Consulting hours Monday to Thursday 14:00-16:00 OR Any other time and day: by appointments Teaching Assistants. TBA Contact shall be communicated

Transcription

1 Course outline Financial Institutions and Markets. FINN 341A (4 Credit Hours) Program & Course Agenda Days & Time Tuesday & Thursday 20:00-21:50 Class Room Acad A3 Semester Fall-11 Starts September Ends December, 2011 Instructor Mohammad Basharullah Office ACF WING Room 253 Telephones O & O E mail bashar@lums.edu.pk Alternate basharullah_2000@yahoo.com Consulting hours Monday to Thursday 14:00-16:00 OR Any other time and day: by appointments Teaching Assistants TBA Contact shall be communicated Required Text Financial Markets and Institutions. By Anthony Saunders & Marcia Millon Cornett 4th edition. Recommended Additional Readings, Books and Other Material Financial Institutions Management Risk Management Approach By Anthony Saunders and Marcia Millon Cornett 6 th edition. Money and Capital Market by Peter S. Rose Fifth Edition, The economics of Money, Banking and Financial Markets. Business school edition.(2 nd Edition )by Fredric S. Mishkin) Financial Markets and Institutions, and Money by Fredric S. Mishkin 5 th Edition Principles Of Money, Banking & Financial Markets By Lawrence S. Ritter, William L. Sliber and Gregory F. Udell, 10 th or later Ed Foundations of financial markets and institutions (3 ed ) by FABOZZI Frank, MODIGLIANI Franco, JONES Frank, FERRI Michael Fabbozi Financial Institutions and Markets, 7 th Edition by Jeff Madura State Bank of s Publications Financial Press Dawn, Business Section Economic and Business Review); Business Recorder; Economist etc. WSJ, FT or any other local & International newspaper or Journals; Various publications of State Bank Of Course Pack Shall be made available through photocopier Material Pre requisites of Principles of Finance; Micro & Macro Economics the Course Methodology Primarily Lecture method based on assigned readings. Class discussions and presentations on assigned topics, various course relevant reports, articles and news on current developments affecting Financial Markets and Institutions Services of outside specialist speakers shall be arranged as well.

2 Course objectives, expected outcome & course policy Course Outline FINN 341A. Financial Markets &.Institutions The course is designed to equip students with knowledge of a financial system, its regulatory framework and environments in, and as it exists in other economies. There has been a newfound interest in study of Financial System, after the recent sub prime crises, which almost led to a near collapse of the market oriented Capitalistic System. The very viability of the system was put in a serious doubt. Financial markets saw an unprecedented turmoil. The efficient market hypothesis is almost rejected. The quest for alternate systems or paradigms has generated interest in Islamic System in particular, especially in Islamic world. The financial burden the recent financial crises have heaped on the public exchequer, threatens to put a serious drain on t the pockets of a common man, which has caused a serious concern worldwide. The course shall examine the components of financial systems and shall provide an ample opportunity to its participants to conceptually understand and critically examine it. Along the search of an alternate system, a hectic search for a truly supportive regulatory structure is on. All regulatory authorities are trying to plug the regulatory gaps without causing an excessive regulatory burden in their respective domain. In order to check any regulatory arbitrage, the quest for a reliable global regulatory architecture is fervently invigorated by world regulatory bodies. The very concept of risk as was being described and valued is being put under the respective regulatory watchdog s microscope. The deregulation wave and lax auditing practices are being looked into. The compliance climate is being strictly monitored. Out of the debris of the current financial crises, a new Financial System is likely to shape up. All the recent developments have made the understanding of the nuts and bolts of the financial system, all the more imperative. The students are required to develop a critical thinking about the working of the financial markets and, institutions. Students will examine some of the instruments, which have lead to the current problem. On completion of the course the students shall be able to demonstrate an understanding of the subject matter and financial environments, not only in but in the outside developed financial world. The course policy envisages positive learning environments in the class. A productive participation conditional on attendance shall be rewarded judicially. Tardiness and casual attitude shall be strongly discouraged. Zero Tolerance for plagiarism and other unfair means of securing credits, is firmly in place. Page No:2

