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.

Financial Systems

Financial intermediaries

Principles of finance

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.

Unseen written examination (3 hr).

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.

Download the course information sheets from the LSE website.