**Parkes' Financial Institutions and Markets Assignments Page**

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Course Assignments and Tentative Outline:

** Week 10**

**Bring your calculators today!!****Homework on options markets and interest rates swaps is DUE Today.****Day 17 PPT - Options Homework Notes****Mishkin Chapter 19 PPT - Insurance Companies and Pension Funds****Chapter 19: Insurance Companies and Pension Funds**- Insurance Companies - certainty equivalent
- Fundamentals of Insurance
- Adverse Selection and Moral Hazard
- Deductible

**Review today**- All homework returned
**Day 18 PPT - Review!****Chapter 19: Insurance Companies and Pension Funds**- Growth and Organization of Insurance Companies
- Types of Insurance

**Securities Industry and the Glass-Steagall Act - Paul Volker, do we need another Wall Between Commercial Banks and Securities Dealers?**

- Again a quiz will be given for all interns and we will work on material covered in class during the previous week. Bring any questions, problems sets, and thoughts you have!
**Room 201, Wen Hui Building at 3 pm.**

** Week 11**

** Week 9**

**Forwards and Futures Homework, Due Thursday!****Mishkin Chapter 23-24 PPT - Financial Derivatives (One Chapter of PPT for All Financial Derivatives****Bring your calculators today!!- Tutorial on Futures Today - Homework assigned****Day 15 PPT - Futures Thoughts****Chapter 23: Futures and Forward Markets****Forward Markets**- What is a hedge?
- Pros and Cons of Forward Markets

**Futures Markets**- Financial Futures Contract
- Arbitrage
- Open Interest
- Globalization of Financial Futures Markets
- Margin Requirements
- Managing Interest Rate Risk

**Bring your calculators today!! - Tutorial on Options Today - Homework assigned****Options and Swaps Homework, Due Tuesday, Nov. 10, 2009!****Homework on futures markets and hedging. Hint: remember the numbers are already in 100s!****Day 16 PPT - Credit Default Swaps Primer****Chapter 23: Continued**- Stock Index Futures

**Chapter 24: Options (notice ONE PPT - One Chapter in the 6th Edition)**- Strike Price
- American versus European Options
- Option Contracts: Puts versus Calls
- Swaps and Credit Derivatives
- Credit Derivatives
- As Warren Buffet says: Are Credit Derivatives a time bomb?

- I will return on Sunday night so there is no Sunday class this week!

** Week 8**

**Forex homework due today - See Day 12 PPT**- Two potential websites to help: The CIA website and Econstats

**Day 13 PPT - Using Import Prices to control inflation****Exchange Rates in the Short-Run**- Equilibrium in the Foreign Exchange Market
- Expected Returns - Domestic versus Foreign
- The Interest Parity Condition
- Equilibrium in the Foreign Exchange Market

**Explaining Changes in Exchange Rates**

**Day 14 PPT - Bank Management****Mishkin Chapter 15 PPT - Bank Management****Chapter 15: The Banking Firm and Bank Management**- The Bank Balance Sheet - Know the Basic 4 Assets and 4 Liabilities!

**Basic Operation of a Bank**- T-Account - Changes in the Balance Sheet ONLY
- Deposit Outflows and Reserves

**General Principles of Bank Management**- Liquidity Management
- Asset Management
- Liability Management
- Capital Adequacy Management - ROA Versus ROE and EM

**Measuring a Bank's Performance**- Operating Income
- Operating Expenses

- Again a quiz will be given for all interns and we will work on material covered in class during the previous week. Bring any questions, problems sets, and thoughts you have!
**Room 201, Wen Hui Building at 3 pm.**

** Week 7**

**Characteristics of the Residential Mortgage**- Mortgage interest rates
- Points
- PMI
- Mortgage Loan Amortization
- Computing the Payment on a Mortgage

**Mortgages continued - Today's mortgage market**- Secondary Mortgage Market: FNMA, GNMA and FHLMA
- Mortgage Backed Securities
- CDOs and CMOs
**Click here for a basic primer on MBS and CMO/CDO**- Also here is an article from the
*New York Times*entitled "What's it all Worth?" **Day 11 - Supplemental PPT - Repo and Reverse Repo and the Fed****Day 11 PPT - "MBS and Pass-Through definitions" from Investopedia**

**Bring your calculators today!!****Day 12 PPT - "Tuesday's Assignment"**- Two potential websites to help:The CIA website and Econstats

**Mishkin Chapter 12 PPT - Foreign Exchange Markets****Chapter 12: Foreign Exchange Markets**- What are Exchange rates? - Prices!

