Information - Extension Requests / Penalties

Pre-course Assignment (10%)

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.

 

Post-course Assignment (30%)

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.

 

Final Exam (60%)

You are expected to present yourself for examination at the time and place designated in the relevant MAFC Timetable at https://www.mq.edu.au/about/about-the-university/faculties-and-departments/business/study-with-us/macquarie-applied-finance-centre/timetables.

Deferral of an examination is not permitted unless an application for Special Consideration is made and approved.

Students who do not attend receive a mark of zero. This penalty does not apply in cases where an application for Special Consideration has been made and approved.

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.

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 AFCP8088 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.

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:
• RBA Governor, Dr Philip Lowe, Trust & Prosperity, Speech to CEDA, November 2018 - https://www.rba.gov.au/speeches/2018/sp-gov-2018-11-20.html
• Ostry, J.D. “Growth or Inclusion?” Finance & Development, June 2018 - https://www.im f.org/external/pubs/ft/fandd/2018/06/economics-of-promoting-inclusive-growth/ostry.htm
• Borio, Claudio, On Money Debt, Trust & Central Banking, BIS WP No. 763 - https://www.bis.org/publ/work763.pdf
• Deputy Governor, Dr Guy Debelle, Risks to the Outlook, 14th Annual Risk Conference, Sydney, August 2019 - https://www.rba.gov.au/speeches/2019/sp-dg-2019-08-15.html

 

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:
• RBA Governor, “The Labour Market & Spare Capacity”, CEDA June 2019 - https://www.rba.gov.au/speeches/2019/sp-gov-2019-06-20.html
• RBA, “The Transmission of Monetary Policy” - https://www.rba.gov.au/education/resourc es/explainers/pdf/the-transmission-of-monetary-policy.pdf
• Claudio Borio, Head of the Monetary and Economic Department of the BIS, Sep 2017 - Through the Looking Glass. - https://www.bis.org/speeches/sp170922.pdf

• John C. Williams, “Monetary Policy in a Low R-star World”, Aug 2016 - https://www.frbsf.org/economic-research/publications/economic-letter/2016/august/monetary-policy-and-low-r-star-natural-rate-of-interest/ - a short summary
• Summers, L.H, et al “On Falling Neutral Real Rates, Fiscal Policies and the Risk ofSecular Stagnation, Brookings Papers, March 2019 - https://www.brookings.edu/wp-cont ent/uploads/2019/03/On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Secula r-Stagnation.pdf - skim and focus on key drivers
• Stijn Claessens, An Overview of Macroprudential Policy Tools, IMF WP – 14/214, December 2014 - http://www.imf.org/external/pubs/ft/wp/2014/wp14214.pdf

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:

• Dr Donald T. Brash, then Governor, Reserve Bank of New Zealand, “The Pros and Cons of Currency Union: A Reserve Bank Perspective”, 22 May 2000 - https://www.rbnz.govt.n z/research-and-publications/speeches/2000/speech2000-05-22
• Mojmir Hampi: To be or not to be in the Eurozone? An answer from Prague, May 2018 - https://www.bis.org/review/r180531a.pdf
• Governor of the Bank of Greece, Yannis Stournaras,A Retrospective on Euro Area Monetary Policy etc,” Rethymno, May 2019 - https://www.bis.org/review/r190612i.pdf

 

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:

• Christopher Kent, Assistant Governor RBA, “The Availability of Business Finance - http s://ww w.rba.gov.au/speeches/2017/sp-ag-2017-12-13.html
• H2 Ventures KPMG, et al Fintech 100 – Presenting the world’s leading fintech innovators for 2018 - https://h2.vc/wp-content/uploads/2018/11/Fintech100-2018-Report_Final_22-1 1-18sm.pdf - skim for examples of emerging innovative financial product and services providers
• Jean-Claude Trichet, President of the European Central Bank, “What role for finance?” at the Universidade Nova de Lisboa, Lisbon, 6 May 2010 - http://www.bis.org/review/ r1005 10a.pdf
• Mark Carney, Governor of theBank of England, ATransition in Thinking and Action,April 2018 - https://www.bankofengland.co.uk/-/media/boe/files/speech/2018/a-transition- in-thinking-and-acti on-speech-by-mark-carney.pdf - climate financeandrisk management is moving into the mainstream – greening finance

In Class Discussion:

• Bank of Japan, Research and Statistics Department “Flow of Funds – Japan, US and Euro area Overview” Bank of Japan - http://www.boj.or.jp/en/statistics/sj/sjhiq.pdf

 

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:

• Cash & Government Bonds - Read generally around the topic of fiscal deficit and debt sustainability.There is lots of good material on the IMF website – especially the bi-annual IMF reports – especially the latest “Fiscal Monitor” - http://www.imf.org/en/publications/fm
• Stijn Claessens and M. Ayhan Kose, “Asset prices and macroeconomic outcomes: a survey” BIS Working Paper No. 676, November 2017 - https://www.bis.org/publ/work67 6.pdf
• Advisor Perspectives –Market commentary as well as maintains the Q ratio as well as other top down equity market valuations - http://www.advisorperspectives.com/dshort/up dates/Q-Ratio-and-Market-Valuation.php

 

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:

• Financial Stability Board, Chairman’s (Latest) Letter, March 2018 - http://www.fsb.org/2018/03/fsb-chairs-letter-to-g20-finance-ministers-and-central-bank-governors/
• CGFS, Establishing Viable Capital Markets, Press Release, January 2019 - https://ww w.bis.org/press/p190123.htm
• IMF Global Financial Stability Reports – Executive Summary – a couple of pages
  • ”A Decade after the GFC: Are We Safer?”, October 2018 - https://www.imf.org/en/Publications/GFSR/Issues/2018/09/25/Global-Financial-Stability-Report-Octob er-2018
  • “Vulnerabilities in a Maturing Credit Cycle”, April 2019 - https://www.imf.org/en/Publications/GFSR/Issues/2019/03/27/Global-Financial-Stability-Report-April-2019

Post course readings:

• IMF, Global Financial Stability Report – released bi-annually – April & October – https://www.rba.gov.au/fin-stability/resources/publications.html Executive Summary - http://www.imf.org/external/pubs/ft/gfsr/index.htm
• RBA’s – Financial Stability Reviews – April & October - https://www.rba.gov.au/fin-stability/resources/publications.html