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Principles of banking and finance FN1024

This is designed as the foundation banking and finance course on which subsequent and more specialised finance courses are based.

Topics covered

Financial Systems

  • Introduction to Financial Systems
  • Comparative Financial Systems

Financial intermediaries

  • Role of Financial Intermediation
  • Regulation of Banks
  • Risk Management in Banking

Principles of finance

  • Financial Securities: Risk and Return
  • Capital Budgeting
  • Financial Markets: Transmission of information

Learning outcomes

If you complete the course successfully, you should be able to:

  • Discuss why financial systems exist, and how they are structured
  • 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 why financial intermediaries exist, and discuss the role of transaction costs and information asymmetry theories in providing an economic justification
  • Explain why banks need regulation, and illustrate the key reasons for and against the regulation of banking systems
  • Discuss the main types of risks faced by banks, and use the main techniques employed by banks to manage their risks
  • 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 how to value financial assets (bonds and stocks)
  • 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)
  • Discuss whether stock prices reflect all available information, and evaluate the empirical evidence on informational efficiency in financial markets.

Assessment

Unseen written examination (3 hr).

Essential reading

  • Mishkin, F. and S. Eakins. Financial Markets and Institutions. Addison Wesley.
  • Allen, F. and D. Gale. Comparing Financial Systems. MIT Press.
  • Brealey, R.A. and S.C. Myers. Principles of Corporate Finance. McGraw-Hill/Irwin.

Course information sheets

Download the course information sheets from the LSE website.