Banks and Financial Markets
Run by Bangor Business School
20 Credits or 10 ECTS Credits
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, stock markets and foreign exchange markets. The module will critique the financial structure and examine the role of central banks and the operation of monetary policy. It will evaluate monetary targeting regimes such as inflation targeting and discuss factors affecting the international financial system. The module will discuss the special nature of banks and the rationale for regulating banks, before revealing the principles of bank management. In so doing, the module will to provide deeper focus and analysis on banks and factors affecting the banking system.
An indicative list of topics may include but not be limited to: Money; Interest Rates; Bonds; Stocks; Exchange Rates; Financial Structure; Banks; Central Banks; Monetary Policy.
D- to D+ (40-49%): No major omissions or inaccuracies in the deployment of information/skills. Some grasp of theoretical/conceptual/practical elements. Integration of theory/practice/information present intermittently in pursuit of the assessed work's objectives.
B- to B+ (60-69%): Very good performance Most of the relevant information accurately deployed. Good grasp of theoretical/conceptual/practical elements. Good integration of theory/practice/information in pursuit of the assessed work's objectives. Evidence of the use of creative and reflective skills.
C- to C+
C- to C+ (50-59%): Much of the relevant information and skills mostly accurately deployed. Adequate grasp of theoretical/conceptual/practical elements. Fair integration of theory/practice/information in the pursuit of the assessed work's objectives. Some evidence of the use of creative and reflective skills.
A- to A+ (70%+): The relevant information accurately deployed. Excellent grasp of theoretical/conceptual/practice elements. Good integration of theory/practice/information in pursuit of the assessed work's objectives. Strong evidence of the use of creative and reflective skills.
Discuss the importance of information in explaining how the financial system works.
Comprehend the special role of banks in the economy.
Explain how markets price financial products, such as, bonds, stocks and the exchange rate.
Assess how financial structure affects how the financial system operates.
Understand the rationale for bank regulation.
Assess the principles of bank management.
Carry out financial analysis of bank performance.
Determine the role of central banks in monetary policy management.
Evaluate monetary targeting regimes and factors influencing the international financial system.
|COURSEWORK||Multiple Choice Test||30|
Teaching and Learning Strategy
Weekly lecture series.
To read in support of the lectures and to reflect upon knowledge acquired.
- 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.
Talis Reading listhttp://readinglists.bangor.ac.uk/modules/asb-1501.html
CORE TEXTS Mishkin, F.S., 2016. The Economics of Money, Banking, and Financial Markets. Eleventh Edition, Global Edition. Pearson. Casu, B., Girardone, C., Molyneux, P., 2015. Introduction to Banking. Second Edition. Pearson.
Introduction to Banks and Financial Markets
Mishkin, Chapter 1.
Overview of the Financial System and Money Mishkin, Chapters 2, 3; Casu, Girardone & Molyneux, Chapters 1, 2. Week 2 Interest Rates and Bond Markets Mishkin, Chapters 4, 5; Casu, Girardone & Molyneux, Appendix A1. Risk and Term Structure of Interest rates Mishkin, Chapter 6; Casu, Girardone & Molyneux, Appendix A1. Week 3 The Foreign Exchange Market Mishkin, Chapter 18. Stock Markets Mishkin, Chapter 7. Week 4 Why Banks Are Special Casu, Girardone & Molyneux, Chapter 1; Mishkin, Chapter 2. Financial Structure Mishkin, Chapter 8. Week 5 The Rationale for Bank Regulation Casu, Girardone & Molyneux, Chapter 7; Mishkin, Chapter 10. Bank Financial Statement Analysis I Casu, Girardone & Molyneux, Chapters 2, 3, 9; Mishkin, Chapter 2. Week 6 Banks’ Liquidity Management and Asset-Liability Management Casu, Girardone & Molyneux, Chapters 10, 11, 12; Mishkin, Chapter 9. Bank Financial Statement Analysis II Casu, Girardone & Molyneux, Chapters 2, 3, 9; Mishkin, Chapter 2. Week 7 Banks’ Capital Management and Capital Adequacy Casu, Girardone & Molyneux, Chapters 7, 10; Mishkin, Chapter 9. Money Creation and the Deposit Multiplier Mishkin, Chapter 15. Week 8 Central Banks and Monetary Policy Mishkin, Chapter 16; Casu, Girardone & Molyneux, Chapter 5. Inflation Targeting Mishkin, Chapter 17. Week 9 The International Financial System Mishkin, Chapter 19. Monetary Transmission Mechanism Mishkin, Chapter 26.
