FBE 324 - Financial Institutions
Syllabus – Fall 2012 – TTh – 12:00-1:50 pm
Professor:
F. Ibrahimi Nazarian
Office:
Bridge Hall 204C
Office Phone: (213) 740-3934
Office Hours: Wednesdays 2:00-4:00 pm, or by appointment
E-mail:
ibrahimi@marshall.usc.edu
Course Description
Following the events of financial crises and recession of 2007-2009, we doubt anyone needs
convincing that the study of money, banking, and financial markets is important. Nothing
comparable to the upheaval of 2007-2009 had happened in the financial system since the Great
Depression of 1930s. The financial crisis changed virtually every aspect of how money is borrowed
and lent, how banks and other financial firms operate, and how policymakers regulate the financial
system. There seems little doubt that the effects of crisis will linger for a very long time, just as did
the effects of the Great depression.
We realize, however, that the details of financial crisis and recession will eventually pass into
history. Our approach is to present students with the underlying economic explanations of why
financial system is organized as it is, and how the financial system is connected to the broader
economy.
This course provides an overview of the global financial system, introducing the important
institutional players, describing and classifying financial markets where institutions and individuals
operate, and developing an analytical framework to understand the determinants of prices and
yields at which financial transactions occur. We will emphasize understanding and evaluating the
significance of financial market events, focusing this semester on the financial crisis beginning in
the summer of 2007. The course is roughly evenly split between institutional details concerning the
organization of the contemporary financial system and the conceptual and analytical approaches
used to understand past, current, and future developments in financial markets. The course
provides an integrated analytical framework for understanding the effects of economic forces and
economic policy on key financial market variables that determine the success of business strategies
and present risks to firms or individuals from changes in interest rates, equity values, and exchange
rates.
When the crisis in subprime mortgages began, Federal Reserve Chairman Ben Bernanke observed
that it was unlikely to cause much damage to the US housing market, much less the wider economy.
As it turned out, of course, the subprime crisis devastated not only the U.S. housing market but the
U.S. financial system, the U.S. economy, and the economies of most of the developed world. That a
problem in one sector of one economy could cause a worldwide crisis is a clear indication of the
strong linkages between U.S. and other economies. Hence, we also cover the Market for Foreign
Exchange, as well as The International Financial system and Monetary Policy.
The course builds on foundations established in BUAD 350-351 / ECON 350-351 core courses
(Fundamentals of Economics or equivalent training elsewhere) in the areas of economics and
finance and draws on basic familiarity with accounting and statistics. The course will expand on
students’ personal familiarity with financial institutions and markets with the goal of placing their
understanding in a broader and more comprehensive framework. The course will rely on many
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public data sources and will require close attention to current financial market events requiring that
students be comfortable with quantitative concepts and simple mathematical relations.
This course is directed at preparing students who will be dealing with financial markets either as
finance practitioners or in firms sensitive to financial market events. The course develops an
understanding of the forces shaping financial institutions and markets. The vocabulary and
analytical structures learned in this course will be useful in persuasively arguing a position as part
of making business investment or strategic decisions. The course will be extremely useful for
finance students considering careers in commercial or investment banking, real estate, investment
management, or managing small or start-up firms. The course will likewise be very useful for nonfinance students needing general background in the functioning of financial markets because of
their importance to the success of business strategies. The course is also useful for students
pursuing marketing or consulting careers in the financial services industry as well as students
majoring in International Relations and, Political Science. Finally, the course will be helpful in
shaping personal financial plans.
Learning Objectives
The objective of this course is to make a wide range of financial market events comprehensible
within an integrated framework. At the conclusion of this course students will have a sophisticated
understanding of current financial market developments as well an ability to place current events
into both an historical context and anticipate likely future developments. They will be in command
of the financial market vocabulary used by finance professionals and will be familiar with the
financial market trade literature and sources of information used by professionals. They will learn
that the financial system is not static—it evolves over time in ways that can be understood using
economic analysis.
My purpose is to go beyond the textbook in lectures and class discussion. I will distribute for each
class a list of learning objectives, Power-point slides, and occasionally other materials, in the class
or via Blackboard. On the basis of these materials and other readings, I will combine lecture and
discussion to review basic concepts presented in the text, integrate current financial market events
into the course framework, and finally extend the analysis into areas which are the subject of study
or debate stimulated by current research or developments. I firmly believe that learning is only
possible by doing, and will require a group project and expect classroom participation
demonstrating an ability to apply course material to real-world problems.
Students are expected to come prepared to discuss the reading assignment for each respective class
period. The class period will typically be taken up with lecture, but discussion and student
questions are very much encouraged. If I feel that a question leads us too far afield and would
better be discussed outside of class, I’ll say so. Otherwise, interaction among students and between
students and me is encouraged.
Required Materials
Textbook. Money, Banking, and the Financial System by Hubbard and O’Brien (Pearson PrenticeHall, 2012, ISBN 978-0-13-255345-2).
Blackboard. All course materials will be posted on Blackboard. In addition, it is my principal
means of communicating with you outside class. Therefore, it is important that you can get on
Blackboard and know how to download files, and that your e-mail account is functioning.
Prerequisites and/or Recommended Preparation
I will assume that you have had an introductory course in Economics. I will also assume that you
are familiar with algebra and calculus.
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Course Notes
Lecture slides. PowerPoint slides and other relevant material will be posted on Blackboard.
Additional reading. Select articles from sources such as the Wall Street Journal, the Washington
Post, Financial Times, and the Economist will be used to show how to apply the concepts from the
chapters to the analysis of news articles. Daily reading of the Wall Street Journal is also highly
recommended. Finally, additional required or recommended readings will be announced in class or
posted on the Blackboard site for the course.
