Acronym for:	National Association of Securities Dealers Automated Quotations (NASDAQ)	New York Stock Exchange (NYSE)
Location:	A telecommunications network	Trading floor in New York City
Market type:	Dealer’s market	Auction market
Process of Trade Execution:	Broker contacts market maker or uses online form	Broker contacts specialist floor trader or enters it into DOT system
Trading schedule:	Weekdays 9:30am to 4:00pm ET; a pre-market session 7:00am to 9:30am and post-market session from 4:00pm to 8:00pm	Weekdays 9:30am to 4:00pm ET
Perception:	High-tech market	Well-established
Stock types:	More volatile and growth oriented	More stable
Entry fee for stock listening:	$50,000 - $75,000	Up to $250,000
Yearly fee:	Around $27,500	Capped at $500,000
Public or private:	Public	Public since 2006
Total market cap of companies listed:	$4.44 trillion as of Jan. 2012	$14.242 trillion as of Dec. 2011
Year launched:	1971	1792
CEO:	Bob Greifeld	Duncan L. Niederauer

Order types (market, limit, stop), video

Understanding order types by wall street survivor, video

Understanding Stock Orders that you can enter

1. Market order: A market order instructs your broker to buy or sell the stock immediately at the prevailing price, whatever that may be.

2. Limit order: Limit orders instruct your broker to buy or sell a stock at a particular price. The purchase or sale will not happen unless you get your price.

3. Stop loss order: A stop loss order gives your broker a price trigger that protects you from a big drop in a stock.

Example:

Let's say XYZ's current ask price is 53. You place an order to buy at a limit price of 50. If the price of the security falls to 50, your order may be executed. If you had placed a limit order to buy at 53 or above, your order would have been "marketable" and executed right away.

IPO, SEO, Primary Market and Secondary Market

IPO: Initial public offering, first time go public, in primary market.

Upcoming IPOs

Company Name	Symbol	Market	Price	Shares	Offer Amount	Expected IPO Date
EVOKE PHARMA INC	EVOK	Nasdaq SmallCap Market	12.00-14.00	2,100,000	$33,810,000	9/25/2013
FATE THERAPEUTICS INC	FATE	Nasdaq National Market	14.00-16.00	4,000,000	$73,600,000	9/19/2013
CONTROLADORA VUELA COMPANIA DE AVIACION, S.A.B. DE C.V.	VLRS	New York Stock Exchange	12.00-14.00	21,634,615	$363,461,532	9/18/2013
OCI RESOURCES LP	OCIR	New York Stock Exchange	19.00-21.00	5,000,000	$120,750,000	9/13/201

IPO story of Facebook from Wiki

SEO: Seasoned Equity Offering, offering shares to the public after IPO, still in primary market.

Primary Market: part of the capital market that deals with the issuance of new securities.

Secondary market: Securities exchange hands among investors.

With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporate issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market.

SEC Approves ICE-NYSE Deal

NYSE Euronext: Merger Good for Risk Management (2011)

Facebook above $40 for first time since IPO

Wall Street trader's NYSE Trading Floor Tour

https://www.youtube.com/watch?v=TPUDPhpCecA

https://www.youtube.com/watch?v=EX33ZpRPoUU&feature=related

NASDAQ on AWS - Customer Success Story

https://www.youtube.com/watch?v=vHSuwbklX4g

CBOT Trading Soybean market pit trading

https://www.youtube.com/watch?v=XZEBz01t5vg

MGEX - The final minute of trading in the pits, forever.

https://www.youtube.com/watch?v=S43zvtdJcxI&feature=related

Ira, Fixed Income Capital Markets, BNP Paribas CIB, New York

https://www.youtube.com/watch?v=qk8DxoLYj0w

https://www.youtube.com/watch?v=g-QZMW2zbhw&feature=relmfu

In Class Exercise Chapter 3 (required)

Multiple Choices

1. A trading order that immediately purchases stock at the prevailing price is called a:

a. stop-loss order.

b. limit order.

c. market order.

d. stopped out order.

2. A trading order that immediately purchases stock or is completely cancelled is called a:

a. stop-loss order.

b. fill-or-kill limit order.

b. market order.

d. open order.

3. A trading order that is canceled unless executed within a designated time period is called a

a. stop-loss order.

b. limit order.

c. market order.

d. none of these.

4. Limit orders:

a. specify a certain price at which a market order takes effect.

b. specify a particular price to be met or bettered.

c. are executed at the best price available.

d. are orders entered for a particular day.

5. The market for equities is predominantly a:

a. primary market.

b. market dominated by individual investors.

c. secondary market.

d. market dominated by foreign investors.

