This course studies the interaction of the financial markets and economic activity. The financial markets to be considered encompass the money and bond market, credit market, stock market, and foreign exchange market. Economic activity is described by the activity of households, firms, banks, governments, and countries. The course shows how economic activity affects the financial markets and how the financial markets, financial market volatility, and instability feed back to economic activity. Emphasis is given to theory and empirical work on credit and derivative markets, bond prices and yield curves, stock price dynamics, CAPM and static and dynamic portfolio theory, and consumption- and production-based asset pricing models. Further topics include the impact of the volatility of asset prices on economic activity, the economics of risk, and financial fragility and crises.