Students

ECFS888 – Economics of Financial Markets

2019 – AFC Term 4 MB

General Information

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Unit convenor and teaching staff Unit convenor and teaching staff Lecturer
Jeff Oughton
jeff.oughton@mq.edu.au
Contact via Email
Credit points Credit points
2
Prerequisites Prerequisites
(Admission to MAppFin or MAppFin(Adv) or GradDipAppFin) and (AFCP801 or ECFS865)
Corequisites Corequisites
Co-badged status Co-badged status
Unit description Unit description
The aim of this unit is to provide a greater understanding of the role and interaction of economic factors with the financial sector. We utilise topical developments and issues as subject matter. This unit explores the structure and growth of the economy, the determination of interest rates, exchange rates and equity prices, the role of finance, the changing importance of banks, institutional investors and security markets, and the economics of regulation with focus on the Global Financial Crisis and to a lesser extent the Asian Crisis. We also look at topical issues in economics and financial markets, for example the implications of the surge in Government debt, the implications for markets of an ageing population.

Important Academic Dates

Information about important academic dates including deadlines for withdrawing from units are available at https://www.mq.edu.au/study/calendar-of-dates

Learning Outcomes

On successful completion of this unit, you will be able to:

  • Identify and explain economic and financial concepts and theories.
  • Analyse current and potential economic and financial market developments, with reference to economic and financial concepts, theories, evidence, and practice.
  • Explain the structure of an economy and its financial system, why this structure has economic and financial impacts and how this structure can be used to achieve desired outcomes/goals.
  • Analyse and explain the role and interaction of economic factors (including instruments of economic policy and financial regulation) with the financial sector (including financial market prices and the behaviour of the financial system more generally).
  • Critically evaluate major economic and financial challenges and their implications for financial markets and institutions.

General Assessment Information

To pass this unit the student needs to (1) Achieve an aggregate mark of 50 or more, and; (2) Pass the Final Exam.

 

Assessment Tasks

Name Weighting Hurdle Due
Pre-unit Assignment 10% No At First Class
Assignment 30% No Refer to iLearn
Final Exam 60% Yes Refer to Timetable

Pre-unit Assignment

Due: At First Class
Weighting: 10%

Summary of Assessment Task

Individual / Group: Individual.

Due Date: At first class.

Submission Method: In Class.

Duration: Refer to Assignment Cover Sheet.

Extension Requests: 

  • No extensions will be granted.
  • There will be a deduction of 10% of the total available marks for each 24 hour period or part thereof. This penalty does not apply for cases in which an application for Special Consideration has been made and approved.
  • No submission will be accepted after solutions have been discussed or posted by the lecturer. As this normally occurs on day 2 of classes, students need to be aware that submissions are rarely accepted beyond the first 24 hour late period.
  • Note: Applications for Special Consideration must be made within 5 (five) business days of the due date and time.
  • Refer to MAFC Program Rules at https://mafcstudents.mq.edu.au/ for information on the University’s Special Consideration Policy.

Other Information:

  • The Pre-unit assignment is available on iLearn.
On successful completion you will be able to:
  • Identify and explain economic and financial concepts and theories.
  • Analyse current and potential economic and financial market developments, with reference to economic and financial concepts, theories, evidence, and practice.

Assignment

Due: Refer to iLearn
Weighting: 30%

Summary of Assessment Task

Individual / Group: Individual.

Due Date: Refer to the unit's iLearn site.

Submission Method: Online via Turnitin on iLearn.

Duration: Refer to Assignment Cover Sheet.

Extension Requests: 

  • No extensions will be granted. There will be a deduction of 10% of the total available marks made from the total awarded mark for each 24 hour period or part thereof that the submission is late (for example, 25 hours late in submission incurs a 20% penalty). This penalty does not apply for cases in which an application for Special Consideration is made and approved.
  • Late submissions will be accepted up to 96 hours after the due date and time.
  • Note: Applications for Special Consideration must be made within 5 (five) business days of the due date and time.
  • Refer to MAFC Program Rules at https://mafcstudents.mq.edu.au/ for information on the University’s Special Consideration Policy.

