Energy Systems Engineering (English)
Bachelor	TR-NQF-HE: Level 6	QF-EHEA: First Cycle	EQF-LLL: Level 6

General course introduction information

Course Code:

FNCE303

Course Name:

Financial Markets and Institutions

Course Semester:

Fall

Course Credits:

Theoretical	Practical	Credit	ECTS
3	0	3	6

Language of instruction:

Course Requisites:

Does the Course Require Work Experience?:

Type of course:

Compulsory

Course Level:

Bachelor

TR-NQF-HE:6. Master`s Degree

QF-EHEA:First Cycle

EQF-LLL:6. Master`s Degree

Mode of Delivery:

Face to face

Course Coordinator :

Dr.Öğr.Üyesi MEHMET GÖKHAN GÖKTAN

Course Lecturer(s):

Dr.Öğr.Üyesi MEHMET GÖKHAN GÖKTAN

Course Assistants:

Course Objective and Content

Course Objectives:

The objective of this course is to analyze the overview of the financial system; specifics of financial institutions; stylized facts about the financial environment; asymmetric information in financial markets, adverse selection and moral hazard; impact of asymmetric information on financial institutions; agency theory and dynamics of financial crisis; measuring interest rates; the money markets; the bond markets; the stock markets and the market efficiency; the mortgage markets; the foreign exchange markets; international financial institutions; financial regulation.

Course Content:

Overview of the financial system; specifics of financial institutions; stylized facts about the financial environment; asymmetric information in financial markets, adverse selection and moral hazard; impact of asymmetric information on financial institutions; agency theory and dynamics of financial crisis; measuring interest rates; the money markets; the bond markets; the stock markets and the market efficiency; the mortgage markets; the foreign exchange markets; international financial institutions; financial regulation.

Learning Outcomes

The students who have succeeded in this course;

Learning Outcomes

1 - Knowledge
Theoretical - Conceptual
1) • Recognize the basic facts related with the financial markets and financial institutions.
2) • Introduce the key financial markets functioning specifics.
3) • Identify types and specifics of financial instruments and analyze their basic features.
2 - Skills
Cognitive - Practical
3 - Competences
Communication and Social Competence
Learning Competence
Field Specific Competence
Competence to Work Independently and Take Responsibility

