e266::Finanical Markets and Institutionse266::Financial Markets and Institutions



where: 104 Maryland

when: T, TH, 10:30-11:45

Prof: Jon Faust

TA: Burak Olmez

Learning Den: John Schwarcz



This course is about how financial markets and institutions work and the vital role they play in creating prosperity and misery around the world. The icon in the corner of this webpage, dominoes arranged in the shape of a question mark, was chosen early in 2009 when it seemed an apt image for the financial system. We are now many years beyond the financial crisis and the dominoes seem far less likely to fall. Many questions, however, remain. The financial system is still in a period of rapid change and adjustment in the wake of the crisis, and we are still waiting to learn what is the new normal.

The simplest goals of this class are to familiarize you with some of the main tools of finance and to provide an understanding of how the financial system functions. Let's be honest, however, you can learn most of that by spending some time with Wikipedia. The deeper objective is to build and explore a framework for understanding why the system works the way it does, how it is essential to prosperity, and prone to collapse.

The course assumes very little background in finance and starts by introducing basic notions--discounted present value, rate of return--and moves on through the term strucutre of interest rates, duration, pricing of bonds and stocks, and basic portfolio theory (mainly the CAPM).

We then apply these ideas in studying the function of various financial markets and financial market institutions. As paradigm cases, we study stock markets and commercial banks in some depth. We then consider primary markets and the role of investment banks, and finally we touch lightly on pension funds, insurance companies, mutual funds, hedge funds. The term finishes up with currencies, foreign exchange markets, and central banks.

Throughout this exploration we will be weaving an analysis of how the most elemental forces in economics have shaped financial markets and institutions, drive their rapid evolution, and provide myriad opportunities to make and lose fortunes--your own or those of others.

Note that this site is under construction and intended for the benefit of current course students (JHU, 180.266, Spring 2016). Other users, see the site policies.