Unit convenor and teaching staff |
Unit convenor and teaching staff
Lecturer
Jeff Oughton
Contact via Email
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Credit points |
Credit points
2
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Prerequisites |
Prerequisites
(Admission to MAppFin or GradDipAppFin) and (AFCP801 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.
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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:
To pass this unit (requires a Mark of 50 or better) the student must pass the final examination.
Name | Weighting | Hurdle | Due |
---|---|---|---|
Pre-Unit Assignment | 10% | No | In First Class |
Assignment | 30% | No | Refer to iLearn |
Final Exam | 60% | Yes | Refer to Timetable |
Due: In First Class
Weighting: 10%
Summary of Assessment Task
Individual / Group: Individual
Due Date: In first class
Grading Method: Refer to 'Standards Required to Complete the Unit Satisfactorily' section
Submission Method: In Class
Duration: Refer to Assignment Coversheet
Extension Requests:
Other Information:
Due: Refer to iLearn
Weighting: 30%
Summary of Assessment Task
Individual / Group: Individual
Due Date: Refer to the Unit's iLearn site
Grading Method: Refer to 'Standards Required to Complete the Unit Satisfactorily' section
Submission Method: Online via Turnitin on iLearn.
Duration: Refer to Assignment Coversheet
Extension Requests:
Other Information: Unit assignment is handed out in lectures. 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.
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. Assessments: Different Class Groups have different deadlines. Students should find the timetable and dates relevant to their group at www.mafc.mq.edu.au
Grading Method: Refer to 'Standards Required to Complete the Unit Satisfactorily' section
Submission Method: As per MAFC Program Rules & Procedures at www.mafc.mq.edu.au
Duration: 2 hours plus 10 minutes reading time
Examination Conditions:
Extension Requests:
Face-to-Face Teaching: Generally 20 hours over 4 days
Timetable: Detailed timetable for classes are on the Centre’s web site www.mafc.mq.edu.au
Consultation Times:
Students who wish to contact any of the teaching staff may do so through:
Text: Nil
Additional Readings:
Lecture Notes: Available in printed form and electronically via iLearn.
Pre-Unit Materials: Information papers on statistics, regression, accounting and other material may be found at http://www.mafc.mq.edu.au/applications/minimum-knowledge-requirement/pre-course-materials1/. 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:
Assumed Knowledge:
Assumed Access:
Unit iLearn Site:
Important Notice:
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 analysis current economic and financial market issues.
Outline:
• Introduction and overview of the course
• Why does economics and finance matter?
• Measuring economic 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 & down in economic activity
• Gauging and forecasting the economy
Application of Concepts:
• Objectives for managing the economy and the financial system
• Assessment of aggregate output, incomes, assets and liabilities & sustainability
• Wealth, debt and income effects
• Promotion of inflation targeting and external and internal balance
• 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 & the global monetary system
Application of Concepts:
• The role of policymakers in macroeconomic and financial stabilisation and structural gains
• Fiscal policy – effectiveness and sustainability/sovereign risk?
• Monetary policy decisions: what next?
• Inflation targeting: goods and services prices only and/or asset prices too?
• Currency unions and exchange rate regimes - fixed, floating or common?
• China’s exchange rate: appreciation or stability?
• The Reserve Currency Debate & Rebalancing Global Growth
• Policy coordination - money, fiscal, banking & prudential - domestically and globally
Readings:
• David Gruen, “Lessons About Fiscal Policy from the 2000s, RBA Conference, Dec 2011
http://www.treasury.gov.au/documents/2271/PDF/2271Speech_Lessons_About_Fiscal_Policy.pdf
• Janet L Yellen, Chair of the US Fed, “The Fed’s Monetary Policy Toolkit: Past, Present & Future, August 2016 - http://www.federalreserve.gov/newsevents/speech/yellen20160826a.pdf
• RBA Governor Glenn Stevens, “Challenges Facing Central Banking”, Address to the Bank of Thailand 70th Anniversary and 3rd Policy Forum Bangkok, 12 December 2012 - http://www.rba.gov.au/speeches/2012/sp-gov-121212.html
• Andrew Haldane, “How Low Can We Go?”, Speech in Northern Ireland, Sep 2015 - http://www.bankofengland.co.uk/publications/Documents/speeches/2015/speech840.pdf
• RBA Assistant Governor, “The Financial Stability Role of Central Banks”, Address to Australian Regulatory Summit, May 2013 - http://www.rba.gov.au/speeches/2013/sp-ag-010513.html
• 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
• Handouts for in class Shadow Central Bank Meeting - Latest RBA and other central bank policy statements & announcements
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 - http://www.rbnz.govt.nz/speeches/0091114.html
• Benoit Coeure, ECB Board Member, “The Future of Europe”, December 2013 - http://www.bis.org/review/r131206c.pdf
• Ignazio Visco, Governor of the Bank of Italy, Rome, “EU – progress of regress?” November 2015 - http://www.bis.org/review/r151120b.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 an economic impact.
