[MUSIC] Compared to the light bulb, antibiotics, and the Internet, financial markets may not seem like one of the world's greatest inventions. However, this course on markets might change your mind. For a moment, think about financial markets as time machines that can transport not only you, but also entire nations. It's easy to take markets for granted, until we consider them as intentional places through which society takes its savings into the future to create economic growth, wealth, and prosperity. Or on the flip side, as organized places that enable borrowing against tomorrow's income, to transport future money into today's expenditures. One of the key levers that influences this fundamental societal trade-off between borrowing versus saving over time, or between what economists call the consumption versus investment trade-off, are interest rates. And that is how we will start this course on markets, by deconstructing interest rates, identifying the players that influence their direction, as well as the signals that rates send to all financial markets. Now along the way we're going to ask some tough questions. Such as probing the possible consequences of low and negative interest rate policies, and considering how these are connected to risk and value, which are some of the recurring themes in finance for everyone more broadly. Exploring these themes in markets, we will also see how interest rates expressed as yields, or expected rates of return, end up determining the value of bonds, stocks, and derivative products. And we'll examine how new information profoundly changes the confidence and perception of buyers and sellers, who actually determine market values. But don't worry the focus of our course is not just solely on technical discussions about formulas used by experts, it's more about stories that explain the dynamics of market changes. Such as the impact of state intervention to wrestle markets back into balance. And the effects of a range of regulations that have protected, boosted or stifled value. Markets not only work as time machines, but they also work as mechanisms to protect us from the destruction caused by floods, disease and other disasters through financial contracts and insurance. These rather boring sounded features of markets actually have an incredible impact on our lives, as they are vital instruments for helping individuals and societies to restart, to rebuild, and to reinvent. Indeed, giant markets for insurance are global and mostly faceless, but they exert significant market power within the burgeoning financial industry and beyond. We also learn about the origins of financial markets, and how they became essential in the history of warfare in grand infrastructure spending, as well as social contracts such as Medicare, that have reshaped our societies. In one segment we highlight market turbulence as essential to the very nature of markets which continuously result in new policies, new institutions and today new experiments that shape market evolution. Building on the time value of money concepts we explored in the first course on decisions, markets also provides some basic tools you will need to learn how the economic prices of bonds and stocks can be calculated and more importantly, the common sense behind these valuations. Again, we provide practice questions and video solutions to give you personal feedback, and to help you understand logical problem solving approaches. But that's not all. Because unlike a standard finance course that looks at these markets in isolation, we begin to connect the dots on how one market spills into another, and why it's essential to look at the big picture when thinking about future movements in any financial market. We conclude this course by introducing the basic elements that govern the underlying contracts of the largest financial market in the history of mankind, the derivative securities market. These complex financial products derive their value from commodities, currencies and other financial assets. Originating in the 1730s, derivatives have evolved into sophisticated financially engineered products that lock in the price of literally anything and everything, so that risk can be reduced as prices fluctuate. In simple terms, derivatives are insurance products that have market values, which in total far exceed the real value of all goods and services produced around the world. While derivative markets provide ways to protect your investment, like all other financial instruments they are double edged swords that can also increase volatility in financial markets. And this is why we also explore the full variety of derivatives, such as securitized assets, credit default swaps, options, forward and futures contracts that are traded in unregulated over the counter markets. So as you can see there's a lot to learn, and there's a lot to get excited about. The time machine of markets is ready to transport your current financial decisions, and help you to take charge of your future, so let's get going.
