College of Administrative Sciences and Economics Fall 2011

Koç University

MFIN403

FINANCIAL MARKETS AND INSTITUTIONS

Instructor: Dr. Umut Gokcen

Office:CASE 239

E-mail:

Office Phone:+90 (212) 338-1672

Class Time and Location:Monday and Wednesday,15:30-16:45CAS B07

Office Hours: Monday and Wednesday, 16:45-18:00, or by appointment

Textbook: “Financial Markets and Institutions: A Modern Perspective”

Anthony Saunders, Marcia Millon Cornett

4thEdition, McGraw-Hill.

Prerequisites:MFIN. 202INTRODUCTION TO FINANCIAL MANAGEMENT

Course Description:This is a course that can best be described as a “helicopter tour” of the financial landscape. We will cover a broad range of topics without going into a lot of detail about each, thus students with different backgrounds and career goals can all find something of interest in this course. The aim is to introduce the student to financial markets and institutions, develop an understanding of why they exist and how their actions affect economic activity. A senior student who is considering work in the finance sector upon graduation will undoubtedly find this course useful, as well as a junior student who is considering taking more advanced finance courses. The course will require both qualitative and quantitative skills – that means both reading and problem solving if you want to get an idea of the workload. Thelevel of mathematics we will employ will not go beyond basic statistics, algebra and analytic geometry (no calculus or econometrics is required).By the end of the semester the student should easily be able to understand and analyze articles in the financial press, such as The Wall Street Journal, or the Financial Times.

Grading: Your grade will be based on class participation, assignments, a midterm,and a final exam.The weights are as follows:

Class Participation 10%

Assignments20%

Midterm Exam30%

Final Exam40%

- Class Participation grade will be based on how much you contribute to the class. If you come to class, pay attention, and show enthusiasm about the subject matter you get the full 10%. If you skip lectures regularly, spend your time texting on your phone or browsing the internet during the lectures, then you start losing points. 10% of your total grade may not sound like much to you at this point but you would be surprised at how important this can become to push you into the next higher letter grade at the end of the semester. Let me also emphasize that there’s no need for you to be shy about answering questions that I may ask in class, or asking questions yourself when you do not understand something. I’m not “grading” you based on your comments; as long as you participate you get the full 10%.

-Assignmentswill be handed out at least one week before the due date and must be submitted at the beginning of the class on the day they are due. The objective of these assignments is to help you – not test you – and you will receive full marks as long as you hand them in complete and on time. The penalty for late assignments is 50% off. Each student must work on his/her own and hand in a personal copy. “Group” assignments are not accepted and each student in such a “group” will receive zero marks.There may be 2 or 3 assignments throughout the semester.

- There will be 2 Midterm Examshowever they will not be averaged; the one you score lower on will be dropped. This is an incentive for you to keep working hard even if you get a bad grade on the first exam. If you miss one of the midterms, that automatically becomes your lower score and gets dropped. The midterms willnot becumulative.

- FinalExamwill be cumulative but will be weighted more heavily on the topics we cover after the midterms.

- No letter grades will be assigned to any individual exams. Letter grades will be assigned only at the end of the semester, based on the performance of the whole class. If I find the class average low, I may adjust the grades upwards. If the class average is high, I do not adjust the grades downwards.

Attendance: It is university policy (dictated by YÖK) to attend at a minimum 3/4 of all lectures. However, I do not like to waste valuable class time that can be used for learning purposes to policing attendance. Therefore, I do not take regular attendance but I expect all of you to act responsibly and be present. If you miss a class, it is entirely yourresponsibility to determine what you have missed, including any administrative announcements I may have made.

Make-up Policy:There is ano-make-up policy in this course. You are expected to be present at the indicated time and date for all examinations. Saying that you have a prior commitment at work or another exam on the same day does not absolve you from this responsibility. It is also unfair to other students who take the exams in the designated times if I start making exceptions to this rule, so please don’t ask. I am however, flexible in setting the dates and times of the exams so hopefully no one will be in a position to miss an exam. If you are seriously ill or an emergency occurs and you cannot possibly attend an exam, you will need to bring in a valid doctor’s report. If you miss both of the midterms, the weight of the midterm will be added to your final exam, making it 70% of your total grade. If you miss the final exam you automatically fail the course.