6. Primary markets:

a. involve the organized trading of outstanding securities on exchanges.

b. involve the organized trading of outstanding securities in the over-the-counter market.

c. involve the organized trading of outstanding securities on exchanges and over-the-counter markets.

d. are where new issues (IPOs) are sold by corporations to raise new capital.

7. A market order is an instruction to:

a) immediately buy a security at the current bid price.

b) buy if the market price at least reaches the specified price target.

c) sell at or above a specified price target.

d) none of these.

8. Dealers offer to sell stock at the __________ price, which is __________ than the __________ price.

a. offer, higher, tender

b. bid, lower, ask

c. ask, higher, bid

d. bid, higher, tender

University: Four Markets

(3)9/9-9/13

Chapter 4 PPT

HW: Page 91, 1-5, 7, 10, 17, 20 (or as announced in class)

Bond Price Formula Illusion

Chapter 5 PPT

HW: No homework required.

Chapter 5 risk return portfolio correlation CAPM (with portfolio return, correlation, and standard deviation)

Steps:

1. Go to finance.yahoo.com and look for AAPL (apple) in search window.

2. On the left panel, look for historical prices. Click it.

3. Change the date to incorporate a five year period and use the monthly price.

4. Download the worksheet with prices to Excel

5. Keep the date and the adj close column. Adj close is the closing price adjusted for dividend.

6. Calculate the monthly return. Return = (P2-P1)/P1.

7. Calculate the average of the monthly return and the standard deviation of the monthly return.

8. Calculate the risk return ratio which equals to standard deviation / return.

9. Repeat the above and get the monthly return for GE, WMT, GOOG, Exxon, and Ford.

10. Set up an equally weighted portfolio with two stocks, such as GOOG and WMT. Calculate the average return of this two stock portfolio.

Calculate the coefficient using CORREL function. Calculate portfolio’s return.

Rp= 50% * Return of GOOG + 50%*return of WMT.

σ_p²= 50%²*σ_WMT² + 50%²*σ_goog²+ 2*50%*50%*Correlation * σ_WMT*σ_goog (not required)

11. Repeat the above to calculate the correlation and return of the two stocks’ portfolio:

(GOOG, GE), (GOOG, AAPL), (GOOG, EXXON), (GOOG, Ford).

12. Compare the correlation and returns among the five portfolios.

13. conclude about how to pick stocks to reduce risk while maintaining the return (refer to the graph).

Diversify Your Portfolio With International Stocks

Have 'Alternative' Investments Lost Their Diversification Value?

A 'Bucket List' for Better Diversification

The New Rules for Diversification

University: Time Value of Money

Laugh And Learn About Personal Finance - InvestorED.ca

Funny Moneyman Credit Card Game Show

Behavioral Finance for Everyday Investors: Availability Bias

Behavioral Finance for Everyday Investors: Herding

Trading Psychology Explained

(4)9/16-9/20

Behavior Finance PPT Behavior Finance Reference

The following videos will help you to understand how your mind works

NBR | Behavioral Finance Basics | Your Mind and Your Money

NBR | Following the Crowd | Your Mind and Your Money | PBS

NBR | Investor Overconfidence | Your Mind and Your Money | PBS

NBR | Perception vs. Reality | Your Mind and Your Money | PBS

NBR | Report: Framing | Your Mind and Your Money | PBS

Questions
Explain the following concepts with one example

1. What is mental accounting.

2. What is gambler fallacy

3. What is prospect theory

4. What is herding

5. What is anchoring

First Mid Term Study guide

All conceptual short answer questions

1. Concept of M1, M2 and their use.

2. Recent changes of M1 and M2, eg. QE.

3. QE’s start, effect, problems, and exit.

4. Compare NASDAQ with NYSE

5. Order types as studied in class

6. IPO: based on the news report about FB IPO, answer a few questions.

7. Write down the math equations about the bond pricing.

8. Understand the concepts about risk, the relation between risk and return.

9. Based on the three news reports discussed in class, discuss why via diversification, risk can be reduced and discuss how to diversity.

10. Behavior finance:

a. What is mental accounting.

b. What is gambler fallacy

c. What is prospect theory

d. What is herding

e. What is anchoring

First Mid Term Exam Questions

Bond and QE for dummies

Reading for fun

Why You're Probably Not Protected From The Bond Bubble

Sep 3 2013, 17:50 |

"Is your portfolio adequately protected from rising interest rates and a bond bubble?"

I posed that question to my readers just a few weeks ago. And the responses -- while not surprising -- were certainly concerning. That's because 60% of my readers responded by saying that they were either not protected from rising interest rates, or that they did not know how their investments would weather a "bond bubble."

And that concerns me. I suspect that even the 40% of my readers who believe they are protected from a bond bubble may face considerable losses if and when interest rates start rising. That's because the days of owning U.S. Treasuries and storing them in your safe deposit box are long gone. With the advent of mutual funds and more recently ETFs, investors now own most bonds through funds.