Other Information: The unit assignment is available on iLearn. Students choose a topical issue of interest to research and analyse the economic and financial implications of the topic using the concepts covered in class and the related unit material.
On successful completion you will be able to:
  • Identify and explain economic and financial concepts and theories.
  • Analyse current and potential economic and financial market developments, with reference to economic and financial concepts, theories, evidence, and practice.
  • Explain the structure of an economy and its financial system, why this structure has economic and financial impacts and how this structure can be used to achieve desired outcomes/goals.
  • Analyse and explain the role and interaction of economic factors (including instruments of economic policy and financial regulation) with the financial sector (including financial market prices and the behaviour of the financial system more generally).

Final Exam

Due: Refer to Timetable
Weighting: 60%
This is a hurdle assessment task (see assessment policy for more information on hurdle assessment tasks)

Summary of Assessment Task

Individual / Group: Individual.

Due Date: Refer to Timetable.

Submission Method: As per MAFC Program Rules at  https://mafcstudents.mq.edu.au/.

Duration: 2 hours plus 10 minutes reading time.

Examination Conditions: 

Extension Requests: 
On successful completion you will be able to:
  • Identify and explain economic and financial concepts and theories.
  • Analyse current and potential economic and financial market developments, with reference to economic and financial concepts, theories, evidence, and practice.
  • Explain the structure of an economy and its financial system, why this structure has economic and financial impacts and how this structure can be used to achieve desired outcomes/goals.
  • Analyse and explain the role and interaction of economic factors (including instruments of economic policy and financial regulation) with the financial sector (including financial market prices and the behaviour of the financial system more generally).
  • Critically evaluate major economic and financial challenges and their implications for financial markets and institutions.

Delivery and Resources

CLASSES

Face-to-Face Teaching: Generally 20 hours over 4 days.

Timetable: Detailed timetable for classes are available at https://www.mq.edu.au/about/about-the-university/faculties-and-departments/business/study-with-us/macquarie-applied-finance-centre/timetables.

Consultation Times: 

Students who wish to contact any of the teaching staff may do so through:

  • The unit’s iLearn site, in relation to general queries (so that all students may benefit); or 
  • Individual consultation with the lecturer by email in the first instance, if necessary.

REQUIRED AND RECOMMENDED TEXTS AND/OR MATERIALS

Text: Nil.

Additional Readings: 

  • Additional readings, handouts and lecture slides are available via iLearn.
  • Students should assume these readings are examinable unless otherwise advised. 

Lecture Notes: Available via iLearn. 

Pre-unit Materials: Information papers on statistics, regression, accounting and other material may be found at http://mafcstudents.mq.edu.au/new-to-mafc/pre-course-materials/. All students should work through this material prior to commencing the degree. The material will remain a useful reference as students progress through the program.

Calculators: 

  • A calculator is not required for this unit.
  • Numerical calculations are basic in nature and approximations will suffice.
  • No calculators, mobile phones or computers are permitted in examinations. 

Assumed Knowledge:

  • No previous formal study of economics is required.
  • It is highly recommended that students read the unit notes before the first class to familiarise themselves with the material. Reading the notes before classes begin does improve outcomes.

Assumed Access:

  • Access to a computer with internet access, word processing and spreadsheet capability may assist students with the unit to a limited degree.

TECHNOLOGY USED AND REQUIRED

Unit iLearn Site: 

  • Found by logging on to iLearn ilearn.mq.edu.au, then clicking on ECFS888 Economics of Financial Markets.
  • This is where you will find a link to forums, downloadable resources and other important pages.
  • iLearn allows you to communicate with other students and lecturer(s) and may provide supplementary material.
  • You are requested to post your questions to iLearn forums at least 24 hours prior to the assignment submission date or the examination date. Questions posted after that time may not be answered. Please try to not leave your questions to the last few days, before the final assessment.