**Exchange Rates in the Long-Run**- The Law of One Price
- Purchasing Power Parity
- Factors affecting Long-Run Exchange Rates
- Relative Prices
- Tariffs and Quotas
- Preferences
- Productivity

**Paul Volker article**- Zhou Xiaochuan says loose policy may change soon.

- Again a quiz will be given for all interns and we will work on material covered in class during the previous weeks. Bring any questions, problems sets, and thoughts you have!
**Room 201, Wen Hui Building at 3 pm.**

** Week 6**

**The exam will be held at 6:30 pm in Teaching Building #2 - we will begin at 6:30 so you must come early enough to find your assigned seat.****Day 9**

**Bring your calculators today!!****Mortgage "Points" quiz!****Mortgages - Today's mortgage market****Day 10 PPT - Some basic information about mortgages****Chapter 11: The Mortgage Market**- Mishin Chapter 11 PPT: Mortgages! (Called Chapter 12 on PPT)
- Types of Mortgage Loans
- Conventional or Standard
- ARMs - Adjustable Rate Mortgages
- Others

- Characteristics of the Residential Mortgage
- Mortgage interest rates
- Points
- PMI
- Mortgage Loan Amortization
- Computing the Payment on a Mortgage

- A quiz will be given for all interns and we will work on material covered in class during the previous weeks. Bring any questions, problems sets, and thoughts you have!
**Room 201, Wen Hui Building at 3 pm.**

** Week 5**

**Monday, October 12 at 6:30 pm will be the Midterm Exam!****Day 8 PPT****Supplemental Day 8 PPT - Stock Calculations "Advanced"****Chapter 10 continued - Capital Market Financial Instruments**- Finish Bond Market Discussion
- Corporate Stocks
- Mishin Our end of Ch. 10 the NEW Chapter 11 PPT: Stocks!

**Notice in Edition 5 of Mishkin's Textbook, Chapter 11: Stock Markets, is a separate chapter.**

- A quiz will be given for all interns and we will work on material covered in class during the previous weeks. Bring any questions, problems sets, and thoughts you have!
**Room 301, Wen Hui Building at 3 pm.**

**NO CLASSES UNTIL SATURDAY, OCTOBER 10, 2009**

** Week 4**

**ARE YOU READY FOR THE TEST? - Some thoughts about preparation for any exam.****Problem Set 3 due at the beginning of class today!****Notice in Edition 5 of Mishkin's Textbook, Chapter 11: Stock Markets, is a separate chapter, therefore Chapter 11 PPT is discusses Stocks.****Bring your calculators today!!****Quiz today - To buy a Muni or Corporate Bond - Marginal Tax Rate consideration (MTR)****Day 7 PPT****Supplemental Day 7 PPT - "Call" Bond Calculations and Bankruptcy stuff****Chapter 10: Capital Market Financial Instruments**- US Government securities: U.S. Treasuries mostly
**Capital Market Interest Rates**- Corporate bonds
- US Government Agency securities (Especially Fannie Mae and Freddie Mac - See Mortgage Chapter too!)
- State and Local Gov't

**Thanks to one of our Students who found the calculators below**- Link to the TI BAII Plus Calculator
- The HP 10B ALSO a GREAT Calculator
- - these are expensive but ...
**On Taobao, You CAN buy one of these calculators:** **HP 10B**- or the TI BAII Plus

**NOW can anyone find a CHEAPER Chinese brand of the same Business Analyst calculator? - They must have the 5 functions: FV, PV, I/Y, PMT, N.**- You may use these calculators on the exam and I will show you how to use them, if you so desire.

