BF214 FINANCIAL MARKETS AND INSTITUTIONS

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1 BF214 FINANCIAL MARKETS AND INSTITUTIONS Course Description and Scope The objectives of the course are to prepare students with a good understanding of the theoretical foundation of financial market and institutions, and to keep students updated on the latest discourse on practical issues and policies in the new international financial environment. The latter are rarely found in textbooks. With an overview of the global financial markets and institutions, students would find it beneficial when joining related industries in the international financial community. The scope of the course comprises the diversity of financial institutions and financial markets, the more creative financial instruments, and the latest developments in the financial arena - regional as well as international. Descriptive elements will be covered primarily by the prescribed readings that will be left to the initiative of each student. Students are also advised to keep in touch with current affairs and developments through wider reading than just the recommended materials. Consistent with the concept of creative learning commended by the Government and the philosophy of learning through self-discovery implemented by the School, it is by design that quite a number of the tutorial questions would not be covered by lectures before hand. Students are expected to learn through their own research, articulation of their own views and exchange of opinion during tutorials, an area that needs development through encouragement. Students are not expected to answer textbook style questions. The emphasis of the course is, and accordingly reflected in the course assessment, on the theoretical understanding of key concepts, an appreciation of the practical relevance and active tutorial participation. Students would find the course challenging and rewarding with commensurate efforts. Proposed Lecture Schedules Week No. 1 (Jul 15) 1 Introduction 2 Concept of Financial Assets and Its Relevance to Innovation Digital cash 3 Commercial and Investment Banks 3.1 Design of financial system and existence of banks 3.2 Not all banks are the same 3.3 Evolution of the banking industry and recent developments Specialist (US), Universal (UK) and Keiretsu (Japanese) banks Deregulation of deposit rates (Hong Kong) 2 (Jul 22) 3 Commercial and Investment Banks (cont ) 4 Equity Markets 4.1 Market instruments and architecture 4.2 Analysis of market performance: bull and bear markets, and bubble and burst Floor versus screen trading: Evidence from the German stock market

2 phenomenon 4.3 Information content of market indices 4.4 Does every country require its own stock exchange? Market making vs. orderdriven: The JASDAQ experience 3 (Jul 29) 4 Equity Markets (cont ) 5 Foreign Exchange Markets 5.1 Market practices and functions 5.2 The Double Play: Simultaneous speculation on currency and equity markets 5.3 Introduction to financial engineering: Simulation of financial markets Double Play: The Hong Kong Experience in 1998 McDonald s Hamburgers and Purchasing Power Parity 4 (Aug 5) 6 Money Markets 6.1 Market practices and functions 6.2 Characteristics and applications of, and interest differential between instruments 6.3 Speculation strategies 6.4 Euro markets and ACU in Singapore 7 Mortgage Markets and Securitization 7.1 Securitization: Mortgage-backed and asset-backed securities 7.2 Contraction and extension risks; credit risk and enhancement 7.3 Advanced techniques in securitization 7.4 Asset securitization as a financial innovation So you thought the Fed set the interest rates Why US is well ahead of the rest of the world in securitization 5 (Aug 12) 8 Derivatives Markets 8.1 Creative instruments 8.2 Concept of unbundling composite risks of financial assets: Credit derivatives and applications Intranight trading behaviour: The SFE experience 9 Other Financial Institutions 9.1 Insurance companies, S & L associations and others 6 (Aug 19) 10 Special Issues 10.1 Bancassurance 10.2 Hedge funds & derivatives trading house Money laundering: Singapore and the

