5333: FINANCE The U.S. Financial System in a Global Environment, Syllabus Spring Semester 2008 MW 4:00-6:50 PM, first 7 weeks COLLEGE OF BUSINESS ADMINISTRATION Texas Tech University revised February 26, 2008 Professor Scott E. Hein E-mail [e-mail] Web page http://finance.ba.ttu.edu/hein/info.htm Office - BA 903 Office Phone - 742-3433 Office Hours MW 9:30-11:00 AM Course Information FINANCE 5333: The U.S. Financial System in a Global Environment Meeting Time and Place, MW 4:00-6:50 PM, LHO7 Required Text and other readings Money, Banking and Financial Markets, 2nd Edition, Stephen G. Cecchetti, McGraw-Hill, 2008, ISBN 13-9780073523095 The Wall Street Journal Outside Readings are available on the Internet, see below. Prerequisite: ACCT 5401 or any 5000-level finance course. Course Description This course is the broadest graduate finance course offered at Texas Tech University. It provides an introduction to operations, mechanics, and structure of the financial system. Financial institutions, financial markets, financial instruments, financial regulations, monetary policy, and international financial system are all aspects of the environment which will be discussed. Course Goals 1. Insure that students have a basic understanding of the US Financial System and its international links. 2. Insure that students will have the tools to keep up with the ever-changing structure of the US Financial System.
Expected Learning Outcomes
Upon completion of this course, students will be able to: 1. Be able to conduct research relating to practical questions regarding the U.S. Financial System. 2. Explain how financial markets throughout the world are integrated. 3. Explain the role of money in our financial system and its importance to the economy. 4. Describe the primary financial instruments, financial markets and financial instruments in the U.S. financial system. 5. Demonstrate an understanding of how interest rates are determined in a market economy. 6. Demonstrate an understanding of risk and its role in shaping financial decisions. 7. Identify the key means by which the economy can affect interest rates. 8. Solve simple present value, bond pricing/interest rate and forward interest rate calculations. 9. Explain the theoretical foundations and importance of stock market efficiency. 10. Demonstrate a basic understanding of key derivative instruments in financial markets, including futures, options, and swaps. 11. Explain foreign exchange markets and their role in finance. 12. Be able to use and explain the balance of payments system. 13. Explain the theoretical foundations of financial intermediation versus direct finance. 14. Describe the major financial issues facing management of financial intermediaries today. 15. Demonstrate an understanding of the regulations in place in the U.S. financial system. 16. Explain the roles of central banks, how they are structured and the tools they have to influence the economy and financial markets. 17. Articulate an understanding of current monetary policy and the impact it has on the economy. 18. Be able to write a professional research paper with team members. 19. Be able to present findings of team research to peers in class. 20. Become a daily reader of the Wall Street Journal and be able to apply this knowledge and understanding to ongoing business/economic matters.
