Syllabus: WQU 601 Financial Markets I

COURSE OVERVIEW

Credit Hours 3

Number of Units 6

Graded Events 2 Unit Exams

5 Case Studies
1 Final Exam
1 Final Project

COURSE DESCRIPTION
The Financial Markets I course is an introduction to Financial Markets. We will discuss the instruments
traded in the markets, the institutions that support and frame the markets, the trading mechanisms, and
the regulatory structure. The course is intended to be descriptive and conceptual. The aim is to
familiarize you with the breadth and scope of equity, debt, commodity, and derivative markets. The
course will incorporate discussions on recent developments such as High Frequency Trading and the
Dodd-Frank Act.

LEARNING OBJECTIVES
Upon completion of the course, a student should demonstrate the ability to:

LO1 – Understand the role of the world’s key financial markets, with particular emphasis of the
stock and bond markets.

LO2 – Understand the structure of capital markets, and major institutions of the capital markets.

LO3 – Understand the regulatory differences between the public and private equity markets, and
the objectives of private equity industry including venture capital.

LO4 – Understand and apply leading financial theories to securities selection and construction of
basic, diversified securities portfolios.
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LO5 – Relate global investment issues and perspectives to securities selection and portfolio
construction.

LO6 – Understand the legal, regulatory and ethical issues pertaining to the securities and capital
markets.

LO7 – Provide an introductory background to the use of computer-based trading and alpha
design techniques used in quantitative finance.

COURSE PREREQUISITES
This is a foundational course, there are no prerequisites beyond the admission requirements.

COURSE GRADING
Course grade is determined by the following:

Activity Number of Items Course Weighting

Case Studies 5 20% (200 Points)

Unit Exams 2 20% (200 Points)

Projects 1 30% (300 Points)

Final Exam 1 30% (300 Points)

Total Points 1000 Points

NOTE ON GRADING
The instructor reserves the right to modify final grades based on student performance on course
assignments as appropriate. Individual student’s grades will not be lowered if the instructor modifies the
final course grades.

RECOMMENDED COURSE SCHEDULE

This is a six-week course, comprised of six Units. Each Unit represents one week of course work. For
purposes of this course, each academic week begins on Monday and ends on the following Sunday. To
stay on pace with this schedule, all assignments for a given Unit (week) should be submitted by the end of
the day on Sunday (UTC) of the respective week.

For example, Case Study 1 is part of the assigned Unit 1 (week 1) activities (as seen on the table below).
Students are expected to work on this assignment beginning Monday of the first week (week 1), and to
stay on schedule, should submit the case study by the end of the day on Sunday (UTC) of that week.
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While this is the recommended schedule, there are HARD DEADLINES set in the course itself. Review
the course to see when the last day to turn in specific items is.
NOTE: Discussions do run week to week and you are expected to post during the week of the course that
specifies with the discussion posts.

GRADED ACTIVITIES
The following table lists the graded events and corresponding point values, by Unit, for this course.

Unit Activity Points

Unit 1 Case Study 1: Stop Loss Strategy 40

Discussion: High Frequency Trading Pass/Fail

Unit 2 Discussion: Central Banks Pass/Fail

Exam 1: Units 1 and 2 100

Unit 3 Case Study 2: Martingale Asset Management 40

Case Study 3: Betting on Gold 40

Discussion: Equity Markets Pass/Fail

Unit 4 Case Study 4: Note on the Option Valuation 40

Discussion: Commodity Market Pricing Pass/Fail

Unit 5 40
Case Study 5: Innocents Abroad: Currencies &
International Stock Returns

Discussion: Foreign Exchange Markets Pass/Fail

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Exam 2: Units 3, 4 and 5 100

Unit 6 Final Project: Financial Markets I 300

Final Exam 300

OBJECTIVES

Unit 1 Course Overview Introduction

1.0 Introduction to Financial Markets 2.0 Financial Assets

1.1 Capital Markets 2.1 Stocks
1.2 Commodities Markets 2.2 Bonds
1.3 Money Markets 2.3 Foreign Exchange
1.4 Foreign Exchange Markets 2.4 Commodities
2.4.1 Derivatives

3.0 Financial Institutions 4.0 Market Failure, Insolvent Bank, Regulatory

3.1 Non-depository or Non-banking Framework, Liquidity Crises, Bank Runs
3.2 Insurance companies 4.1 Agency Theory
3.3 Pension Funds 4.2 Adverse Selection
3.4 Hedge Funds 4.3 Moral Hazard
3.5 Securities Firms 4.4 Solvency Regulations
3.6 Finance Companies 4.5 Deposit Insurance
3.7 Central Banks 4.6 Lender of Last Resort
4.7 Diversification of Assets

Unit 2 Debt Markets

5.0 Debt Markets

5.1 Treasure Bills
5.2 Treasury Notes
5.3 Term Structure
5.4 Yield Curve
5.5 Bond Returns
5.6 Interest Rate & Duration
5.7 Institutions

