Financial Markets: Domestic and International

Prof. Ian Giddy
Office: Stern 9-197. Tel 998-0332; Fax 995-4233
e-mail ian.giddy@nyu.edu 

Goals

Students taking this course should expect to learn the nature and purposes of financial markets with an emphasis on fixed-income securities. They will gain skills in modern valuation techniques, including the risk-return tradeoff and portfolio diversification, asset pricing models, using the zero-coupon curve, duration and convexity, option-adjusted spreads, and the technique of asset securitization. They will learn about Treasuries, corporates and floating-rate notes, about callable bonds and mortgage-backed securities, about asset pricing and valuation, and about swap valuation and trading.
 

Instructor

Ian Giddy has taught finance at NYU, Columbia, Wharton, Chicago and abroad for the past twenty-one years. He was Director of International Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The author of more than fifty articles on international finance, he has served at the International Monetary Fund and the U.S. Treasury and has been a consultant with numerous financial institutions and corporations in the U.S. and abroad. He is the author or co-author of The International Money Market, The Handbook of International Finance, Cases in International Finance, Global Financial Markets and The Hudson River Waterway Guide .
 

Pedagogy

The course employs cases and problems as well as classroom lectures and discussions and an international investment negotation exercise. We will make use of international as well as domestic examples. Each student will be expected to attend all sessions and to participate actively in class discussion. There will be a final exam.
 

Textbook

Our primary text is Frank J. Fabozzi, Bond Markets, Analysis and Strategies, 3rd Ed, (Englewood Cliffs, NJ: Prentice-Hall, 1995). The supplementary book is Bodie, Kane and Marcus, Investments, 3rd edition (Homewood, Il: Irwin, 1996). The latter book can serve as a standard reference source beyond the course.. For short term fixed income securities, get Instruments of the Money Market, published by the Federal Reserve Bank of Richmond; or Dufey and Giddy, The International Money Market (Prentice-Hall, 1994). Additional readings will be made available.

 Students should have read the assignments before coming to class. Material covered in the assigned textbook readings will generally not be repeated in class. Rather, class time will be devoted to lecture and case discussion, applying the material covered in the readings.
 

Use of the Internet

All participants in this course are expected to have and to use email and access to the World Wide Web. Updates, bulletins and supplementary resources will be supplied via email and this Web site (http://www.stern.nyu.edu/~igiddy/fmx.htm). In addition, you should use the Web to search for information about China.
 

Grading

The course grade will be determined as follows: Class Participation 10%, International Investment Assignment 10%, Problems and Cases 40%, Final Examination 40%.

 

Course Content

Session 1
Fixed-Income Securities: Valuation and Linkages Among Bonds, Futures, FRAs and Swaps
Readings: Fabozzi Ch 2,3,5,21
Assignments: Fabozzi Ch 2 #9,7,14; Ch 3 #5; Ch 5 #11,18
(all to be handed in Jan 26th)

Session 2
The Risk-Return Tradeoff in Fixed-Income and in Equity Markets
Readings: F Ch 4; BKM Ch 5,6
Assignments: F Ch 4 #2; BKM Ch 5 #1,10; Ch 6 #1-4,8,9

Session 3
Portfolio Diversification, the Capital Asset Pricing Model, and Market Efficiency
Readings: BKM Ch 7,8,12
Assignments: BKM Ch 7 #9,11,12; Ch 8 #1,3,5; Ch 12 #26

Sesson 4
International Investment
Reading: BKM Ch 26
Case: The Hangzhou Hanel Power Project (Negotiation)

China Trip 
Session 5
The Global Corporate Bond Market: Straights and Convertibles
Readings: F Ch 7,9,16
Case: "A Day in the Life" (an in-class case discussion)
Assignments:Fabozzi Ch 16 #6 (individual)

Session 6
Bonds with Options: Callables and Mortgages
Readings: F Ch 14,15
Assignments: "A Call to Guernsey" (use the AKA program by downloading the four files faj.hlp, primer.exe, primer.hlp, and ctl3.dll into a directory and running "primer.exe".)

Session 7
Structured Debt Financing, Including Asset-Backed Securities and Hybrid Instruments
Readings: F Ch 13; Giddy Ch 17
Assignments: TBA (check email/Web page)

Session 8
Portfolio Management; Review of the Course
Readings: BKM Ch 23,24
Assignments: TBA (check email/Web page)

Take-home exam


For Session 6, download the following files from Andrew Kalotay Associates (a program for valuation of callable and non-callable bonds):
faj.hlp.
primer.exe.
primer.hlp.
ctl3.dll.
Create a subdirectory called "aka" and copy these 4 files into it; then run "primer.exe."
(If you have trouble downloading the 4 files, try downloading this compressed file containing all four:
aka.zip. You'll have to unzip it using WinZip or equivalent.)
Assignment: "A Call to Guernsey" 

Go to Giddy's Web Portal • Contact Ian Giddy at ian.giddy@nyu.edu