications of monetary policies on the financial system and the real economy, both domestically and globally.
3. Acquire skill in applying relevant financial theories, concepts and tools to business situations in dynamic market environments, both domestically and globally.
4. Enhance your ability to research, analyze, debate, decide and communicate complex issues.
5. Enhance your ability to work successfully in teams.

Teaching/Course Methodology

This is a lecture course with some interactive work. It combines lectures with readings, class discussions, problem solving, and group presentations. Questions and thoughtful comments are encouraged in order to enliven the material and to benefit from the experience and collective insight of the students in the class.

Students are encouraged to communicate with me through office visits, email and telephone.

Students are expected to attend each class. If you absolutely must miss a class, or be late, please inform me in advance via email.

Cell phones, PDA’s, etc. should be turned off during class. If you wish to use a laptop or tablet in class you are asked to sit in the front of the classroom.

Course Requirements

In addition to the readings, midterm and final exams, regular class attendance and participation, students will complete three assignments.

At least for two of the following assignments, students will divide up into study groups of 3-4 students. Study groups should form in the first class and be diverse in terms of gender, nationality and ethnicity. Hand me a sheet of paper at the end of the first class with the full names of the group members clearly printed. Indicate (M) for male and (F) for female after each name. I reserve the right to reassign students to different study groups in order to enhance group diversity.

1. Problems relevant to the class material are embedded in each week’s lecture slides, plus additional problems from the textbook are assigned by chapter and number at the end of the lecture slides. Some of the problems that are embedded in the slides we will do in class. You are required to solve on your own, or with your study group, those embedded problems we do not do in class, as well as the problems assigned from the textbook. You are encouraged to bring any questions you may have about any of the problems to class the following week for discussion. Your solutions to the problems will not be collected; however, I may call on some of you in the following week’s class to provide the solutions. Solutions to the problems will be posted with a lag on Blackboard, Course Documents.

NOTE: The midterm and final exams will consist largely of very similar problems to those in the slides and textbook. If you do not work out the problems and understand the theory that underlies them, experience has shown that you will not perform well on the midterm and final exams.

Study questions are provided in some of the slides to emphasize important material that may not be covered fully by the problems embedded in the slides or assigned from the textbook. You are encouraged to use them to help you learn the material at a high level. They are not a substitute for the problems, and are provided to help guide your studying and exam preparation. Solutions to the study questions will not be provided.

2. A group PowerPoint Presentation on a topic selected by the study group from a list of topics provided below. Since topics are on a first come, first served basis, each study group should send me their first and second choice topics via email no later than the third class session. All group members are to be copied on the email. I will assign each study group a presentation date consistent with the material covered in the course. Presentations will begin after the midterm exam. No written report is required. Another group will be assigned to prepare questions and begin the Q&A for each presentation.

A set of guidelines for preparing your topical outline, presentation, and questions is posted on Blackboard, Course Documents. Everyone is required to read the guidelines so that you are aware of deadline dates and expectations for the assignment. Choose one of the following topics. If you have another topic in mind, please suggest it to me as soon as possible for authorization to proceed. You are welcome to discuss topics with me at any time prior to the topic due date, and presentation content any time prior to the presentation date. - What does the yield curve tell us about recessions?

- Does the rise in euro zone sovereign debt risk pose a challenge to its banking system?

- Should central banks attempt to deflate asset price bubbles?

- Did monetary policy in Japan prolong the lost decade?

- Did US monetary policy lead to the financial crisis of 2007? - What are the lessons of the Argentine currency board experience in the 1990’s? - What was Brazil’s experience under inflation targeting?

- What would happen if China opened its capital markets and allowed the Yuan to float freely?

3. Discussion of monetary policy announcements. Central banks meet regularly to decide on monetary policy. In the class immediately following a meeting of one of the major central banks such as the Fed, European Central Bank, Bank of England, and Bank of Japan we will discuss their monetary policy announcements. You are responsible for being prepared to discuss the contents of the announcements in class.

Course Grading

Midterm exam: 30%
Group presentation: 30%
Final exam: 40%

Since it is important to integrate what you learn and be able to express it effectively, students are expected to participate actively in class by engaging in discussions and raising relevant and thoughtful questions. Lack of answers to homework problems, a poor performance by a presentation questioning group, and an inability to discuss central bank monetary announcements can result in a diminution of your grade.

Multiple absences and chronic lateness without explanations can also result in a diminution of your grade. You are responsible for checking the midterm and final exam dates in the outline and avoiding any conflict with other commitments. A student with an extraordinary situation, such as a certified serious illness, may arrange prior to the scheduled final exam date to take a make-up final on the deferred exam date designated by the school.

With the exception of certified serious illness, no drops or withdrawals will be approved after the last day to officially drop a course. Please refer to the University’s academic calendar for information on deadlines for dropping courses.

Blackboard and Pace Email

Check the Blackboard site for this course and your Pace email account regularly for course information, documents, assignments and communications. PowerPoint slides for each lecture will be posted approximately 24 hours prior to each class session.

