The role of this module is to provide students with a comprehensive introduction to the economics of money, banking and finance.  It builds upon the theoretical analyses introduced in the year 1 macroeconomic and microeconomic modules and applies them within a monetary and financial context.  The module provides an essential grounding for the final year modules on the Banking & Finance degree programme, Domestic and International Banking, International Finance and Financial Economics.

This module aims to provide an understanding of the workings of monetary and financial systems and uses this understanding to assess and evaluate policy options and problems in economics, banking and finance.  The module surveys basic monetary theory and provides insight into current debates in banking and finance.

A    Knowledge and Understanding:

• identify the role of financial institutions and financial markets and be able to demonstrate the ways in which they allocate savings and investment within the economy.
• be conversant with basic concepts of finance theory.
• Understand the mechanism of trading financial securities in capital markets
• identify competing theories of demand for money and money supply determination.
• outline the various theories of interest rate and exchange rate determination.
• be aware of developments in UK banking and financial markets.

B    Intellectual Skills: 

• evaluate the functions and performance of banks and other financial intermediaries by examination of their involvement in such things as deposit creation, risk reduction and portfolio management.
• undertake financial analysis of, for example, various asset prices, and portfolio risk and return.
• Evaluate the use of information in trading securities in capital markets
• differentiate between competing theories of demand for money and to interpret the empirical evidence relating to these theories.
• synthesis of competing theories of money supply determination and to outline and assess the problems involved in monetary control.
• compare and contrast divergent theories of how interest rates are determined.

C    Discipline Specific Skills: 

• Understand the implications of limit order and market order driven trades in securities trading.
• Use understanding of the workings and theories of monetary and financial systems to assess and evaluate various policy options.
• Apply competing theories of money demand and money supply determination to economic and financial data and information.
• Identify the role of interest rate theory in the formulation of current economic policy.
• Evaluate the theories of market efficiency in light of current empirical evidence.
• Summarise information on banks and other financial intermediaries in light of theories on capital and money markets.

D    Transferable Skills: 

• communicate ideas and principles by written and oral means.
• develop numerical and problem solving skills
• exercise information gathering and handling skills
• show reasoning with empirical evaluation and logical reasoning.
• Ability to conduct securities trading as a day trader.

Teaching will take place in the Autumn and Spring semesters. There will be approximately 34 hours of lectures and 10 hours of classes including 4 hours trading practice in the trading room.  The module covers 10 topics, with each topic consisting of approximately 3 hours of lectures plus a one hour class.

For each topic, students are provided with detailed lecture plans which include the aim of the relevant lectures, a structured outline of what will be covered along with a detailed reading list for each topic.  The purpose of lectures is to cover the main points and structure of the topic, cover new material, aid in improving student learning and provide guidance to further research on the topic.  For each class, students will be given specific questions, which must be prepared and brought along for discussion.

Indicative study hours:   200

Formal Assessment:

• Autumn Semester Examination (20%)

This consists of a short question exam relating to financial markets, portfolio theory and investment. This assessment focuses on subject specific skills and problem solving skills.

•  Assignment (20%)

The assignment will be a written report based on a securities trading exercise conducted in the autumn semester.

• Summer examination (60%)

The summer examination will be will be based on the lectures in the second half of the first semester and the all of   the second semester. The topics will be about the structure of financial markets, banking and credit markets, interest rates, the demand for money and monetary policy.

Informal assessment:

• Informal assessment is provided through class exercises.  Classes consist of a wide variety of questions/problems, based on lecture material, but requiring further research and reading.  They may consist of numerical questions, written definitions, short essays, data response, and data collection in order to mirror the diversity of the final examination.

• In order to provide an indicator of knowledge and comprehension, students are informally assessed by use of short ‘quizzes’ at the start of a number of lectures.

Introduction to Finance and Portfolio Theory; CAPM; Market Efficiency; Rational expectations and the role of information in securities markets. Securities markets trading. The characteristics and functions of Money; The role and functions of Financial Intermediaries; Capital Markets & Valuation of Assets; Money Markets & the role of banks; Banks’ balance sheets and the risks and risk management of banks; The Demand for Money and Implications for Macro Models; Theory of Monetary Exchange and the Supply of Money; Theory of Monetary Policy; Determination of Interest Rates; 

The core text for this module is: Frederic S. Mishkin (2004) “The Economics of Money, Banking and Financial Markets”, 7^th Edition Addison Wesley. 

Detailed reading lists are given out with each topic.