Course Detail

Financial Markets and Institutions (35202)

Course Description by Faculty

  • Diamond, Douglas
  • Content

    This is an advanced course on high yield debt, banking and how to deal with a financial crisis.  A more complete title would be "Debt financing, financial markets and institutions."  The course studies financial institutions, financial crises, and the design of financial contracts. The economic role of various types of debt contracts is one theme. The strategic effect of the bankruptcy and reorganization process is another.

    The course begins with economic models describing the role of debt contracts and bankruptcy. It considers in detail the issue of reorganizing firms in financial distress. One focus is on the effects various financial contracts and loan covenants have on the power of borrowers and lenders.

    The role of financial intermediaries (banks and hedge funds) in facilitating distressed corporate reorganizations is developed.  In addition to studying the reasons why particular types of debt are used, several cases examine the restructuring of distressed firms and financial institutions.

    The course examines consequences of a bank's corporate finance role for its other operations. A related topic is the method by which liquidity is provided by financial markets and by financial institutions. Providing liquidity by offering short-term debt may leave banks exposed to the risk of a financial crisis. We examine recent financial crises, including the Asian debt crisis, the problems of hedge funds in the United States, the sub-prime mortgage credit crisis of 2007-2010 and the Covid-19 crisis of March 2020 in this light.

    More than half of the course is related to bankruptcy and reorganization, but it is not in any sense a bankruptcy law course. The course is a mix of concepts (economic models) and applications.

  • Prerequisites

    Business 35000 and 35200. A brave and motivated student may take Business 35200 concurrently. Auditors require faculty consent.

    All Non-Booth students require faculty permission.

  • Materials
    This course will have a Canvas site.
  • Grades
    Based on required write-ups of several cases and applied problems (done in groups). In addition, there are several required quantitative homework problems that extend and review the models developed in class. There is a mid-term and a final exam.
  • Syllabus
  • Spring 2023Section: 35202-01M 1:30PM-4:30PMHarper CenterC02In-Person Only
  • Spring 2023Section: 35202-81T 6:00PM-9:00PMGleacher Center406In-Person Only
Description and/or course criteria last updated: February 9 2023