Methods for Assessing this Expected Learning Outcome: Exam 1, a Final Exam, Quizzes and Class Participation Evaluation, a Team Research Paper and Presentation see below for specific weights in determining overall grade. Evaluation
All work in the class will be graded on a standard scale with a score between 100 and 90 indicating A excellent graduate work, a score between 89 and 80 indicating B very good graduate work, a score between 79 and 70, indicating C average graduate work, a score of 69 to 60 indicating D below average graduate work and a score of 59 or below indicating failing work. Participation Each student is expected to actively participate in class by both asking and answering questions and presenting data and analysis. It is expected that each student come to class prepared to participate in class discussion. Attending class is necessary for participation credits, but will not in and of itself result in participation credit. You must speak up in class to earn participation points. In essence, ever student will start the semester with a C grade in participation. You can improve your score by contributing to class discussions. The more you speak up, the more credit you get. The higher the quality of your contributions, the more credit you get. On the other hand, you can lower your score by engaging in disruptive, unprofessional behavior in class. Outside Readings The structure of the U.S. financial system is constantly changing. The Wall Street Journal, therefore, is an important part of the class, as it describes and discusses many of these changes. You have daily access to the Journal, both hard copy and online, so that you can keep current with developments in financial markets, financial institutions, and monetary and fiscal policy, as well as the changing environment of the financial services industry. Articles from the Journal will be used in class and are a part of the requirements of the course. Also, a number of articles, primarily from Federal Reserve publications, have been selected to supplement the text. Grading and Tests Exams: There will be two exams during the semester. Each exam will account for 25% of your final grade. *Note: Bring a calculator and blue book with you to all exams. The class is not exceedingly quantitative, but students of finance should always have a calculator handy. (Make-up exams: Individuals having a valid excuse for missing an exam will be allowed to doubly count their performance on the final exam, in place of the missed exam.) The Final Exam will emphasize the new material after the mid-term exam. But the bedrock of the early material is still fair game and is at least important in interpreting and understanding todays market actions. Quizzes and class participation will also account for 25% of your grade, with each of the two elements receiving equal weight. Each student is expected to actively participate in class by both asking and answering questions and presenting data and analysis. It is expected that each student come to class prepared to participate in class discussion. In
particular, each student is expected to stay up with WSJ reading, and other daily assignments. You can also expect frequent unannounced quizzes during the semester. These will be short quizzes designed to take less than ten minutes and testing knowledge and understanding of readings, including the WSJ, as well as lectures. In determining your quiz average for the class each student will be allowed to drop their three lowest quiz scores. Missed quizzes will be awarded a score of 59 on a standard scale. The only excused absences on quizzes will be for official university excused absences, as outlined in TTU policy. Missing quizzes due to job interviews, minor health difficulties, will etc. not result in excused absences. Teamwork Research: The remaining 25% of your grade will be made-up by working as a two or three person research team. The teamwork will entail a written research paper and an oral presentation, no more than 10 minutes in length, to the class on the knowledge gained from the research effort. The instructor must approve the paper topic. The topic should be an extension of basic understanding of the U.S. financial system, beyond the text and classroom discussion. In all cases, the paper and presentation should address why the subject of concern is of interest to todays MBA student and business manager. Both the paper and presentation should contain "analysis" and not be purely descriptive in content. The written paper should also contain a list of all literature referenced and footnotes where appropriate. The paper will be graded on; (1) the degree of difficulty of the articles examined and the depth of research and scholarly work undertaken, (2) overall interest and knowledge gained in the area, (3) originality and insight, and (4) writing style and effectiveness. The presentation will be limited to ten minutes and will be graded on the basis of the following: (1) the effectiveness of the oral communication, (2) the degree of difficulty of the research summarized, and (3) originality and insight provided. Suggested Research Topics: 1. Is the U.S. Capital Market Losing its Competitive Edge? Zingales, SSRN Abstract 1028701 2. Regulation of the Mortgage Industrysee Krugman opinion piece 3. The Federal Home Loan Bank System and Todays Credit Market Crisis 4. Industrial Loan Corporations case studies of how the largest are integrated into their corporate structures (e.g. BMW Bank of North America, GMAC Bank, Volkswagen Bank USA, Proficio Bank (Volvo), Toyota Financial Savings Bank, Eaglemark Savings Bank, Pitney Bowes Bank, First Electronic Bank, Enerbank, Target Bank) See Kansas City Fed Economic Review 5. Interest rate futures 6. Interest rate swaps 7. Forward rate agreements
