Saving and Investment
Lecture 1: Introduction
Macroeconomic Definitions:
Saving:
consume less than your current resources
so as to have more resources in the future
ECON435: Financial Markets and the Macroeconomy
Investment:
put current resources to a
Lecture 2: Money and Bond
Markets
ECON435: Financial Markets and the Macroeconomy
Anton Korinek
Fixed-Income Securities
guarantee repayment of principal =
= face value = par value
pay a specified coupon rate (interest rate)
or are sold at a discount
ma
Review
Lecture 3: Equity Markets
Fixed-Income Markets:
money markets: maturity up to 1 year
examples: T-bills, certificates of deposit,
commercial paper,
ECON435: Financial Markets and the Macroeconomy
Anton Korinek
bond markets: higher maturity
exampl
Review: Equity Markets
Lecture 4: Security Trading
common stock vs. preferred stock
most important US indices: S&P500, DJIA,
NASDAQ
ECON435: Financial Markets and the Macroeconomy
price-weighted vs. value-weighted indexes
Anton Korinek
Spring 2011
2
1
2/22/2011
Buying on Margin
EXAMPLES OF BUYING ON
MARGIN & SHORT SALE
Two important concepts:
1. Initial Margin = fraction of your total security
holdings that initially needs to be financed with
your own funds (Set by the FED at 50%)
2. Maintenance margin
Investment Companies
Lecture 5: Mutual Funds
allow small investors to team up and
invest together on a large scale
each investor owns shares in the total fund
ECON435: Financial Markets and the Macroeconomy
Benefits:
diversification
professional manag
Interest Rates
Lecture 6: Risk/Return in
Financial Markets
Interest Rate = promised rate of return
R nominal interest rate: in dollar terms
r real interest rate: in terms of purchasing power
= adjusted for inflation rate i
ECON435: Financial Markets and t
The Capital Asset Pricing Model
Lecture 9: The CAPM
The CAPM describes:
general equilibrium in capital
markets
expected returns as a function of risk
ECON435: Financial Markets and the Macroeconomy
one of the centerpieces of finance
Anton Korinek
Sprin
Introduction
Lecture 12: Mortgage
Markets
Mortgage:
long-term loan
secured by real estate and
[traditionally] a downpayment
paid off over time (amortization)
fixed rate or variable rate
ECON435: Financial Markets and the Macroeconomy
Anton Korinek
typ
Overview: Derivative Securities
Lecture 16: Futures, Swaps
and Risk Management
Derivative Securities (or derivatives):
price depends on (derives from) another
security, e.g. stocks
also called contingent securities
useful for both hedging and speculati
Capital Inflows to the US
Lecture 17:
The Global Financial Crisis
Export-oriented growth (China, Vietnam, )
Precautionary savings (East Asia, oil
exporters, )
Large capital inflows to the US
in late 1990s
Internet bubble & bust
Aggressive interest ra