Fundamentals of Financial Markets

Catalog description

This course provides a broad understanding of the pricing mechanism of the bond, equity, and foreign exchange markets. The course also gives students an overview of analytical methodologies that help market participants discern asset price from asset value. How can a market participant understand when they are "buying low and selling high"? In particular, the course investigates the following questions related to understanding financial markets and why this understanding is important to success as a strategic corporate manager: ¿ - What is the language of financial markets' how do market actors read financial statements with a critical eye to understand assets' future value? - What is the difference between price and value? - What, theoretically, is the "intrinsic value of an asset? What analytical techniques can the financial market participant use to approximate intrinsic value? - How are decisions made given that market results are uncertain? - How are decisions made probabilistically using the basic concepts of expected value and standard deviation? - What is the difference between an "optimal" decision using market data vs. an "accurate" decision? - How do we understand that the concept of risk is multi-layered and multi-dimensional? - Which risks are associated with which markets, i.e., bonds vs. equities etc., and how do market participants mitigate risk through hedging? - Are markets rational or are they subject to "behavioral" characteristics? - How do we understand and quantify our corporation's risk profile and how does that determine our decisions to employ capital in one asset market vs. another? At the end of the course students should have a sense that decisions to buy or sell an asset in any financial market are imperfect, and that new information alters the value of assets extremely quickly. As a result, students must develop a keen sense of how markets are moving, and why they are moving in one direction or the other. More importantly, students will realize that decisions must be made, assets must be bought or sold, and hopefully, valuation techniques lead to profitable outcomes.