Financial Institutions and Markets Syllabus - MBA (PU)

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Course Description

Course Objective

The objective of this course is to provide students with clear understanding of the basic functions of financial systems and tools to analyse policy decisions affecting the financial systems. It covers functions of the financial systems the technology used and the need for regulation; interest rates and exchange rates and their determination; understanding of financial intermediaries; payment systems and public policy; insurance industry, their function and regulation; securities markets, their functions and regulations; central banks role in providing stability to and enhancing efficiency of the financial system; and money supply and the monetary policy.

Course Description

This course intends to familiarize the students with the nature of financial system, its functions, the major parts and components of the financial system, and the principles and practices relating thereto. Major topics that will be covered include: The nature of financial system: introduction and importance, Nepalese financial system. Interest rates: role and importance, determination of interest rates, the term structure of interest rates, efficiency of financial markets. Central bank and monetary policy: role of central bank as regulatory authority of financial markets and institutions, monetary policy as a regulatory instrument. Financial markets and their modus-operandi: the money market, the bond market, the stock market, and the foreign exchange market. The banking and financial institution industries: management of banks and financial institutions, their structure, saving association  and  credit unions, banking  regulation, the mutual funds, insurance companies and pension funds, investment banks, security brokers and dealers. Risk management of banks and financial institutions: managing different types of risks incurred by banks and financial institutions. 

Learning Outcome

Financial Institutions and Markets will give the students in-depth knowledge of the different type of instruments used in financial market that will help them before investing in money and capital markets instruments. After learning the course they will understand the role and importance of Central Bank, commercial and non-banking financial institutions in the economic development of the country. Specifically, students will be better able to:

  • Understand  how to invest and where to invest to get better return
  • Identify the problems and challenges in financial markets.
  • Understand  how commercial bank and other financial institutions functions
  • Understand the supervisory role of Central Bank of Nepal
  • Understand the importance of insurance companies , pension and mutual funds
  • Understand how shares of different organizations  are traded in the securities market
  • Understand why and how government collects money from the market by issuing different type of bonds.

Learning Activities and Procedures

Instructor decide on the teaching methods for this course, which may include lectures, case study, practical problems exercises, article review, project report writing and students’ presentations. The learning activities will be centered on the following activities:

  • Class lectures, and case analysis and discussion
  • Class presentation and discussion following the presentation
  • Article review
  • Quiz
  • Project work
  • Examination (Mid-term and final)

Project Work

Shall be assigned in the beginning of the trimester.  (The details will be given and discussed in the class).

Unit Contents

Course Contents

 

SN

Chapters

Text & Supplementary Readings

Lecture Hours

1.

The Financial System

 

3

 

Financial Markets: Debt and equity markets, primary and secondary markets, exchange and over-the-counter markets, money and capital markets, spot and future markets; financial Institutions: depository and non-depository Institutions;

Financial Instruments: money market instruments and capital market instruments; financial intermediation: transaction cost and risk sharing; an overview of the Nepalese Financial System.

Kohn, Ch. 2, 8, 18, 19 Financial Institution and Markets

 

 

2.

Fundamentals of Financial Markets

 

3

 

Interest rates: Concept, changes in interest rate levels, the term structure of interest rates, factors influencing interest rate levels, risk-free rate of return, nominal and real interest rate.

Exchange rates: bid and ask rates, bid-ask spread, spot and forward rates, discount and premiums;

Valuation: Time value of money, present value concept; discounting and compounding; bond and stock valuation, yield-to -maturity; bond pricing theorem, amortized loans.

Risk and return: Time value of money, present value concept; discounting and compounding; bond and stock valuation, yield-to -maturity; bond pricing theorem, amortized loans.

Kohn, Ch. 4, 5, 6, 7 Financial Institution and Markets

 

 

3.

Commercial Banking

 

1.5

 

Basics of banking, the bank's balance sheet, assets, liabilities, off-balance sheet activities, bank's income statement, credit creation process,

General principles of banking management, international banking, the Nepalese banking system: structure, licensing, operations and exit policy.

Kohn, Ch. 9, 10, 11 Financial Institution and Markets

 

 

4

Non-Banking Financial Institutions

 

1.5

 

Saving banks, credit unions, non-bank financial institutions in Nepal: development banks, finance companies, rural development banks including other micro-credit development banks, cooperatives, non-government organizations, other non-bank financial institutions (insurance companies, EPF, CICL, DICGC, CIT, NEPSE, postal saving units).