** Week 3**

**September 22, 2009** ** - Finish 8 and begin Chapter 9: The Money Markets**

**Bring your calculators today!!****Quiz today - calculate some growth rates!****Problem Set 2 due next class - TUTORIAL AT THE BEGINNING OF CLASS TODAY!****Chapter 8: The Fed****The Fed's Balance Sheet**- Open Market Operations versus Discount lending - how does each affect the balance sheet
**The Federal Funds Market - Changed since our book - notice the "FUNKY" Supply curve in the PPT**- What are Federal Funds? A great definition question for the Mid-term exam! (See pg. 262)
- The "Tools" and the Affect upon the Money Supply - Notice the PPT
**Tools of the Central Bank: Open Market Operations (Buying and Selling Bonds), Discount Rate, Required Reserve Rate****Supplemental Day 5 PPT - Bond Calculations (See Problem Set 2 below)****Chapter 8 continued - The Fed tools...**- Tools of the Central Bank: Open Market Operations (Buying and Selling Bonds), Discount Rate, Required Reserve Rate
- The Fed: Goals and Targets - we will talk about the Central Bank ALL term, but one last topic at the end of Chapter 8

- Problem Set #3 - Bond Homework
**Day 5 PPT**

**Bring your calculators today!!****Problem Set 2 due TODAY!****Day 6 PPT - "Money" Rates****Mishkin's Chapter 9 PPT - The Money Market****Mishkin's Chapter 10 PPT - The Bond Market****Chapter 9: Money Market Financial Instruments**- US Treasury Bills
- Negotiable CDs
- Commercial Paper (know those three components of this one)
- Banker's Acceptances
- Federal Funds - Daily and Target FF rates, 2008
- Eurodollars

- Hyperinflation and Fed Funds are discussed in a PPT - Thoughts And Questions - Day 6
**Some thoughts on previously discussed classwork****Liquidity Preference "Framework:" The Supply and Demand for Money (End of Chapter 4 in our book)**- 1st note: Quantity of Assets Supplied = Quantity of Assets Demanded
- 2nd note: The interest rate is the opportunity cost of holding money - it's like the price of money
- Shifts in Demand and Supply
- Applications: Boom/Recession in the Economy, Price level changes, Money Supply Changes
**Compare the results for Booms/Recessions with the Loanable Funds Framework - they are equivalent!****Higher GROWTH RATE in the Money Supply: the "Effects"**Last topic in Chapter 4

** Week 2**

**September 15, 2009** ** - Finish Chapter 3 and begin Chapter 4: The Behavior of Interest Rates**

**Bring your calculators today!!****Problem Set 1 due today! After I collect them, the assignments are late and 3 points will be subtracted.**- Let's do the calculations:
- A Bank's Liabilities - IOUs (What's an IOU?) What is money?
- Discount Bonds - U.S. Treasury Bills, for example
- Return versus interest rate - capital gains/losses
- Reinvestment Risk

**Central Banks - the Fed and the PBC (People's Bank of China)****Mishkin's Chapter 4 PPT****The Theory of Asset Demand**- Wealth
- Expected return
- Risk
- Liquidity
- Also the Benefits of Diversification

**Money Rates - Note that data may be found in the Federal Reserve Board of Governor's website.****For Thursday, September 17, 2009 find the prime rate, near closing bid Fed Funds rate, commercial paper rate, T-Bill rate and LIBOR rate. Hint see p. 273. (5 pts)**- Make sure to include the date you are quoting these numbers from (like a citation in ACAD 103 and 201)
**Three Places worth looking for rates for Tuesday:**- Bloomberg's Rates and Bonds (Hint - click on "Key Rates")
- At the FED - Commercial Paper rates!
- Wall Street Journal - "Bonds"
- Money Rates
- Bankrate.com

**Day 3 PPT**- A little on Commodities Markets- A News Article about Norman Borlaug, who received the 1970 Nobel Peace Prize

