Course Outline of Financial Markets _ Institutions

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					                                    Proposed syllabus for text on
                              Financial Markets and Institutions

                                  By: Dr. H. M. Mosarof Hossain
                                       Associate Professor
                                      Department of Finance
                                       University of Dhaka

Chapters’ Title                                    Topics to be covered
01. Overview of the   Financial assets; Debt vs equity instruments; The price of a financial asset and
Financial             risk; Financial asset vs tangible asset; Role of financial assets; Financial
Environment           markets; Role of financial market; Classification of financial market; Market
                      participants; Securities traded in financial markets-money market securities,
                      capital market securities & derivative securities; Valuation of securities in
                      financial markets; Market efficiency; Financial market regulation
                      Globalization of financial market and Derivative markets, Views of islam
                      about financial asset and market.

02. Financial         Financial institutions; Role of financial intermediaries; Overview of
intermediaries &      asset/liability management of financial institutions - nature of liabilities and
innovation            liquidity concerns; Financial innovation; Motivation for financial innovation
                      and Asset securitization, Asset securitization in islam.

03. Market            Stock market transactions-placing an order, margin trading, short selling;
Microstructure and    How trades are executed- floor brokers, specialist, effect of the spread on
strategies            transaction costs, electronic communication networks, program trading;
                      regulation of stock trading-circuit breakers, trading halts, Securities and
                      Exchange Commission; How barriers to international stock trading have
                      decreased- reduction in transaction cost, reduction in information costs and
                      reduction in exchange rate risk.

04. Depository        Asset/liability problem of depository institutions- interest rate risk and
Institutions          liquidity concerns; Commercial banks – bank services, bank funding and
                      regulation; Bank management, Bank performance; Savings & loan
                      associations; Savings banks and Credit unions, Islamic commercial banking,
                      Lending and borrowing according to shariah, Stands of islam about interest,
                      Interest vs Profit.

05. Insurance         Insurance and types of insurance – life insurance, health insurance, property
Companies             & casualty insurance, liability insurance, disability insurance, long-term care
                      insurance, structured settlements, investment oriented products and annuity;
                      Insurance company - Life insurance companies, Property and casualty
                      insurance companies, fundamentals of the insurance industry; Regulation of
                      the insurance industry; structure of insurance company; Forms of insurance
                      company; Types of life insurance, Islamic concept on insurance, Procedures
                      of insurance dealing in islam.

06. Investment        Types of investment companies – open-end funds, closed-end funds and unit
Companies and         trusts; Fund sales charges and annual operating expenses; Economic
Exchange Traded       motivation for funds; Types of funds by investment objective; Taxation of
Funds                 mutual funds; Regulation of funds, Structure of a fund; Exchange traded

07. Pension Funds     Introduction to pension plans; Types of pension plans – defined benefit plans,
                      defined contribution plans, hybrid pension plans and cash balance pension
                      plans, Investments, Regulation of pension fund; Managers of pension funds;
                      Social security.
08. Leasing             Definition of lease and leasing company; Types of leases; Rationale of
Companies               leasing; Funding; Using of fund, Regulation of leasing company;
                        Mathematical problems on leasing decision and leasing vs buying decision.

09. Properties and      Properties of financial assets – moneyness, divisibility and denomination,
Pricing of Financial    reversibility, cash flow, term to maturity, convertibility, currency, liquidity,
Assets                  return predictability, complexity and tax status; Principles of pricing financial
                        assets; Price volatility of financial assets – the effect of maturity, the effect of
                        the coupon rate, effect of the level of yields.

10. The Level &         The theory of interest rates – Fisher’s classical approach, the loanable funds
Structure of Interest   theory, the liquidity preference theory, changes in money supply and interest
Rates                   rates; The determinants of the structure of interest rates – features of a bond,
                        yield on a bond, the base interest rate, the risk premium, types of issuers, term
                        to maturity, inclusion of options, taxability of interest and expected liquidity
                        of an issue.

