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FIN2302 Financial Economics

Semester 1, 2013 External Toowoomba
Units : 1
Faculty or Section : Faculty of Business and Law
School or Department : School of Accounting, Economics and Finance
Version produced : 21 July 2014

Contents on this page

Staffing

Examiner: Frank Elston
Moderator: Peter Phillips

Requisites

Pre-requisite: ECO1000 and FIN1101 and FIN1103 and STA2300

Other requisites

Students are required to have access to a personal computer, e-mail capabilities and Internet access to UConnect. Current details of computer requirements can be found at http://www.usq.edu.au/current-students/support/computing/hardware

Rationale

The recent and ongoing subprime and government fiscal crises have altered the landscape of money, banking, and financial markets. Students and practitioners of finance need an up to date course that aids them in gaining a deeper understanding of the modern world of finance. Accordingly this course will emphasize the learning and application of basic analytical concepts. The course assumes some background knowledge in finance and statistics. See the course pre-requisites.

Synopsis

Financial Economics is a course in economic theory and relevant applications for finance students. It draws upon well-established microeconomic theory, which helps to provide an understanding of the interactions between agents and markets within the global financial system. The course also develops macroeconomic theory that directly relates to the monetary and banking system. A solid foundational understanding of financial economics is critical for students to develop core competency in finance. The course will also incorporate a methods component covering quantitative applications commonly encountered in finance. This component will be a hands-on, application approach involving the use of real-world financial data. Students will be provided the background to conduct an analysis of the data and encouraged to interpret the results obtained.

Objectives

On successful completion of this course, students should be able to:

  1. analyse the pattern of interest rates
  2. explain how transaction costs, economies of scale, adverse selection, moral hazard, and the principal agent problem have impacted the financial system
  3. distinguish and compute coupon rate, current yield, and yield to maturity
  4. compute value and yields of bonds
  5. assess likely interest rate changes using a supply – demand model for bonds and the liquidity preference framework
  6. compare the different theories of the term structure of interest rates
  7. compare the efficient markets hypothesis to behavioural finance
  8. discuss the major factors contributing to the recent financial crisis
  9. evaluate the role played by banks in the flow of funds
  10. indicate the salient features of nonbank financial institutions
  11. explain the pricing of financial derivatives and how they might be used especially in regard to hedging
  12. explain how a central bank conducts monetary policy
  13. analyse how monetary policy affects output and inflation.

Topics

Description Weighting(%)
1. Money, banking, and financial markets 10.00
2. Interest rate determination and behaviour 10.00
3. Term structure of interest rates 10.00
4. Rational expectations, behavioural finance, and efficient markets hypothesis 10.00
5. Economic analysis of financial structure 8.00
6. Financial crises 12.00
7. Banking 10.00
8. Economic analysis of conflicts of interest and financial regulation 10.00
9. Financial engineering 10.00
10. Central banking and the conduct of monetary policy 10.00

Text and materials required to be purchased or accessed

ALL textbooks and materials available to be purchased can be sourced from USQ's Online Bookshop (unless otherwise stated). (https://bookshop.usq.edu.au/bookweb/subject.cgi?year=2013&sem=01&subject1=FIN2302)

Please contact us for alternative purchase options from USQ Bookshop. (https://bookshop.usq.edu.au/contact/)

  • Mishkin, F 2013, The economics of money, banking, and financial markets, business school, 3rd edn, Pearson, Sydney, New South Wales.

Reference materials

Reference materials are materials that, if accessed by students, may improve their knowledge and understanding of the material in the course and enrich their learning experience.
  • Hunt, B & Terry, C 2011, Financial institutions and markets, 6th edn, Cenage Learning, South Melbourne, Victoria.
  • Malkiel, B 2011, A random walk down Wall Street, 11th edn, Norton, New York.
  • Mishkin, F & Eakins, S 2012, Financial markets and institutions, 7th edn, Prentice Hall, Boston, Massachusetts.
  • Reinhart, C & Rogoff, K 2009, This time is different: eight centuries of financial folly, Princeton University Press, Princeton, New Jersey.
  • Shiller, R 2011, Irrational exuberance, 2nd edn, Princeton University Press, Princeton, New Jersey.

