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Financial Institutions, Intermediation and Regulation

Overview

Financial system includes individual and institutional investors, markets and intermediaries, ultimate borrowers, and lastly the government which supervises and regulates the markets and institutions. The main role of a financial system is to channel funds from the savers to borrowers and facilitate investment and funding decisions. Investment decisions involve many layers, such as the time value of money and risk associated with investments’ potential payoffs.

Risk pricing is a quintessential feature of a wider-ranging family of financial investments. The course examines the information that investors need to consider to price financial assets including potential payoffs and likelihoods of the potential payoffs. Depending on each investor’s attitude towards risk, such considerations lead to different valuations of the same investment. The course continue by defining the various types of financial intermediaries, their typical balance sheet and risks they face. We then describe a framework that relies on our learning from financial returns and construction of certainty equivalent to quantify the amount of liquidity provided by the intermediation sector across the financial system and discuss the implication of decisions made at the intermediation sector on availability of credit and shareholder valuation.

Course Contents

The course is organised according to theories and empirical facts related to financial markets and institutions. Both aspects are essential in terms of understanding the course material and examinations but also in terms of their importance towards developing a foundation for future careers in finance within or outside academia. Financial markets and financial institutions is delivered across the following main units:

  • Asset Pricing: Micro-foundations
  • Asset Pricing: Macro-foundations
  • Financial Markets
  • Financial Intermediaries 1: Depository Institutions
  • Financial Intermediaries 2: Venture Capitals and Early Stage Financing
  • International Banking
  • Financial Crisis
  • Central Bank and Monetary Policy
  • Ethics and Financial Misconduct
  • Financial Regulation

Course Timetable

The course is delivered via weekly sessions and six tutorial workshops. There are practice problem sets with solutions to further illustrate theories and implementations. There are three assessment assignments through the semester timetable below. The timetable below is subject to change, please review this timetable on weekly basis:

Course Schedule

Office Hours

Friday 10-11 am, Gilbert Scott Building

Course Tutorials and GTA Support

You are expected to have covered the material ahead of the tutorials. Tongtong Wang holds weekly office hours, starting in week 1. The schedule will be posted on MyGlasgow.

Financial Datasets and Empirical Exercises

The course contents, practice problem sets and assessment components are based on real-world financial data. Therefore, it is a requirement that all class participants set up their accounts with the data platforms described below:

  • Register your accounts on Financial Analysis Made Easy (FAME) via the university library and additionally Wharton Research Data Services directly on their platform using the university email address.
  • This registration is then activated by the business database administration within one week. Please initiate the registration in the first week of the course before we progress towards further course contents and assignments.
  • Key statistics and learning outcomes arising from the activities related to the data will be part of the exam. Treat the empirical exercises as an essential part of the learning experience
  • As a financial analyst or a research financial economist, you will work with the very same data providers repeatedly. Developing an understanding of the empirical counterparts of theories will be an important takeaway for future careers in finance.

Problem Sets

Assessments

  • Individual Assignment (25%) includes a problem sheet requiring methodological derivations, numerical computations followed by interpretation of results. The problem sheet will be posted on 4 February to access and will be due on 15 February (deadline).
  • Group Assignment (25%) includes a problem sheet requiring methodological derivations, numerical computations followed by interpretation of results. The problem sheet will be posted on 4 March to access and will be due on 15 March (deadline).
  • Degree exam in April/May (50%): The final exam will be an individual assessment covering all course contents during the semester including key facts and statistics arising from empirical exercises, methodological derivations and computations. Information regarding the final examination will be released towards the end of the semester.

Grading

  • Grading is based on meeting the course intended learning outcomes examined in each assignment and following the University's Schedule A. Grades are rewarded based on both the input and output presented in each part thus demonstrating intermediate steps building up towards an overall answer are required and graded.
  • Problem set and assignments require accessing real-world financial data from the professional platforms, thus class participants are required to register and activate their accounts with data providers by following the information provided.

Feedback

Answers to the assignments will be provided in the subsequent week after the deadline and after everyone's submissions are received. Aside from the assessed assignments indicated above, the course includes two practice problem sets with solutions. These are distributed to practice theories and implementations during the semester. Students are expected to attend the office hours and tutorial workshops for reviewing specific queries.

Past Papers

Past exam papers are available via the university portal. These can serve as a basis for preparation, however, note that the exam and course contents are subject to changes on an annual basis.

Textbook and Reading List

  • Financial Decisions and Markets, John Campbell, 2017 Edition [MT-1]
  • Introduction to Banking, Casu, Girardone and Molyneux, 2nd or 3rd Edition [MT-2]
  • The Economics of Money, Banking and Financial Markets (Frederic Mishkin) [OT-1]

Further to the textbooks, there will be journal article readings cited throughout the course. Journal articles indicated as 'required reading' should also be studied in conjunction with textbook reading and form part of the assessments: Reading List. There are additional articles from the Financial Times to complement and relate to the ongoing economic and financial outcomes.