 

Kohn, Ch. 12 Financial Institution and Markets

 

 

5

Insurance Companies, Pension Funds, and Mutual Funds

 

1.5

 

Insurance: the economics of insurance; pricing of premiums; marketing; incentive problems; types of insurance: life insurance, health insurance, property-liability insurance; reinsurance; and regulation of insurance.

Pension Funds: Issues in the provision of the retirement income; pension plans; types of plane; and regulation of pension plans.

Mutual Funds: understanding mutual funds; open-end and close-end mutual funds; net asset value (NAV); investment objective classes; and regulation of mutual funds.

Kohn, Ch. 14 & 15 Financial Institution and Markets

 

 

6

Security Markets

 

1.5

 

Concept; price discovery; liquidity; transaction costs; structure of securities market; trade execution; stock market equilibrium, bond market, regulation of securities market in Nepal; the market for government securities in Nepal.

Kohn, Ch. 16 & 17 Financial Institution and Markets

 

 

7

Payment Policy and Public Policy

 

1.5

 

Concept of payment system; payment instruments: cash and non-cash payment; clearing house; delivery versus payment; gross settlement system; net settlement system; risks in payment system; and efficiency and stability of the payment system.

Kohn, Ch. 13 Financial Institution and Markets

 

 

8

Banking Regulation and Supervision

 

3

 

Conceptual framework; objectives; prudential regulation; regulatory and supervisory mechanism; Basel Core Principles for Effective Banking Supervision; Basel II New Capital Accord and its adoption in Nepalese context; regulation and supervision with special reference to Nepalese banking system.

                                               

Classification of Banks (BAFIA), CAMEL Rating, Capital Adequacy Ratio (CAR), Non-Performing Asset (NPA), Asset Management Company (AMC), Asset Liability Management Committee (ALCO), Stressing Test, Know Your Customer (KYC) etc.

Kohn, Ch. 14 Financial Institution and Markets

 

NRB directives and circulars

 

9

Stability of Banking and Financial System

 

3

 

Liquidity crises, bank runs and panics, crashes in securities market, why do liquidity crisis occur, factors affecting stability, fragmentation and interdependence, an overview of central bank’s functions and special emphasis on regulation and supervision of the financial system, lender of the last resort, government guarantees, solution for market crashes, deposit insurance and moral hazard problem.

Kohn, Ch. 3 Financial Institution and Markets

 

NRB directives and circulars

 

10

Money and the Central Banking

 

3

 

The functions of money; alternative definition of money: base money, narrow money and broad money; the demand for and supply of money; the money supply process, money multiplier; monetary policy: instruments, targets, ultimate goals or objectives and the Nepalese context.

Kohn, Ch. 18 Financial Institution and Markets

 

 

11

The Derivative Markets

 

1.5

 

Hedging; forward; futures; options; swaps; and pricing of derivative securities.

Risk – Market risk, operational risk, credit risk etc.

Kohn, Ch. 21 Financial Institution and Markets

 

 

Total Lecture Hours

 

24

Text and Reference Books

References

Basic reading

Financial Institutions and Markets- Meir Kohn, Dartmouth College, Tata McGraw-Hill Publishing Company Limited.

Financial Markets and Institutions - Frederic S. Mishkin and Stanley G. Eakins, Pearson Education.

Other readings

Money and Capital Markets- Peter S. Rose, Irwin McGraw-Hill.

Financial Institutions and Markets- LM Bhole, Tata McGraw-Hill Publishing Company Limited.

Foundations of Financial Markets and Institutions - Frank J. Fabozzi, Franco Modigliani, Frank J. Jones and Michael G. Ferri, Pearson Education Asia.

Global Financial Market- Ian H. Giddy, A.I.T.B.S. Publishers and Distributors.

Essentials of managerial Finance- J. Fred Weston and Eugene F. Brigham, The Dryden Press.

Evaluation Criteria

Following is the breakup of the internal assessment for this course. As per the rule of university, internal assessment has been given 60 percent weight in the final grading. The weight is distributed as follows:

 

Activities / Criteria

Weightage (%)

1. Class Participation & Punctuality

10

2. Class Test

5

3. Assignment/Quizzes

15

4. Mid Term Test

15

5. Project work

15

6. Final Exam

40

Total

100

 

Download Syllabus
  • Short Name N/A
  • Course code FIN 632
  • Semester Fourth Trimester
  • Full Marks 100
  • Pass Marks 60
  • Credit 2 hrs
  • Elective/Compulsary Compulsary