Global Financial Markets & Institutions

Financial markets provide the structure for the flows of funds between savers and borrowers to facilitate the investment by corporations, governments and individuals. Significant changes have occurred as a result of advances in technology and communication and because of the growing importance of emerging markets in the world economy. There are two broad financial markets that will be studied: the public and the private markets. Most major corporations deal in public financial markets while almost all small and medium sized companies (up to 500 employees) deal in the private financial markets. Comparing publicly funded larger corporations and privately funded small and medium sized companies shows that each account for about half of GDP and employment in the US economy

Most finance books and classes analyze the public financial market almost exclusively, so it will be covered first. There are many different types of financial institutions that participate as key players in this intermediation process and each serves a specific and important purpose, whether it is a commercial bank, investment bank, mezzanine bank, finance company, derivatives exchange, hedge fund, or alternative asset provider, insurance or re-insurance provider, securities exchange, bond issuer and trader, mutual fund, pension fund, or money market fund.

During the past two decades there has been substantial consolidation of financial institutions as the regulatory environment has changed and the advances in technology, telecommunications, and financial liberalization has removed traditional barriers to scale, speed and time, and location. Stock exchanges are also in the process of developing increasingly sophisticated electronic trading facilities and consolidating globally. New exchanges are being developed in the major cities in emerging markets to facilitate the growing needs of producers and rising income levels. These changes came to a sudden standstill with the 2007-2010 global financial crises. New regulations which are being developed may have a significant directional impact on the future of financial institutions and how they function but the outcome is not yet known.

Financial institutions and their products have also become increasingly complex requiring more sophisticated support platforms to compete globally. We will examine all of these developments and analyze expected future developments.

The final section of the course will examine private financial markets: the participants, the markets, and how they work and why they exist.

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