EFFECTIVE WAYS TO LINK REALITY TO TEACHING IN FINANCE IN THE CLASSROOM

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1 EFFECTIVE WAYS TO LINK REALITY TO TEACHING IN FINANCE IN THE CLASSROOM Zhang Weina Department of Finance, NUS Business School Introduction Many students in NUS Business School take finance courses to prepare themselves for future jobs in the finance industry after graduation. Hence, it is important for finance lecturers to conduct classes with a dose of realism and provide students a taste of the real financial world. Ironically, significant differences exist between a typical finance classroom and what goes on in financial firms (such as commercial or investment banks). The finance industry is fast paced and characterised by challenges such as a need to absorb large amounts of new information quickly or how to make immediate decisions when the market moves. In the classroom however, lecture notes are often preloaded onto the Integrated Virtual Learning Environment (IVLE) so that students may know what to expect in class. Moreover, when the class size is large, some students may not have chance to give voice to their thoughts or opinions throughout the lecture. Thus it remains a challenge to breach the gap between the classroom setting and the real financial world to prepare our students for the future. Three Proposed Pedagogical Methods to Breach the Gap In my classroom, I try to conduct lectures in such a way that my students get to experience the reality of the financial world as much as possible. For example, in one of my courses FIN3115 International Financial Management, my teaching objectives for this module were to equip students with general knowledge about the foreign exchange (forex) market and the capacity to apply the existing finance theories and financial products to solve finance-related problems. I used three teaching methods to achieve these objectives. 1

2 Method 1: Weekly Presentations Be Rigorous Firstly, I require students to make weekly presentations of a currency pair (e.g. the U.S. dollar vs. the Euro). They are asked to show the two currencies historical trend, the significant events associated with the trend, and their important characteristics. In addition, students are also asked to make predictions of the currency pair s movement in the next two weeks, based on both qualitative and quantitative analyses. The prediction horizon is chosen such that students can observe the accuracy of their predictions within the span of the course. In the process of preparing for the presentations, students have to research the history of the currency pair, gather information from various sources on their characteristics and make predictions. The presentations usually start with a review of the related countries macroeconomic conditions, before delving into the specifics of the currencies. Moreover, students also learn to employ technical analysis tools from Bloomberg to evaluate the currencies movement. Some of these currencies might have unique features that are well known among currency traders, but seldom discussed in the standard textbooks. Thus, those students who are interning as currency traders in my class can often spice up the content of their presentations by sharing such information and in doing so, help other students in the course of their learning. Given that these presentations usually contain a large amount of information, I have to set limits on the maximum amount of time and slides for each presentation. This means that students have to summarise, organise, and present the information in a concise way. At the end of each presentation, I would ask them to justify their predictions in relation to the information they have presented to encourage them to think critically and logically. Hence, these weekly presentations give me many opportunities to teach students to be thorough and coherent in their research. Moreover, I would also comment on the quality and accuracy of the presentations and highlight commonalities and differences across different currencies. After the class, I will summarise the main content of these presentations and distribute the revised and correct information to the class. There are several benefits of getting students to do these weekly presentations. First, students develop a deeper understanding of foreign currencies which they have presented. In reality, currency traders and researchers may often focus on just a few currencies. Hence, the research experience enables students to be better prepared for their future jobs in related financial products. More importantly, students learn how to condense a massive amount of information into an informative and effective presentation. They have to answer questions raised by their classmates and the lecturer. Students are also trained to think in a logical and critical way and be rigorous in analysing economic and financial information. These skills are very important for one to succeed in the finance industry. 2

3 Method 2: Weekly Discussions Be Critical Secondly, before each class, I would collect and distribute the latest financial news articles and analysts reports from reliable sources. In the distributed materials, I also included one or two questions for each article I have collected. As the extra readings are collected based on the related topics taught during the corresponding week, students are better able to draw the immediate links between the concepts learnt from the lectures and the real world examples. Through reading about the current events and discussing the questions in class, students can develop a better understanding of the financial world. Students can also keep abreast of the latest developments in the financial world in order to be prepared for their job interviews. The classroom discussions about current events are often heated as students become more confident about expressing their opinions. Because they know that there are no standard answers to the ongoing issues most of the time, they are more willing to participate in class. Class discussions become especially lively when the articles are related to local events. For example, I have had discussions with my students about the local companies forex trading and hedging practises. As news and events happen on a daily basis in the real financial world, it is important for students to learn to analyse these events, draw inferences and form their own conclusions. I consciously help my students to develop such critical thinking skills through the weekly classroom discussions. Moreover, via discussing the events, I can guide students to a better understanding of how these theories are applied in the real world. The students learning interests can be significantly enhanced because they can see the immediate link between the learnt concepts and real world examples. Method 3: Trading Games Hands-on Practice Thirdly, I introduce my students to real-world trading experiences. Through partnership with a local forex broker, I give my students the opportunity to trade in the electronic forex markets through the broker s trading platform. The students are given the same amount of initial capital to trade for two weeks. At the end of two weeks, I would go through their profit and loss records as well as their trading records. The whole trading process is as close as the real trading experience except that the capital, profits and losses are denominated in paper money. Students who performed well would share their trading experience with the rest of the class. The 2-week trading game allows students to apply the knowledge they have learnt from the lectures. Students are strongly encouraged to trade the currency pair on which they have presented earlier. They are also encouraged to apply the forecasting models they have developed from the weekly presentations to trade. 3