3 10.3 Money laundering 11 Behavioural Finance 11.1 Behavioural finance & financial markets 11.2 Illustration of trader s behaviour in class Nigerians; Colombian black market peso exchange Enron vs. LTCM 7 (Aug 26) 12 Understanding Debt Markets 12.1 Organisation and structure of debt markets 12.2 Government and non-government debts 12.3 Bonds: Valuation, yield and ratings 12.4 International bond markets Integration Case Study: (APF) report: Policy recommendations on diversified corporate financing and developing corporate bond markets 8 (Sep 2) Recess 9 (Sep 9) 13 The Financial Institutions Industry 13.1 Theory of Financial Structure anking Regulations and Crisis 13.3 The 1988 Basle Capital Accord 13.4 The 2004 Basle Capital Accord 10 (Sep 16) 14 Liberalisation of Financial Markets and Institutions 14.1 Strategic sequencing of financial development 14.2 Financial liberalisation: The case of Singapore 14.3 Causes of the Asian financial turmoil 11 (Sep 23) 15 Central Banks and Regulatory Authorities 15.1 Structure, functions and independence 15.2 Stabilization policies and market intervention 15.3 Post-crisis central banking reform 15.4 Post-crisis financial system reform A vertical B2B financial hub: Are banks redundant? International standards and regulations on global banking industry: Emerging markets Perspective Financial Liberalisation: Big bang approach versus gradual deregulation. Financial development and banking sector reform in ASEAN-10 The Internationalization of Singapore dollar and the Singapore exchange rate policy Case Study: (APF) Report: Policy recommendations to financial crisis prevention (APF) Report: Financial sequencing and liberalization for transition economies 12 (Sep 30) 16 Global Financial Markets and International Case Study:

4 Monetary Order 16.1 Pros and cons of alternative exchange rate regimes 16.2 International trade, global capital mobility and currency values 16.3 Emerging tri-polar currency areas: Greenback, Euro and Japanese Yen How to deal with currencies volatility and rapid capital flows under increasing globalisation Currency board, selective exchange controls, and USD pegged exchange rate regime 13 (Oct 7) 17 Cross-Border Trading Activities, Financial Markets Integration and the International Financial Architecture 17.1 International financial centres and financial innovation 17.2 Global trading system and WTO 17.3 Regional economic integration and financial internationalisation 17.4 Reforming the international financial architecture Reforming the international financial architecture: problems and suggestions Regional financial arrangement: The ASEAN perspective Cross-border listing of equity markets: Benefits, problems and issues Suggested Text BNL Burton, Nesiba and Lombra An Introduction to Financial Markets and Institutions Thomson, 1st edition, 2003 It can be appreciated that, for a subject with a scope as wide as Financial Markets and Institutions and with the objectives of covering the latest developments and issues from an international perspective, there is hardly a textbook that is satisfactory. Accordingly, a detailed listing of references for lectures 1 12 will be provided together with handouts and supplementary reading materials. Other References FMF SB Fabozzi, Modigliani and Ferri Foundations of Financial Markets and Institutions Prentice Hall, 2nd edition, 1998 (Call No. HG.173.F121) Santomero and Babbel Financial Markets, Instruments, and Institutions Irwin/McGraw Hill, 2nd edition, 2001 (Call No. HG 173.S237) Method of Instruction Lectures: 2 hours per week

5 Tutorials: 2 hours per week Lectures commence in Week 1 and end in Week 13 Tutorials commence in Week 2 and end in Week 14 Course Assessment Tutorial Participation 15% Written Assignment 15% Final Examination 70% % For the written assignment, each student is required to present and submit a paper of between 1,000 and 1,200 words (excluding appendices and references) in length. The paper is to be comprised of the following sections: Title, Objectives, Discussion (the analysis is to be supported by relevant data and references; statistical model and analysis are not required), Conclusion and References. Grading will be based on the substance of and efforts put into the assignment, understanding and analysis of subject matter, and writing skills. Students may select their own topics that are relevant to financial markets, institutions and instruments, select one of the topics suggested below or adopt a topic to be suggested by respective tutors: Which banking system do you think is most relevant to Singapore specialist, universal or keiretsu? Virtual banking: How virtual can it be? How do you think the authority has defended the Singapore dollar against speculation? Securitisation: Would it have a promising future in Singapore and other Asean countries? Do you think Singapore should adopt a mixture of order-driven and market-making systems for equities trading? Who do you think determine the interest rates in Singapore? The relevance of credit derivatives to fund managers Behavioural finance: Do you think it has a place in currency trading? The assignment is to be handed in to respective tutors in the week commencing October 14. Please note that plagiarism is a serious offence; refer university rules and regulations for details. Lecturer Office Room No. DID Address Asst. Prof. Philip Y K Cheng* 01c aykcheng@ntu.edu.sg A/P Prof. Tan Khee Giap 01b atankg@ntu.edu.sg * Course Co-ordinator