8. Equity Derivatives 9. Financial Outlook for Banks in 2008 10. The Viet Nam Financial System Academic Honesty "It is the aim of the faculty of Texas Tech University to foster a spirit of complete honesty and high standard of integrity. The attempt of students to present as their own any work that they have not honestly performed is regarded by the faculty and administration as a serious offense and renders the offenders liable to serious consequences, possibly suspension." Texas Tech University Catalog, p. 49. As such, all students are expected to turn in work that has been completed individually, unless otherwise informed by the instructor. You are encouraged to study together in informal groups. But please make sure that the work that you turn in is you own. You may not directly share, lend or borrow another student's work in any manner; either on paper, by computer disk or by word of mouth on any exams or quizzes in the class. You may not receive or obtain the assistance of financial statement computer programs that perform some, or the entire, task assigned without express permission of the instructor. Violation of any of these requirements will be dealt with in the strictest manner possible. If you have any questions about this policy please ask. Offering the work of another as one's own, without proper acknowledgement, is plagiarism. This form of academic misconduct will also be considered a serious offense and violators will face serious consequences, including possible suspension. Students are expected to practice the highest standards of academic honesty in all work: exams, quizzes, problem sets, cases, etc. All work turned in by students will be the result of the students own work unless noted otherwise by footnote. The one general exception to this rule pertains to the problem sets or cases that are the responsibility of the team to which each student is assigned. In this case the work turned in needs to be solely the work of the team members themselves, unless otherwise indicated. Any student turning in work represented as his or her own work, that turns out to be otherwise, will be given an F in the course. Student Disabilities Any student who, because of a disabling condition, may require some special arrangements in order to meet course requirements should contact the instructor as soon as possible, to make necessary accommodations. Students should present appropriate verification from AccessTECH. No requirement exists that
accommodations be made prior to completion of this approved University process. Student Civility in Class Students are expected to assist in maintaining a classroom environment that is conducive to learning. In order to assure that all students have an opportunity to gain from time spent in class, unless otherwise approved by the instructor, students are prohibited from using cellular phones or beepers, eating or drinking in class, making offensive remarks, reading newspapers, sleeping or engaging in any other form of distraction. Inappropriate behavior in the classroom shall result in, minimally, a request to leave class.
Preliminary Course Outline and Reading Assignments* Date 1/9 1/14 Reading Assignment Introduction, Money and the Payment System, Chapters 1 and 2 Overview of Financial System, Chapter 3, Financial Markets, the Economic Outlook, and Monetary Policy, Bernanke, January 10, 2008 The Challenges Facing Subprime Mortgage Borrowers Krozner, November 5, 2007, The GSEs: Where Do We Stand? Poole, May/June 2007 Rising Foreclosures in the United States: A Perfect Storm, Edmiston and Zalneraities, 4th Q 2007 1/16 1/21 1/23 Financial Math and Risk, Chapters 4 and 5, Risk Management and Economic Outlook, Krozner, November 16, 2007 University Holiday Interest Rates, Chapters 6 and 7 -- Understanding the Term Structure of Interest Rates William Poole What is the Prime Rate? ask Dr. Econ FRBSF 2005 1/28 Financial Markets, Chapters 8, 9 and 10 1/30 Stock Market Booms and Monetary Policy in the Twentieth Century, Bordo and Wheelock, March/April 2007 Research Presentations I, 7 bonus points on Teamwork Research and Review 2/4 2/6 2/11 Exam 1 and Introduction to Financial Institutions, Chapter 11 Financial Institutions, Chapters 12, 13, and 14 Safety, Soundness, and the Evolution of the U.S. Banking Industry, DeYoung, 2007 Supervising Bank Safety and Soundness: Some Open Issues, Flannery, 2007 Hedge Fund Investors More Rational Than Rash, Gunther and Zhang, August 2007 Industrial Loan Companies: A Growing Industry Sparks a Public Policy Debate, Spong and Robbins, 4th Q 2007
2/13 2/18 2007 2/20 2/25 2/27
Research Presentation II, 3 bonus points on Teamwork Research Central Banks, Chapters 15, and 16, Understanding the Fed, Poole, January/February Monetary Policy, Chapters, 17, 18 and 19 Research Presentations III, Review Guest Speaker, Ron Mercer, Wells Fargo, San Antonio, Final Exam
Subject to change when notified by instructor. Copyright, 2008, Scott E. Hein, Rawls College of Business Administration, Texas Tech University, all rights reserved.