4 Using the real trading platform is beneficial to students as it gives them a taste of the real financial market. Although students initially found it challenging to understand the complicated trading platform, it became less so when I asked the trainer from the brokerage firm to come into my classroom to teach students to trade on the platform. The trading experience is a unique one to my students due to its realism. Many students appreciated the opportunity to be a real trader. Compared to other financial markets (e.g. the equity market), the forex market, which has a 24-hour trading window, is much more active and liquid. Many other unique features of the forex market have also made the learning experience more interesting for students. If any of them should decide to work as a trader one day, this trading experience will come in useful. Though many students wanted to have a longer trading period, others said they might never want to be a forex trader after the game due to the time pressure which requires traders to make immediate trading decisions. Many students also shared that when they trade, they used the information learnt from the class, weekly presentations and discussions. Classroom vs. Reality Many students appreciate the element of reality in my class. Students are inspired and excited about coming to class every week as they can discuss about real events happening around the world and their own learning experiences. Below are some sample comments from students on the three teaching methods I used: Method 1: Weekly Presentations I felt that group presentations on the various currency pairs enhanced what was taught in the textbook. Also, give us an opportunity to apply what we learn in class. Great learning experience! I feel that group presentation help us to better understand the concepts and theories taught in class. The group presentations were informative and the classes were easy to understand. Method 2: Weekly Discussions I like the additional readings. For the first time in my course I can confidently say I understand what is going on in the real world. By providing students with the relevant materials about the current market at the beginning of each session, she has helped students to understand and apply the academic knowledge into real world contexts She knows her stuff very well and every lecture she will post readings/news which is really good as she keeps us updated of what is happening around the financial world. 4

5 I like it that Dr Zhang always keeps us updated by discussing recent and relevant topics in the financial industry. Method 3: Trading Games It (the trading game) is really fun!! I learnt a lot from all these activities. (The trading game is a) (g)reat learning experience, the time span could ve been longer, loved the fact that no projects or grades were based on the game, unlike other classes, so we could really try out and get a feel of how the market works. Thanks! The trading game was a good experience for me. I have learnt a lot from it which is really what I would not get to experience from textbook. Personal experience in the trading game was exciting although my group made some losses, but we have also learn(t) better on how it works. However, it would be more exciting if more groups can take part. I like it how we get to try our hands on trading and not just learn the theories. Many times, we just learn theories in class and not relate it to the real world activities or events and when we go out into the working world, students find it hard to translate the classroom knowledge into real-world stuff. Therefore, I feel that this is a very good class. The trading game is a good experience for many of those that have not traded before. Also, the trading game was a novel idea. I try to improve on my teaching methods based on the students feedback. To evaluate the effectiveness of the three methods, I surveyed the students taking my classes in 2008 and There are more than 80 students for each year s enrolment. The survey results are summarised in Figures 1 4. Figures 1 and 2 show the answers to the following two questions: 1. Did the knowledge you learnt in class help you to trade (Figure 1)? 2. Did the weekly presentation on the currency pair help you to trade (Figure 2)? Figure 1.Did the knowledge you learnt in class help you to trade? Figure 2. Did the weekly presentation on the currency pair help you to trade? 5

6 The majority of students agree that the lectures and weekly presentations help them to trade. 50% and 68.8% of students found the lectures helpful in 2008 and 2009 respectively. In 2008, about 68.7% of students agreed that weekly presentations helped them to trade. In 2009, this percentage is about 58.5%. Figures 3 and 4 show the answers to the following questions: 1. Are you more knowledgeable about the real financial world after this course (Figure 3)? 2. Do you have a better understanding of how the theories are linked to reality after this course (Figure 4)? The data from Figures 3 and 4 shows that students become more knowledgeable about the real financial world through this course (87.4% in 2008 and 82.6% in 2009). They also feel more confident in linking theories learnt in the classroom to the real world via the teaching methods I have used in the class (56.2% in 2008 and 58.5% in 2009). Figure 3. Are you more knowledgeable about the real financial world after this course? Figure 4. Do you have a better understanding of how the theories are linked to reality after this course? Conclusion In addition to the conventional teaching methods such as lectures and case studies, I have used weekly presentations, discussions of current events, and the exposure to online trading experience to provide my students with plenty of opportunities to comprehend real world problems in teaching FIN3115. Below are some general comments from my students about their learning experience throughout the course: I have a renewed interest for my degree thanks to the relevance of the material in this course. The class has been getting more and more engaging over time. For once, I am finally able to grasp the concepts of futures and forwards. This class has proven to be very useful to me and I am sure I will be able to apply what I ve learnt as soon as I ve graduated. Very interesting by drawing from real life examples and readings provided are very current. 6

7 Teaches in a very relevant method, helping the students to stay in touch with the real world and understand the current trend or situation. Teaching style is also very clear. Ability to relate theoretical concepts to the real world. Always ask questions in class that encourage us to think more deeply and hence enhance our thinking ability. Always try to link the concepts to the real world. Provides additional materials for us to learn more. Ability to make us interested in the current happenings in the financial market and think about the rationale behind. Her teaching method is also very creative. I am encouraged by the positive feedback from students on my teaching methods. Though the implementation of these methods requires a lot of preparation and monitoring, I am happy to offer my students some unique learning experiences. I want to help them become more rigorous, critical and confident when it comes to their understanding of this subject. I also want to equip them with the relevant knowledge, skills and experiences in order to prepare them to do well when they enter the workforce. I will continue to do so in my teaching. 7