Important: 

  • It is important that you familiarise yourself with the unit’s iLearn site. 
  • All students should check the unit’s iLearn site regularly (minimum twice a week and prior to all lectures) and look for updates and distribution of materials (including case studies) related to the unit or assessments and participate in the unit’s forum discussions.

Unit Schedule

TOPIC 1: INTRODUCTION AND OVERVIEW OF THE ECONOMY

The objective of this lecture is to introduce economic concepts important to the understanding of developments in financial markets and more broadly the financial system. The focus is on current relevance and the ability to analyse current economic and financial market issues.

Outline:

  • Introduction and overview of the course
  • Why does economics and finance matter?
  • Measuring economic activity and financial systems
  • Potential and actual growth of the economy
  • Consumer and asset inflation/deflation
  • Balance of payments and the international economy
  • Business cycles – ups and downs in economic activity
  • Gauging and forecasting the economy
  • Risk and uncertainty

Application of Concepts:

  • Objectives for managing the economy and the financial system
  • Assessment of aggregate output, incomes, assets and liabilities, and sustainability and stability
  • Wealth, debt and income effects
  • Promotion of inflation targeting, external and internal balance and financial stability
  • Understanding key drivers of economic activity and its financial linkages

Readings:

TOPIC 2: MACROECONOMIC AND FINANCIAL POLICIES

The objective of this lecture is to examine the use of some of the instruments of economic policy and how they affect closely related financial market prices and more generally, the stability of the financial system.

Outline:

  • The goals of economic policy
  • Interest rates
  • Exchange rates
  • Fiscal policy
  • Monetary policy
  • Macro prudential policy
  • Structural policy and reform
  • International economic policy and the global monetary system

Application of Concepts:

  • The role of policy makers in macroeconomic and financial stabilisation
  • Fiscal policy – effectiveness and sustainability?
  • Monetary policy decisions: what next?
  • What are the impacts of QE on financial assets?
  • Inflation targeting: goods and services prices only or asset prices too?
  • How does macroprudential policy help to safeguard the whole financial system?
  • Currency unions and exchange rate regimes - fixed, floating or common?
  • China’s exchange rate: appreciation or stability?
  • The Reserve currency debate and rebalancing global growth
  • Bitcoin and e-currencies

Readings:

For in class monetary policy discussion - see latest RBA announcements - https://www.rba.gov.au/monetary-policy/int-rate-decisions/2019/

Readings for pre-course assignment:

TOPIC 3: FINANCE IN THE ECONOMY

The objective of this lecture is to examine the role of finance in the economy, why countries differ in the financial structure that has developed and why this structure has economic impacts.

Copies of the PowerPoint slides used in the lecture will be available in iLearn.

Outline:

  • Role of finance in the economy: asymmetric information and the costs of information and transactions as drivers of financial development
  • Savings and investment – further insights in economic and financial activity
  • Intermediation and disintermediation
  • Financial Accounts – an accounting framework for the financial system
  • Financial sector structure and economic development
  • Indicators/drivers of viable capital markets

Application of Concepts:

  • Are financial intermediaries and capital markets alternatives or complementary? Good or bad?
  • What companies are likely to use intermediated bank finance rather than disintermediated financial instruments in capital markets? And why?
  • What are the major influences on financial structure?
  • What causes procyclicality and instability in the banking and financial system?
  • How to develop robust and viable capital markets?
  • How to avoid and manage financial crises?

Readings:

In Class Discussion:

TOPIC 4: ECONOMICS OF SECURITIES MARKETS

The objective of this lecture is to build some of the drivers of primary and secondary markets for securities and their derivatives, including exploring some valuation issues from an economics perspective.

Copies of the PowerPoint slides used in the lecture will be available on iLearn.