Unit 3 Primary Equity Markets

OBJECTIVES

6.0 Equity Markets

6.1 Venture Capital & Public Offerings
6.2 Secondary Equity Markets
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6.3 Equity Market Institutions

Unit 4 Commodity Markets

7.0 Commodity Markets

7.1 Pricing by no-Arbitrage
7.2 Commodity Market Institutions

Unit 5 Foreign Exchange Markets

8.0 Introduction to Foreign Exchange Markets

8.1 Interest Rate Parity
8.2 Covered Interest Arbitrage
8.3 Triangular Arbitrage
8.4 Carry Trade

Unit 6 Option Market & Strategies

9.0 Introduction to Option Market & Strategies

9.1 Option Payoffs
9.2 Option Strategies
9.3 Greek Letters
9.4 Black-Scholes Model
9.5 Delta Hedging
9.6 Binomial Option Pricing Model (BOPM)

COURSE OUTLINE
The individual learning activities for each Unit (week) of the course are as follows:

UNIT 1 COURSE OVERVIEW AND INTRODUCTION

Steps
Text Reading

1. Financial Markets and Institutions, 11th Edition, Madura, pp. 3-28

Financial Markets

2. Unit Overview
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3. Lecture: Overview and Objectives

4. Quiz: Introduction
Note: Quizzes are ungraded

Financial Institutions

5. Lecture: Financial Institutions

6. Quiz: Financial Institutions

7. Supplemental Video: Financial Markets and Financial Institutions

8. Lecture: Depository Institutions

9. Lecture: Non-Depository Institutions

10. Quiz: Depository/Non-Depository Institutions

Adverse Selection & Moral Hazard

11. Agency Theory Overview

12. Lecture: Adverse Selection and Moral Hazard (Agency Theory & Market Failure)

13. Supplemental Video: Agency Theory

14. Quiz: Adverse Selection and Moral Hazard

Regulatory Framework

15. Regulatory Framework Overview

16. Lecture: Regulatory Framework

17. Quiz: Regulatory Framework

18. Lecture: Central Banks

19. Supplemental Video: Regulatory Framework

20. Quiz: Central Banks

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UNIT

1 COURSE OVERVIEW AND INTRODUCTION

Steps
Case Study and Discussion

21. Case Studies: Overview and Instructions

22. Case Study: Stop Loss Strategy

✓ Graded Event: This is a graded event. You are required to complete the
activities in the case study, complete the quiz and post to the discussion. The
discussion will be assessed as part of your grade.
23. Unit 1 Discussion: High Frequency Trading
Note: You are required to sign up for Piazza. Instructions are included in your
course.

UNIT 2 DEBT MARKETS

Steps:

Text Reading

1. Financial Markets and Institutions, 11th Edition, Madura,

✓ Chapter 2, pp. 29-48
✓ Chapter 3, 49-78
✓ Chapter 6, 135-162
✓ Chapter 7, 163-188
✓ Chapter 8, 189-222
Introduction to Debt Markets

2. Debt Markets Overview

3. Lecture: Introduction to Debt Markets

Term Structure

4. Term Structure Overview

5. Lecture: Term Structure

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UNIT
Steps:
6. Supplemental Video: Term Structure
7. Supplemental Video: Yield Curve with Credit Spread
8. Quiz: Yield and Rate Curves
Bond Returns

9. Bond Returns Overview

2 DEBT MARKETS
10. Lecture: Bond Returns

11. Supplemental Video: Bond Returns

12. Quiz: Bond Returns
Interest Rate Risk & Duration

13. Interest Rate Risk Overview

14. Lecture: Interest Rate Risk Duration

15. Quiz: Interest Rate Risk
16. Supplemental Video: Duration
17. Quiz: Duration
Debt Market Institutions

18. Supplemental Video: Debt Market Institutions

19. Lecture: Debt Market Institutions

20. Quiz: Debt Market Institutions
Discussion

21. Unit 2 Discussion: Central Banks

Exam 1
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UNIT
Steps:

Exam 1: Units 1 and 2

This exam convers the objectives taught in Units 1 and 2 of the course. You can take this
exam twice and the higher of the two attempts will count towards your course grade.

UNIT 3 EQUITY MARKETS

Steps:
Text Reading

1. Financial Markets and Institutions, 11th Edition, Madura,

✓ Chapter 10, pp. 249-280
✓ Chapter 11, 281-318
Primary Equity Markets

2. Primary Equity Markets Overview

3 EQUITY MARKETS

3. Lecture: Introduction to Primary Equity Markets

4. Supplemental Video: Primary Equity Markets

5. Quiz: Primary Equity Markets

Venture Capital & Public Offering

6. Venture Capital Overview

7. Lecture: Venture Capital & Public Offering

8. Quiz: Venture Capital

9. Supplemental Video: Public Offerings

10. Quiz: Public Offering

Secondary Equity Markets

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UNIT
Steps:
11. Secondary Equity Markets Overview