3 Course Evaluation and Rewards Course Outline FINN 341A. Financial Markets &.Institutions Quizzes 25 % There shall be total of 5 quizzes from the assigned and the last reading, Best 4 will be counted. No Makeup quizzes shall be allowed whatsoever. repeat whatsoever Attendance and Class Participation 15 % Each absence in sessions 5 to 25 shall loose ½ marks for each day of absence. Failing to actively participate intelligently shall cost 5 marks. (To get full 15 marks a student should at least attend 20 (From 5-25) sessions and participate in at least 5). An overall absence of 15 minutes or more, in a session shall be deemed as an absence for the full session. The course is intended to be highly interactive. All the students are expected to participate in the class discussions. In order to ensure a positive learning climate, only intelligent and contributory observation and discussions shall be rewarded. Missing final presentation sessions shall cost 5 marks from marks earned till 23 sessions. Article Presentation 10% An article presentation by smaller groups on any current subject matter related articles. These articles to be selected from current press, i.e. magazine, newspaper or internet. It may be on topics of domestic or international relevance. The article would be approved by the instructor from a choice of at least three. The group shall be required to critically examine the author s point of view and present their own. A Report & Presentation 20 % (A group project) Group size of 4-5 persons, depending on class size) A report on comprehensive and critical analysis of a selected institution or a topic shall be prepared and presented by each group. The groups shall be finalized in the 5th session. The outline of the report shall be presented by 12th session for approval. The report must be submitted by 20th session. The report shall not exceed 15 pages 1½ space 12 Times New Roman excluding title index and bibliography etc. late submission will be penalized. Each group shall select a Financial Institution or a topic of interest for the detailed analysis. Group members shall be asked to remain abreast with the developments taking place in the marketplace, through financial press. The impact of current developments taking place, which are pertinent to their selection of study, shall be monitored and compiled by the group. The group is expected to apprise the class with their observations through class participation Final Comprehensive Examination 30% The examination could be mix of MCQ short exercise and short explanations. Students may also expect a question or two from the assigned report or a case or a situation analysis. Page No:3

4 Outline and Daily Agenda Part 1 Introduction and Overview of Financial Markets Chapter 1, 2, 3,& 4, Part 2 Securities Markets Chapters 5,6,7,8,9 &10 Day 1. Introduction Introduction to the course requirements Why Study Financial Markets and Institution; An over view of the Economic System. Role of Savings and Investments. Day 2. An Overview of Financial System; Overview of Comparative Financial Systems; An Overview of Islamic Financial System, Environments and Regulatory Framework Day 3.Financial Markets and Institutions Globalization of Financial Institutions and markets. Recent developments in the world financial markets. An overview of Financial Institutions in Day 4. Determination of Interest Rates; Interest rate fundamentals; Loan able funds theories; Movement of interest rates over time; Determinants of interest rates; Term structure of interest rates; Forecasting interest rates. Impact of interest rates A short discussion on TVM and security valuation issues Day 5. Money Markets & Capital Markets (Fixed Income Securities) An overview of Money and Capital Market and Instruments; Brief Explanation of some of the Money Market Instruments. Day 6. Bond Markets International Bond Market; Bond Valuation and simple Illustration of Duration. Money Market and Bond market in Day7. Mortgage Markets A brief introduction to the mortgage backed Securities; Asset backed securities. A brief review of sub prime credit crunch. Day 8.Capital Markets (Stock Markets) Stock Markets around the world. An Overview of the stock markets around the world and in. Some issues pertaining to Stock Market in. Role CDC and NCCLP and Issues such as Margin Financing. Day 9.Other Financial Markets: FOREX Market Other Markets (Foreign Exchange Markets, Commodity Markets & Derivative Securities Markets). An Overview of Forex market and Interest rates,. International quotations conventions; Foreign exchange rates and transactions. Day 10.Other Financial Markets: Derivative Securities Markets An overview of Derivative Securities Markets. Spot, Forwards, Futures, FRAs and Swaps. Options; Calls, Puts, Caps; Floors and Collars etc. Exotics and Some new arrivals on derivative markets Page No:4

5 Part 3: Commercial banks Chapter 11,12 and 13. Outline and Daily Agenda Day 11.Commercial Banks Definition of a Commercial Bank; Balance sheet and recent trends; Commercial Banking as a sector of Financial service Industry; Structure and composition of Industry; Day 12.Commercial Banks. (Continues) Technology in commercial Banking; Regulations; Global issues. Commercial Banking in. Islamic Banking initiatives in : Micro finance Banking. Day 13. Commercial Banks and Financial Statement Analysis. Depository Institutions' Financial Statement Analysis, Financial statements of a commercial bank; Return on Equity and its components. SBP suggested ROE decomposition.. What is CAMEL. Day14. Regulation of Commercial Banks Regulatory environments of commercial banks in USA and in ; banking council and scope of banking association. Some Important Regulations. Global Regulatory issues Role of a Central Bank; Money supply & interest rates; monetary policy tools; other issues related to monetary policy; Central Banking and its regulatory role in ; Prudential regulations. Day 15: Regulation of. Non Bank Financial Institutions; Role of SECP in regulating non bank FI s; Experience of Development Financial Institutions, Role of DFI,s in. Study of Modarabas, other Islamic Modes of Financing in,, Leasing Association of ; Investment Bankers Association of and Mutual Funds association of. Part 4 Other Financial Institutions Chapter 14,15, 16, 17& 18 Day 16: Other Lending Institutions Thrifts, Saving Institutions, Credit Unions Finance Companies; Cooperative Credit societies.. in, Postal Saving banks and National Directorate of Savings Day 17: Insurance Companies The categories of insurance companies. Life Insurance companies, Balance sheet trends. Property and causality insurance. Global Issues. Insurance in Takaful the Islamic Insurance. Day 18: Security Firms and Investments Banks. Services Offered by Securities Firm and Investment Banks. Main Activities, Investment banking, Trading, Investing M& A, Private Equity, Venture Capital and other services. Day 19: Mutual Funds and Hedge Funds. An overview of Mutual funds.. Closed End Funds and Open End Mutual Funds Different Types of Mutual Funds, ETF s and Ultras, Mutual Funds return and Costs. Mutual Funds balance sheet and recent trends. Some Global and regulatory issues. Day 20: Hedge Funds and Pension Funds Types of hedge Funds, Offshore hedge funds. Regulatory challenges for hedge funds. Pension Funds.defined benefits vs. Defined contribution pension funds Private and public Pension Funds. A brief overview of pension Funds in. Page No:5