Outline:

  • Effective demand and supply
  • Supply-side and demand-side factors for securities
  • Judging effectiveness – efficiency and inefficiency in the foreign exchange, bond and equity markets
  • Alternative valuation approaches and their uses

Application of Concepts:

  • What are the key drivers of long-term government bond yields?
  • What are the signs investors to judge the limit of excessive Government borrowing?
  • The calculation and relevance of Tobin’s q and Shiller’s p/e ratios
  • Short term vs. long-term volatility and returns?
  • Are bubbles inevitable and impossible to deflate without a crisis?

Readings:

TOPIC 5. ECONOMICS OF FINANCIAL REGULATION

The objective of this lecture is to explore the rationale for regulation and supervision of the financial sector – notably both markets and banking and financial services providers - and how regulatory power can be best used to achieve desired outcomes.

Apart from the lecture notes, in class discussion will focus on the causes of the US subprime crisis, European sovereign crisis and subsequent Global Financial Crisis and the lessons learned for financial regulators, supervisors, bankers, portfolio managers and other stakeholders.

Copies of the PowerPoint slides used in the lecture will be available on iLearn.

Outline:

  • Economic rationale for regulation and supervision
  • Costs of regulation
  • Regulation and financial innovation
  • Lessons from the US sub-prime mortgage market
  • Lessons from the Asian crisis
  • Lessons from the European Sovereign crisis

Application of Concepts:

  • What regulatory factors helped or fuelled the Global Financial Crisis?
  • What regulatory factors helped or fuelled the Asian Crisis?
  • What are recent examples of conflicts of interest and moral hazard?
  • What should regulators do about Systemically Important Financial Institutions & Infrastructure?
  • How do you protect consumers of financial products and services?
  • What financial reforms will deliver the better economic results?

Readings:

Post course readings:

Learning and Teaching Activities

Strategy

The Master of Applied Finance degree adopts a deep teaching and learning strategy, in which students acquire and retain knowledge and also are able to make sense of the issues and concepts and apply them in the “real world”. The degree relies heavily on student engagement and participation by: (a) Continuous learning throughout the term. This is encouraged through a combination of students undertaking prescribed reading throughout the units and/or completion of practice problems, case studies, assignments, class presentations etc and interaction via forums in the unit’s iLearn site; and (b) Assessments, which enable the student to demonstrate his/her understanding of the learning objectives achieved through the continuous learning.

Student Participation

Students participate in this unit by: (a) Attending lectures and participating in class discussion; (b) Before each class, completing the recommended readings of notes and text, and working systematically through suggested problem sets; (c) Interacting on the unit’s iLearn site; and (d) Completing all assessment tasks and exams. On average, the unit will require students to complete, for every hour of class time, approximately 3 hours private study.

Policies and Procedures

Macquarie University policies and procedures are accessible from Policy Central (https://staff.mq.edu.au/work/strategy-planning-and-governance/university-policies-and-procedures/policy-central). Students should be aware of the following policies in particular with regard to Learning and Teaching:

Undergraduate students seeking more policy resources can visit the Student Policy Gateway (https://students.mq.edu.au/support/study/student-policy-gateway). It is your one-stop-shop for the key policies you need to know about throughout your undergraduate student journey.

If you would like to see all the policies relevant to Learning and Teaching visit Policy Central (https://staff.mq.edu.au/work/strategy-planning-and-governance/university-policies-and-procedures/policy-central).

Student Code of Conduct

Macquarie University students have a responsibility to be familiar with the Student Code of Conduct: https://students.mq.edu.au/study/getting-started/student-conduct​

Results

Results published on platform other than eStudent, (eg. iLearn, Coursera etc.) or released directly by your Unit Convenor, are not confirmed as they are subject to final approval by the University. Once approved, final results will be sent to your student email address and will be made available in eStudent. For more information visit ask.mq.edu.au or if you are a Global MBA student contact globalmba.support@mq.edu.au

Students should also consult the MAFC Program Rules found at https://mafcstudents.mq.edu.au/.

Student Support

Macquarie University provides a range of support services for students. For details, visit http://students.mq.edu.au/support/

Learning Skills

Learning Skills (mq.edu.au/learningskills) provides academic writing resources and study strategies to improve your marks and take control of your study.