Lesson Plan

Week	Subject	Related Preparation
1)	• Describe the course. • Explain why study financial markets. • Explain why study financial institutions. • Define function of financial markets. • Define structure of financial markets. • Explain internationalization of financial markets. • Syllabus. • Illustrate the structure of financial system. • Differentiate debt and equity markets. • Differentiate primary and secondary markets. • Differentiate exchanges and over-the-counter markets. • Differentiate money and capital markets. • Assess international bond market, Eurobonds, and Eurocurrencies.
2)	• Discuss the determinants of asset demand. • Define the bond market: demand and supply Framework. • Explain the market equilibrium in the bond market. • Explain the determination of interest rates: demand and supply shifts. • Evaluate the Bond Market framework under different macroeconomic policies. • Determine the factors affecting the asset demand. • Analyze how and towards which direction that wealth, expected returns, risk and liquidity affect the demand of an asset. • Identify the supply and demand in the Bond Market. • Assess the market equilibrium in the bond market. • Assess how equilibrium interest rates change with the help of bond market framework. • Analyze the changes in the interest rate due to expected Inflation: The Fisher Effect. • Illustrate the changes in the interest rate due to a business cycle expansion.	Review the Syllabus.
3)	• Explain the Purpose of the Capital Market. • List and discuss the Types of Bonds. • Explain Treasury Notes and Bonds. • Explain Municipal Bonds. • Explain Corporate Bonds. • Demonstrate the Valuation of Bonds. • Discuss the capital market participants. • Discuss the capital market trading. • Differentiate treasury notes and bonds. • Recognize the risk in the municipal bond market. • Analyze the characteristics of corporate bonds. • Compute the value of coupon bonds. • Compute the current yield.	Read, in Mishkin and Eakins, chapter 12 on pages 279-301. Review the Lecture Notes
4)	• Distinguish the Common Stock and Preferred Stock. • Explain how stocks are sold. • Recognize the pricing of common stocks. • Price-Earnings Valuation Method. • State how the market sets security prices. • Compute the price of common stock with the one-period valuation model. • Compute the price of common stock with the Generalized Dividend Valuation Model • Assess and analyze the Gordon Growth Model. • Assess and analyze the price earnings valuation method. • Recognize the stock market functioning with regard to equilibrium price settlements.	Read, in Mishkin and Eakins, chapter 13 on pages 302-323. Review the Lecture Notes.
5)	• Explain The Rational Expectations Theory. • Explain The Efficient Market Hypothesis. • Recognize the evidence in favor of the Market Efficiency. • Recognize the evidence against the Market Efficiency. • Discuss the several cases on the Market Efficiency. • Identify the Behavioral Finance. • Discuss the Weak Form of Market Efficiency. • Discuss the Stronger Form of Market Efficiency. • Illustrate the empirical evidence on the Efficient Market Hypothesis. • Discuss the Application: An Exception That Proves the Rule: Ivan Boesky (Chapter 6, p.122). • Discuss the Application: Should Foreign Exchange Rates Follow a Random Walk? (Chapter 6, p124). • Discuss the Application: Should You Hire an Ape as Your Investment Adviser? (Chapter 6, p.127). • Discuss the implications of Behavioral Finance	Read, in Mishkin and Eakins, chapter 6 on pages 116-133. Read, in Mishkin, chapter 7 on pages 186-208 Review the Lecture Notes
6)	• Recognize the Eight Basic Facts About Financial Structure Throughout the World. • State and describe Transaction Costs. • Discuss How Transaction Costs Influence Financial Structure. • Discuss How Financial Intermediaries Reduce Transaction Costs. • Differentiate the Asymmetric Information: Adverse Selection and Moral Hazard. • Recognize the Lemons Problem in the Stock and Bond Market. • Identify conflicts of interest with regard to ethcical behavior in financial institutions • Discuss that stocks are not the most important source of external financing for businesses. • Discuss that issuing marketable debt and equity securities is not the primary way in which businesses finance their operations. • Discuss that indirect finance, which involves the activities of financial intermediaries, is many times more important than direct finance, in which businesses raise funds directly from lenders in financial markets. • Discuss that financial intermediaries, particularly banks, are the most important source of external funds used to finance businesses.	Lecture. Application. Read, in Mishkin, chapter 8 on pages 208-232. Read, in Mishkin and Eakins, chapter 7 on pages 134-162. Review the Lecture Notes.
7)	• Recognize the Eight Basic Facts About Financial Structure Throughout the World (CONTINUED) • State and describe Transaction Costs. • Discuss How Transaction Costs Influence Financial Structure. • Discuss How Financial Intermediaries Reduce Transaction Costs. • Differentiate the Asymmetric Information: Adverse Selection and Moral Hazard. • Recognize the Lemons Problem in the Stock and Bond Market. • Identify conflicts of interest with regard to ethical behavior in financial institutions • Discuss that the financial system is among the most heavily regulated sectors of the economy. • Discuss that only large, well-established corporations have easy access to securities markets to finance their activities. • Discuss that collateral is a prevalent feature of debt contracts for both households and businesses. • Discuss that debt contracts typically are extremely complicated legal documents that place substantial restrictions on the behavior of the borrower. • Recognize the tools to help solve Adverse Selection problems. • Analyze Moral Hazard: Choice between debt and equity contracts. • Discuss how Moral Hazard influences financial structure in debt markets. • Identify the ethics in financial instituions concerning the issue of conflicts of interest, particulary with a strong emphasis on the recent financial crisis.	Lecture. Application. Read, in Mishkin, chapter 8 on pages 208-232. Read, in Mishkin and Eakins, chapter 7 on pages 134-162. Review the Lecture Notes.
