FINC 7350 Financial Institutions
and Markets
Fall 1998
Professor John Hall
Class meeting: 4:30-5:45 TR, 312 Ross
Office: 507 Ross (569-3355)
Office Hours: 2:30-4:00TR, 10 - 12 MWF
E-mail address: jrhall1@ualr.edu
OVERVIEW:
Finance 7350 is designed to be a foundation for your further study of Finance, as well as an
essential component of your managerial education about the world in which your business
operates. This course explores the function, pricing, and institutional structures of financial
markets. Our intent is not to build macro-economic models nor to devise investment strategies,
but to develop more fully the pricing of various financial instruments and the differences
between instruments and institutions that operate in the financial markets. Rapid changes in the
composition of financial instruments and institutions mean that the content of this course must be
evolving as well. Understanding the economic foundations of the intermediation process, in
addition to the institutional details of today’s intermediaries and instruments, will prepare you
not only for today’s job market, but will also help to increase your educational flexibility in
adapting to future changes.
COURSE PREREQUISITES: Finance 7310
REQUIRED MATERIALS:
1. Santomero and Babbel, Financial Markets, Instruments, and Institutions, Irwin, 1997.
2. The Wall Street Journal
ASSIGNMENTS:
The reading assignments for the course are primarily from the text. The order of coverage is
noted on the outline. In addition, I expect daily reading of The Wall Street Journal. We will
spend the first few minutes of each class discussing interesting/relevant stories (this discussion is
initiated by you!). Keeping up with your reading is essential so that we can discuss the material
more meaningfully. To that end, course participation (which implies attendance) is expected,
and will count toward you grade (see discussion of grading below).
There are two written project/assignments for the course. You are to track a chosen security over
the term, and then prepare a written report, due December 1, on the key characteristics of that
security, and what influences affected the security’s value during the semester. The list of
securities to chose from, and more specific instructions, follow the course outline. Additionally,
you are to read a business related book. I have prepared a list of possible titles - the list follows
the course outline. You may also suggest one, but I must approve it. Near the time of the second
exam (October 28), we will discuss the books together. Additionally, you are to prepare a brief
summary (no more than two pages) of the book, focusing on what insights you gained from
reading it. The written reports for both assignments are due at the beginning of class on the
scheduled dates, and late assignments will not be accepted.
EXAMS:
There will be three non-cumulative, in-class exams. The exam format is short essays and
problems. There are no true/false, no multiple choice questions. The exam dates are on the
course outline, and they are firm. THERE WILL BE NO MAKEUP EXAMS. It is your
responsibility to arrange now for being in class for the exams. Note that the third exam will be
given during the regular final exam period.
GRADING:
Exams (3)
Security Project
Book Review
Participation
100 points each
100 points
75 points
attend class - be involved
TOTAL
300
100
75
25
500
A standard grading scale of 90% or more for an A, 80% and up for a B, etc. is used.
NOTE: Academic Dishonesty will not be tolerated! Any such case will result in failure of the course,
with a report filed for further disciplinary action.
NOTE: It is the policy of UALR to accommodate students with disabilities, pursuant to federal and
state law. Any student with a disability who needs accommodation, for example in seating placement
or in arrangements for examinations, should inform the instructor at the beginning of the course.
The chair of the department offering this course is also available to assist with accommodations.
Students with disabilities are encouraged to contact the Office of Disability Support Services,
Donaghey Student Center Rm 103, 569-3143.
FINC 7350 COURSE OUTLINE - FALL 1997
Week
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Date
Aug. 18
Aug. 20
Aug. 25
Aug. 27
Sep. 1
Sep. 3
Sep. 8
Sep. 10
Sep. 15
Sep. 17
Sep. 22
Sep. 24
Sep. 29
Oct. 1
Oct. 6
Oct. 8
Oct. 13
Oct. 15
Oct. 20
Oct. 22
Oct. 27
Oct. 29
Nov. 3
Nov. 5
Nov. 10
Nov. 12
Nov. 17
Nov. 19
Nov. 24
Nov. 26
Dec. 1
Dec. 3
TOPIC
Assignment
Introduction
“
Interest Rates
"
Term Structure
Valuation
Valuation and Uncertain Rates
“
Interest Rate Risk and Duration
Other Risks
Foreign Exchange, and Review
** EXAM I (chps. 1 - 10) **
The Money Market
Bond and Equity Markets
Mortgage Markets
Futures and Options
“
FMA: No Class
Options, con't and Floating Rate
and Derivative Sec’s
Book Discussion and Review
Review Due
* EXAM II (chps. 11-16) *
Market Structures
“
Investment Banking
Comm. Banking & Other Dep. Inst.
