Financial Institutions and Markets

BBA, Specialization, Finance

Course Objectives:

The course aims to enhance the students ability to understand the financial market and increase their effectiveness in working with or interacting with the financial institutions.

Course Contents:

1. Economics of Financial System                                                                   3 hours

Basic needs served by the financial system: payments, resource transfer, and risk trading, the technology adopted in serving these needs: delegation, credit substitution, risk pooling and netting, Market failure in these services and the  need for government intervention.

2. Money, Prices, Interest rates and Exchange Rates                                          9 hours                                                        

Relationship among these factors and determination of interest rates, exchange rates and inflation.

 

3.  Financial Intermediation by Depository Institutions                            12 hours

Deposit and Loan and factors affecting them; competition, asymmetric information, default risk, transaction cost. Adverse selection, moral hazard and credit rationing. Agency problems in financial institutions. Liquidity risk, interest rate and exchange rate risk, credit risk, and operation risk inherent in financial institutions, and management of those risks. Lessons learnt from the national and international experiences.

4.  Insurance                                                                                                       6 hours

Economies of insurance-benefit of risk pooling, problem or moral hazard and adverse selection.  Pricing of Insurance and marketing of insurance; Agency problems in insurance business; Different types of insurance: life insurance and related products; health insurance; property-liability insurance; reinsurance, Regulation of insurance industry, its economics, and regulation market in Nepal.

6.  Securities Markets                                                                                          6 hours

Securities market and the function of price discovery, liquidity, transaction costs reduction. Dealer and auction market risk of trade execution, clearing and settlement. Structure and requlation of securities market, comparing requlatory structure of Nepalese market with that of the other developed market.

7. Market for Government Securities                                                                   6 hours

Types of Government Securities; Primary market and auction procedures; Procedures in Nepalese market compared with the procedures in other countries especially India and the US. Secondary market and their organization: Nepal’s market compared with that of India and the US. Dealing in securities: the bid-ask spread, carry, trading profits, Repurchase agreements, Reverse Repos.

3.  Stability of the Financial System                                                                     6 hours

Bank runs and panics, crashes in stock market, their causes and consequences. Factors affecting stability: fragmentation and interdependence. Private and government measures in improving stability of the financial system: Clearing House Association, Regulation and Supervision, Lender of last resort, trading halts and circuit breaker, deposit insurance. Cost and benefit of such measures.

Text Book

1.       Meir Kohn: Financial Institute and Market, Tata McGraw- Hill

Reference Books

1.       Miskin, Frederic S.: The Economics of Money, Banking and Financial Markets, Addison-Wesley.

2.       Jeff Madura: Financial Market and Institution , South-Western  college Publishing

3.        Michael  Baye and Jansen: Money, Banking and Financial Market ,A.I.T.B.S.