Re-Grading:As careful as I try to be with regards to grading, mistakes sometimes do happen. We will go over the correct answers in class after the exams and I will post the solutions on the course website. If you feel I have not marked your paper correctly, notify me in writing (meaning email) with a clear explanation of why you think the grade is incorrect. Please do not ask me to read your paper all over again and see if I can give you a higher grade. It is possible that I might have made a mistake; just point me in the right direction and I will fix it immediately.

CourseWebpage: All relevant course material - such as lecture notes, homework assignments and solution keys – will be posted on the course webpage under the Courseware section of KUAIS. Check this page regularly for new files and updates. If you miss a lecture this is the first place to look; do not email me to send you the lecture notes. However, please alert me to any problems with the webpage so I can get it fixed as soon as possible.

Office Hours: I try to be available as much as I can outside of class and do not hesitate to contact me if you are having trouble with the material. If the appointed office hours in the syllabus do not work with your schedule we can almost always find a workaround. At the same time, please do not think of office hours as a chance to repeat the lectures one-on-one, or to get last minute tips right before the exam.

Honor Code:You are expected to do your work in a manner consistent with the principles of academic integrity at Koç University:

“Honesty and trust are important to all of us as individuals. Students and faculty adhere to the following principles of academic honesty at Koç University:

-Individual accountability for all individual work, written or oral: Copying from others or providing answers and information, written or oral, to others is cheating.

-Proper acknowledgement of original author: Copying from another student’s paper or from another source without written acknowledgement is plagiarism.

-Authorized teamwork: Unauthorized help from another person or having someone else write one’s paper or assignment is collusion.

Cheating, plagiarism and collusion are serious offenses resulting in an F grade and disciplinary action.”

Tentative* Course Outline (as of 22/DEC/2011)

*This outline may be updated during the semester. Always check the course webpage for the latest version.

DATE / TOPICS / Readings and Practice Questions
from the Textbook
Sep19–Mon / Introduction
Sep21–Wed / Review of Time Value of Money / Pages: 24-36
Sep26–Mon / Security Valuation / Pages: 60-77
Sep28–Wed / Security Valuation
Oct3–Mon / Term Structure of Interest Rates / Pages: 48-56
Oct5–Wed / Duration / Pages: 78-89
Oct10– Mon / Immunization / Appendix 3A
Oct12– Wed / The Federal Reserve System and MonetaryPolicy / Pages: 93-118
Oct17– Mon / Problem Solving Session
Oct19– Wed / MIDTERM EXAM I / Ch.2 Q: 2,5,21,23,25,27,29,
Ch.3 Q: 9,14,15,19,20,23,24,30
Ch.4 Q: 4,5,12,17,18
Oct24– Mon / Stock Markets / Pages: 222-247
Oct26– Wed / Market Efficiency / Pages: 249-254
Oct31– Mon / Market Efficiency
Nov 2– Wed / Mutual Funds / Pages: 493-510
Nov 7– Mon / Kurban Bayrami (Holiday)
Nov 9– Wed / Kurban Bayrami (Holiday)
Nov 14– Mon / Hedge Funds / Pages: 512-518
Nov 16– Wed / Futures / Pages: 283-294
Nov 21– Mon / Swaps / Pages: 307-312
Nov 23– Wed / Options / Pages: 294-306
Nov 28– Mon / MIDTERM EXAM II / Ch.8 Q: 2,3,14,17
Ch.17 Q: 1,2,11,21,23,25
Ch.10 Q: 1,2,4,5,11,16,21,23,25,26
Nov 30– Wed / Overview of Financial Institutions / Pages: 10-19
Dec 5– Mon / Commercial Banks’ Financial Statements / Pages: 349-365
Dec 7– Wed / Commercial Banks’ Financial Statements
Dec 12– Mon / Commercial Banks’ Financial Statements
Dec 14– Wed / Capital Adequacy, Regulation, The Basel Accord / Pages: 392-398, 408-416
Dec 19 – Mon / Capital Adequacy, Regulation, The Basel Accord
Dec 21– Wed / Managing Interest Rate Risk / Pages: 619-625, Appendix 23A
Dec 26 – Mon / Securitization / Pages: 669-685Handouts
Dec 28– Wed / Financial Crisis
JAN-13
3pm – 6pm
CAS Z48 / FINAL EXAM / Ch.1 Q: 10,11,12,13,14,17,18
Ch.12 Q: 5,8,9,13,14,16
Ch.13 Q: 11,12,13,14,30,31,32, 33
Ch.22 Q: 12,13,14
Ch.23 Q: 3,19

1