Course outline

Financial Institutions and Markets.

FINN 341A (4 Credit Hours)
Program & Course Agenda
Days & Time
Semester
Instructor
Office
E mail

Tuesday & Thursday 20:00-21:50

Acad A3
Class Room
Fall-11
Starts September 2011---Ends December, 2011
Mohammad Basharullah
ACF WING Room 253 Telephones
O42-35608080 & O300-401-3446
bashar@lums.edu.pk
basharullah_2000@yahoo.com
Alternate

Consulting hours

Monday to Thursday

Teaching
Assistants
Required Text

TBA

Recommended
Additional
Readings, Books
and Other
Material

Financial Markets and Institutions.

By Anthony Saunders & Marcia Millon Cornett 4th edition.
Financial Institutions Management Risk Management Approach By
Anthony Saunders and Marcia Millon Cornett 6th edition.
Money and Capital Market by Peter S. Rose Fifth Edition,

The economics of Money, Banking and Financial Markets. Business school

edition.(2nd Edition )by Fredric S. Mishkin)
Financial Markets and Institutions, and Money
by Fredric S. Mishkin 5th Edition
Principles Of Money, Banking & Financial Markets By Lawrence S. Ritter,
William L. Sliber and Gregory F. Udell, 10th or later Ed
Foundations of financial markets and institutions (3 ed ) by FABOZZI
Frank, MODIGLIANI Franco, JONES Frank, FERRI Michael Fabbozi
Financial Institutions and Markets , 7th Edition by Jeff Madura
State Bank of Pakistans Publications
Dawn, Business Section Economic and Business Review); Business
Recorder; Pakistan Economist etc.
WSJ, FT or any other local & International newspaper or Journals; Various
publications of State Bank Of Pakistan
Shall be made available through photocopier

Principles of Finance; Micro & Macro Economics

Primarily Lecture method based on assigned readings.

Class discussions and presentations on assigned topics, various course
relevant reports, articles and news on current developments affecting
Financial Markets and Institutions
Services of outside specialist speakers shall be arranged as well.

Financial Press

Course Pack
Material
Pre requisites of
the Course
Methodology

14:00-16:00 OR
Any other time and day: by appointments
Contact shall be communicated

Course Outline FINN 341A. Financial Markets &.Institutions

Course objectives, expected outcome & course policy

The course is designed to equip students with knowledge of a financial system, its regulatory
framework and environments in Pakistan, and as it exists in other economies.
There has been a newfound interest in study of Financial System, after the recent sub prime crises,
which almost led to a near collapse of the market oriented Capitalistic System. The very viability of
the system was put in a serious doubt. Financial markets saw an unprecedented turmoil. The
efficient market hypothesis is almost rejected.
The quest for alternate systems or paradigms has generated interest in Islamic System in particular,
especially in Islamic world. The financial burden the recent financial crises have heaped on the
public exchequer, threatens to put a serious drain on t the pockets of a common man, which has
caused a serious concern worldwide. The course shall examine the components of financial systems
and shall provide an ample opportunity to its participants to conceptually understand and critically
examine it.
Along the search of an alternate system, a hectic search for a truly supportive regulatory structure is
on. All regulatory authorities are trying to plug the regulatory gaps without causing an excessive
regulatory burden in their respective domain. In order to check any regulatory arbitrage, the quest
for a reliable global regulatory architecture is fervently invigorated by world regulatory bodies.
The very concept of risk as was being described and valued is being put under the respective
regulatory watchdogs microscope. The deregulation wave and lax auditing practices are being
looked into. The compliance climate is being strictly monitored. Out of the debris of the current
financial crises, a new Financial System is likely to shape up.
All the recent developments have made the understanding of the nuts and bolts of the financial
system, all the more imperative. The students are required to develop a critical thinking about the
working of the financial markets and, institutions. Students will examine some of the instruments,
which have lead to the current problem.
On completion of the course the students shall be able to demonstrate an understanding of the
subject matter and financial environments, not only in Pakistan but in the outside developed
financial world.
The course policy envisages positive learning environments in the class. A productive participation
conditional on attendance shall be rewarded judicially. Tardiness and casual attitude shall be
strongly discouraged. Zero Tolerance for plagiarism and other unfair means of securing credits, is
firmly in place
.

Page No:2

Course Outline FINN 341A. Financial Markets &.Institutions

Course Evaluation and Rewards

Quizzes 25 %
There shall be total of 5 quizzes from the assigned and the last reading, Best 4 will be
counted.
No Makeup quizzes shall be allowed whatsoever. repeat whatsoever
Attendance and Class Participation
15 %
Each absence in sessions 5 to 25 shall loose marks for each day of absence. Failing to
actively participate intelligently shall cost 5 marks. (To get full 15 marks a student should
at least attend 20 (From 5-25) sessions and participate in at least 5).
An overall absence of 15 minutes or more, in a session shall be deemed as an absence for
the full session.
The course is intended to be highly interactive. All the students are expected to participate
in the class discussions. In order to ensure a positive learning climate, only intelligent and
contributory observation and discussions shall be rewarded. Missing final presentation
sessions shall cost 5 marks from marks earned till 23 sessions.
Article Presentation 10%
An article presentation by smaller groups on any current subject matter related articles.
These articles to be selected from current press, i.e. magazine, newspaper or internet. It
may be on topics of domestic or international relevance. The article would be approved by
the instructor from a choice of at least three. The group shall be required to critically
examine the authors point of view and present their own.
A Report & Presentation 20 %
(A group project) Group size of 4-5 persons, depending on class size)
A report on comprehensive and critical analysis of a selected institution or a topic shall be
prepared and presented by each group. The groups shall be finalized in the 5th session. The
outline of the report shall be presented by 12th session for approval. The report must be
submitted by 20th session. The report shall not exceed 15 pages 1 space 12 Times New
Roman excluding title index and bibliography etc. late submission will be penalized.

Each group shall select a Financial Institution or a topic of interest for the detailed analysis. Group members
shall be asked to remain abreast with the developments taking place in the marketplace, through financial
press. The impact of current developments taking place, which are pertinent to their selection of study, shall
be monitored and compiled by the group. The group is expected to apprise the class with their observations
through class participation

Final Comprehensive Examination 30%

The examination could be mix of MCQ short exercise and short explanations. Students may
also expect a question or two from the assigned report or a case or a situation analysis.

Page No:3

Course Outline FINN 341A. Financial Markets &.Institutions

Outline and Daily Agenda

Introduction to the course requirements
Why Study Financial Markets and Institution;
An over view of the Economic System. Role of Savings and Investments.

Day 2. An Overview of Financial System;

Chapter 1, 2 , 3,& 4 ,

Part 1
Introduction and Overview of
Financial Markets

Day 1. Introduction

Overview of Comparative Financial Systems;

An Overview of Islamic Financial System, Environments and Regulatory Framework

Day 3.Financial Markets and Institutions

Globalization of Financial Institutions and markets.
Recent developments in the world financial markets.
An overview of Financial Institutions in Pakistan

Day 4. Determination of Interest Rates;

Interest rate fundamentals; Loan able funds theories; Movement of interest rates over time;
Determinants of interest rates; Term structure of interest rates; Forecasting interest rates.
Impact of interest rates
A short discussion on TVM and security valuation issues

Day 5. Money Markets & Capital Markets

(Fixed Income Securities)
An overview of Money and Capital Market and Instruments;
Brief Explanation of some of the Money Market Instruments.

Day 6. Bond Markets

Chapters 5,6,7,8,9 &10

Part 2
Securities Markets

International Bond Market;

Bond Valuation and simple Illustration of Duration.
Money Market and Bond market in Pakistan

Day7. Mortgage Markets

A brief introduction to the mortgage backed Securities; Asset backed securities.
A brief review of sub prime credit crunch.

Day 8.Capital Markets (Stock Markets)

Stock Markets around the world.
An Overview of the stock markets around the world and in Pakistan. Some issues
pertaining to Stock Market in Pakistan. Role CDC and NCCLP and Issues such as
Margin Financing.

Day 9.Other Financial Markets: FOREX Market

Other Markets (Foreign Exchange Markets, Commodity Markets & Derivative Securities
Markets).

An Overview of Forex market and Interest rates,. International quotations

conventions; Foreign exchange rates and transactions.
Day 10.Other Financial Markets: Derivative Securities Markets
An overview of Derivative Securities Markets. Spot, Forwards, Futures, FRAs and Swaps.
Options; Calls, Puts, Caps; Floors and Collars etc.
Exotics and Some new arrivals on derivative markets

Page No:4

Course Outline FINN 341A. Financial Markets &.Institutions

Outline and Daily Agenda

Day 11.Commercial Banks
Definition of a Commercial Bank; Balance sheet and recent trends; Commercial Banking
as a sector of Financial service Industry; Structure and composition of Industry;

Part 3:
Commercial banks
Chapter 11,12 and 13 .