Student workload requirements

Activity Hours
Assessments 28.00
Directed Study 36.00
Private Study 96.00

Assessment details

Description Marks out of Wtg (%) Due Date Notes
QUIZ 1 20 10 21 Mar 2013
ASSIGNMENT 30 15 25 Apr 2013
QUIZ 2 30 15 09 May 2013
2-HOUR EXAMINATION 120 60 End S1 (see note 1)

NOTES
  1. The examination is scheduled to be held in the end-of-semester examination period. Students will be advised of the official examination date after the timetable has been finalised.

Important assessment information

  1. Attendance requirements:
    If you are an international student in Australia, you are advised to attend all classes at your campus. For all other students, there are no attendance requirements for this course. However, it is the students’ responsibility to study all material provided to them or required to be accessed by them to maximise their chance of meeting the objectives of the course and to be informed of course-related activities and administration.

  2. Requirements for students to complete each assessment item satisfactorily:
    To satisfactorily complete an individual assessment item a student must achieve at least 50% of the marks. (Depending upon the requirements in Statement 4 below, students may not have to satisfactorily complete each assessment item to receive a passing grade in this course.)

  3. Penalties for late submission of required work:
    If students submit assignments after the due date without prior approval of the examiner, then a penalty of 5% of the total marks gained by the student for the assignment may apply for each working day late up to ten working days at which time a mark of zero may be recorded.

  4. Requirements for student to be awarded a passing grade in the course:
    To be assured of receiving a passing grade a student must achieve at least 50% of the total weighted marks available for the course.

  5. Method used to combine assessment results to attain final grade:
    The final grades for students will be assigned on the basis of the aggregate of the weighted marks obtained for each of the summative assessment items in the course.

  6. Examination information:
    This is a restricted examination. Candidates are allowed access to specific materials during the examination. The only materials that candidates may use in the restricted examination for this course are: writing materials (non-electronic and free from material which could give the student an unfair advantage in the examination); calculators which cannot hold textual information (students must indicate on their examination paper the make and model of any calculator(s) they use during the examination). Students are not permitted to take mobile telephones, pagers or other electronic means of communication into the examination room.

  7. Examination period when Deferred/Supplementary examinations will be held:
    Any Deferred or Supplementary examinations for this course will be held during the next examination period.

  8. University Student Policies:
    Students should read the USQ policies: Definitions, Assessment and Student Academic Misconduct to avoid actions which might contravene University policies and practices. These policies can be found at http://policy.usq.edu.au.

Assessment notes

  1. Assignment submission:
    1. Assignments must be submitted electronically via the EASE portal on the FIN2302 StudyDesk. No hard copies will be accepted unless prior arrangement has been made.
    2. Assignments are to be labelled with your surname first, your initials, and the last three digits of your student number; for example, SMITH_JA_789.
    3. Assignments are to be submitted using an EXCEL format (2010 or earlier).
    4. Times and dates refer to Toowoomba time, that is Australian Eastern Standard Time (AEST).
    5. Late submissions may incur a penalty unless a request for an extension has been granted.


  2. Referencing in assignments:
    Harvard (AGPS) is the referencing system required in this course. Students should use Harvard (AGPS) style in their assignments to format details of the information sources they have cited in their work. The Harvard (AGPS) style to be used is defined by the USQ Library’s referencing guide at http://www.usq.edu.au/library/referencing.

  3. Course weightings:
    Course weightings of topics should not be interpreted as applying to the number of marks allocated to questions testing those topics in an examination paper. The examination may test material already tested in assignments.

  4. Dishonest actions:
    1. Any student who is alleged to have performed a dishonest action relating to any assessment in the course will have a course of action taken against him/her as outlined in the academic regulations.
    2. Pieces of assessment should be the work of individual students. Joint pieces of assessment are not permitted unless written approval has been obtained from the examiner.
    3. Dishonest action in relation to assessment includes: copying or attempting to copy the work of others; use of or attempting to use information prohibited from use in that form of assessment; submitting the work of another as your own; consciously committing acts of plagiarism, that is, taking and using another’s thoughts or writing as one’s own with intent to deceive, which occurs when paragraphs, sentences, a single sentence or significant parts of a sentence which are copied directly, are not enclosed in quotation marks and appropriately footnoted or referenced in the text; direct quotations are not used, but text is paraphrased or summarised, and the source of the material is not acknowledged by footnoting or other reference in the text.


Other requirements

  1. Computer, e-mail and Internet access: Students are required to have access to a personal computer, e-mail capabilities and Internet access to UConnect. Current details of computer requirements can be found at http://www.usq.edu.au/current-students/support/computing/hardware.