BF003_Financial Markets and Institutions

BF_003

Banking Program Financial Markets and Institutions Syllabus, Texts and Study Programme

Course Summary

An examination of the flow of funds in the economy and of the role of financial intermediaries' leads on to discussion of the principal types of financial institutions. The functions and responsibilities of central banks are discussed, together with the mechanism through which commercial banking is reviewed, with emphasis on the role of international commercial banks in the Euromarkets. The role of investment banks and their services to their corporate clients are studied, together with a look at the functions of private banks. The course ends with a description of "derivative" instruments and their uses.

This course will provide students with an understanding of today's financial markets, instruments, and institutions. In addition, it also exposes students to current developments in the financial system. Students will develop a comprehension of the interesting interrelationships between and among the various financial institutions, instruments, and markets. Students will also recognize the essential relationship between risk and expected returns for many financial instruments available to investors.

Course Objectives

The objectives of this course are to provide participants with an overall understanding of the nature and functions of the most important financial institutions and of the markets in which they operate. The types of institution studied include central banks, commercial banks, investment banks, international banks and private banks. Detailed studies are made of the money markets, the term loan and syndicated credit markets, the bond markets - with particular reference to Eurobonds - and the derivatives markets.

Expected Outcome / Learning

At the end of this course, students will know how investment portfolios are created and evaluated. More specifically they will be able to:

• Understand the flow of funds in the economy.
• Explain how financial institutions are operated.
• Understand the difference between the private banks and the services provided to them by the investment banks.
• Examine the evolving structure and role of financial markets and financial institutions in providing financial intermediary services to the economy in the dynamic Information Age.
• Address various forms of risks faced by financial intermediaries with an emphasis on the risk management techniques available to managers of financial institutions like commercial banks.

Prerequisites

Students must be familiar with the material covered in Accounting and Capital Markets, including pro-forma statements and CAPM.

Required Textbook

Saunders, and Cornett, Financial Markets and Institutions – An Introduction to the Risk Management Approach, McGraw-Hill International Edition, third Edition.

Suggested Readings

Supplementary readings will be provided in the reading assignments for each module.

Students must maintain the readings, discussion participation, quizzes and assignments to obtain a passing grade in the course. To obtain a superior grade, students must demonstrate a high degree of quality in their work.

IMPORTANT

PLEASE NOTE THAT PLAGIARISM (copying other writers' text without due citation or recognition) WILL NOT BE TOLERATED. Plagiarism is equal to cheating in exams as it means "stealing" solutions to problems, ideas or written text from other people and pretending they are your own. Students caught committing these forms of cheating will be subject to course failure and will be reported to the Dean of the University. Two instances of cheating or plagiarism will be cause for academic suspension.

For information on what plagiarism is and how to avoid it, please read the pages 41 and 41 in the book: TURABIAN, Kate L., A Manual for Writers of Research Papers, Theses, and Dissertations, Chicago Style for Students and Researchers, 7th Edition, The University of Chicago Press, 2007.