There are, of course, bond funds like the iShares Barclays 7-10 Year Treasury (IEF). And as the name suggests, the fund invests directly in U.S. Treasuries bonds with maturities of seven to 10 years. Now, avoiding a U.S. Treasury fund like the iShares is easy to do -- just look no further than the name. But there are many diversified bond funds that also have considerable exposure to long duration U.S. government bonds.

Consider the Vanguard Total Bond Market ETF (BND). This fund manages $110 billion in investments. Vanguard is a great investment manager, but this fund is mandated to invest in bonds. With 44% of its assets invested in U.S. Treasuries and government agency bonds, investors in this fund have a big stake in U.S. government debt.

Vanguard isn't the only fund company with a big stake in U.S. Treasuries. Almost every bond fund owns U.S. Treasuries. You know that I'm not someone to promote doom and gloom. I'm an optimist who believes that America's economic recover continues to slowly unfold. And I see bright days ahead for the U.S. economy and the stock market.

(5) 9/23-9/27

First Mid Term on Monday

Chapter 6 Bond Market

Chapter 6 PPT

1. Cash flow of bonds

Introduction to bond investing (video)

How Bonds Work (video)

2. Risk of Bonds

Bond risk (video)

Bond risk – credit risk (video)

Bond risk – interest rate risk (video)

Bond risk – how to reduce your risk (video)

3. Choices of investment in bonds

FINRA – Bond market information

http://finra-markets.morningstar.com/BondCenter/Default.jsp

Treasury Bond Auction and Market information

http://www.treasurydirect.gov/

Treasury Bond

Corporate Bond

Municipal Bond

International Bond

Bond Mutual Fund

TIPs

4. Is there a bond bubble? When will it burst?

Is the bond bubble bursting? (Bloomberg, video)

Greece Yield curve (2010 – 2011)

US yield curve

HW:

1. Find GOOGLE (Symbol: GOOG)’s bond in FINRA website. Pick one of the three bonds and answer the following questions.

a. How to calculate the price?

b. Why GOOG’s bond yield is lower than MSFT’s?

c. What does “callable” mean?

d. Who are the three major rating agencies?

e. What is the rating of GOOG? Is it better than MSFT’s or are they the same?

2. Explain why Google bond is more risky than the Treasury bond with the same condition.

3. Why is there a concern for bond bubble? As a bond investor, how shall you prevent losses?

Ukraine's Troubles Hit Bonds

Two Fed Officials Stay Put on Bond Buys

Bond Yields Fall in U.S., U.K., Germany

Goldman Revamping Bond-Trading Network

Companies Seize on Rate Reprieve to Issue Bonds

(6) 9/30-10/4

Chapter 7 Rating, Term structure

Chapter 7 Rating Agency, Interest rate risk, yield curve (PPT)

Three Major Rating Agencies

University: Bond rating (video)

Moody’s sovereign rating list

1. Who are they?

2. Are they private firms or government agencies?

3. How do they rank?

4. Do we need rating agencies and critiques.

5. S&P credit rating (from S&P website)

Category	Definition
AAA	An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA	An obligation rated 'AA' differs from the highest-rated obligations only to a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A	An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB	An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
	Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.

HW:

1. Find Moody’s rating of Greece, Ukraine, Germany, and Japan.

2. Go to http://countryeconomy.com/ratings/ukraine

And explain why Ukraine was downgraded on 9/20/2013. And how does it affect Ukraine government, its residents, bondholder and potential bond buyers.

1. bond, what do you expect the coupon rate to be? Why?

BB	An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B	An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC	An obligation rated 'CCC' is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.

S&P cuts Illinois credit rating (2013)

Bond insurer sues credit rating agencies (july 2013)

Yielding to New realities for government bond (September 2013)




CC	An obligation rated 'CC' is currently highly vulnerable to nonpayment.
C	A 'C' rating is assigned to obligations that are currently highly vulnerable to nonpayment, obligations that have payment arrearages allowed by the terms of the documents, or obligations of an issuer that is the subject of a bankruptcy petition or similar action which have not experienced a payment default. Among others, the 'C' rating may be assigned to subordinated debt, preferred stock or other obligations on which cash payments have been suspended in accordance with the instrument's terms or when preferred stock is the subject of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.
D	An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due, unless Standard & Poor's believes that such payments will be made within five business days, irrespective of any grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of similar action if payments on an obligation are jeopardized. An obligation's rating is lowered to 'D' upon completion of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.
NR	This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor's does not rate a particular obligation as a matter of policy.

