ITHACA COLLEGE. Economics : Money and Banking

Transcription

1 ITHACA COLLEGE Economics : Money and Banking Sec. #: 01 Term: Fall 2015 Class Time: MWF, 10:00 10:50 a.m. Room: Friends Hall 205 Office Hours: MW, 11:15 11:45 a.m. and by appointment Instructor: Puspa Amri Office: Muller Center 421 Phone: (607) Class website I. REQUIRED TEXTBOOK AND OTHER RESOURCES Hubbard, R. Glenn and Anthony Patrick O Brien, Money, Banking, and the Financial System, 2nd Edition. (Pearson) ISBN #: You have a few options for buying this book: You can purchase a hardcopy version of the text from the Ithaca College bookstore that comes with a CD rom for MyEconLab, the online homework tool that will be used for the course. Also included with this package is access to an electronic copy of the text. Alternatively, you may purchase just the MyEconLab by itself, with no hardcopy version of the textbook. You do still get full electronic access to the book this way. If you prefer to order MyEconLab directly from the publisher, please go to In addition, you may also consider purchasing a standalone (used) hard copy of text from an online retailer such as Amazon, and a stand-alone MyEconLab. Using an earlier edition of the book is acceptable, although the reading materials in this syllabus is organized course is posted on Sakai. IMPORTANT: Be sure to check the Sakai class website regularly, as all supporting class materials, including lecture notes, and important schedule-related announcements will be posted there. II. COURSE DESCRIPTION Money and credit are the backbone of modern societies. Countries with well-developed financial systems tend to grow faster than those that are less financialized. This course will discuss financial markets (e.g., bonds, stocks, foreign exchange) and financial intermediaries (banks and non-bank financial institutions), as well as the evolving role of money, credit, and interest rates in the economy. A well-functioning financial system relies on effective regulators, thus we also discuss the role of the Federal Reserve system in the determination of money supply, interest rates, and banking regulation and supervision. Although finance has the ability to grow an economy, at times the financial system undergoes severe disruptions and disturbances in the form of financial crises. This class will analyze the causes of the Financial Crisis in the United States. 1

2 Pre-requisites and beyond: The pre-requisites for this course are: Econ (Principles of Microeconomics), and Econ (Principles of Macroeconomics), and two courses in humanities, social science or business. Money and Banking is a required course for economics majors. Money and Banking also serves as a pre-requisite for Econ (Monetary Theory and Policy), a course that emphasizes theory and policy applications of how monetary policy affects the financial sector and the real economy. III. COURSE OBJECTIVES Understand the role of money and the financial system in the economy. Understand the role of interest rates as the central mechanism that connects borrowers and savers across different times. Understand the concept of present and future values and be able to calculate present discounted values as a way to price financial assets. Recognize the conceptual differences between types of financial assets such as money, bonds, stocks/equities, securitized loans, and foreign exchange. Understand the fundamental principles of building an investment portfolio. Understand the asymmetric information problem and how it applies to the participants of the financial system. Evaluate the operations of private commercial banks and the contemporary role that they play in the conduct monetary policy. Analyze how monetary policy can be used to affect national output, unemployment and inflation using the Aggregate Demand-Aggregate Supply (AD-AS) model and the Investment Savings-Monetary Policy (IS-MP) model. Explain what financial crises are in general and understand the specific features and causes of the U.S. financial crisis of IV. ASSESSMENT The following activities will be used to assess mastery of course content. A. Exams: There will be two exams and two quizzes throughout the semester. The materials covered in the final exam will be cumulative. The midterm exams will be 50 minutes long, the final exam will be 120 minutes long. The intended examination dates are: Midterm exam: October 12 (Monday, 10 am) Final exam: December 18 (Friday, 10:30 am) Exams are closed-book and will likely be a combination of: a) short answers/identifications, b) calculations and/or problem solving questions, and c)both short answer and calculations in the form of multiple-choice questions. Calculators are permitted during exams, while cellphones are strictly forbidden. 2