TMA: No Class
Nonbank Financial Institutions
Class Cancelled
THANKSGIVING HOLIDAY
Change and Competition
Project Due
Managing Financial Institutions
*** Final Exam ***
**** Tuesday, December 8, 4:00 p.m. - 6:00 p.m. ****
Text Chapter
1,2
1,2
3
4
5
6
6,7
7
8
9
10
11
12,14
13
15
15
15,16
16
17,18
18,19
20
21,22
23
24
25
FINC 7350
Financial Markets and Institutions
Fall 1998
Term Project
Chose a security from the list below, and determine its value (from The Wall Street
Journal or similar source) as of September 2, 1998. Keep a weekly log of its value each
subsequent Wednesday, through November 18, 1998.
1. Compute the weekly return on your security. Use a spreadsheet program such as
Excel to generate a chart of these returns (you determine which chart format best
conveys the information). What is the average weekly return? What is the standard
deviation of weekly returns? What is the overall holding period return?
2. What are the key characteristics of your security? What are its main sources of risk?
What are the characteristics of the market in which the security trades? Who are the
major participants in the market for your security?
3. What factors affected the valuation of your security over the course of the semester?
How? Were these systematic or unsystematic influences?
Prepare a written report that covers all the points above, though not in question/answer
format. That is, structure your document as if you were writing to explain the security
and its recent behavior; for example, you may want to think of the report as going to a
potential client of a funds management group where you work. The report is due at the
beginning of class December 2. Late assignments will not be accepted.
100 Shares Amazon.com (AMZN)
100 Shares TCBY Ent. (TBY)
100 Shares Chase Manhattan (CMB)
January call @ $40 on Apple
January put @ 105 on Microsoft
December Wheat futures contract
December Hogs futures contract
December Coffee futures contract
December Gold futures contract
December Japanese Yen futures contract
December Swiss Franc futures contract
December T-bond futures contract
December Eurodollar futures contract
December S&P 500 futures contract
December NASDAQ 100 futures contract
S&P 500 December 1110 call (see me)
January Soybean futures option
December Wheat futures option
December Hogs futures option
December Coffee futures option
December Gold futures option
December T-bond futures option
30 year T-bond (5 1/2 % of 8-28)
FNMA 6.67% of 8-01
Student Loan “Bond” 7.00% of 12-02
ATT 7 1/2 % of 06 (NYSE)
RJR Nabisco 8 ¾ % of 05 (NYSE)
Viacom 8% of 06 (AMEX)
Boston Chicken 7 3/4 % of 04 (NASDAQ this is a convertible bond)
FINC 7350
Fall 1998
Business Reading List
Allen, Frederick and
Anders, George
Bernstein, Peter L.
Bruck, Connie
Merchants of Debt: KKR and the Mortgaging of American Business
Capital Ideas: The Improbable Origins of Modern Wall Street, 1992
(Paper)
Against the Odds: The Remarkable Story of Risk (new!)
The Predators' Ball - Junk Bonds and Raiders, 1988
Burns, James Mac
Cregor
Burrough, Brian and
John Helyar
Leadership
Collin, James and
Jerry Porras
Gates, Bill
Built to Last: Successful Habits of Visionary Companies
Geisst, Charles R.
Wall Street: A History (new Fall '97)
Herzlinger, Regina
Market-Driven Health Care
Keams, David T.
and David Nadler
Prophets in the Dark: How Xerox Reinvented Itself and Beat Back the
Japanese (cloth & paper)
Lambert, Hope
Behind Closed Doors: Wheeling and Dealing in the Banking World,
1986
Lewis, Hunter
A Question of Values: Six Ways We Make the Personal Choices that
Shape our Lives
Lewis, Michael
Liar's Poker, 1989 (Paper); The Money Culture, 1991
Lynch, Peter
One Up On Wall Street, 1989 (Paper); Beating the Street, 1992
Malkiel, Burton F.
Random Walk Down Wall Street, 1996 (Paper)
Mayer, Martin
The Bankers: The Next Generation (new 1997 edition)
Mingo, James
How the Cadillac Got its Fins, and Other Tales from the Annals of
Business and Marketing
A Piece of the Action: How the Middle Class Joined the Money Class
(1994)
Nocera, Joseph
Barbarians at the Gate, 1990 (Paper)
The Road Ahead
Novak, Michael
Business as a Calling: Work and the Examined Life
Packard, David
The HP Way
Rich, Stanley and
David Gumpert
Rosenberg, Hilary
Business Plans that Win $$$
Rothchild, John
Slater, Robert
Going For Broke (about the Campeau - Allied/Federated Department
Stores LBOs)
Market Wizards
The New Market Wizards
Jack Welch and the GE Way (new '98)
Soros, George
The Alchemy of Finance, 1994 (Paper)
Stewart III, Bennett
The Quest for Value
Stewart, James B.
Den of Thieves, 1991 (Paper)
Strasser, J.B. and
Laurie Becklund
Swoosh: The Unauthorized Story of Nike and the Men Who Played
There (Paper)
Wallace, James and
Jim Erickson
Zimbalist, Andrew
Hard Drive: Bill Gates and the Marketing of the Microsoft Empire
Schwager, Jack
The Vulture Investors
Baseball and Billions