University of Edinburgh - BUST08029: Introduction to Financial Markets

You have only to think back to the recent financial crisis to realize the impact financial markets have in todays world. But that is not the only reason it is important to understand how financial markets work. All decision making implicitly requires an assessment of risk, possible returns and the trade-off between them. In financial decision making these assessments comes to forefront and they are most explicit in pricing of assets traded in financial markets. This course aims to develop students understanding of the basic principles of financial markets and provides an introduction how assets are valued and traded in those markets. The course considers stock market prices and returns; stock market risk and the influence of risk on the pricing of shares.

It also considers exchange rates, interest rates and the pricing of bonds; and the characteristics and pricing of financial futures and options. But the most important contribution of this course to your future career is how to use the latest academic insights to better assess risks and returns, and the trade off between the two in your future decision making.

Scientific insights develop and change over time. Traditional views on financial markets are changing rapidly and many of the standard paradigms and theory are nowadays questioned. On the one hand because of recent developments like the recent financial crisis, on the other hand because new theoretical and empirical developments in the academic literature. This course aims to consider issues from different perspectives. It will address both the standard theory but also offer some of the new and alternative views. It is not only important to be aware off those different views from an practical point of view but it is also important for students who want to follow an academic career.

Finance is a field that relies strongly on the interaction between academic and practitioners knowledge. Therefore will pay close attention to the relation between academic and practical developments.

✔ On completion of this course, the student will be able to:

• Describe the main financial assets and how they may be valued.
• Discuss critically the contribution of finance theory to financial practice.
• Understand and explain stock market prices and returns; stock market risk and the influence of risk on the pricing of shares, understand and explain the characteristics and pricing of financial futures and options.
• Understand and explain the effects on financial markets of exchange rates, interest rates and the pricing of bonds.
• Develop your computing skills with the use of Financial Modelling in Excel.

Applications of Econometrics