12. Lecture: Secondary Equity Markets

13. Supplemental Video: Secondary Equity Markets

14. Quiz: Secondary Equity Markets

Equity Market Institutions

15. Supplemental Video: Equity Market Institutions

16. Quiz: Equity Market Institutions

Case Studies and Discussion

17. Case Study: Martingale Asset Management

18. Case Study: Betting on Gold

19. Unit 3 Discussion: Equity Markets

UNIT 4 COMMODITY MARKETS

Steps:

Introduction

1. Commodity Markets Overview

2. Lecture: Introduction to Commodity Markets

3. Quiz: Commodity Markets Overview

4. Market and Participants Overview
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UNIT
Steps:

4 COMMODITY MARKETS

5. Lecture: Commodities Markets

6. Supplemental Video: Commodities Markets

7. Quiz: Commodity Markets

Pricing by no-Arbitrage

8. Pricing by No-Arbitrage Overview

9. Lecture: No-Arbitrage Principle

10. Supplemental Video: Pricing by No-Arbitrage

11. Quiz: No-Arbitrage Principle

Commodity Market Institutions

12. Supplemental Video: Commodity Market Institutions

13. Quiz: Commodity Market Institutions

Case Study and Discussion

14. Case Study 4: Note on Option Valuation

15. Unit 4 Discussion: Commodity Market Pricing

UNIT 5 FOREIGN EXCHANGE MARKETS

Steps:

Text Reading

1. Financial Markets and Institutions, 11th Edition, Madura,

✓ Chapter 16, pp. 439-472
Introduction

2. Foreign Exchange Markets Overview

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Interest Rate Parity

3. Interest Rate Parity Overview

4. Lecture: Interest Rate Parity

5. Supplemental Video: Interest Rate Parity
6. Quiz: Interest Rate Parity
Covered Interest Arbitrage

7. Covered Interest Arbitrage Overview

5 FOREIGN EXCHANGE MARKETS

8. Covered Interest Arbitrage Example

9. Lecture: Covered Interest Arbitrage

10. Quiz: Covered Interest Arbitrage
Triangular Arbitrage

11. Triangular Arbitrage Overview

12. Triangular Arbitrage Example

13. Lecture: Triangular Arbitrage
14. Supplemental Video: Triangular Arbitrage
15. Quiz: Triangular Arbitrage
Carry Trade

16. Currency Carry Trade Overview

17. Currency Carry Trade Example

18. Lecture: Carry Trade
19. Quiz: Currency Carry Trade
Case Study and Discussion

20. Case Study 5: Innocents Abroad: Currencies and International Stock Returns

21. Unit 5 Discussion: Foreign Exchange Markets

Exam 2

Exam 2: Units 3, 4 and 5

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UNIT
Steps:
This exam convers the objectives taught in Units 3, 4 and 5 of the course. You can take this
exam twice and the higher of the two attempts will count towards your course grade.

UNIT 6 OPTIONS MARKET & STRATEGIES

Steps:
Text Reading

1. Financial Markets and Institutions, 11th Edition, Madura,

UNIT 6 OPTIONS MARKET & STRATEGIES

Steps:

✓ Chapter 13, pp. 343-368

✓ Chapter 14, pp. 369-408
✓ Chapter 15, pp. 409-438
Introduction

2. Options Overview

3. Lecture: Options Overview

4. Supplemental Video: Derivatives

Option Payoffs

5. Supplemental Video: Option Payoffs Equation

6. Supplemental Video: Put Options

7. Quiz: Option Payoffs - Part 2

Option Strategies

8. Lecture: Option Strategies

9. Quiz: Option Strategies

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Greek Letters

10. Greeks Overview

11. Lecture: Greek Letters

12. Greeks - Gama

13. Supplemental Video: Greeks – Theta, Vega and Rho

14. Quiz: Greek Letters

Black-Scholes Model

15. Black-Scholes Model Overview

16. Lecture: Black-Scholes Model

17. Supplemental Video: Black-Scholes Model

18. Quiz: Black-Scholes Model

Delta Hedging

19. Delta Hedging Overview

20. Dynamic Delta Hedging

21. Quiz: Delta Hedging

Binomial Option Pricing Model (BOPM)

22. Binomial Option Pricing Model (BOPM) Overview

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UNIT 6 OPTIONS MARKET & STRATEGIES

Steps:
23. Lecture: Binomial Option Pricing Model

24. Supplemental Video: Binomial Option Pricing

25. Quiz: BOPM

Final Exam

This exam must be taken before the last day of the course or by the date specified
by your instructor. You can take this exam twice and the higher of the two
attempts will count towards your course grade.

Final Project

The final project must be completed and submitted before the last day of the
course or by the date specified by your instructor. A rubric is posted to the
course.

Course Completion Survey

Please take the time to complete the survey. Your comments and suggestions will
be used to improve this course and the program for your future classes and for
the student who come after you.