Grading Policies
Course grading will be based on the following:
Class participation, presentation, attendance
Three midterm exams, each
Assignments
Final examination
10%
20%
10%
20%
Class participation and homework assignments. Class participation is an important ingredient of
learning. Being active in the class is probably the most efficient way to absorb the material in the
long run. Every chapter includes problems and applications. Some of these are conceptual, some are
numerical and mathematical application of the theory, others are analytical and encourage you to go
beyond the material in the chapter by addressing new issues that are closely related to the chapter
topics. I do assign homework problems and written reading responses to assigned articles and
cases. The homework and reading responses must be turned in, and I will call upon you to
contribute to class discussions.
All exams will be closed book and notes. Students can bring a calculator but it is optional. You
may not use the calculator on your cell phone, blackberry, etc.
Please Note: There will be no make-up exam for any reason. If you miss a midterm for any
reason, you will receive a grade of zero for the missed midterm and the remaining two will
automatically count toward your course grade. I strongly recommend you take all three midterms.
No grade adjustment that will deviates from the grading policies will be made. If for any reason a
student must miss an exam, he/she will be given a ‘0’ for that exam. If there are extenuating
circumstances that prevent the student from taking an exam, he/she must discuss the reason with the
instructor before the time of the exam. In addition, a student must be able to document the
extenuating circumstance.
Statement for Students with Disabilities
Any student requesting academic accommodations based on a disability is required to register with
Disability Services and Programs (DSP) each semester. A letter of verification for approved
accommodations can be obtained from DSP. Please be sure the letter is delivered to me (or to your
TA) as early in the semester as possible. DSP is located in STU 301 and is open 8:30 a.m.–5:00
p.m., Monday through Friday. The phone number for DSP is (213) 740-0776. For more
information visit www.usc.edu/disability.
Statement on Academic Integrity USC seeks to maintain an optimal learning environment. General principles of academic honesty
include the concept of respect for the intellectual property of others, the expectation that individual
work will be submitted unless otherwise allowed by an instructor, and the obligations both to
protect one’s own academic work from misuse by others as well as to avoid using another’s work as
one’s own. All students are expected to understand and abide by these principles. SCampus, the
Student Guidebook, (www.usc.edu/scampus or scampus.usc.edu) contains the University Student
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Conduct Code (see University Governance, Section 11.00), while the recommended sanctions are
located in Appendix A.
Students will be referred to the Office of Student Judicial Affairs and Community Standards for
further review, should there be any suspicion of academic dishonesty. The Review process can be
found at: www.usc.edu/student-affairs/SJACS/. Failure to adhere to the academic conduct standards
set forth by these guidelines and our programs will not be tolerated by the USC Marshall
community and can lead to dismissal.
Emergency Preparedness/Course Continuity
In case of a declared emergency if travel to campus is not feasible, USC executive leadership will
announce an electronic way for instructors to teach students in their residence halls or homes using
a combination of Blackboard, teleconferencing, and other technologies.
Please activate your course in Blackboard with access to the course syllabus. Whether or not you
use Blackboard regularly, these preparations will be crucial in an emergency. USC's Blackboard
learning management system and support information is available at blackboard.usc.edu.
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Course Calendar / Readings / Class Sessions*
Lecture
Date
Topic and brief summary
1
8/28
Macroeconomics/Measurement and Structure
of National Economy-An Overview
2
8/30
Business cycles and Macroeconomic policy
3
9/4
Foundations: Introducing Money and Financial System
Ch. 1
4
9/6
Foundations: Money and Payment System
Ch. 2
5
9/11
Financial Markets: Interest Rates and Rates of Return
Ch. 3
6
9/13
Financial Markets: Determining Interest Rates
Ch. 4
7
9/18
Financial Markets: the risk Structure and Term
Structure of Interest rates
Ch. 6
8
9/20
Financial Markets: The Stock Market, Information,
and Financial Market efficiency
Ch. 6
9
9/25
Review
10
9/27
********FIRST EXAMINATION********
11
10/2
Financial Markets: Derivatives and Derivative Markets
Ch. 7
12
10/4
Financial Institutions: The Market for Foreign Exchange
Ch. 8
13
10/9
Financial Institutions: Transaction Costs, Asymmetric
Information, and the Structure of financial system
Ch. 9
14
10/11
Financial Institutions: The Economics of Banking
Ch. 10
15
10/16
Financial Institutions: Investment Banks, Mutual Funds
Hedge Funds, and the shadow Banking System
Ch.11
16
10/18
********SECOND EXAMINATION********
17
10/23
Monetary Policy: The Federal Reserve
and Central Banking
Ch. 13
18
10/25
Monetary policy: The Federal reserve’s Balance
Sheet and the Money Supply process
Ch. 14
19
10/30
Monetary policy
Ch. 15
20
11/1
Monetary Policy Continued
Ch. 15
21
11/6
Fiscal Policy-Government Spending, Taxes
and the Macroeconomy
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Course Calendar / Readings / Class Sessions* (Continued)
Lecture
Date
Topic and brief summary
22
11/8
Review
23
11/13
********THIRD EXAMINATION********
24
11/15
Exchange Rates, Business Cycles, and Macroeconomic
Policy
25
11/20
The International Financial system and Monetary Policy
Reading
Ch.16
Nov. 21-24
Thanksgiving Recess
26
The Financial system and the Macroeconomy:
Monetary Theory-The Aggregate Demand
and supply Model
Ch. 17
Ch. 12
11/27
27
11/29
Financial Crisis and Financial Regulation
28
12/4
Financial Crisis and Regulation Continued
29
12/6
Review
December 18
Final Examination, 11:00 am–1:00 pm
* This schedule can be changed with adequate notice.
____________________________________________________________________________
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