Financial assets play a vital role coordinating the actions of savers and investors; consequently, they play a crucial role in creating wealth and facilitating economic activity. The aim of this unit is to explore the economic principles underlying: the pricing and development of financial assets; the trade-off between risk and return and the how investors construct portfolios in response to this trade-off. The focus is on the economics of financial markets: the factors of demand and supply; risk and uncertainty; incomplete contracts and renegotiation; and asymmetric information and its implications. We will emphasize the key aspects of markets for financial assets and the main differences to markets for consumption goods. The unit also examines the development of financial institutions and current issues in financial markets.
1x2hr lecture/week, 1x1hr tutorial/week
problem sets (20%), Mid-semester test (25%) and 2hr Final exam (55%)
(ECOS2001 or ECOS2901) and (ECOS2002 or ECOS2902)