3 TIPS ON HOW STUDY FOR EXAMS. Reviewing your class notes, course lecture notes, handouts, and assignments (MyEconLab and Sakai practice questions) all play an important role in preparing for the exams. Repeated practice of homework questions would also help. Exam rescheduling policy: No make up/rescheduled test will be given unless there is a valid excuse (e.g., serious injury/illness with doctor s letter, death in the immediate family, a religious observance, or jury duty) with appropriate documentation. B. Quizzes: Two short quizzes will be administered to test your understanding of particular topics. The first quiz will take place before the midterm exam, and the second quiz will be administered between the midterm and the final exam. Quizzes are a good checkpoint to test your understanding of the materials. You can think of them as practice for the midterm and final exams. These will draw on the homework, lecture notes, and the materials covered in the textbook. C. Homework (Online) and practice questions: There will be a number of homework assignments throughout the semester assigned through MyEconLab. Be sure to register for the specific MyEconLab for this money and banking class, as per the instructions on Sakai. Late homework will not be accepted. In addition to MyEconLab, I will also post some practice questions (with answer keys) on Sakai for you to practice on your own. Finance can be a complex subject, and repeated practice would help you better understand the subject matter. These additional practice questions would also help you prepare for your quizzes and exams. D. Reading Response: In addition to the textbook, you will read two journal articles on the Financial Crisis in the U.S. The first article is by Gorton and Metrick (2012) and the second one by Brunnermeier (2009). For each article, you will write a one-page, single-spaced reading response. That is, you will summarize the main argument(s) of the article and comment on its analysis using (at least one) concept(s) that you have studied in class. More detailed guidelines for this assignment will be posted after the 3rd week of the semester. E. In Class Activities: Worksheets and Discussions: This class will contain periodic in-class activities which will also count as participation and attendance. There will be in class worksheets and problems as well as a periodic structured discussion on selected topics (i.e. Global Financial Crisis). A handout of questions will be distributed before the class discussions take place. F. Calculating your course grade. Your course grade will be a weighted average of the following components: Midterm Exam (25%) Final Exam (30%) Quizzes (15%) Online Homework with MyEconLab (15%) Reading Response to 2 Articles (10%) In Class Activities: worksheets, discussions, and participation (5%) 3

4 V. GRADING SCALE The following scale will apply in converting your numeric course grade to a letter grade: (A), (A ), (B+), (B), (B ), (C+), (C), (C ), (D), and <60 (F). VI. ATTENDANCE REQUIREMENTS AND WITHDRAWAL POLICY Students are expected to attend all class meetings. Continuity of attendance is necessary to individual progress in any class. My own experience has shown that the one of the best predictors of a successful outcome is regular attendance, especially since I often do exercises and work-out problems during class. Please contact me if you think you will be missing a class. The instructor is not responsible for dropping enrolled students. Should you decide later on to drop or withdraw please do so within the university-set deadlines. Fore more information, please consult the Fall 2015 Academic Calendar. VII. STATEMENT OF STUDENT CONDUCT Students are advised to consult the Student Conduct Code and the Standards for Academic Conduct sub-sections of the Ithaca College Student Handbook. In particular, please note the following policies: A. Academic conduct, cheating, plagiarism: All forms of academic dishonesty will be taken very seriously. All such behavior will be reported to the dean and can have serious consequences. If you are not sure what constitutes academic dishonesty, refer to the Standards for Academic Conduct section (section 7.1.4) of the Ithaca College Student Handbook. B. Tardiness. Students who come late are asked to enter the classroom in the least disruptive manner possible. This includes taking a seat as near the door as possible if you arrive late. C. Cellphones & other technology: Cellphones should be turned off or kept on vibrate mode while class is in session. You may bring laptops if it is for in class work using Microsoft Excel. VII. IX. SPECIAL ACCOMMODATIONS Any student who has a disability and/or special needs is to please alert me early on in the semester so that accommodations can be made. Please bring supporting documentation. DISCLAIMER All information in this syllabus is subject to change. Students will be notified ahead of time if and when any changes are made to course requirements or policies. X. SCHEDULE AND TOPICS TO BE COVERED This schedule is meant as a general outline of the course. It may altered based on the pace of the class, additional topics (if any), or if certain topics require additional in class practice questions. Week Date Topic and Required Reading I. Money and Financial Markets: Introduction and Foundations 4