11. Risk/Return and     Portfolio theory – investment return and risk; Diversification; Risk of
Assets Pricing Model    individual security; Estimating beta; Capital asset pricing model and
                        Arbitrage pricing theory.

12. Primary Markets     The traditional process of issuing new securities – underwriting, gross spread,
and the Underwriting    initial public offerings, selling group; Investment bankers; Regulation of
of Securities           primary market; Variation in underwriting process – bought deal, auction
                        process and preemptive rights offering; Private placement of securities.

13. Secondary           Definition; Functions; Trading locations; Market structures; Perfect markets;
Markets                 Role of brokers and dealers; Market efficiency – operational and pricing.

14. Markets for         Treasury securities-types, primary market, secondary market, stripped
Government Debt         treasury securities; Types of securities issued; Methods of distribution; Types
                        and features of municipal securities-tax backed debt, revenue bonds, hybrid
                        and special bond structures, municipal notes, redemption features; Municipal
                        bond ratings; Tax risks associated with investing in municipal securities;
                        Yields and regulation of municipal securities market.

15. Markets for         Credit risk; Commercial papers; Medium-term notes; Structured medium-
Corporate Senior        term notes; Bank loans; Syndicated bank loans; Lease financing; Corporate
Instruments             bonds, Preferred stock, Bankruptcy and Creditor rights.

16. The Mortgage        Definition and Origination of mortgage; Types of mortgage designs – (i)
Market                  fixed-rate, level-payment, fully amortized mortgage (ii) adjustable-rate
                        mortgage (iii) graduated payment mortgage (iv) price level adjusted mortgage
                        & (v) dual-rate mortgage; Investment risks – credit risk, liquidity risk, price
                        risk, prepayments and cash flow risk; Mortgage-backed securities market- (a)
                        Development of the secondary mortgage market- (i) Foundations of the
                        mortgage market(ii) securitization of mortgage (b) Mortgage Pass-Through
                        Securities (i) Cash flow characteristics (ii) Issuers of mortgage pass-through
                        securities (iii) Prepayment risks associated with pass-through securities (iv)
                        Prepayment conventions (c) Collateralized mortgage obligations; Asset-
                        backed securities markets- Motivation for issuing asset-backed securities,
                        Features of asset-backed securities, Major asset classes securities, Credit
                        consideration for a corporate bond versus an asset-backed security.
 17. Markets for         Financial futures markets- Futures contract, Futures versus forward contracts,
 Derivative Securities   Role of futures in financial markets, Forward rate agreements; Options
                         markets- Options contracts, Differences between options and futures
                         contracts, Return and risk characteristics of options, economic role of the
                         option markets, US option markets, Option markets outside US; Pricing of
                         Futures and Options Contracts- pricing of futures contracts, pricing of
                         options; The applications of futures and options contracts.

 18. The Market for      Foreign exchange rates-Exchange rate quotation conventions, Foreign
 Foreign Exchange        exchange risk; Spot market-cross rates, dealers, the euro; Instruments for
 Rate Risk               hedging foreign exchange risk- currency forward contracts, currency futures
                         contracts, currency options contracts and currency swaps.

 19. Regulators in       Securities and Exchange Commission- Securities and Exchange Commission
 Financial Markets       Act, Background of Securities and Exchange Commission, Objectives and
                         functions of Securities and Exchange Commission, Role of Securities and
                         Exchange Commission, Formation and management of Securities and
                         Exchange Commission, Departments of Securities and Exchange
                         Commission; Stock Exchanges- Background of establishing Stock Exchange,
                         Objectives of Stock Exchange, Functions of Stock Exchange, Role of Stock
                         Exchange in financial market, Services offered by Stock Exchange, Listing of
                         securities in Stock Exchange.

Book references:
   1. Financial Markets and Institutions – Jeff Madura
   2. Foundations of Financial Markets and Institutions – Fabozzi, Modigliani and Jones Ferri
   3. Markets and Institutions-A contemporary Introduction to Financial Services- William L. Scott
   4. Financial Markets and Institutions – Robert D. Aurebach
   5. Financial Institutions and Markets – Polakoff, Durkin and Others.

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