Money and Banking

Code:

LEC301

Acronym:

MF

Keywords
Classification	Keyword
OFICIAL	Economics

Instance: 2005/2006 - 1S

Active?	Yes
Responsible unit:	Grupo de Economia
Course/CS Responsible:	ECONOMICS

Cycles of Study/Courses

Acronym	No. of Students	Study Plan	Curricular Years	Credits UCN	Credits ECTS	Contact hours	Total Time
ECO	335	Official Curricular Structure since 2004	3	3		-

Objectives

The syllabus is composed of three parts, which are divided in chapters. The first two parts deal with economic theory and policy and the aims of both are: (1) to understand the different payment systems; (2) to know and quantify the monetary aggregates; (3) to understand the money creation process and the role played by the intervening economic agents, especially the Central Bank; (4) to study the instruments and conduct of monetary policy, noting the respective virtues and insufficiencies; (5) to review the theoretical perspectives of monetary policy, in particular in what concerns the impact of money on interest rates and prices.
The third and last part focuses specifically on the study of financial markets and financial instruments, in a corporate context. The student will be exposed to subjects like the structure and functions of financial markets, financial instruments, risk assessment and diversification, especially with the constitution of portfolios; determination and negotiation of forward interest rates; duration; some models of capital market equilibrium; models of equity and bond pricing.

Program

Part I

Chapter 1 – Money

1.1. Barter economies and monetary economies
1.2. Money and historical review of payment systems
1.3. Functions of money
1.4. Desirable properties of money
1.5. Measuring the quantity of money: the monetary aggregates

Chapter 2 – Money Supply

2.1. The institutional structure of the Portuguese financial system
2.2. The consolidated monetary balance sheet of the central banks of the Euro zone
2.3. The consolidated monetary balance sheet of the other monetary institutions in the Euro zone
2.4. The consolidated monetary balance sheet of the monetary financial institutions in the Euro zone
2.5. The central banks and the monetary base
2.6. Bank reserves and banking institutions
2.7. Money supply and the money multiplier
2.8. Determinants of the behaviour of the money multiplier

Chapter 3 – The Conduct of Monetary Policy

3.1. Monetary policy as an interactive system of decision taking
3.2. Classification of objectives: operational, intermediate and final
3.3. Instruments of monetary policy: general and selective
3.4. General instruments of monetary policy: the open market, the discount window and the minimum reserve requirements.
3.5. Contingencies and problems on monetary policy implementation

Part II

Chapter 4 – Theories on the Determination of Interest Rates and Prices
4.1. The Quantitative Theory of Money and its implications
4.2. The keynesian perspective
4.3. The monetarist perspective
4.4. The financing of the public deficit and inflation

Part III

Chapter 5 – Financial Markets

5.1. Segmentation and functioning of financial markets
5.2. Classification of financial markets
5.3. Instruments in the money and capital markets
5.4. The process of issuing securities
5.5. Short-selling operations
5.6. Margin accounts operations

Chapter 6 – Evaluation of Risk and Return from Financial Assets

6.1. Determinants of the demand for financial assets: risk, liquidity and return.
6.2. Risk classification
6.3. The Market Model and the quantification of risk
6.4. The constitution of portfolios
6.5. Modern Portfolio Theory
6.6. Evaluation of portfolios

Chapter 7 – Equilibrium Asset Pricing Models

7.1 The CAPM
7.2. The APT

Chapter 8 – Interest Rates

8.1. Spot and forward interest rates
8.2. Determination of forward interest rates
8.3. Implicit lending and borrowing forward interest rates
8.4. Coupon rate and coupon
8.5. Yield to maturity
8.6. Discount yield and the pricing of zero coupon bonds
8.7. Bond equivalent yield
8.8. Yield to maturity and the Coupon Effect
8.9. Some theorems on the behaviour of bond prices
8.10. Reading and interpretation of periodic financial information

Chapter 9 – The Term Structure of Interest Rates

9.1. Pure Expectations Theory
9.2. Market Segmentation Theory
9.3. Liquidity Preference Theory
9.4. Preferred Habitat Theory
9.5. The slope of the term structure

Chapter 10 – Duration

10.1. Concept and computation
10.2. Applications: measure of interest rate risk, immunization

Chapter 11 – Models of Equity and Bond Pricing

11.1. Fundamentals
11.2. The classical model with constant growth rate
11.3. The three stage model
11.4. The H-model

Main Bibliography

Elton, E. e Martin Gruber, Modern Portfolio Theory and Investment Analysis, John Wiley & Sons, 5th ed., 1995
Fuller, R. e James Farrel, Modern Investments and Security Analysis, Mc Graw-Hill International Student Editions, 2nd ed., 1988
Lucket, Dudley, Money and Banking, Mc Graw-Hill International Student Editions, 3rd ed., 1986
Mishkin, F., The Economics of Money, Banking and Financial Markets, Harper Collins College Publishers, 3rd ed., 1992

Complementary Bibliography

www.bportugal.pt
www.ecb.int

Evaluation Type