FIN3004S

Part 1 Financial systems: 1. Introduction to Financial Systems; Role of financial systems (role of households, government, and firms in terms of savings and investments). Financial intermediaries, securities and markets. Taxonomy of financial institutions. Nature of financial claims (debt versus equity, bonds and notes, fixed and floating interest rates, common and preferred stocks). Structure of financial markets (direct and indirect finance, dealers and brokers, banks, mutual funds, pension funds, and insurance companies). 2. Comparative Financial Systems; Bank-based systems against market-based systems. Legal aspects.

Part 2 Financial intermediaries: 3. Role of Financial Intermediation; Nature and process of financial intermediation. Theories of financial intermediation (transformation of assets, uncertainty, reduction in transaction costs, reduction of problems arising out of asymmetric information). Implications of financial intermediation (Hirshleifer model, effect on economic development). 4. Regulation of Banks; Regulation of banks (free banking, arguments for or against regulation, traditional regulation mechanisms, alternatives to traditional regulation). 5. Risk Management in Banking; Market risks: Liquidity risk, interest rate risk, foreign exchange risk. Credit risk: Screening and monitoring, credit rationing, collateral.

Part 3: Principles of finance: 6. Financial Securities: Risk and Return; Portfolio analysis: mean-variance portfolio theory. The portfolio selection process: the correlation of securities returns (single-index model and multi-index models). Asset pricing models: capital asset pricing models (CAPM) and arbitrage pricing model (APT). 7. Capital Budgeting; Pricing of bonds and stocks. Net present value. Project appraisal.
8. Financial Markets: Transmission of information; Efficient markets, theory and empirical evidence. Concepts of weak, semi-strong, and strong efficiency. Concepts of excess returns. Micro-structures.