Notice
As part of Phase 3 of our return to campus plan, most units will now run tutorials, seminars and other small group learning activities on campus for the second half-year, while keeping an online version available for those students unable to return or those who choose to continue their studies online.
To check the availability of face to face activities for your unit, please go to timetable viewer. To check detailed information on unit assessments visit your unit's iLearn space or consult your unit convenor.
Unit convenor and teaching staff |
Unit convenor and teaching staff
Jeff Oughton
Contact via Email
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Credit points |
Credit points
5
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Prerequisites |
Prerequisites
AFCP801 or AFCP8001 or ECFS865
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Corequisites |
Corequisites
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Co-badged status |
Co-badged status
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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. |
Information about important academic dates including deadlines for withdrawing from units are available at https://www.mq.edu.au/study/calendar-of-dates
On successful completion of this unit, you will be able to:
Information - Extension Requests / Penalties
Pre-course Assignment
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.
Further information on submitting an Application for Special Consideration can be found at https://students.mq.edu.au/study/my-study-program/special-consideration.
In-Class Assignment
Students who do not submit this task by the due date and time receive a result of zero. This penalty does not apply when 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.
Further information on submitting an Application for Special Consideration can be found at https://students.mq.edu.au/study/my-study-program/special-consideration.
Post-course Assignment
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.
Further information on submitting an Application for Special Consideration can be found at https://students.mq.edu.au/study/my-study-program/special-consideration.
Final Exam
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.
Further information on submitting an Application for Special Consideration can be found at https://students.mq.edu.au/study/my-study-program/special-consideration.
Name | Weighting | Hurdle | Due |
---|---|---|---|
Assignment | 10% | No | Before first class |
Assignment | 30% | No | Refer to iLearn |
Final Exam | 60% | No | Refer to timetable |
Assessment Type 1: Case study/analysis
Indicative Time on Task 2: 4.00 hours
Due: Before first class
Weighting: 10%
Students will submit an individual assignment of up to 1,000 words addressing knowledge of specific concepts.
Assessment Type 1: Report
Indicative Time on Task 2: 12.00 hours
Due: Refer to iLearn
Weighting: 30%
Students will submit an individual assignment of up to 1,500 words on concepts and/or challenges with respect to content and application.
Assessment Type 1: Examination
Indicative Time on Task 2: 15.00 hours
Due: Refer to timetable
Weighting: 60%
Closed book exam of 2 hours duration with 10 minutes reading time.
1 If you need help with your assignment, please contact:
2 Indicative time-on-task is an estimate of the time required for completion of the assessment task and is subject to individual variation
CLASSES
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:
REQUIRED AND RECOMMENDED TEXTS AND/OR MATERIALS
Text: Nil.
Additional Readings:
Lecture Notes: Available via iLearn.
Calculators:
Assumed Knowledge:
Assumed Access:
TECHNOLOGY USED AND REQUIRED
Unit iLearn Site:
Important:
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.imf.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
• RBA Governor, Dr Philip Lowe, Opening Statement to the House of Reps standing Committee on Economics, 14 August 2020 - https://www.rba.gov.au/speeches/2020/pdf/sp-gov-2020-08-14.pdf
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, “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 of Secular Stagnation, Brookings Papers, March 2019 - https://www.brookings.edu/wp-co nt ent/uploads/2019/03/On-Falling-Neutral-Real-Rates-Fiscal-Policy-and-the-Risk-of-Sec ula r-Stagnation.pdf - skim and focus on key drivers
• IMF Blog, The Great Lockdown, April 2020 - https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-great-depression/
• IMF Blog, Making Economies More Resilient to Downturns, May 2020 - https://blogs.imf.org/2020/05/18/making-economies-more-resilient-to-downturns/
• IMF Blog, Global Imbalances and the COVID-19 Crisis, August 2020 - https://blogs.imf.org/2020/08/04/global-imbalances-and-the-covid-19-crisis/
For in class monetary policy discussion - see latest RBA announcements - https://www.rba.gov.au/monetary-policy/int-rate-decisions/2020/
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.nz/research-and-publications/speeches/2000/speech2000-05-22
• 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:
• H2 Ventures KPMG, et al Fintech 100 – Presenting the world’s leading fintech innovators for 2019 - https://h2.vc/f100/#page_holder - 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 the Bank of England, A Transition in Thinking and Action, April 2018 - https://www.bankofengland.co.uk/-/media/boe/files/speech/2018/a-transition- in-thinking-and-action-speech-by-mark-carney.pdf - climate finance and risk management is moving into the mainstream – greening finance
• RBA, FSR, Chapter 1, The Australian & Global Financial Systems, April 2020 - https://www.rba.gov.au/publications/fsr/2020/apr/pdf/01-the-australian-and-global-financial-systems.pdf
In Class Discussion:
• Bank of Japan, Research and Statistics Department “Flow of Funds – Japan, US and Euro area Overview” Bank of Japan – August 2020 - 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/work676.pdf – detailed review of various asset price models
• 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/updates/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 fueled the Global Financial Crisis?
• What regulatory factors helped or fueled 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?
• Is there role for financial policies in climate change mitigation?
• How should policy repond to the pandemic?
• What will be some of the long run effects of the pandemic?
Readings:
• Tobias, Adrian et al, Combating COVID: How Should Banking Regulators Respond?, June 2020 - https://blogs.imf.org/2020/06/15/combating-covid-19-how-should-banking-supervisors-respond/?utm_medium=email&utm_source=govdelivery
• Oman, William, A Role for financial & Monetary Policies in Climate change Mitigation, September 2019 - https://blogs.imf.org/2019/09/04/a-role-for-financial-and-monetary-policies-in-climate-change-mitigation/
• CGFS, Establishing Viable Capital Markets, Press Release, January 2019 - https://www.bis.org/press/p190123.htm
• IMF Global Financial Stability Reports – Executive Summary – a couple of pages
• Jorda, sigh & Taylor, The Long Economic Hangover of Pandemics, June 2020 - https://www.imf.org/external/pubs/ft/fandd/2020/06/long-term-economic-impact-of-pandemics-jorda.htm
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