Module ASB-2501:
Banks and Financial Markets

Module Facts

Run by Bangor Business School

20 Credits or 10 ECTS Credits

Semester 1

Organiser: Prof Jon Williams

Overall aims and purpose

This module will provide students with economic principles to understand the structure of financial markets and the role and activities of banks and financial firms in general. Building on the notion of information asymmetries, the module will explore how financial markets and financial firms like banks affect the economy at large. It will examine the role of interest rates and the operations of bond markets and stock markets. The module will critique the financial structure and provide the tools for students to understand the workings and management of banks, including financial innovation and why banks are regulated. Financial markets are prone to failure and the module will explain why financial crises occur. It will end by considering the concept of deposit creation, by examining the tools that central banks use to control the money supply, and considering the policy of inflation targeting. We shall augment the module with a comparative analysis of banking systems.

Course content

The module examines the features and operations of financial instruments, financial markets and financial intermediaries such as banks.

Assessment Criteria

threshold

D- to D+ Demonstration of the required knowledge and techniques but with significant mistakes and little development of the subject beyond lecture material.

C- to C+

C- to C+ Demonstration of the required knowledge and techniques but with mistakes and little development of the subject beyond lecture material.

excellent

A- to A+ Excellent grasp of the concepts and techniques together with significant evidence of engagement and understanding of the research papers in this area.

good

B- to B+ Clear understanding of the subject, together with evidence of investigation and understanding of the research literature, but with some theoretical or practical minor errors.

Learning outcomes

  1. Discuss the importance of information in explaining how the financial system works.

  2. Explain why financial crises occur and can be so devastating.

  3. Explain how markets price financial products, such as, bonds and stocks.

  4. Assess how financial structure affects how the financial system operates.

  5. Evaluate the principles of bank management and the roles of financial innovation and bank regulation.

  6. Compare and contrast banking systems across the globe.

  7. Explain how central banks manage monetary policy and evaluate the tools that they use for this purpose.

Assessment Methods

Type Name Description Weight
CLASS TEST Multiple Choice Test

A randomized multiple choice test, which may be taken three times with the highest score awarded as the coursework mark.

40
EXAM Examination

A two hour formal examination in which students are asked to answer any two questions from five.

60

Teaching and Learning Strategy

Hours
Private study

To read in support of the lectures and to reflect upon knowledge acquired.

164
Workshop

One hour weekly workshop.

12
Lecture

Weekly lecture series.

24

Transferable skills

  • Literacy - Proficiency in reading and writing through a variety of media
  • Self-Management - Able to work unsupervised in an efficient, punctual and structured manner. To examine the outcomes of tasks and events, and judge levels of quality and importance
  • Exploring - Able to investigate, research and consider alternatives
  • Inter-personal - Able to question, actively listen, examine given answers and interact sensitevely with others
  • Critical analysis & Problem Solving - Able to deconstruct and analyse problems or complex situations. To find solutions to problems through analyses and exploration of all possibilities using appropriate methods, rescources and creativity.
  • Presentation - Able to clearly present information and explanations to an audience. Through the written or oral mode of communication accurately and concisely.
  • Argument - Able to put forward, debate and justify an opinion or a course of action, with an individual or in a wider group setting
  • Self-awareness & Reflectivity - Having an awareness of your own strengths, weaknesses, aims and objectives. Able to regularly review, evaluate and reflect upon the performance of yourself and others

