ICM315-Fundamentals of Financial Markets

Module Provider: ICMA Centre
Number of credits: 10 [5 ECTS credits]
Level:7
Terms in which taught: Autumn term module
Pre-requisites:
Non-modular pre-requisites:
Co-requisites:
Modules excluded:
Current from: 2022/3

Module Convenor: Dr Alfonso Dufour
Email: a.dufour@icmacentre.ac.uk

Type of module:

Summary module description:

To provide an economic framework for the understanding of global financial markets,

organised exchanges, market players and the importance of liquidity and price efficiency.

Aims:

Participants will gain an understanding of the international stock and bond markets, ‘repo’

markets (for borrowing/ lending on a secured basis); an introduction to foreign exchange

and money markets, and to futures markets; finally, specific markets for commodity and

energy are presented.

Assessable learning outcomes:

By the end of the module, it is expected that students will be able to:

• Describe the main features of global financial markets in bonds, stocks, foreign exchange, commodities and energy.


• Explain he structure of financial trading systems and the characteristics of major players in each market.


• Distinguish between exchange and OTC markets and between primary and secondary markets in each asset or instrument


• Explain the role of intermediaries, mark-to-market procedures, quotation conventions and market mechanics


• Critically evaluate the importance of liquidity and repo contracts

Additional outcomes:

Outline content:

1.General introduction to world financial markets: geographically, by type of exchange, by issuers, liquidity and type of instruments.

a) Liquidity, the distinction between exchange versus OTC markets and the role of intermediaries in their various forms.

b) Primary and secondary markets. Market mechanics including types of orders, market participants, margin and short trades.

c) Market players and effect on liquidity and price effic iency.

2.Order book trading: Limit order versus market orders. Order matching and priority rules. Price setting rules.

3.Market microstructure theory: dealers - Glosten and Milgrom model. Market making, inventory management, asymmetric information and adverse selection.

4.Fixed income and foreign exchange markets

a ) Short term debt securities issued by government and corporations. Classification of bonds according t o issuer: government, agencies, corporate and municipal. Comparison of bond markets in major countries and a description of the main intermediaries and their role.

b) Foreign exchange market - quotation conventions, types of brokers, central banks' policies.

5.Futures, option and commodity markets:

a) A comparison of the main exchange traded markets, options on futures, specifications of the most popular contracts, trade orders for futures contracts, mark-to-market procedure, and various expiration conventions.

b) Commodity and energy markets: Specific features, delivery and settlement methods, backwardation and contango, short squeezes and regulations. Price risks of oil, gas and electricity.

Global context:

The module explores global trends. International examples are used to illustrate key aspects of financial markets and regulation.Ìý

Brief description of teaching and learning methods:

Each topic is presented in a lecture. Two practical workshops are used to discuss and

experiment with some of the concepts introduced in the lectures.

Summative assessment- Examinations:

1.5 hours, closed-book written examination (70%)Ìý

Summative assessment- Coursework and in-class tests:

1-hour, multiple choice test (30%) (due in week 11 of the Autumn term).

Formative assessment methods:

Seminar questions are assigned for each class. The seminar leader will facilitate discussion and offer feedback.Ìý

Penalties for late submission:

The below information applies to students on taught programmes except those on Postgraduate Flexible programmes. Penalties for late submission, and the associated procedures, which apply to Postgraduate Flexible programmes are specified in the policy £Penalties for late submission for Postgraduate Flexible programmes£, which can be found here: