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Title: Investments and Money Markets  Semester: Spring (2nd)
Tutor: Stephanos Papadamou, Associate Professor


Course Outline:

The course focuses on special themes on Investments, Financial Institutions and Markets. It investigates the interrelationship between monetary policy, commercial bank behaviour and capital markets functions. Main investment criteria and asset pricing theory are presented. Asset and liability management by banks is one of the most important subjects in banking. Main bank risks are measured and derivative products are used for covering these risks. Central banks coexist with markets and monetary transmission mechanisms are investigated. The following subjects will be covered by the course:

  • Basic Principles in Investment Appraisal

Time value of Money, Cash flows, Investment Criteria, Leasing versus Loans

  • Money Markets and Foreign Exchange Market

Repos, Treasury Bills, Deposits, interest rate parity and purchasing power parity.

  • Main Principles of Modern Portfolio Management

Risk Return and Portfolio Theory of Markowitz.

  • Capital Markets and Asset Pricing

Stock and bond valuation models will be analysed. Efficient market hypothesis will be described with main portfolio concepts. Technical analysis rules will be shown. Mutual Funds performance.

  • Financial Intermediation and Trends in International Banking

The main forces in banking industry are analysed (financial innovation, deregulation and globalisation). The theory of financial intermediation is developed.

  • Banking Structures, Bank Performance

Accounting measures of bank performance are presented and discussed

  • Principles of Bank Management

Asset and liability strategies are presented while capital requirement are analysed for banks.

  • Bank Risks & Risk Management

In this lecture main risks face banks are presented. Particular attention is given on Interest rate and Foreign exchange risk. Gap analysis is applied on interest rate risk measures, while futures, forwards and options are used for covering risks. Value at Risk measure

  • Central Bank, Monetary Policy and Markets

Conventional and Unconventional monetary policy, tools and goals will be presented. Main channels of the monetary transmission mechanism to real economy will be explained.

Learning objectives:

The course aims to deepen theory on banking capital markets and their interaction with central bank in order to enable a fuller understanding of how operating commercial banks, capital markets and the central bank in modern economies.

On completion of this module, students are expected to be able to:

  • Understand main investment criteria
  • Understand money market and foreign exchange markets
  • Understand portfolio management concepts
  • Understand financial intermediation the key risks faced by banks and how to manage them with the use of derivative financial products.
  • Understand the role of central banks in modern economies.
  • Understand the transmission mechanisms of monetary policy on the real economy.
  • Formulate original ideas and expressing them in the form of research.
  • Apply with the help of the PC the derivatives in practice by managing problems faced by banks today.

Suggested for further reading:

  1. Matthews, K and Thompson (2005) The Economics of Banking, John Wiley and Sons, First Edition. (MT)
  2. Jagdish Handa, (2000) Monetary Economics, Routledge: London (JH)
  3. Mishkin F. S (2004) The Economics of Money, Banking and Financial Markets, (7th international edition), Addison-Wesley. (ΜISHK)
  4. Casu, B., Girardone, C., Molyneux, P. (2006) Introduction to Banking, FT Prentice Hall (CGM)
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