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BA4349, Fall 2005 UTD --- Financial Economics & Institutions Tuesday 7:00-9:45 p.m., SOM2.102 Website: http://utd.

mark-frost.com/ba4349/ Email: mark.econman.frost@gmail.com

Mark Frost Day Phone: (972) 371-1465 Cell: (214) 693-6031 Office Hours: After Class and by appointment

Objectives Upon satisfactory completion of this course, the student should possess: A solid foundation in microeconomic theory and mastery of its tools of analysis. An ability to apply theory empirically as well as analytically across various forms of time-series data. An ability to engage in intelligent analysis and conversation using the analytical tools and language of monetary economics. An ability to advocate and defend a political-economic position regarding the ethical and institutional structure of financial markets. Teaching Philosophy Economics is not an easy subject and the only way to make it easy would be to teach something besides economics. Therefore, I think it only fair to tell you something of what I expect from my successful students. I don't believe in grade inflation and believe university-level work should be challenging. Hence, you should know that I will and do assign “F’s” to those who deserve them. I estimate the "average" student will require a time investment of at least three additional hours per week to earn an "A" in this course. If you are desiring a course that requires little effort and class attendance, you may wish to reconsider taking this one. Texts Financial Institutions, Markets, and Money, 9th Edition (David S. Kidwell, David W. Blackwell, David A. Whidbee, Richard L. Peterson) Equipment & Software In class I will utilize the Texas Instruments BAII Plus financial calculator. Excel will be referenced as well. Preparation It is assumed you are literate adults and can therefore read. Hence, you will not be “taught the book.” It is suggested you utilize the textbook as a study guide and reference. Ideally, you should read the relevant chapters before I discuss them in the lectures, as published in the schedule below. Again, considerable information will be presented and/or discussed in class that is not necessarily presented in the book; hence, class attendance highly recommended. Lectures It is assumed you are rational adults. Hence, there is no mandatory attendance policy. With the exception of exam dates, attendance is completely optional and no one will ever be directly penalized for failing to attend class. Therefore, if you should decide the marginal cost of your time invested in class attendance exceeds its marginal benefit, I respect your right to not attend and order your own preferences. However, again, I do not “teach the book” and have noticed a strong correlation between poor grades and poor attendance in my classes. If all you do is read the book, you will have a high statistical probability of failing the course.

Grading Structure Two Homework Projects at 25% each One Comprehensive “Final” Exam weighted at 50%. This exam is mandatory therefore anyone not taking it will receive an “F” for the course. Under no circumstances will anyone be allowed to take this exam early, so please do not schedule your travel at this time. Possible grades are: “A , B+, B, C+, C, D+, D, & F” computed on a 10% (base) and 5% (+) scale. Hence, for an A you need an average of 90 or above; for a B you need an average of 80 or above; for a B+ you need an average of 85 or above; etc. Occasional “bonus” points award for exceptional thinking and meaningful class participation. Controversy & Academics In this class we will cover many controversial topics. I do not want to sterilize our discussion/debate by making arbitrary "politically correct" rules. However, remember we are in a university setting and should behave in a professional manner. Needless to say, racist and sexist language and/or statements obviously made "just to be offensive" will not be tolerated. Policy on Cheating and Plagiarism The minimum penalty if caught cheating or plagiarizing the work of another will be a grade of “F” for this course. The University may also take additional disciplinary action. Disability Accommodations Students needing academic accommodations for a disability must first contact Services for Students with Disabilities to verify the disability and establish eligibility for accommodations. They should then schedule an appointment with the professor to make appropriate arrangements per University policy. Religious Observance Religiously observant students wishing to be absent on holidays that require missing class should notify their professors in writing at the beginning of the semester, and should discuss with them, in advance, acceptable ways of making up any work missed because of the absence. Excused Absences for University Extracurricular Activities: Your professor believes other activities besides academics can also be important within your university experience. Hence, students participating in an officially sanctioned, scheduled University extracurricular activity may be given the opportunity to make up graded assignments missed as a result of their participation. It is the responsibility of the student to make arrangements with the instructor prior to any missed scheduled examination or other missed assignment for making up the work.

L = Lecture; , E = “Essays…”, HO = Hand Out

Expected Schedule

Date 1 23-Aug

Subject Matter to be Covered

Chapter L

SECTION 1: Basics
⇒ Introductions and Expectations ⇒ Econ Review ⇒ Probability & Statistics Review

SECTION 2: Time, Fear, Hope, and Money
2 30-Aug 3 6-Sep 4 13-Sep 5 20-Sep ⇒ Money ⇒ Time Preference ⇒ The Federal Reserve and Commercial Banking Project Work ⇒ ⇒ ⇒ ⇒ ⇒ ⇒ Financial Institutions I: Money Markets Bonds and Valuation The Time Value of Money Applied Problems: Bonds Bonds and the Money Supply Guest Speaker TBA L, 4-6 L, 1-3

L, 7-8

SECTION 3: Financial Derivatives I
6 27-Sep 7 4-Oct 8 9 18-Oct 11-Oct ⇒ Financial Institutions II: Stock Markets ⇒ Applied Problems: Stocks and Valuation ⇒ Volatility Project Work ⇒ ⇒ ⇒ ⇒ ⇒ ⇒ ⇒ ⇒ ⇒ ⇒ ⇒ ⇒ ⇒ ⇒ ⇒ ⇒ Financial Derivatives II: Options and Futures The Yield Curve Financial Derivatives I: Strips Financial Institutions III: Swaps - Interest Rate Financial Derivatives IV: Swaps – Currency Foreign Exchange and the Law of One Price Operations Risk Management International Banking Project 1 Due Applied Problems 7: So you want to be a consultant? Venture Capital and Investment Banking Guest Speaker Financial Institutions III: Moral Hazard & Adverse Selection Corporate (ir)responsibility Insider Trading Laws: Good or bad? The Fed: Good or Bad Idea L, 11 L, 11, 12 L, 10

SECTION 4: Commercial Bank Management
10 25-Oct 11 1-Nov L, 13, 14,

L, 19

SECTION 5: Financial Regulation and Ethics
12 8-Nov 13 15-Nov 14 22-Nov 15 29-Nov L, 16

Exam – Everything Project Work ⇒ ⇒ ⇒ ⇒ Careers in Financial Economics Return of Exams Project 2 due Evaluation of Professor L

Thank you for taking our class