Financial Markets

about this course

The purpose of financial markets is to help savers lend their funds to borrowers who will use it to buy a home or grow their business. Although such lending could occur directly, banks and other financial institutions usually act as intermediaries.

This course explores the securities issued to acquire funds, the markets on which they are traded, the role of financial intermediaries and regulation of the financial system.

Because the world financial system is as fragile as it is inter-connected, this course will also explore the causes and effects of the 2008 financial crisis. And it will examine the policy and regulatory options that could prevent another such crisis from occurring in the future.

what you will learn

When large numbers of homeowners began defaulting on their home mortgages in the late-2000s, banks had to write off the non-performing loans, resulting in a massive loss of capital. And because banks are reluctant to raise capital, they reduce their portfolio of loans instead.

The effect on banks' balance sheets was similar to that of an monetary contraction, but the macroeconomic effects were very different. The Federal Reserve kept the money supply afloat, but the non-performing loans triggered a recession as investment collapsed and interest rates fell to record lows.

When real interest rates fall to zero, there is no longer any scope for monetary policy to stimulate the economy out of recession. Fiscal policy, on the other hand, is extraordinarily effective because increased government spending and/or reduced rates of taxation boosts aggregate demand without raising interest rates enough to crowd out investment.