Copies of the PowerPoint slides used in the lecture will be available.
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
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 avoid and manage financial crises?
Readings:
• 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/ r100510a.pdf
• Andrew G Haldane, A Leaf Being Turned, Speech, October 2012 - http://www.bis.org/review/r121031f.pdf?frames=0
• Ron Bird, et al “The Size of the Financial Sector and its Contribution to Economic Growth/Productivity, A Submission to the Financial System Inquiry, March 2014 – short note on optimal size of the financial sector - http://ioandc.com/wp-content/uploads/2014/03/The-Size-of-the-Financial-Sector-and-its-Contribution-to-Economic-Growth.pdf
• KPMG, et al “The 100 Fintech Innovators Report”, 2015 – details of 100 top financial innovations – http://fintechinnovators.com/uploads/H2-Fintech-Innovators-2015.pdf
• IMF, Latest Global Financial Stability Report, Released April and October, Chapter 1, Global Financial Stability Report - Executive Summary - http://www.imf.org/external/ pubs/ft/gfsr/
In Class Discussion:
• Research and Statistics Department “Flow of Funds (1st Quarter 2016) – Japan, US and Euro area Overview” Bank of Japan - http://www.boj.or.jp/en/statistics/sj/sjhiq.pdf
• Min Liao, et al, “China’s Financial Interlinkages and Implications for Inter-Agency Coordination”, IMF Working Paper, August 2016 - http://www.imf.org/external/pubs/ft/wp/2016/wp16181.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.
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?
• Do shortages in the supply of equities and government debt constrain economic development?
• The calculation and relevance of Tobin’s q and Shiller’s p/e ratios
• How will the increasing reliance on private provision of retirement incomes affect the demand for and supply of securities?
• Short term vs. long-term volatility and returns?
• Are bubbles inevitable and impossible to deflate without a crisis?
Readings:
In class exercise on Tobin’s q:
TOPIC 5. ECONOMICS OF FINANCIAL REGULATION
The objective of this lecture is to explore the rationale for regulation of the financial sector – notably both markets and banking and financial service 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 and subsequent Global Financial Crisis and the lessons learned for financial supervisors, bankers, portfolio managers and other stakeholders.
Copies of the PowerPoint slides used in the lecture will be available.
Outline:
• Economic rationale for regulation
• Cost of regulation
• Regulation and financial innovation
• Lessons from the US sub-prime mortgage market and the GFC
• Lessons from the Asian crisis
Application of Concepts:
• What causes financial system crisis & failure?
• 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 SIFIs/ Too big to fail institutions?
Readings:
Post course readings:
Executive Summary - http://www.imf.org/external/pubs/ft/gfsr/index.htm
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Assessment Policy http://mq.edu.au/policy/docs/assessment/policy_2016.html
Grade Appeal Policy http://mq.edu.au/policy/docs/gradeappeal/policy.html
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This graduate capability is supported by:
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Students should read the Unit Guide carefully at the start of semester. It contains important information about the Unit. If anything is unclear, please consult one of the unit lecturers.
University Policy on Grading:
Specific Unit Grading:
Grade | Expectation |
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High Distinction | Provides consistent evidence of deep and critical understanding in relation to the learning outcomes. There is substantial originality and insight in identifying, generating and communicating competing arguments, perspectives or problem solving approaches; critical evaluation of problems, their solutions and their implications; creativity in application as appropriate to the discipline. |
Distinction | Provides evidence of integration and evaluation of critical ideas, principles and theories, distinctive insight and ability in applying relevant skills and concepts in relation to learning outcomes. There is demonstration of frequent originality in defining and analysing issues or problems and providing solutions; and the use of means of communication appropriate to the discipline and the audience. |
Credit | Provides evidence of learning that goes beyond replication of content knowledge or skills relevant to the learning outcomes. There is demonstration of substantial understanding of fundamental concepts in the field of study and the ability to apply these concepts in a variety of contexts; convincing argumentation with appropriate coherent justification; communication of ideas fluently and clearly in terms of the conventions of the discipline. |
Pass | Provides sufficient evidence of the achievement of learning outcomes. There is demonstration of understanding and application of fundamental concepts of the field of study; routine argumentation with acceptable justification; communication of information and ideas adequately in terms of the conventions of the discipline. The learning attainment is considered satisfactory or adequate or competent or capable in relation to the specified outcomes. |
Fail | Does not provide evidence of attainment of learning outcomes. There is missing or partial or superficial or faulty understanding and application of the fundamental concepts in the field of study; missing, undeveloped, inappropriate or confusing argumentation; incomplete, confusing or lacking communication of ideas in ways that give little attention to the conventions of the discipline. |
Review of Grade and final examination Script viewing: