An introduction to the principles of banking and finance

It covers a broad variety of topics using an economic perspective and aims to give a general background to any student interested in the subject of banking and finance.

The contents of the subject guide are able to be broken down into three main parts

• In Part I we examine the structure and functions of financial systems. We focus on all of the three main entities that compose a financial system financial intermediary securities and financial markets. We then investigate the dissimilarity in the relative importance of financial intermediaries and financial markets around the world and thus propose a historical and economic investigation of the reasons behind the emergence of bank-based systems and market-based systems in different countries.

• In Part II we observe the issues that come under the broad heading of principles of banking. Here we observe the key economic reasons used to justify the existence of financial intermediaries (and specifically banks). We then observe the special nature of banking regulation. Finally we summarize the key risks in banking and the main methods used for risk management. Therefore the areas covered include the role of financial intermediation banking regulation and banking risk management.

• In Part III we shift to the issues known as principles of finance. Here we will observe the techniques used by firms to value real investment projects and the models used by investors to value bonds and stocks. We then examine the issues related to the formation of an optimal portfolio by investors and we derive the main equilibrium asset pricing models. Finally we examine the efficiency of the market in pricing securities and thus we propose a theoretical and empirical validation of the efficient market hypothesis. The areas enclosed in this section so include capital budgeting securities valuation mean-standard deviation portfolio theory asset pricing models and informational market efficiency.

24 Principles of banking and finance is an obligatory course for the BSc Banking and Finance. This is a significant subject because it establishes many of the fundamental concepts in banking and finance that will be developed in later subjects in the degree such as 92 Corporate finance 29 Financial intermediation and 143 Valuation and securities analysis.Note that the guide utilizes mainly US references takes a US view and uses US terminology.