6 Outline and Daily Agenda Day21. Types of Risks Incurred by Financial Institutions Why Financial Institutions need to manage a risk; A brief discussion on different types of risks. Day22. -Managing Credit Risk on the Balance Sheet. Chapter overview; Credit analysis; Real Estate Lending. Lending to Small and Medium size business. Calculating Return on Loans ROA and RORAC Models. Loan portfolio risk and Management. Part 5 Risk Management in Financial Institutions Chapter19,20,21,22,23 &24 Presentations. Day 23, Managing Liquidity Risk on the Balance Sheet: Chapter overview; Liquidity risk analysis of depository Institutions; Asset side risk management and Liability side risk management. Liquidity drains and run on the banks problems. Role of LOLR and deposit insurance. Liquidity risk of Property- Causality Insurance companies. Mutual Fund liquidity risk. Day24. Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet. Interest rate and Insolvency risk measurement and management; Repricing and duration models. Insolvency risk Managements, Capital adequacy issues and Insolvency risk. Day 25. Managing Risk Off the Balance Sheet with Derivative Securities. Risk Managements with Forward and Futures contracts; Hedging with forward and future contracts. Option feature and its use as a risk management tools; Risk management with swaps; Interest rate swaps, currency swaps and credit swaps. Interest rate Risk Management with Caps, Floors and Collars. Day 26. Managing Risk Off the Balance Sheet with Loan Sales and Securitization A major cause of recent crisis in western financial system. To be discussed in class. Its impact on rethinking on Risk parameter, dynamics and overall Risk Landscape Managing Risk through Loan sales and Securitization. Moral Hazard issue in Loan sales and Securitization. Securitization in Securitization of other assets; Role of securitization in crises. Presentations Day 27, Presentation Group 4, 5 & 6 Day 28 Presentation Group 7, 8 & 9 FINAL EXAMINATION Page No:6

7 Some Of the Suggested Topics Trends in Lending policies in Banking Industry Trend in -use of modern technology in Swift and other payment systems Impact of oil prices on banking industry Ability of Banking to absorb the possible exogenous shocks Risk Management Process, and Risk Management in Derivative Markets in Islamic Banking in Islamic Insurance( Takuful) (Islamic Bonds, Sakuks Insurance industry in Mutual Funds Industry in Role SBP and SECP in Regulatory agencies in Financial Service Authority in UK and its effectiveness. Basel Accords I & 2 Compliance in Frank Dodd s Bill and other current Issues Regulatory challenges being faced and efforts to find a global regulatory Architecture IMF conditional ties and its impact on Financial institutions in Rating in (PACRA & JCR- VIS) International rating of i Banking Sector PIIGS debt crises and its fallout on Financial Markets Shape of Emerging Financial System Fixed Income Securities Market in Yield curve of debt market. Foreign Exchange Market in FDI, Flight of capital and Money Laundering And Hawala System Its impact on economy of Micro credit in, Successes and Failures. Indian experience. Postal Saving and insurance in Japan and in Presentation on Securitization In Global impact of Sub Prime lending and its impact on Foreign Exchange Crises. Fall of Dollar and the Euro Trends in commercial Banking; Consolidation and mergers in Banking Sectors in Privatization of Banking sector Syndication in The State and scope of Consumer Financing in Efficiencies and Inefficiencies in capital Markets of. Forensic Report on Stock Market / CFS, Badla and Margin Financing Central Depository Scope of a other Custodian Banking Insiders trading Rules and controlling it Specialized Financial Institution Role and Scope of SMEADA SME Banking Associations of non Banking Financial sector Housing Finance by HBFC and Commercial Banks in, Scope of REITS Pension Funds and Employees Welfare Funds in Any other topics proposed by a students and approved by the instructor Page No:7

8 On the side Agenda (Article Presentations) Invitation to form groups. Some of the topics to be assigned. A brief study of Stock Market in ; Inefficiencies in Stock Market Bonds Market in ; TFC s &Islamic Bonds (Sakuks Foreign Exchange and Scope of Derivative Markets in Islamic Banking in Saving Institutions Cooperative banking experience in Analytical framework of Statement Analysis of financial sectors in SMEDA and Microfinance. Grameen Bank Of Bangladesh &. Kashaf Bank. of Derivative Markets in Presentation on Securitization In Recent Developments and Role of Investment Banking in. Pension Funds and Employees Welfare Fund SECP regulation on Insurance Islamic Insurance (Takuful) Risk Management in Leasing Scenario in. Presentation on Modarabas; Islamic Modes of Financing Regulatory Framework Need and scope of FSA of UK authority in. Presentation on Diminishing Musharika. Page No:8