(7)10/7-10/11

Yield curve and Term structure

1. What is yield curve

2. What is normal shape of yield curve

3. What does inverted shape of yield curve tell us?

4. Market watch on Wall Street Journal has daily yield curve and interest rate information.

http://www.marketwatch.com/tools/pftools/

https://www.youtube.com/watch?v=yph8TRldW6k

HW:

Go to http://www.yieldcurve.com/marketyieldcurve.asp and answer the following questions.

2. What is the current shape of US and UK yield curves.

3. If you plan to apply loans to buy a house, what do you expect the rate to be? Why?

4. If you plan to invest in an upcoming 5 year Google, what do you expect the rate to be? Why?

Chapter 8 Stock market

Chapter 8 PPT

Stock Simulation Game

Investopedia Investment Simulation with $100,000 to trade with

Set up an account and start trading. Let’s see who is the winner by the end of the semester.

Stock screening tools

Reuters stock screener to help select stocks

http://stockscreener.us.reuters.com/Stock/US/

FINVIZ.com

http://finviz.com/screener.ashx

WSJ stock screen

http://online.wsj.com/public/quotes/stock_screener.html

Stock charts

Simply the Web's Best Financial Charts

How to pick stocks

Capital Asset Pricing Model (CAPM)Explained

https://www.youtube.com/watch?v=JApBhv3VLTo

Fama French 3 Factor Model Explained

https://www.youtube.com/watch?v=zWrO3snZjuA

Fama French factors dataset http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html

Ranking stocks using PEG ratio

https://www.youtube.com/watch?v=bekW_hTehNU

Summary of stock screening rules from class discussion

PEG<1

PE<15 (? FB’s PE>100?)

Growth rate<20

ROE>10%

Analyst ranking: strong buy only

Zacks average =1 (from Ranking stocks using PEG ratio)

current price>5

MSN Money

You can find analyst rating from MSN money

For instance,

ANALYSTS RATINGS

Zacks average brokerage recommendation is Moderate Buy

RECOMMENDATIONS	CURRENT	1 MONTH AGO	2 MONTHS AGO	3 MONTHS AGO
Strong Buy	26	26	25	24
Moderate Buy	4	4	4	4
Hold	8	8	8	9
Moderate Sell	0	0	0	0
Strong Sell	0	0	0	0
Mean Rec.	1.51	1.51	1.53	1.58

How to measure stock returns using CAPM?

How to measure stock returns using Fama French 3 factor model?

How to measure stock returns using PEG ratio?

Nothing bankers like more than a steepening yield curve (March 2013)

Inverted yield curve signals lower inflation, not recession (July 2011)

Chapter 7 WSJ Papers (collective)

Markets' Anxiety Isn't Felt by Some Prominent Money Managers

Tips for Investors Who Hate Stock-Market Volatility

HW: What are those tips

Why Stocks Are Riskier Than You Think

HW: Why?

Is 'Tactical' a Good Strategy?

HW: IS it? Why?

Selling in May: One Market-Timing Strategy That Works

Zack Recommendation of stocks (Daily)

http://www.zacks.com/stocks/zacks-rank

The Billion Dollar Secret

The Zacks Rank Guide to Trading Success

(8) 10/14-10/18

Chapter 9 Options and Futures

Option

PPT

CBOE free option calculator (great tool to calculate option prices)

Call and Put price of AAPL on Google Finance

Call and Put price of AAPL on Nasdaq

Call Options Trading for Beginners in 10 min (video)

Put Options Trading for Beginners in 10 min (video)

Use CBOE free option calculator and calculate both call and put option prices.

Interest rate: 1%; volatility 30%; Strike price 520. Current price 492.

Maturity in 90 days.

And then increase strike price to 550, all else equal. Report the new prices.

And then decrease strike price to 450 and report the prices.

Future

Trading Chart.com for commodity future price quotes

Future market trading (video)

Commodity Future Price on Yahoo Finance

E-Mini Future contracts:

An electronically traded futures contract on the Chicago Mercantile Exchange that represents a portion of the normal futures contracts. E-mini contracts are available on a wide range of indexes such as the Nasdaq 100, S&P 500, S&P MidCap 400 and Russell 2000.

For example, the E-mini S&P 500 futures contract is one-fifth the size of the standard S&P 500 futures contract. Advantages to trading E-mini contracts include liquidity, greater affordability for individual investors and around-the-clock trading.

E mini Futures Trader (bear chat video)

Euro Future Trading

Euro Futures Contract Specifications; tick value, margin requirements (video)

HW:

1. You run a cattle farm and expect to sell many beef cattles one year later. How can you use future market to prevent any market turmoil?

2. You plan to spend the whole summer in Italy next year. You are worrying that Euro price might go up. What can you do to prevent any losses due to the appreciation of Euro in the future?