8)	• Midterm Exam • Discuss the Midterm Exam. • Explaining the specifics of the Midterm Exam.	Lecture. Application. Read, in Mishkin, chapter 12 on pages 313-338. Read, in Mishkin and Eakins, chapter 8 on pages 163-190. Review the Lecture Notes.
9)	• Explain the Agency Theory and the definition of a Financial Crisis. • Classify the Dynamics of Financial Crisis in Advanced Economies. • Discuss the Great Depression and 2007-2009 financial crisis. • Classify Dynamics of Financial Crisis in Emerging Market Economies • Discuss the financial liberalization/globalization process. • Recognize the Financial Crisis in Advanced Economies; Stage One: Initiation of Financial Crisis. • Recognize the Financial Crisis in Advanced Economies; Stage Two: Banking Crisis • Recognize the Financial Crisis in Advanced Economies; Stage Three: Debt Deflation • Anlaze the Great Depression and the Credit Crunch. • Recognize the Financial Crisis in Emerging Economies; Stage One: Initiation of Financial Crisis • Recognize the Financial Crisis in Emerging Economies; Stage Two: Currency Crisis • Recognize the Financial Crisis in Emerging Economies; Stage Three: Full-Fledged Financial Crisis • Analyze and discuss the Financial Crisis in Mexico, 1994-1995; East Asia, 1997-1998; and Argentina, 2001-2002. • Analyze and discuss the Financial Crisis in Mexico, 1994-1995; East Asia, 1997-1998; and Argentina, 2001-2002.	Read, in Mishkin, chapter 12 on pages 313-338. Read, in Mishkin and Eakins, chapter 8 on pages 163-190. Review the Lecture Notes.
10)	• Define The Money Markets. • Explain The Purpose of Money Markets. • Discuss the Participants in the Money Markets. • Classify the Money Market Instruments. • Compare the Money Market Securities. • Discuss Why Do We Need the Money Markets? • State the Money Market cost advantages. • Explain and discuss the Treasury Bills. • Explain and discuss the Federal Funds (Interbank Market). • Explain and discuss the Repurchase Agreements (REPO). • Compare money market securities: Interest Rates and Liquidity.	Read, in Mishkin and Eakins, chapter 11 on pages 254-278. Review the Lecture Notes
11)	• Define the Mortgage Market. • Explain the Characteristics of Residential Mortgage. • Discuss the Types of Mortgage Loans. • Explain the Secondary Mortgage Market. • Explain and discuss the Securitization of Mortgages. • Identify the Subprime Mortgages and Collateralized Debt Obligations. • Recognize the Mortgage Interest Rates. • Discuss the Loan Terms. • Discuss the Mortgage Loan Amortization. • Justify the specifics of Mortgage Backed Security. • Identify the Pass Through Securities. • Discuss the Subprime Mortgages and the Real Estate Bubble in the US.	Read, in Mishkin and Eakins, chapter 14 on pages 323-343. Review the Lecture Notes
12)	• Define the Foreign Exchange Market • Explain the Exchange Rates in the Long-Run • Law of One Price • Theory of Purchasing Power Parity • Explain the Exchange Rates in the Short-Run: Supply and Demand Framework • Explain the Changes in Exchange Rates • Application: Changes in the Equilibrium Exchange Rates • Application: The Subprime Crisis and the Dollar • Explain Foreign Exchange Market. • Define Law of One Price. • Define Purchasing Power Parity (PPP). • Illustrate a Supply and Demand Analysis of Exchange Rates. • Recognize the changes in the exchange rates.	Lecture. Application. Read, in Mishkin and Eakins, chapter 15 on pages 344-374. Review the Lecture Notes
13)	• Define the Asymmetric Information (Adverse Selection and Moral Hazard) and Financial Regulation • Describe the Government Safety Net (emphasis on "Too Big To Fail" phenomenon) • Explain the Restrictions on Assets Holdings and Bank Capital Requirements (strong emphasis on off-balance-sheet activities and the Basel Accord) • State the importance of Risk Management • Identify the Disclosure Requirements and ethics in financial reporting. • Explain the International Financial Regulation • Recognize bank panics and deposit insurance • Recognize adverse selection and government safety net • Moral Hazard and the government safety net • Explain the Too Big to Fail phenomenon • Describe the Basel Accord (Basel II vs Basel III). • Recognize the restrictions on asset holdings, capital requirements and prompt corrective action • Explain the assessment of risk management • Identify the concepts of disclosure requirements, consumer protection and restrictions on competition. • Identify the specifics of International Financial Regulations regarding the code of ethics in financial reporting.	Read, in Mishkin, chapter 10 on pages 261-280. Read, in Mishkin and Eakins, chapter 18 on pages 425-454. Review the Lecture Notes
14)	• Review: Evaluate the Bond Market framework under different macroeconomic policies. • Review: Recognize the pricing of common stocks. • Review: Recognize the Eight Basic Facts About Financial Structure Throughout the World. • Review: Recogize the specifics of the money markets, the mortgage markets and the foreign exchange markets • Review: Identify the importance of the financial regulation • Analyze the changes in the interest rate due to expected Inflation: The Fisher Effect. • Illustrate the changes in the interest rate due to a business cycle expansion. • Compare money market securities: Interest Rates and Liquidity. • Assess and analyze the Gordon Growth Model. • Analyze mortgage contracts. • Explain the specifics of the foreign exchange markets. • Describe the process of financial regulation.	Review Lecture Notes.
15)	• Evaluate students via final exam. • Assess the student’s performance throughout the semester. • Analyze the final exam results in terms of further amelioration of the course. • Assess how to value a bond • Assess how to analyze the risk and term structures of interest rates • Assess how to value a common stock • Assess how to analyze the rational expectations theory • Assess how to value a mortgage contract. • Assess how to value money market instruments • Assess how to analyze the mortgage contracts, foreign exchange market equilibrium. • Assess how to recognize the financial crisis in developed and developing countries. • Assess how to identify the implications of the financial regulation.	Review the Lecture Notes.

