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DRPS : Course Catalogue : Business School : Common Courses (Management School)

Postgraduate Course: Financial Markets and Institutions (CMSE11166)

Course Outline
SchoolBusiness School CollegeCollege of Humanities and Social Science
Course typeStandard AvailabilityAvailable to all students
Credit level (Normal year taken)SCQF Level 11 (Postgraduate) Credits15
Home subject areaCommon Courses (Management School) Other subject areaNone
Course website None Taught in Gaelic?No
Course descriptionManagers in charge of the risk function in banks have to have background knowledge of the function of banks in a financial system, how interest rates which banks face are determined, how the markets in which some of the assets they hold operate and so how markets determine prices for different types of products and securities. This course will give each student a knowledge and understanding of these issues. Using the tools he/she will learn each student will be able to make qualitative predictions about prices and understand the roles of different financial companies in a financial system and how banks interact with them.
Entry Requirements (not applicable to Visiting Students)
Pre-requisites Co-requisites
Prohibited Combinations Other requirements None
Additional Costs None
Information for Visiting Students
Displayed in Visiting Students Prospectus?No
Course Delivery Information
Delivery period: 2013/14 Semester 2, Available to all students (SV1) Learn enabled:  Yes Quota:  None
Web Timetable Web Timetable
Course Start Date 13/01/2014
Breakdown of Learning and Teaching activities (Further Info) Total Hours: 150 ( Lecture Hours 20, Seminar/Tutorial Hours 4, Summative Assessment Hours 2, Programme Level Learning and Teaching Hours 3, Directed Learning and Independent Learning Hours 121 )
Additional Notes
Breakdown of Assessment Methods (Further Info) Written Exam 70 %, Coursework 30 %, Practical Exam 0 %
Exam Information
Exam Diet Paper Name Hours & Minutes
Main Exam Diet S2 (April/May)Financial Markets and Institutions2:00
Learning Outcomes
On completion of this course, the student will be able to:
1. Knowledge and Understanding

After successfully completing the course the student will

¿understand economic principles of how interest rates are determined
¿understand what determines the demand and supply of money
¿understand fundamentally why financial institutions exist
¿understand different types of money and bond market instruments and how these markets work
¿understand how the prices of equities are determined and different degrees of stock market efficiency
¿have a knowledge of different types of mortgages and how they are securitized
¿understand how exchange rates are determined
¿understand concepts of moral hazard and asymmetry of information and the effects on financial markets
¿have knowledge of the role of investment banks

2. Cognitive Skills

On completion of the course a student will be able to

¿apply interest rate concepts to values certain types of securities
¿apply demand and supply concepts to understand price movements of different types of assets
¿analyse causes of changes in exchange rates
¿analyse the effects of moral hazard and information asymmetry on financial structure and bank and insurance company decisions

3. Professional/subject specific/practical skills

On completion of the course a student will be able to

¿compute present value, real interest rates and duration
¿value an equity given certain information

4. Transferable skills

During the course a student will develop skills to

¿communicate complex technical issues coherently and precisely
¿quantitatively analyse prices in terms of supply and demand
¿work intensively and methodically to understand technical issues
Assessment Information
Exam, 2 hours, 70%
Assignment: 30%;
Special Arrangements
Additional Information
Academic description Not entered
Syllabus Lecture 1 Introduction
Overview of the Financial System

Lecture 2 Interest Rates
Measurement of interest rates, real and nominal interest rates, elementary portfolio theory. Demand and supply of bonds.

Lecture 3 Interest rates contd
Changes of equilibrium interest rates; risk and the term structure of interest rates.

Lecture 4 Rationale of Financial Institutions, Financial Crises
Reasons for the existence of financial institutions: transactions costs, asymmetric information, moral hazard, effects on financial structure. Causes and effects of financial crises.

Lecture 5 Money and Bond Markets
Purpose of money markets, who participates in money markets, money market instruments; money market mutual funds. Capital trading, capital markets securities: treasury bonds, municipal bonds, corporate bonds,; value of coupon bonds.

Lecture 6 Stock Markets and Mortgage Markets
Price of equity, how equity prices are determined, errors in valuation. Characteristics of residential mortgages, terms, amortization, types of mortgages, loan services and secritization, MBSs.

Lecture 7 Foreign Exchange and the International Financial System
What are exchange rates, exchange rates in the long run, exchange rates in the short run, changes in exchange rates. Intervention in the foreign exchange markets, balance of payments, the international financial system, capital controls.

Lecture 8 Commercial Bank Structure and Competition
Descriptive facts, transactions costs, asymmetric information, moral hazard and debt and equity contracts, effect of moral hazard on financial structure. Structure of the US & UK banking industries, international banking, savings and loans.

Lecture 9 Insurance Companies and Pension Funds
Fundamentals of insurance: adverse selection and moral hazard, types of insurance,. Types of pensions, regulation of pensions.

Lecture 10 Investment banks, Brokerage Firms & Mutual Funds
Purpose and role of investment banks, roles of securities brokers and dealers, types of mutual funds.
Transferable skills Not entered
Reading list Not entered
Study Abroad Not entered
Study Pattern Not entered
KeywordsNot entered
Course organiserDr Davide Mare
Tel: (0131 6)51 5077
Course secretaryMiss Malgorzata Litwinska
Tel: (0131 6)51 3028
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