Goldman Issues Mistaken Options Orders, Roiling Prices (8/20/2013)

HW: summarize what is happening

Freaky Fridays for Options Buyers (6/21/2013)

HW: Why?

Investors Lose $50M Arbitration vs. Deutsche Bank(9/12/2013)

Shutdown Shuts Down U.S. Data, So Commodities Traders Fly Blind

Commodities trading thrives as equities dive

HW: why?

Gambling on Derivatives, Hedging Risk or Courting Disaster?

Bullish option strategies example on optionhouse

Bearish option strategies example on optionhouse

Option Strategy graphs

Future Trading Guide

Futures - Mechanics of the Futures Market

(9) 10/21-10/25

Monday: Second Mid Term (chapter 6, 7, 8, 9)

Second Mid Term Study Guide

1. Study where does the bond market risk come from?

2. Study how to calculate bond prices, given coupon rate, maturity date, and yield using math equation.

3. Study the three rating agencies and how they rank firms.

4. Study yield curve concepts and shapes.

5. Study PEG ratio and P/E ratio (watch the video again)

6. Study Fama French three factor model.

7. Study call option. Understand what is strike price, time to maturity, interest rate, option price, market price, open interest. Understand how to calculate profits. For instance, the call option’s profit = max(0, market price – strike price) – option price.

If the strike price of a call option is $50. And you spent $5 for this call option. European style. At maturity, the market price of the stock is $60. Your gain = max(0, 60-50)-5=5.

If at maturity, the market price is $40. Your loss= max(0, 40-50)-5=-5.

8. One question from Wall Street Journal paper

Second Mid Term Exam Questions

Oct 23^rd, lecture by professional mutual fund guest speakers

Dan Johnson and Adam Klohr

(10) 10/28-11/1

Chapter 10 Foreign Exchange Market (Forex market)

Chapter 10 PPT

Forex Market basics investopedia video

Forex market is the largest financial market: $1.9 trillion daily. It is too big to be manipulated.

Forex market is a network with over 1000 banks and no one is in charge.

Currency Pair	Value	Change
EUR-USD	1.3806	+0.0004(0.03%)
GBP-USD	1.6182	+0.0017(0.11%)
USD-JPY	97.6300	+0.2100(0.22%)
AUD-USD	0.9607	+0.0023(0.24%)
USD-CAD	1.0436	-0.0012(0.11%)
USD-CHF	0.8933	+0.0007(0.08%)
EUR-GBP	0.8531	-0.0009(0.10%)
EUR-JPY	134.7600	+0.3000(0.22%)
AUD-JPY	93.7810	+0.4130(0.44%)

Homework (refer to the WSJ articles as well):

1. What is base currency? Counter (quote) currency?

2. Four major currency pairs?

3. Do you have any trading strategies for Forex market? (think about the determinants of currency values)

4. What is carry trade? Can you make money? Any risk involved?

Market Data

World value of dollar

Rates of exchange for the U.S. dollar against various currencies. Unless otherwise noted, all rates listed are middle rates of interbank bid and asked quotes. A positive year-to-date change means the dollar has strengthened against this currency so far this year and will purchase more of this currency; a negative figure means it has weakened.

http://wsj.com/mdc/public/page/2_3020-worlddollar.html

Exchange Rates: New York Closing Snapshot

http://wsj.com/mdc/public/page/2_3021-forex.html

Bloomberg foreign exchange market rates (on time rate)

http://www.bloomberg.com/markets/currencies/

Foreign Exchange Market (Cartoon video - history)

https://www.youtube.com/watch?v=Z7XXePeC21w

How is the currency value determined?

Purchasing power parity explained (video)

https://www.youtube.com/watch?v=4d4bWXyfXBk

What is purchasing power parity

The concept is based on the law of one price, where in the absence of transaction costs and official trade barriers, identical goods will have the same price in different markets when the prices are expressed in the same currency.

Purchasing power parity is a real value comparison between two currencies. Purchasing power parity may be used to compare the spending power of two currencies against a basket of related goods, such as groceries. To calculate purchasing power parity, analysts use a ratio derived from the price of goods and compared to the prevailing foreign currency exchange rate.

Supply and Demand of Currencies to set up currency rate (video)

https://www.youtube.com/watch?v=-qvrRRTBYAk&feature=related

Summary of factors: The currency value is basically determined by supply and demand.

e=f(ΔINF, ΔINT, ΔINC, ΔGC, ΔEXP)

ΔINF: inflation differentials between two countries.

ΔINT: interest rate differentials.

ΔINC: income level differentials.

ΔGC: change in government controls.

ΔEXP: change in expectations of future exchange rate.

And current account deficit, government deficit, etc.