Web Support

Free sources for data and research articles include:Federal Reserve Bank of St. Louis, FRED: price indexes, employment, banking, reserves, exchange rates, interest rates, monetary aggregates, trade – www.research.stlouisfed.org/fred2
Federal Reserve Board: monetary policy, tools, and reports – www.federalreserve.gov
New York Federal Reserve Bank: monetary and foreign exchange data – www.ny.frb.org
FDIC: financial institutions – www.fdic.gov
Bank for International Settlements: banking, capital requirements, central banking – www.bis.org
Bureau of Labor Statistics: price indexes, earnings, unemployment, productivity – www.bls.gov
Bureau of Economic Analysis: national income and product accounts, trade, balance of payments data – www.bea.gov
US Treasury: bond rates, yield curve rates, US economic statistics – www.treasury.gov
Economic Report of the President: US economic statistics – www.gpoaccess.gov/eop/index.html
National Bureau of Economic Research: business cycles – www.nber.org
Census Bureau: economic indicators eg. construction spending, housing starts and sales, income, population – www.census.gov
CIA World Factbook: country data – www.cia.gov
Conference Board: consumer confidence index, leading indicators – www.conference-board.org
Economagic: data compilations from Fed, Census, BLS, Commerce, international sources (subscription needed for advanced searches) – www.economagic.com
SIFMA: bonds, stocks, currencies, international – www.sifma.com
Wall Street Journal Markets Data Center: current and recent financial information, stocks, bonds, commodities, futures, interest rates, foreign exchange – www.wsj.com

Academic Resources

Information on academic resources, courses, and more is available on the Lubin School’s website: www.pace.edu/lubin. Academic advising is available through the Lubin School’s Office of Graduate Academic Advisement and Student Development: NYC – 212-618-6440; WP – 914-422-4184.

Academic Integrity

Educational institutions should aspire to instill in their students an appreciation for and the practice of ethical conduct. All students are required to adhere to the statement of academic integrity outlined in the
Pace University catalog. Academic integrity infractions can include, but are not limited to, copying and presenting the work of another as your own, collaborating with others on assignments intended to be done individually, using unauthorized resources such as an instructor's manual to complete assignments, copying the work of others during an exam, and failing to reference the work of others or creating fake references in your assignments. You may receive a failing grade in any assignment, exam, or course in which an infraction takes place, and you may be suspended or expelled from the school. When in doubt about what might be considered an academic integrity infraction, the best course of action is to ask your instructor for clarification.

Students with Disabilities

The University’s commitment to equal educational opportunities for students with disabilities includes providing reasonable accommodations for the needs of students with disabilities. To request an accommodation for a qualifying disability, a student must self-identify and register with the Coordinator of Disability Services for his or her campus. No one, including faculty, is authorized to evaluate the need and arrange for an accommodation except the Coordinator of Disability Services. Moreover, no one, including faculty, is authorized to contact the Coordinator of Disability Services on behalf of a student. For further information, please see Information for Students with Disabilities on the University’s website.

Course Outline (Omit all text appendices)

Class 1: The Financial System

Mishkin: Ch. 1, 2, 3
Groups Formed

Class 2: Present Value, Bonds and Interest Rates

Mishkin: Ch.4 (omit 72 - mid 77), 5 (omit mid 104 - 114)

Class 3: Risk and Term Structure of Interest Rates; Foreign Exchange

Mishkin: Ch. 6, 20, 21 (520 - 522 only)
Presentation Topics Due

Class 4: Financial Institutions, Intermediation and Banking

Mishkin: Ch. 8, 10 (omit bottom 233 - mid 235)

Class 5: Bank Regulation and Capital Adequacy

Mishkin: Ch. 11, 12
Jaime Caruana, Building a Resilient Financial System, Keynote Speech at the 2012 ADB Financial Sector Forum on Enhancing Financial Stability – Issues and Challenges, Manila, February 7, 2012.

Class 6: Midterm Exam: material from classes 1 through 5.

Class 7: Central Banking and Quantitative Easing

Mishkin: Ch. 16

Class 8: Central Banks, Money Supply and Credit

Mishkin: Ch. 17 (omit mid 412 - 413)
Class 9: Monetary Policy

Mishkin: Ch. 18
David Altig, When is a Rate Hike Not Tighter Policy?, Economic Commentary, FRB of Cleveland, August 1, 2004.

Class 10: ECB Monetary Policy, Monetary Strategy, and the Taylor Rule

Mishkin: Ch. 19 (omit mid 485 - 490)

Class11: Exchange Rate Targeting

Mishkin: Ch. 21
Zheng Liu and Mark M. Spiegel, External Shocks and China’s Monetary Policy, Economic Letter, FRB of San Francisco, December 3, 2012.

Class 12: Monetary Theory

Mishkin: Ch. 19 (485-490), 22 (omit mid 560 - mid 562)
Milton Friedman, The Fed’s Thermostat, The Wall Street Journal, August 19, 2003.

Class 13: Monetary Policy Transmission Channels

Mishkin: Ch. 25

Class 14: Final Exam: material from classes 7 through 13.