EMGT305 Introduction to Financial Instruments & Markets
Fall 1998 Professor Gary R. Evans

COURSE OUTLINE

This is an introductory course designed to give students first-time detailed exposure to the wide variety of financial instruments and the domestic financial markets in which they are traded.

This course is intended for students who have little background in this area and, in effect, want to fill an educational gap. The course has no prerequisite other than good standing in the program and is not a prerequisite for any other course in the program. This course would be a good starting point for any student wishing to emphasize finance, but only if you presently know little about the subject. Generally, though, the intent is to meet the needs of students who want a general but detailed introductory survey.

You are not encouraged to take this course if you already know quite a lot about stocks, bonds, mutual funds, options, and so forth.

The Nature of the Course

This course is descriptive rather than theoretical.

What does that mean?

We don't consider much theory in this course (we discuss some - a minimal amount is necessary). To be more specific, we don't evaluate elaborate theories about why stocks, bonds, and other financial assets rise and fall in value. We don't consider "technical" versus "fundamental" analysis in stock trading for example (I won't even allow discussion of such analysis in class - it's too much of a diversion). We will not consider advanced theories of hedging, risk, nor arbitrage. This is not that kind of course. There is some low-level theory about portfolio performance, the benefits of diversity, the behavior of interest rates, and similar topics. The emphasis in this course, though, is not on theory.

Instead, with the help of our reading material, I will describe features and characteristics of

1. financial markets and institutions, excluding depository institutions like banks

[Examples: the NYSE, the small-cap market, IPOs, the market for U.S. Treasury securities, ...(1)]

2. the financial instruments traded in those markets and through those institutions

[Examples: NYSE stocks, OTC stocks, 5-year Treasury Notes, subordinated debentures, Treasury strips, repos, no-load mutual funds, mortgage-backed securities ...]

3. the various statistics, indices, quotations, and general sources of information about the finance markets

[Examples: The DJIA, NASDAQ index, various newspaper listings for financial assets, and some source material on individual companies - such as that which can be found on the internet.]

Although we do not use much theory in the course, we do look at some performance history of some markets, especially stocks and bonds.

There is also considerable discussion of relative yields of the financial instruments in question, their performance relative to inflation, and risks associated with owning them. There will be extensive discussion of the hazards encountered in the financial markets, and how one might try to avoid at least the worst-case scenarios. Financial security and safety are strongly emphasized in this course. To help in preparation for corporate finance, if you intend to later take that course, there is an introductory discussion of debt-based means of corporate finance and of start-up financing.

What's in and what's out

This course does not include (and the teacher will sometimes discourage discussion of):

In addition to that already made obvious by the discussion above, the course will include

Textbooks Used

The following textbooks will be used in this course:

Finally, you must subscribe to the Wall Street Journal to participate in this class. If you want to subscribe at a special student rate, ask the EMP coordinator for the subscription list for my class, or email, FAX, or call me (Prof. Evans) as instructed under the section entitled Inquiries at the end of this course outline.

Reading Assignments

[Note to students receiving this course outline early: If you get this course outline and the assigned books a few days early, it might help to get ahead on some of the material before the class begins. A lot of reading is assigned. There aren't many pages assigned, but the material is dense (though I think you will find it interesting - maybe not a pleasure to read, but not a bore either)].

In this class I assign reading by blocks, rather than week by week. This gives the student some leeway in developing a reading schedule. It is very important that you try to keep up with the reading - background material is very important in this class. Try to pace yourself through this material. Here are the assignments:

Weeks 1,2, and 3:

[Dalton, Required: Chs. 1-7,9,10. Optional: Chs. 13,14]
[WSJ, Required: Chs. on Stocks, Mutual Funds, and pages 124-125, 140-149 {on options}.]

Weeks 5,6, and 7:

[WSJ, Required: Ch. on Bonds. Optional: Ch. on Money]
[Zipf, Required: The whole book, cover to cover.]
[Jorion, Required: The whole book, cover to cover.]

Finally, there will be a lot of material handed out in class.

How to Read for This Course

As stated above, you are assigned a lot a reading material for this course. So that reading does not become too much of a chore, I suggest you follow this advice:

Try to read the material quickly and don't dwell on those parts of it that you don't understand, and if you are really pressed for time, don't read it all but select segments that you find informative. Try to read as much as you can, because you will get a lot from the material, you'll be able to participate more in class discussion, and you will understand the lectures better. But don't let the reading overwhelm you.

By necessity, this class involves a lot of terminology. I will expect you to know the meanings of a large number of financial terms. I will give you a list in the introductory lecture. As you read, you will construct and attempt to remember your own glossary for this list.

Examinations & Grades

In this class you will be given two exams, an in-class midterm taken during the first half of our fourth meeting, on September 21st, and the take-home final, given out at the end of class on the last day, October 12th. Each exam is equally weighted.

To receive a grade, the final must be returned to Professor Evans according to instructions included with the exam by the following time and date: Thursday, October 22nd, 5:00 PM in the management office. A student submitting an exam after that date will receive an Incomplete. Additionally, because of Professor Evans's schedule, the Incomplete will not likely be upgraded to a letter grade until mid-January.

Inquiries

Inquiries about this course can be made directly to the instructor, Gary R. Evans by

Email (Internet): evans@hmc.edu
Phone/Voice mail/FAX: (909) 899-1010 (do not use 607-2400)
http://www2.hmc.edu/~evans (there is an email button on this page)

Email will normally be answered by Email, but also provide a telephone number on Email and FAX inquiries. Next-day response is usually possible, but because the instructor is occasionally out of town, sometimes responses are delayed.

1. If you do not know what the terms mean in this example and the two that follow , you will likely benefit from this course. If on the other hand you are familiar with these subjects, this is not the course for you.


Go to the Fall 1998 Course Calendar for EMGT 305.

Return to CGU Course material offered by Professor Evans.