COURSE SCHEDULE

Module 1
Description	Introduction. This module introduced student to some of the basic ideas in financial markets and institutions.
Read	1. Textbook, Chapters 1 and 2 2. Power point presentation of chapters 1 and 2.
Prepare	1. Participate with at least one response to the on-line discussion that you send to all other students and the professor. 2. Be ready to discuss: “What are the different theories explaining the term structure of interest rates? How can forward rates of interest be derived from the term structure of interest rates?” 3. Short response to: a. Chapter 1 – Questions 1, 3, 5, 7 Pages, 24-25 b. Chapter 2 - Questions 2, 4, 6, 8 Page 69
Module 2
Description	Financial Markets. This modules describes major function, structure of financial markets.
Read	1. Textbook, Chapters 4 and 5 2. Power point presentation of chapters 4 and 5
Prepare	1. Participate with at least one response to the on-line discussion that you send to all other students and the professor. 2. Be ready to discuss: “How do monetary policy changes affect key economic variables? How do U. S. monetary policy initiatives affect foreign exchange rates? What have been some of the recent challenges experienced by major central banks outside of the United States?” 3. Short response to a. Chapter 4 - Questions 1, 2, 3, 4 Page 139 b. Chapter 5 - Questions 5, 6, 7, 8, 9 and 11. Page 174
Module 3
Description	Bond Market and Derivative securities markets. This module defines bond markets, bond market securities, bond market participants and Eurobonds, Foreign bond and Brady / sovereign bonds. This module will explain the Derivative securities markets, options and international aspects of derivative securities markets.
Read	Chapters 6 and 10 Power point presentation of chapters 6 and 10
Prepare	1. Participate with at least one response to the on-line discussion that you send to all other students and the professor. 2. Be ready to discuss: “An American firm has British pound-denominated accounts payable on its balance sheet. Managers believe the exchange rate of British pounds to U.S. dollars will depreciate before the accounts will be paid. What type of currency swap should the firm enter?” 3. Short response to a. Chapter 6- Questions 1, 3, 5, 7 and 9. Page 211 b. Chapter 10 - Questions 1, 3, 5, 7, 9 and 10. Page 345.
Module 4
Description	Description: Commercial Banks. This module looked closely at commercial banks as a sector of the financial institutions industry: definition, balance sheets, size, structure and composition of the industry.
Read	Textbook, Chapters 11
Prepare	1. Participate with at least one response to the on-line discussion that you send to all other students and the professor. 2. Be ready to discuss: “Provide a brief summary and overview of the commercial banking system from 1992 to 2004. What are the key characteristics and recent trends in the commercial banking sector? Identify any current trends in the global economy that may be impacting the global economy on an adverse level.” 3. Short response to a. Chapter 11 - Questions 2, 4, 6, 8, 10. Page 372.
Module 5
Description	Regulation of Commercial Banks. The module covers the major aspects of bank regulation.
Read	Textbook, Chapter 13
Prepare	1. Participate with at least one response to the on-line discussion that you send to all other students and the professor. 2. Be ready to discuss: “Identify and discuss the weaknesses of the leverage ratio as a measure of capital adequacy.” 3. Short response to a. Chapter 13 - Questions 3, 7, 13, 15. Page 432
Module 6
Description	Other Financial Institution.
Read	Textbook, Chapter 16
Prepare	1. Participate with at least one response to the on-line discussion that you send to all other students and the professor. 2. Be ready to discuss: “Explain the difference between the investing and investment banking activities performed by securities firms and investment banks” 3. Short response to a. Chapter 16 - Questions 5, 11, 20, 22, 25. Page 521-522
Module 7
Description	Description: Risk Management in Financial Institutions. This module will examine types of risks incurred by financial institutions including, credit, liquidity, interest, market, off-balance sheet foreign exchange risks.
Read	Textbook, Chapter 19.
Prepare	1. Participate with at least one response to the on-line discussion that you send to all other students and the professor. 2. Be ready to discuss: “Suppose you purchase a 10-year AAA-rated Swiss bond for par that is paying an annual coupon of 8 percent and has a face value of 1,000 Swiss franc (SF). The spot rate is U.S. $0.66667 for SF1. At the end of the year, the bond is downgraded to AA and the yield increases to 10 percent. In addition, the SF depreciates to U.S. $0.74074 for SF1. a) What is the loss or gain to a Swiss investor who holds this bond for a year? b) What is the loss or gain to a U. S. investor who holds this bond for a year?.” 3. Short response to b. Chapter 19 - Questions 2, 3, 4, 5, 6. Page 592
Module 8
Description	Managing Risk with Derivative Securities. This module defines ways of risk hedging with derivative securities.
Read	Textbook, Chapter 23.
Prepare	1. Short response to a) Chapter 23 - Questions 3, 5, 15. Page 652-653 2. Final Exam