Courses including this module
Compulsory in courses:
- NR33: BA Banking/Italian year 1 (BA/BIT)
- NR34: BA Banking/Spanish year 1 (BA/BSP)
- NR31: BA French/Banking year 1 (BA/FRB)
- NR32: BA German/Banking year 1 (BA/GB)
- NN44: BSc Accounting and Banking with International Experience year 1 (BSC/ABIE)
- NN43: BSc Accounting and Banking year 1 (BSC/ACCB)
- NN46: BSc Accounting and Banking (4 year with Incorp Found) year 1 (BSC/ACCB1)
- NN3F: BSc Accounting and Banking year 1 (BSC/ACCBF)
- NL41: BSc Accounting and Economics year 1 (BSC/ACCEC)
- NL4B: BSc Accounting and Economics (4 year with Incorp Foundation) year 1 (BSC/ACCEC1)
- NL4F: BSc Accounting and Economics year 1 (BSC/ACCECF)
- NL42: BSc Accounting and Economics with International Experience year 1 (BSC/AEIE)
- 8V55: BSc Banking and Finance (with International Experience) year 1 (BSC/BFIE)
- N391: BSc Banking and Finance year 1 (BSC/BFIN)
- N39B: BSc Banking and Finance (4 year w Incorporated Foundation) year 1 (BSC/BFIN1)
- N39F: Banking and Finance year 1 (BSC/BFINF)
- L193: BSc Financial Economics (Bangor International College) year 1 (BSC/BICFE)
- N312: BSc Banking with Financial Tech year 1 (BSC/BKFT)
- NN23: BSc Business Management and Finance year 1 (BSC/BMF)
- NN2B: BSc Business Man & Finance (4 year with Incorp Foundation) year 1 (BSC/BMF1)
- NN2F: BSc Business Management and Finance year 1 (BSC/BMFINF)
- NN2P: Business Management and Finance with Placement Year year 1 (BSC/BMFP)
- NN1H: BSc Business Studies and Finance year 1 (BSC/BSFIN)
- NN1J: BSc Business Studies and Finance (4 year with Incorp Found) year 1 (BSC/BSFIN1)
- L111: BSc Financial Economics year 1 (BSC/FINEC)
- L11B: BSc Financial Economics (4 year w Incorporated Foundation) year 1 (BSC/FINEC1)
- L11F: BSc Financial Economics year 1 (BSC/FINECF)
Optional in courses:
- NR43: BA Accounting/Italian year 1 (BA/AIT)
- NR44: BA Accounting/Spanish year 1 (BA/ASP)
- N107: BA Business year 1 (BA/BUS)
- NR41: BA French/Accounting year 1 (BA/FRA)
- NR42: BA German/Accounting year 1 (BA/GA)
- L190: BSc Business Economics year 1 (BSC/BEC)
- L19B: BSc Business Economics (4 year with Incorporated Foundation) year 1 (BSC/BEC1)
- L19F: BSc Business and Economics year 1 (BSC/BECF)
- L191: BSc Business Economics with International Experience year 1 (BSC/BECIE)
- L19P: BSc Business Economics with Placement Year year 1 (BSC/BECP)
- L192: BSc Business Economics (Bangor International College) year 1 (BSC/BICBE)