Day 12.Commercial Banks. (Continues)

Technology in commercial Banking; Regulations; Global issues.
Commercial Banking in Pakistan.
Islamic Banking initiatives in Pakistan: Micro finance Banking.

Day 13. Commercial Banks and Financial Statement Analysis.

Depository Institutions' Financial Statement Analysis, Financial statements of a
commercial bank; Return on Equity and its components. SBP suggested ROE
decomposition.. What is CAMEL.

Day14. Regulation of Commercial Banks

Regulatory environments of commercial banks in USA and in Pakistan; Pakistan banking
council and scope of Pakistan banking association. Some Important Regulations. Global
Regulatory issues
Role of a Central Bank; Money supply & interest rates; monetary policy tools; other issues
related to monetary policy; Central Banking and its regulatory role in Pakistan; Prudential
regulations.

Day 15: Regulation of. Non Bank Financial Institutions;

Role of SECP in regulating non bank FIs; Experience of Development Financial
Institutions, Role of DFI,s in Pakistan. Study of Modarabas, other Islamic Modes of
Financing in Pakistan,, Leasing Association of Pakistan; Investment Bankers Association
of Pakistan and Mutual Funds association of Pakistan.

Part 4
Other Financial Institutions
Chapter 14,15, 16, 17& 18

Day 16: Other Lending Institutions

Thrifts, Saving Institutions, Credit Unions Finance Companies; Cooperative Credit
societies.. in Pakistan , Postal Saving banks and National Directorate of Savings

Day 17: Insurance Companies

The categories of insurance companies. Life Insurance companies, Balance sheet trends.
Property and causality insurance. Global Issues. Insurance in Pakistan Takaful the Islamic
Insurance.

Day 18: Security Firms and Investments Banks.

Services Offered by Securities Firm and Investment Banks. Main Activities, Investment banking,
Trading, Investing M& A, Private Equity, Venture Capital and other services.
Day 19: Mutual Funds and Hedge Funds.
An overview of Mutual funds.. Closed End Funds and Open End Mutual Funds Different Types of
Mutual Funds, ETFs and Ultras, Mutual Funds return and Costs. Mutual Funds balance sheet and
recent trends. Some Global and regulatory issues.
Day 20: Hedge Funds and Pension Funds
Types of hedge Funds, Offshore hedge funds. Regulatory challenges for hedge funds.
Pension Funds .defined benefits vs. Defined contribution pension funds
Private and public Pension Funds. A brief overview of pension Funds in Pakistan.

Page No:5

Course Outline FINN 341A. Financial Markets &.Institutions

Outline and Daily Agenda

Day21. Types of Risks Incurred by Financial Institutions
Why Financial Institutions need to manage a risk; A brief discussion on different types
of risks.

Day22. -Managing Credit Risk on the Balance Sheet.

Day 23, Managing Liquidity Risk on the Balance Sheet:

Chapter19,20,21,22,23 &24

Chapter overview; Liquidity risk analysis of depository Institutions; Asset side risk
management and Liability side risk management. Liquidity drains and run on the
banks problems. Role of LOLR and deposit insurance. Liquidity risk of PropertyCausality Insurance companies. Mutual Fund liquidity risk.

Day24. Managing Interest Rate Risk and Insolvency Risk on the Balance
Sheet.
Interest rate and Insolvency risk measurement and management; Repricing and
duration models. Insolvency risk Managements, Capital adequacy issues and
Insolvency risk.

Day 25. Managing Risk Off the Balance Sheet with Derivative Securities.
Risk Managements with Forward and Futures contracts; Hedging with forward and future
contracts. Option feature and its use as a risk management tools; Risk management with
swaps; Interest rate swaps, currency swaps and credit swaps. Interest rate Risk Management
with Caps , Floors and Collars.

Day 26. Managing Risk Off the Balance Sheet with Loan Sales and
Securitization

A major cause of recent crisis in western financial system. To be discussed in class. Its
impact on rethinking on Risk parameter, dynamics and overall Risk Landscape
Managing Risk through Loan sales and Securitization. Moral Hazard issue in Loan
sales and Securitization. Securitization in Pakistan
Securitization of other assets; Role of securitization in crises.