Oct 30th - Visit Fed Jacksonville Branch from 1:30pm to 2:30pm.

Dress code: business casual,

no jean, no T-shirt Meet @ 1pm in the Lobby of DCOB

Federal Reserve Add: 800 Water Street, Jacksonville, Florida 32204
(904) 632-1000

Euro's Rise Against Dollar Unlikely to Concern ECB Yet

(Oct 2013)

Milestone for Yuan Marks Rise of China (Sept 2013)

Yen Play Is Blast From the Past (March 2012)

Carry Trade Ripping Across Wall Street (June 2013)

WSJ papers wordfile

Simple way to calculate exchange rate -

Big Mac Index Explained (video)

https://www.youtube.com/watch?v=6F9xIj1YDxo&feature=related

(11) 11/4-11/8

Monday Debate Topic: US debt ceiling and its impact in Global market (in other words, you believe that US will pay the debt, or not?) Be prepared

Debt Ceiling Debt PPT (my two cents contribution)

Daily Changes of US$ values measured by Euro

Chapter 11 and Chapter 12: Commercial banking Part I

HW:

1. What are the roles of banks?

2. What is bank run?

3. What does the government do to avoid bank run?

4. What are the Basel Act?

5. Banks are not willing to lend to small business. Do you understand why?

Wells Fargo Balance Sheet

Shutdown Weakens U.S. Dollar Knee-Jerk Reaction Signals a Bumpy October for the Greenback

Dollar Rises on Hopes for Debt-Ceiling Resolution (June 2013)

Small Banks Are Blunt in Dislike of New Rules (May 2012)

Rules for Lenders Relaxed (Jan 2013)

The Debt Ceiling Explained: Why You Should Care

US Debt $70 Trillion Explained, Not The $16.9 Trillion The US Govern

Basel III Cartoon For Community Banks

Basel III: Banks Confront Complex Choices

(12) 11/11-11/15

Chapter 11 and Chapter 12: Commercial banking Part II

HW: Google and find Bank of America’s NIW

Euro-Zone Banking Assets Reach $39.86 trillion

Asset Total is Three Times the Size of Euro-Zone GDP

Smaller Banks' Loans Growing Faster Than Larger Rivals

How does the banking system work part 1.

https://www.youtube.com/watch?v=Ssa5WNnbGsw&feature=relmfu

How does the banking system work part 2.

https://www.youtube.com/watch?v=bhBQizelZP8&list=ULbhBQizelZP8

Sun Trust (NYSE: STI)’s balance sheet and financial highlights

(13) 11/18-11/22

Chapter 13 and Chapter 14: Investment banking Part I

Chapter 13 and Chapter 14: Shadow banking Part II

The scope of investment banks

Market Making

Merger and Acquisition Advisory

Prop trading

IPO and SEO underwriter

Structured financial products

Examples of the products of investment banks

Mortgage backed securities (MBS) Mortgage Backed Securites Explained by Analogy

Explaining Credit Default Swaps

Explaining proprietary trading and its risks

High-Frequency Trading:- Corporate super computers cornering share

Top 10 Disastrous Mergers & Acquisitions (M&A)

Third Mid Term (Wednesday)

Study Guide

Chapter 13, 14

1. Brief explanation of the five scopes of investment banks.

2. What is run on repo (or on shadow banking)?

3. Explain the cause of Leman Brother’s default

4. Compare investment banks, commercial banks

5. Explain briefly the regulatory changes after the financial crisis for investment banking

6. DO you advocate more or fewer regulations for investment banking industry? Why or why not?

Chapter 11 and 12

1. How can banks make money from thin air?

2. Understand banks’ balance sheet: asset, liability and capital

3. What is bank run? It is so rare. Why?

4. Why do we need banks? Explain from the view of moral hazard and adverse selection

5. Understand why banks are reluctant to lend out to small businesses. Instead, they are more willing to lend out to home buyers.

6. What is net interest margin? The net interest margin is roughly how much for big banks in US?

Chapter 10

1. Understand the major factors that can move the prices of US$.

2. Understand the purchasing power parity

3. Understand how to use carry trade to make profits in the global market

4. What do you think of the US debt ceiling? How to fix the debt ceiling problem?

Also questions based on WSJ papers as listed for chapter 10, 11-12, 13-14.