Student enquiry service (MAFC-specific)

For all student enquiries, please contact studentsupport@mafc.mq.edu.au

 

Student Services and Support

Students with a disability are encouraged to contact the Disability Service who can provide appropriate help with any issues that arise during their studies.

Student Enquiries

For all student enquiries, visit Student Connect at ask.mq.edu.au

If you are a Global MBA student contact globalmba.support@mq.edu.au

IT Help

For help with University computer systems and technology, visit http://www.mq.edu.au/about_us/offices_and_units/information_technology/help/. 

When using the University's IT, you must adhere to the Acceptable Use of IT Resources Policy. The policy applies to all who connect to the MQ network including students.

Graduate Capabilities

PG - Capable of Professional and Personal Judgment and Initiative

Our postgraduates will demonstrate a high standard of discernment and common sense in their professional and personal judgment. They will have the ability to make informed choices and decisions that reflect both the nature of their professional work and their personal perspectives.

This graduate capability is supported by:

Learning outcomes

  • Identify and explain economic and financial concepts and theories.
  • Analyse current and potential economic and financial market developments, with reference to economic and financial concepts, theories, evidence, and practice.
  • Explain the structure of an economy and its financial system, why this structure has economic and financial impacts and how this structure can be used to achieve desired outcomes/goals.
  • Analyse and explain the role and interaction of economic factors (including instruments of economic policy and financial regulation) with the financial sector (including financial market prices and the behaviour of the financial system more generally).
  • Critically evaluate major economic and financial challenges and their implications for financial markets and institutions.

Assessment tasks

  • Pre-unit Assignment
  • Assignment
  • Final Exam

PG - Critical, Analytical and Integrative Thinking

Our postgraduates will be capable of utilising and reflecting on prior knowledge and experience, of applying higher level critical thinking skills, and of integrating and synthesising learning and knowledge from a range of sources and environments. A characteristic of this form of thinking is the generation of new, professionally oriented knowledge through personal or group-based critique of practice and theory.

This graduate capability is supported by:

Learning outcomes

  • Identify and explain economic and financial concepts and theories.
  • Analyse current and potential economic and financial market developments, with reference to economic and financial concepts, theories, evidence, and practice.
  • Explain the structure of an economy and its financial system, why this structure has economic and financial impacts and how this structure can be used to achieve desired outcomes/goals.
  • Analyse and explain the role and interaction of economic factors (including instruments of economic policy and financial regulation) with the financial sector (including financial market prices and the behaviour of the financial system more generally).
  • Critically evaluate major economic and financial challenges and their implications for financial markets and institutions.

Assessment tasks

  • Pre-unit Assignment
  • Assignment
  • Final Exam

PG - Research and Problem Solving Capability

Our postgraduates will be capable of systematic enquiry; able to use research skills to create new knowledge that can be applied to real world issues, or contribute to a field of study or practice to enhance society. They will be capable of creative questioning, problem finding and problem solving.

This graduate capability is supported by:

Learning outcomes

  • Identify and explain economic and financial concepts and theories.
  • Analyse current and potential economic and financial market developments, with reference to economic and financial concepts, theories, evidence, and practice.
  • Explain the structure of an economy and its financial system, why this structure has economic and financial impacts and how this structure can be used to achieve desired outcomes/goals.
  • Analyse and explain the role and interaction of economic factors (including instruments of economic policy and financial regulation) with the financial sector (including financial market prices and the behaviour of the financial system more generally).
  • Critically evaluate major economic and financial challenges and their implications for financial markets and institutions.

Assessment tasks

  • Pre-unit Assignment
  • Assignment
  • Final Exam

Important Notice

This Unit Guide may be subject to change. Students will be advised, via an "Announcement" on iLearn, if the Unit Guide is changed.

The latest version is available at https://unitguides.mq.edu.au/.

Students should read the Unit Guide carefully at the start of term. It contains important information about the unit. If anything is unclear, please consult one of the unit lecturers.