Presentations
Presentations

Part 5

Risk Management in Financial Institutions

Chapter overview; Credit analysis; Real Estate Lending. Lending to Small and
Medium size business. Calculating Return on Loans ROA and RORAC Models.
Loan portfolio risk and Management.

Day 27,

Presentation Group 4, 5 & 6

Day 28

Presentation Group 7, 8 & 9

FINAL EXAMINATION

Page No:6

Course Outline FINN 341A. Financial Markets &.Institutions

Some Of the Suggested Topics

Trends in Lending
policies in Banking
Industry
Trend in -use of modern
technology in Pakistan
Swift and other payment
systems

Impact of oil prices on

banking industry
Ability of Pakistan
Banking to absorb the
possible exogenous shocks

Risk Management
Process, and Risk
Management in
Pakistan
Derivative Markets
in Pakistan

Islamic Banking in
Pakistan Islamic
Insurance( Takuful)
(Islamic Bonds,
Sakuks

Insurance industry
in Pakistan
Mutual Funds
Industry in Pakistan

Role SBP and SECP in

Regulatory agencies in
Pakistan
Financial Service
Authority in UK and its
effectiveness.
Basel Accords I & 2
Compliance in Pakistan
Frank Dodds Bill and
other current Issues

Regulatory challenges
being faced and efforts to
find a global regulatory
Architecture

IMF conditional ties

and its impact on
Financial
institutions in
Pakistan

Rating in Pakistan
(PACRA & JCRVIS)
International rating
of Pakistani
Banking Sector

PIIGS debt crises

and its fallout on
Financial Markets

Shape of Emerging
Financial System
Fixed Income Securities
Market in Pakistan
Yield curve of Pakistan
debt market.

Foreign Exchange Market

in Pakistan
FDI , Flight of capital and
Money Laundering
And Hawala System
Its impact on economy of
Pakistan

Micro credit in
Pakistan,
Successes and
Failures. Indian
experience.
Postal Saving and
insurance in Japan
and in Pakistan

Presentation on
Securitization
In Pakistan
Global impact of
Sub Prime lending
and its impact on
Pakistan

Foreign Exchange
Crises. Fall of
Dollar and the Euro

Trends in commercial
Banking; Consolidation
and mergers in Banking
Sectors in Pakistan
Privatization of Banking
sector
Syndication in Pakistan
The State and scope of
Consumer Financing in
Pakistan

Efficiencies and
Inefficiencies in capital
Markets of Pakistan.
Forensic Report on Stock
Market /
CFS, Badla and Margin
Financing
Central Depository
Scope of a other Custodian
Banking
Insiders trading Rules and
controlling it

Specialized Financial Institution Role and

Scope of SMEADA
SME Banking
Associations of non Banking Financial
sector
Housing Finance by HBFC and
Commercial Banks in Pakistan, Scope of
REITS Pension Funds and Employees
Welfare Funds in Pakistan

Page No:7

Any other topics

proposed by a
students and
approved by the
instructor

Course Outline FINN 341A. Financial Markets &.Institutions

On the side Agenda

(Article Presentations)
Invitation to form groups. Some of the topics to be assigned. A brief study of Stock Market in Pakistan;
Inefficiencies in Stock Market
Bonds Market in Pakistan;
TFCs &Islamic Bonds (Sakuks
Foreign Exchange and Scope of Derivative Markets in Pakistan
Islamic Banking in Pakistan
Saving Institutions
Cooperative banking experience in Pakistan
Analytical framework of
Statement Analysis of financial sectors in Pakistan
SMEDA and Microfinance.
Grameen Bank Of Bangladesh &. Kashaf Bank. of Pakistan
Derivative Markets in Pakistan
Presentation on Securitization In Pakistan
Recent Developments and Role of Investment Banking in Pakistan.
Pension Funds and Employees Welfare Fund
SECP regulation on Insurance
Islamic Insurance (Takuful)
Risk Management in Pakistan
Leasing Scenario in Pakistan.
Presentation on Modarabas;
Islamic Modes of Financing
Regulatory Framework
Need and scope of FSA of UK authority in Pakistan.
Presentation on Diminishing Musharika.

Page No:8