Sources

Course Notes / Textbooks:	The Economics of Money, Banking and Financial Markets Frederick S. Mishkin, 12th ed., (Global Edition) 2019 ISBN-10: 1-292-26885-9 • ISBN-13: 978-1-292-26885-9 Financial Markets and Institutions Frederick S. Mishkin and Stanley G. Eakins, 9th ed., (Global Edition) 2018 ISBN 10: 1-292-21500-3 • ISBN 13: 978-1-292-21500-6
References:	The Economics of Money, Banking and Financial Markets Frederick S. Mishkin, 12th ed., (Global Edition) 2019 ISBN-10: 1-292-26885-9 • ISBN-13: 978-1-292-26885-9 Financial Markets and Institutions Frederick S. Mishkin and Stanley G. Eakins, 9th ed., (Global Edition) 2018 ISBN 10: 1-292-21500-3 • ISBN 13: 978-1-292-21500-6

Course-Program Learning Outcome Relationship

Learning Outcomes	1	2	3
Program Outcomes
1) Closed Department

Course - Learning Outcome Relationship

No Effect	1 Lowest	2 Low	3 Average	4 High	5 Highest

	Program Outcomes	Level of Contribution
1)	Closed Department

Learning Activity and Teaching Methods

Individual study and homework
Lesson
Homework
Problem Solving

Assessment & Grading Methods and Criteria

Written Exam (Open-ended questions, multiple choice, true-false, matching, fill in the blanks, sequencing)
Application

Assessment & Grading

Semester Requirements	Number of Activities	Level of Contribution
Attendance	1	% 10
Quizzes	3	% 15
Midterms	1	% 25
Final	1	% 50
total		% 100
PERCENTAGE OF SEMESTER WORK		% 50
PERCENTAGE OF FINAL WORK		% 50
total		% 100

Workload and ECTS Credit Grading

Activities	Number of Activities	Workload
Course Hours	16	48
Study Hours Out of Class	15	90
Project	1	12
Homework Assignments	3	6
Quizzes	2	1
Midterms	1	8
Final	2	25
Total Workload		190