Financial Institutions and Markets Syllabus - BBA-BI (PU)

Course Objectives

The objective of this course is to provide students with the conceptual framework and

theoretical foundation necessary to understand the organization, structure, regulations and

functioning of the various financial institutions and markets operating in an economy.

Course Description

This course provides broad overview of the structure, function and the role of financial

institutions and markets in the economy. Students will have an opportunity to study important

financial institutions such as central bank, commercial banks, investment banks, insurance

companies, pension funds and investment companies. They will also study the organization,

instruments and participants of money, bond and stock markets. Finally, they will also study

the level, term-structure and the theories related to the interest rates.

Course Outcomes

By the end of this course, students should be able to:

• understand fundamental concepts of financial institutions and markets including the role of financial system in the economy;
• describe the function of the central bank including the tools it uses to affect the economy;
• explain theories that describe the level and term structure of interest rates;
• identify money markets securities, compute yields and analyze the risk on money market securities;
• explain the features of long-term debt securities, their ratings, indexes and markets;
• understand how the stock market operates and how the stock indexes are constructed and interpreted;
• analyze size, structure and composition of commercial banking industry;
• identify the sources and uses of funds of commercial banks;
• analyze various types of risks in commercial banking industry;
• explain the regulation of deposits, operations and the capital of commercial banks; and
• explain functions performed by other types of financial institutions – insurance companies, mutual funds, pension funds, securities firms and other lending and saving institutions.

Course Contents

Unit I: The Role of Financial Institutions and Markets                                        4 hours

Meaning of financial markets and institutions; functions of the financial markets;

classification and diversity of financial markets; types of financial institutions and their

functions; classification of financial institutions in Nepal.

Unit II: Central Banking                                                                                                           4 hours

Meaning and functions of central bank; monetary policy tools of the central bank; effects of

Monetary tools on various economic variables; Nepal Rastra Bank and monetary policy tools

 in Nepal.

Unit III: Determination and Structure of Interest Rates                                            5 hours

Determination of interest rates: loanable fund theory; economic forces affecting interest rates; forecasting interest rates. Structure of interest rates: characteristics of debt securities and yield variation; explaining actual yield differentials; theories of term structure of interest rates; uses of the term structure.

Unit IV: The Money Market                                                                                                   5 hours

Introduction of money market; yields on money market securities; money market securities;

money market participants; international money market; risk of money market securities.

Unit V: The Bond and Stock Market                                                                                  10 hours

Bond markets: bond market securities – Treasury notes and bonds, strips; municipal bonds –

types and trading process; corporate bonds – bond characteristics, bond ratings, bond market

index, comparison of bond market securities; international bond market securities – euro

bonds, foreign bonds, Brady bonds and sovereign bonds. Stock market: stock market

securities – common stock and preferred stocks; primary and secondary stock markets; stock

market indexes; regulations of stock market and the role of Nepal Securities Board;

international stock market.

Unit VI: Commercial Banks                                                                                                 10 hours

Services provided by commercial banks; size, structure, and composition of the industry;

technology in commercial banking; sources and uses of funds of commercial banks; off-balance

sheet activities; regulatory structure of banks; regulation of bank deposit, operation

and capital; risk in commercial banks – credit risk, liquidity risk, interest rate risk, market

risk, off-balance sheet risk, foreign exchange risk, country risk, technology and operational

risk, insolvency risk.

Unit VII: Other Financial Institutions                                                                              10 hours

Insurance companies: life insurance companies – size, structure and composition of the

industry; property-casualty insurance companies – size, structure and composition of the

industry; regulation of insurance companies. Mutual fund: size, structure and composition of

the industry; different types of mutual fund; mutual fund prospectus and objectives; net assets

value; mutual fund costs. Pension fund: insured versus noninsured funds, defined benefit

versus defined contribution pension funds, private pension funds versus public pension funds.

Security firms and investment banks: services offered by securities firms versus investment

banks. Other lending and saving institutions: meaning and functions of saving associations,

saving banks, credit unions, finance companies.

 Basic Texts

1. Saunders, A. & Cornett, M. M. Financial markets and institutions. New Delhi: Tata
2. McGraw-Hill Education.

      3.Madura J. Financial markets and institutions. Singapore: Cengage Learning.

References

1. Meir K. Financial institutions and markets. New Delhi: Oxford University Press.
2. Fabozzi, F. J., Modigliani, F., Jones, F. J., & Ferri, M. Foundations of financial

markets and institutions. Delhi: Dorling Kindersley.

3. Bhandari, D. B. Financial institutions and markets. Asmita Books Publishers &Distributors

4. Bhole, L. M., & Mahakud, J. Financial institutions and markets. New Delhi: Tata McGraw Hill Education.