Subject specific skills

  • knowledge of theories and empirical evidence concerning financial management, risk and the operation of capital markets (in cases of degrees with significant finance content).
  • Abstraction. From the study of economic principles and models, students see how one can abstract the essential features of complex systems and provide a useable framework for evaluation and assessment of the effects of policy or other exogenous events. Through this, the typical student will acquire proficiency in how to simplify while still retaining relevance. This is an approach that they can then apply in other contexts, thereby becoming more effective problem-solvers and decision-makers.
  • Analysis, deduction and induction. Economic reasoning is highly deductive, and logical analysis is applied to assumption-based models. However, inductive reasoning is also important. The development of such analytical skills enhances students' problem-solving and decision-making ability.
  • Quantification and design. Data, and their effective organisation, presentation and analysis, are important in economics. The typical student will have some familiarity with the principal sources of economic information and data relevant to industry, commerce, society and government, and have had practice in organising it and presenting it informatively. This skill is important at all stages in the decision-making process.
  • Framing. Through the study of economics, a student should learn how to decide what should be taken as given or fixed for the purposes of setting up and solving a problem, i.e. what the important 'parameters' are in constraining the solution to the problem. Learning to think about how and why these parameters might change encourages a student to place the economic problem in its broader social and political context. This 'framing' skill is important in determining the decision-maker's ability to implement the solutions to problems.
  • An appreciation of the nature of the contexts in which finance can be seen as operating, including knowledge of the institutional framework necessary for understanding the role, operation and function of markets and financial institutions (e.g. the economic, legal, regulatory and tax environment, both national and international; the firm; the capital markets and the public sector).
  • A knowledge of the major theoretical tools and theories of finance, and their relevance and application to theoretical and practical problems (e.g. concept of arbitrage and examples of its use; financial mathematics and capital budgeting criteria; informational efficiency; optimal risk sharing; portfolio theory; asset pricing models and the valuation of securities; cost of capital; derivative pricing; risk management; information asymmetry; principal agency relationships; signalling; Fisher separation and capital budgeting criteria; behavioural finance; term structure and the movement of interest rates; determination of exchange rates and financial intermediation).
  • An ability to interpret financial data including that arising in the context of the firm or household from accounting statements and data generated in financial markets. The interpretation may involve analysis using statistical and financial functions and procedures such as are routinely available in spreadsheets (eg Microsoft Excel) and statistical packages. It may assume the skills necessary to manipulate financial data and carry out statistical and econometric tests (e.g. estimation and interpretation of asset pricing models; financial modelling and projections; event studies and residuals analysis; elements of time series analysis, such as serial correlation mean reversion, and stochastic volatility).
  • An understanding of the relationship between financial theory and empirical testing, and application of this knowledge to the appraisal of the empirical evidence in at least one major theoretical area. The appraisal should involve some recognition of the limitation and evolution of empirical tests and theory (eg the efficient markets hypothesis; anomalies; pricing of derivatives and other securities; bond portfolio management; exchange rates; raising capital and capital structure).
  • An understanding of the financing arrangements and governance structures of business entities, and an appreciation of how theory and evidence can be combined to assess the effectiveness and efficiency of such arrangements (e.g. decisions as to sources of finance and financial structure; the pricing of corporate securities; the market for corporate control; corporate governance structures and mechanisms; financial planning and international dimensions of finance).
  • An understanding of the factors influencing the investment behaviour and opportunities of private individuals (bonds, equities, and derivatives; risk aversion; risk/return trade-offs; portfolio management and performance measurement; pensions and long term savings; the tax treatment of savings and investments; international diversification; forex risk; objectives of and constraints on institutional investors and advisors).
  • An understanding of financial service activity in the economy, and an appreciation of how finance theory and evidence can be employed to interpret these services (for example, information asymmetry, adverse selection and moral hazard could be employed to analyse the fundamental nature of services, such as insurance, pensions, bank lending and consumer credit, and also explore fundamental problems arising in such financial service provision. Efficient market hypothesis could be used to explore evidence for fund manager performance and the effectiveness of equity and bond saving services).
  • An ability to understand financial statements, and a basic appreciation of the limitations of financial reporting practices and procedures (eg financial statement analysis; the relation between cash flow accounting and accrual accounting; discretionary accounting practices).
  • Problem solving and critical analysis: analysing facts and circumstances to determine the cause of a problem and identifying and selecting appropriate solutions.
  • Research: the ability to analyse and evaluate a range of business data, sources of information and appropriate methodologies, which includes the need for strong digital literacy, and to use that research for evidence-based decision-making.
  • Conceptual and critical thinking, analysis, synthesis and evaluation.

Courses including this module