**Class on Sunday is required for those who have an internship, for others the class is optional.**

The class will be in "open" format. Therefore, you can ask questions and we will talk about what YOU wish. Quiz for those with Internships at 3:00 pm in Room 301 Wen Hui Building.- Bring your calculators today!!
- Quiz today - calculate an inflation rate!
**The Loanable Funds "Framework"**- Notice the y-t-m (interest rate) IS the expected return!
- Key also is that "The interest rate is the inverse of the Price of a Bond"
**Look at BOTH graphs - The Bond Market, which is the inverse of the Loanable Funds Market**- "Shifts"
- Demand, know the Theory of Asset Demand
- Supply, Booms/Recessions, Expected Inflation and Government Activities

- 4 Applications - 1. "The Fisher Effect," 2. Business Cycles, 3. Negative Savings Rates and 4. Government Budget Deficit

**Credit Markets and the Yield Curve****Day 4 PPT - CPI, IP, and many other notes!**- CPI News Report from the
*New York Times*- Table A from the BLS - All Goods Annual Changes too. - Problem Set 2 - assigned today - "Interest rate calculations" Due on September 24, 2009
- Treasury Issues for Problem Set 2
**For Tuesday, September 22, 2009 find the current 10 yr. U.S. Treasury Note rate, 30 yr. U.S. Treasury Bond rate, average corporate bond AAA and BBB rates (see p. 293), and the a recent municipal bond rate. (5 pts)****At the Fed: Here is a good website for the Current Rates - pick only the ones that you need. Printing this page will only get you one point!****See Chapter 10 for definitions, etc. (Also the Ch. 10 PPT). These rates are all available from the Fed's website.****Just use the Current Price from the 3 year Bond at Bloomberg.com here**- Bloomberg.com keeps changing the 3 year Bond date (and coupon) to reflect three years from today.
- Make sure to include the date you are quoting these numbers from (like a citation in ACAD 103 and 201) AND do NOT use Inflation Indexed Bonds!
**Also note at the side here on Investopedia - Mortgage Rates**

- A quiz will be given for all interns and we will work on material covered in class during the previous week. Bring any questions, problems sets, and thoughts you have!
**Room 301, Wen Hui Building at 3 pm.**

** Week 1**

**An Introduction to Financial Institutions and Markets****Chapter 1: Very Briefly, Financial Markets**- Mishkin's Chapter 1 PPT READING - FYI *(For Your Information)*!
- Debt Markets and Interest Rates (SHIBOR?!)
- Graph - T-Bills versus US Gov't Bonds versus Corporate Bonds - what's the difference? Page 5
- "The interest Rate" - notice that (mostly) all interest rates track together

**Stock Markets****Foreign Exchange Markets****The Yuan Now Pegged to the Dollar again!?!**- Mishkin's Chapter 3 PPT
**Central Banks - the Fed and the PBC (People's Bank of China)****The Money Supply and Financial Intermediaries****Day 1 PPT - An Introduction**

**QUIZ - the 3 Goals of any MACROECONOMY! and 3 indicators!****Problem Set I - AVAILABLE HERE! The Homework is due Tuesday, September 15, 2009 at the beginning of class for 15 points.**- What is a price index and how do we calculate them? CPI, GDP deflator
- Growth rates (inflation rate) will also be calculated.
**Bring your calculators today!!**- What is the value of any index at the base year?
**Mishkin's Chapter 2 PPT - For Review and Reading**- Growth rates (inflation rate) will also be calculated.
- Real versus Nominal Wage rates
- Some key concepts from your reading of Chapter 2: (See PPT)
**Primary and Secondary Markets****Adverse Selection and Moral Hazard**- Transaction Costs and Economies of Scale

- Let's do the calculations:
- Simple Present Value
- Simple Loan
- Simple Present Value of a Future Amount
- Fixed Payment Loans - Yield-to-Maturity
- Coupon Bond Calculations - Consol Rate VERY IMPORTANT!!

**Day 2 PPT - Basic information about Chapter 2 - read on your own! REQUIRED!~**

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email: andrew at andrewparkes.com

*Last Update: September 25, 2009
By Andrew L. H. Parkes, Ph. D. *