Third Mid Term Questions

OfficeMax, Office Depot in Talks to Merge

Investors Show Renewed Interest in Mortgage-Backed Securities

For Superfast Stock Traders, a Way to Jump Ahead in Line

Understanding Investment Banking

Run on Shadow banking

(14) 11/25-11/29

Fed Introduction PPT

Money Creation in a Fractional Reserve Banking System
https://www.youtube.com/watch?v=Ov2Sd-QRi_g&feature=plcp

Federal open market committee meeting calendars, minutes and statement (2008-2014)

http://www.frbdiscountwindow.org/currentdiscountrates.cfm?hdrID=20&dtlID= (Discount window borrowing rate)

Current Discount Rates
District	Primary Credit Rate	Secondary Credit Rate	Effective Date
Boston	0.75%	1.25%	02-19-2010
New York	0.75%	1.25%	02-19-2010
Philadelphia	0.75%	1.25%	02-19-2010
Cleveland	0.75%	1.25%	02-19-2010
Richmond	0.75%	1.25%	02-19-2010
Atlanta	0.75%	1.25%	02-19-2010
Chicago	0.75%	1.25%	02-19-2010
St. Louis	0.75%	1.25%	02-19-2010
Minneapolis	0.75%	1.25%	02-19-2010
Kansas City	0.75%	1.25%	02-19-2010
Dallas	0.75%	1.25%	02-19-2010
San Francisco	0.75%	1.25%	02-19-2010

http://www.federalreserve.gov/monetarypolicy/0AD345FADDDD49A8878308C9D9202BA4.htm

Interest Rates Paid on Required Reserve Balances
	Institutions with 1-Week Maintenance Period	Institutions with 2-Week Maintenance Period
Maintenance Period (Ending on)	Rate	Rate
June 26	.25	.25
June 19	.25	NA
June 12	.25	.25
June 5	.25	NA
May 29	.25	.25
May 22	.25	NA
May 15	.25	.25
May 8	.25	NA
May 1	.25	.25
April 24	.25	NA
April 17	.25	.25
April 10	.25	NA
April 3	.25	.25

Interest Rates Paid on Excess Reserve Balances
	Institutions with 1-Week Maintenance Period	Institutions with 2-Week Maintenance Period
Maintenance Period (Ending on)	Rate	Rate
June 26	.25	.25
June 19	.25	NA
June 12	.25	.25
June 5	.25	NA
May 29	.25	.25
May 22	.25	NA
May 15	.25	.25
May 8	.25	NA
May 1	.25	.25
April 24	.25	NA
April 17	.25	.25
April 10	.25	NA
April 3	.25	.25

Q1: What is reserve requirement? Reserve requirement ratio? Monetary multiplier?

Q2: For banks’ reserves, the rule has changes. Unlike in the past, banks today always keep excess reserves with the Fed. Why?

Q3: What is capital requirement? What is risk weighted asset?

Q4: Explain the bank’s situation from the perspective of reserve requirement and capital requirement as shown in the PPT.

You opened a new bank. A customer brought in a $100 deposit. You also sold $20 worth of shares to your partners.

Then you loaned the $100 out to a company. But unfortunate, the company was in a financial trouble and the $100 loan was worth $80 only.

Q5: What is fractional reserve banking system (Refer to the video)

Q6: Board of governor? FOMC? Fed Reserve banks? How is Fed chairman nominated?

Q7: What is the difference between monetary policy and fiscal policy?

Q8: What rate does Fed manipulate and how?

Q9: Do FOMC meetings have any influence in the financial market? Why or why not?

Q10: Why even with QE1, 2, 3, there are no hyper inflation pressure in US? (hint: excess reserve)

Happy Thanksgiving

FOMC long run goals (PDF)

Yellen Stands by Fed Strategy

(Nov 12^th, 2013)

Phil Gramm and Thomas R. Saving: Janet Yellen's Greatest Challenge

(Nov 13^th, 2013)

Yellen Keeps Stock-Market Gloom at Bay

(Dec 1^st, 2013)

(15) 12/2-12/6

Federal Reserve Balance Sheet PPT (Monday)

Q1: What are the assets and the liabilities of Fed.

Q2: Show how Fed’ balance sheet changes after one open market operation.

Q3: Fed rarely intervene the foreign exchange market. Why?

How the Fed built a $3 trillion balance sheet

https://www.youtube.com/watch?v=J6Ff1XK2D8A.

Q4: Comparing with Fed balance sheet before the crisis, the components of assets have changed a lot. Describe the changes and try to explain why Fed was doing this.

