Bachelor
2024/2025
Basics of Banking and Finance
Type:
Compulsory course (International Programme in Economics and Finance)
Area of studies:
Economics
Delivered by:
International College of Economics and Finance
When:
2 year, 1-4 module
Mode of studies:
offline
Open to:
students of one campus
Language:
English
ECTS credits:
10
Course Syllabus
Abstract
“Principles of Banking and Finance” is an introductory two-semester course for second-year undergraduate students. The approach of the course is analytical and emphasizes the link between microeconomics and banking and finance. The first part of the course is devoted to principles of finance. It covers the essentials of capital budgeting and securities valuation, as well as basic asset pricing theories and the efficient market hypothesis. The second part deals with principles of banking. It compares different banking systems and discusses the standard tools of risk management for financial institutions, the regulation of the banking system, and the role and rationale of financial intermediation in the economy. Course prerequisites Basic knowledge of micro/ macroeconomics and calculus/statistics, as taught in the first year at ICEF, is required. The course itself provides a basis (and thus serves as a prerequisite) for more advanced courses of in banking and finance such as Asset Pricing and Financial Markets, Corporate Finance, Investment Management, etc.
Learning Objectives
- The course provides students with foundational analytical and institutional knowledge in banking and finance.
- The first part of the course emphasizes the key concepts of modern theory of finance such as the time value of money, the absence of arbitrage, the trade-off between risk and expected returns, the notion of diversifiable risk and its implications for asset pricing, and the different forms and tests of market efficiency. At the end of this part, students should be able to discuss the main theoretical and empirical drivers of financial and real asset valuation. Students are also expected to acquire general knowledge about standard financial assets and the risks they carry.
- In the second part of the course, students learn about the consequences of asymmetric information and transaction costs on banking. At the end of the course, they should also be able to highlight the main differences between financial systems, explain the role and origins of financial intermediaries, the methods used by banks to manage various types of risk, and the rationale for bank regulation. Students are also expected to be able to discuss the main factors and developments of the 2007-2009 financial crisis.
Expected Learning Outcomes
- Discuss the main types of risks faced by banks, and use the main techniques employed by banks to manage their risks
- Discuss whether stock prices reflect all available information, and evaluate the empirical evidence on informational efficiency in financial markets
- Discuss why financial systems exist, and how they are structured
- Explain how to value financial assets (bonds and stocks)
- Explain how to value real assets and financial assets, and use the key capital budgeting techniques (Net Present Value and Internal Rate or Return)
- Explain why banks need regulation, and illustrate the key reasons for and against the regulation of banking systems
- Explain why the relative importance of financial intermediaries and financial markets is different around the world, and how bank-based systems differ from market-based systems
- Understand how risk affects the return of a risky asset, and hence how risk affects the value of the asset in equilibrium under the fundamental asset pricing paradigms (Capital Asset Pricing Model and Asset Pricing Theory)
- Understand why financial intermediaries exist, and discuss the role of transaction costs and information asymmetry theories in providing an economic justification
Course Contents
- Introduction
- Financial markets and instruments
- Capital Budgeting and Valuation
- Valuation of Fixed-Income Securities
- Risk and return
- Asset pricing theories
- Stock valuation
- Derivatives
- The functions of the financial system and the role of financial intermediaries
- Taxonomy of major financial intermediaries
- Risks in Banking.
- Banking regulation. Regulative and Economic Capital
- Risk Management
Assessment Elements
- Spring midterm
- ParticipationParticipation includes classwork and quizzes. Classwork tasks include elements of soft skills development such as teamwork, communication abilities, and management skills. Classwork includes participation in discussions, problem-solving (individually and in groups), group presentation on several topics.
- Winter midterm
- Final exam
- October midterm
- Home assignments
Interim Assessment
- 2024/2025 4th module0.45 * Final exam + 0.1 * Home assignments + 0.08 * October midterm + 0.15 * Participation + 0.1 * Spring midterm + 0.12 * Winter midterm
Bibliography
Recommended Core Bibliography
- Corporate finance, Berk, J., 2007
- Financial institutions management : a risk management approach, Saunders, A., 2018
- Financial markets and institutions, Mishkin, F. S., 2018
- Principles of corporate finance, Brealey, R. A., 2008
Recommended Additional Bibliography
- Financial theory and corporate policy, Copeland, T. E., 2005
- The UK financial system : theory and practice, Buckle, M., 1998