5 1 Aug 26 & 28 Introduction: The Finance-Growth Nexus and the Costs and Benefits of Financial Development Chapter 1 (Introducing Money & the Financial System), section 1.1 & section 1.3 Recommended readings: Mulainathan, Sendil. (2015) Why a Harvard Professor Has Mixed Feelings When Students Take Jobs in Finance. The New York Times, April 10, Harford, Tim. (2015). What s the right diet for growth? The Financial Times, August 21, Aug 31 & Sep 2 Money, Payments System, and Central Banks: Central Bank Independence and the Relationship between changes in money supply and inflation Chapter 2 (Money and the Payments System) Chapter 13 ( The Federal Reserve and Central Banking) 2 Sept 4 CLASS CANCELLED, Make-Up Assignment on Sakai Listen to the Podcast titled The Week America s Economy Almost Died from NPR s Planet Mooney and answer a series of questions posted on Sakai. Turn in your assignment on Sept 9, and this will count as In Class Activities. 3 Sept 7 NO CLASS - LABOR DAY 3 Sept 9 & 11 Discussion on The Financial Crisis of and the PodCast Chapter 1, section 1.2 (The Financial Crisis of ) Understanding Interest Rates and Present and Future Values as a Fundamental Way to Understanding Debt Instruments Chapter 3 (Interest Rates and Rates of Return) 4 Sept 14,16 & 18 Understanding Debt Instruments and Interest Rates Chapter 3 (Interest Rates and Rates of Return) Chapter 4 (Determining Interest Rates and Rates of Return) II. FINANCIAL MARKETS: BONDS, EQUITIES, DERIVATIVES, AND FOREIGN EXCHANGE 5 Sept 21,23 & 25 The Bond Market (Chapter 4 and 5) Chapter 4 (Determining Interest Rates) Chapter 5 (The Risk Structure and Term Structure of Interest Rates) 6 Sept 28 & 30 and Oct 2 The Stock Market and Derivative Market Chapter 6 (The Stock Market, Information, and Financial Market Efficiency) Chapter 7 (Derivatives and Derivative Markets) Quiz 1 will be on Sept Oct 5,7 & 9 Derivative Markets, continued, and Introduction to the Foreign Exchange Chapter 7, continued Chapter 8 (The Market for Foreign Exchange) 8 Oct 12 MIDTERM EXAM III. FINANCIAL INSTITUTIONS: BANKS AND NON-BANK 8 Oct 14 Asymmetric Information and how it applies to the financial system Chapter 9 (Transaction Costs, Asymmetric Information, and the Structure of the Financial System) Oct 16 NO CLASS - FALL BREAK 5

6 9 Oct 19,21 & 23 The Economics of Banking and the Non-Bank ( Shadow Banks Financial Sector) Chapter 10 (The Economics of Banking) Chapter 11 (Investment Banks, Mutual Funds, Hedge Fund etc.) IV. MONETARY POLICY: Operations, Instruments and Tools, and Macroeconomic Models 10 Oct 26, 28 & 30 The Non-Bank ( Shadow Banks Financial Sector), continued Chapter 11 (Investment Banks, Mutual Funds, Hedge Fund etc.), continued Monetary Policy I: How does the Fed, with the help of private commercial banks, create money? Chapter 14 (The Federal Reserve s Balance Sheet and the Money Supply Process) 11 Nov 2, 4 & 6 Monetary Policy I: Understanding the Federal Reserve s Monetary Policy Operations: what are the main instruments and what are the targets? Chapter 15 ( Monetary Policy) Selected sections of Chapter (Foreign Exchange Intervention and the Monetary Base) and 16.2 (Foreign Exchange Intervention and the Exchange Rate) 12 Nov 9, 11 & 13 Monetary Policy II: Macroeconomic Models and the Financial System The AD-AS Model Chapter 17 (Monetary Theory I: The Aggregate Demand and Aggregate Supply Model) Quiz 2 on November Nov 16, 18 & 20 Monetary Policy II: Macroeconomic Models and the Financial System The IS-MP model (Investment & Saving-Monetary Policy) Chapter 18 (Monetary Theory II: the IS-MP Model) IV. THE GLOBAL FINANCIAL CRISIS , THE GREAT RECESSION Nov 23, 25 & 27 NO CLASS - THANKSGIVING HOLIDAY 15 Nov 30, Dec 2 & 4 The IS-MP model, continued Chapter 18 (Monetary Theory II: the IS-MP Model), continued The Financial Crises I Chapter 13 (Financial Crises and Financial Regulations) Reading Response 1 is due Nov Dec 7,9, & 11 The Financial Crises II Gorton, Gary, and Andrew Metrick.(2012). Getting Up to Speed on the Financial Crisis: A One-Weekend-Reader's Guide. Journal of Economic Literature, 50(1): Brunnermeier, Marcus. (2009). Deciphering the Liquidity and Credit Crunch Journal of Economic Perspectives, 23(1): Final Exam Review Reading Response 2 is due Dec 7 16 Dec 18 FINAL EXAM (Time: 10:am pm- 12:00 pm) 6