Table 8: Consolidated Statement of Condition of All Federal Reserve Banks

http://www.federalreserve.gov/releases/h41/current/h41.htm

Millions of dollars

Assets, liabilities, and capital	Eliminations from consolidation	Wednesday Nov 27, 2013	Change since
			Wednesday	Wednesday
			Nov 20, 2013	Nov 28, 2012
Assets
Gold certificate account		11,037	0	0
Special drawing rights certificate account		5,200	0	0
Coin		1,926	- 35	- 171
Securities, unamortized premiums and discounts, repurchase agreements, and loans		3,859,536	+ 18,510	+1,085,616
Securities held outright¹		3,661,892	+ 18,677	+1,052,425
U.S. Treasury securities		2,163,666	+ 12,709	+ 517,021
Bills²		0	0	0
Notes and bonds, nominal²		2,059,942	+ 12,677	+ 497,490
Notes and bonds, inflation-indexed²		89,979	0	+ 16,635
Inflation compensation³		13,745	+ 32	+ 2,895
Federal agency debt securities²		58,372	0	- 20,911
Mortgage-backed securities⁴		1,439,854	+ 5,968	+ 556,315
Unamortized premiums on securities held outright⁵		207,686	+ 274	+ 42,717
Unamortized discounts on securities held outright⁵		-10,214	- 448	- 8,679
Repurchase agreements⁶		0	0	0
Loans		172	+ 6	- 846
Net portfolio holdings of Maiden Lane LLC⁷		1,517	0	+ 83
Net portfolio holdings of Maiden Lane II LLC⁸		63	0	+ 2
Net portfolio holdings of Maiden Lane III LLC⁹		22	0	0
Net portfolio holdings of TALF LLC¹⁰		110	0	- 746
Items in process of collection	(0)	89	+ 3	- 36
Bank premises		2,294	+ 6	- 50
Central bank liquidity swaps¹¹		272	- 1	- 11,940
Foreign currency denominated assets¹²		23,844	- 69	- 1,469
Other assets¹³		19,966	+ 842	+ 3,224

Total assets	(0)	3,925,876	+ 19,256	+1,074,514

Note: Components may not sum to totals because of rounding. Footnotes appear at the end of the table.

Assets, liabilities, and capital	Eliminations from consolidation	Wednesday Nov 27, 2013	Change since
			Wednesday	Wednesday
			Nov 20, 2013	Nov 28, 2012
Liabilities
Federal Reserve notes, net of F.R. Bank holdings		1,183,993	+ 7,051	+ 73,539
Reverse repurchase agreements¹⁴		107,739	+ 1,266	+ 14,509
Deposits	(0)	2,569,904	+ 10,648	+ 989,011
Term deposits held by depository institutions		13,532	+ 13,532	+ 10,489
Other deposits held by depository institutions		2,488,387	+ 18,207	+ 948,872
U.S. Treasury, General Account		45,433	- 2,438	+ 29,330
Foreign official		8,740	+ 5	+ 2,258
Other	(0)	13,813	- 18,657	- 1,937
Deferred availability cash items	(0)	739	+ 63	- 106
Other liabilities and accrued dividends¹⁵		8,537	+ 162	- 2,222

Total liabilities	(0)	3,870,912	+ 19,191	+1,074,730

Capital accounts
Capital paid in		27,482	+ 32	- 108
Surplus		27,482	+ 32	- 108
Other capital accounts		0	0	0

Total capital		54,964	+ 65	- 216

Fed Monetary Policy PPT (Wednesday)

Open market operation (video)

https://www.youtube.com/watch?v=FNq_C4h3Srk

Prime rate, fed funds, COFI as of 11/26.2013

@ http://www.bankrate.com/rates/interest-rates/federal-funds-rate.aspx

	This week	Month ago	Year ago
Fed Funds Rate	0.25	0.25	0.25

Q1 What are the three tools of Monetary policy?

Q2: Draw supply and demand curve to show the results when Fed purchases (sells) Treasury securities.

Q3: Compare fed fund rate with discount rate. Which rate is targeted by Fed to implement monetary policy?

Q4: Compare fiscal policy with monetary policy. Who is in charge of fiscal policy (monetary policy)?

Q5: What is open market operation?

Final (Friday or the Assigned Final Date)

http://www.federalreserve.gov/releases/h41/20071129/

Fed Balance Sheet as of Nov 29^th, 2007

(At that time, Fed assets = 882,848)

http://www.federalreserve.gov/releases/h41/20081128/

Fed Balance Sheet as of Nov 28^th, 2008

http://www.federalreserve.gov/releases/h41/20091127/

Fed Balance Sheet as of Nov 27^th, 2009

http://www.federalreserve.gov/releases/h41/20101126/

Fed Balance Sheet as of Nov 26^th, 2010

http://www.federalreserve.gov/releases/h41/20111125/

Fed Balance Sheet as of Nov 25^th, 2011

http://www.federalreserve.gov/releases/h41/Current/

Fed Balance Sheet as of Nov 29^th, 2012

http://www.federalreserve.gov/releases/h41/current/h41.htm

Fed Balance Sheet as of Nov 27^th, 2013

Fed Balance Sheet Analysis

https://www.youtube.com/watch?v=MILF-9GeMDQ

(16) 12/9-12/13

Project Due at the Assigned Final Date. Electronic submittal is just fine.

Final Study guide