The focus of this class will be primarily on the structure, organization, and functioning of financial markets in facilitating inter-temporal trade. Millions of participants in financial markets seek to borrow (trading future consumption for current consumption) and lend (trading current consumption for future consumption). They do so primarily through a host of financial intermediaries (including banks) which reduce the transactions costs of doing so, and through trade in a variety of different financial instruments (bonds, commercial bank loans, equities, etc.). As we trade into an uncertain future, there is attendant risk and uncertainty that must be confronted by parties on all sides of such trades, and this affects not only the characteristics of the instruments being traded but also the way roles of financial intermediaries have evolved through time.

 

We will also consider the potential strengths and weaknesses of monetary policy in a global economy. FED policy impacts financial markets first before we then experience potential (at least short run) spillover effects in the real sectors of our economy: production and sale of goods and services, accumulation of capital and economic growth, balance of trade in goods and services in international markets, domestic labor employment, etc. These effects can be positive or negative, leading to a debate regarding what the proper role of FED policy should be.

 

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