THE UNIVERSITY OF HONG KONG FACULTY OF BUSINESS AND ECONOMICS School of Economics and Finance. FINA0102 Financial Markets and Institutions

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1 THE UNIVERSITY OF HONG KONG FACULTY OF BUSINESS AND ECONOMICS School of Economics and Finance BE103/512 FINA0102 Financial Markets and Institutions GENERAL INFORMATION FINA0102A and FINA0102B Instructor: Dr. Kenneth Chu TBA Office: TBA Phone: TBA Lecture: FINA0102A: Monday 2:30pm - 3:20pm in MW T1, Thursday 1:30pm 3:20pm in MW T1 FINA0102B: Monday 2:30pm - 3:20pm in CYP P4, Thursday 1:30pm 3:20pm in CYP P4 Consultation times: By appointments Tutor: Mr. Kwok Hoi Kwan Jacky Pre-requisites: FINA1003 Corporate Finance Co-requisites: Not required Mutually exclusive: Not required Course Website: The HKU Moodle site (through the student s HKUPORTAL login) Other important details: COURSE DESCRIPTION This course examines how financial markets (such as the bonds, stocks and foreign exchange markets) and institutions (such as banks, insurance companies, mutual funds etc) function, and why they exist. It also discusses the roles of central bank and monetary policy in the financial system, and the tools central bank uses to conduct its monetary policy. Specific topics such as how interest rates and exchange rates are determined; bond and stock valuations; risk management and financial regulation are included. Financial news and practical issues facing financial managers and regulators will also be discussed. COURSE OBJECTIVES 1. To provide students with an integrated view of financial markets and institutions 2. To introduce students key financial variables, and basic concepts and theories in finance 3. To prepare students for their next level finance courses COURSE LEARNING OUTCOMES Course Learning Outcomes Aligned Programme Learning Outcomes CLO1. Understand the basic functions and general structures of financial markets and institutions. CLO2. Be able to, based on simple economic models, determine interest rates, exchange rates and security prices. CLO3. Be able to explain why financial intermediaries exist and their roles in modern economy. - PLO1, PLO2 - PLO1, PLO2 - PLO1, PLO2, PLO3

2 CLO4. Develop the skills to prepare detailed research report and presentation on certain finance topics. CLO5. Understand and be able to comment on key financial news and events. COURSE TEACHING AND LEARNING ACTIVITIES Course Teaching and Learning Activities Expected contact hour - PLO1, PLO2, PLO4, PLO5 - PLO2, PLO3 Study Load (% of study) T&L1. Lectures: Instructor gives lectures on major concepts and issues. T&L2. Tutorials: Teaching assistant reviews and discusses homework and midterm. Students are expected to present their answers and engage in discussion during the T&L3. Assignments and project: Assignments and project for students to review and apply the knowledge learnt. T&L4. Consultation: Instructor and teaching assistant hold weekly consultation hours to answer students questions T&L5. Self-Study Total % Assessment Methods Brief Description (Optional) Weight Aligned Course Learning Outcomes A1. Class and tutorial participations 5% A2. Assignments 10% A3. Term project (due in the last teaching week) 10% A4. Midterm (the week after the reading week) 25% A5. Final Examination 50% Total 100% Remarks: Students are required to form study group consisting of 4 to 5 fellow classmates to do assignments and term project. Each student will be graded according to his/her intra-group performance in the end. Assignments: 2 to 4 assignments, which consist of both quantitative and quality questions, are to complete. The purposes are to assist students reviewing the course materials, and give them hands-on problem solving experience. Term project: Each study group has to submit a research report (~20-25 pages) on a course content related subject. The topic selected can be regarding general financial markets, financial institutions, market structure, regulations, corporate governance etc. Alternatively, students can focus on a specific market (e.g., China, or Hong Kong s bond markets) or financial institution (e.g., China banking industry, Hong Kong s hedge fund industry) to do the analysis. Comparison study of China, Hong Kong, US, and other financial systems is also an interesting topic. In the last teaching week of the semester, there will be a presentation by the study groups in tutorial classes; and by the time of the presentation, the research report must has been submitted.

3 Midterm and Final Examinations: One midterm and one final examination are given to test the student s understanding of the material covered in the course. Make-up midterm will NOT be arranged in general, except for an application with convincing reason and evidence, e.g., medical leave, being approved by the instructor ex-ante. Students who missed the midterm without approval will receive zero score; whereas approved students can have their midterm weight transferred to the final examination. STANDARDS FOR ASSESSMENT Course Grade Descriptors A+, A, A- B+, B, B- C+, C, C- D+, D F - Strong evidence of superb ability to fulfill the intended learning outcomes of the course at all levels of learning: describe, apply, evaluate and synthesis. - Strong evidence of ability to fulfill the intended learning outcomes of the course at all levels of learning: describe, apply, evaluate and synthesis. - Evidence of adequate ability to fulfill the intended learning outcomes of the course at low levels of learning; such as describe and apply, but not at high levels of learning such as evaluate and synthesis. - Evidence of basic familiarity with the subject. - Little evidence of basic familiarity with the subject. Assessment Rubrics for Each Assessment (Please provide us the details in a separate file if the space here is not enough) A1. Class and tutorial participations Consistently well Always prepared for Not always prepared Not prepared for Rarely attended prepared for lectures for and Be Be willing Be inactive Be enthusiastic to to answer questions to answer questions apathetic to answer answer questions and participate in and participate in questions and and participate in discussions. discussions. participate in discussions. Attended almost all Attended some discussion. Attended Attended almost all few tutorials A2a. Assignments (applicable to quantitative type questions) badly answered with answered with answered with some answered with few attempted: no steps thorough steps and adequate steps and steps and fair level steps and accuracy. and wrong results. excellent accuracy. good accuracy. of accuracy. Or the assignment is

4 not submitted. A2b. Assignments (applicable to qualitative type questions) fully poorly addressed. All mostly addressed. partially addressed. addressed. Few misinterpreted. Most correct ideas and Nearly all correct Some correct ideas correct ideas and ideas and points are points are developed ideas and points are and points are points are developed wrong. Or the and presented in developed and developed and and presented. assignment is not well organized presented in presented. submitted. manner. organized manner. A3. Term project not well elaborated and mostly elaborated partially elaborated well elaborated and badly elaborated and thoroughly analyzed and analyzed by and analyzed by analyzed by any analyzed. Nearly no by relevant theories relevant theories and some theories and theories and own arguments and and concepts: concepts: Good own concepts: Insufficient concepts: Few own Compelling own arguments and own arguments and arguments and forward. There are arguments and also barely any reviews of and with relevant reviews with some reviews of with few reviews of comparisons to with in-depth reviews of and comparisons and comparisons to and comparisons to related academic of and comparisons to related academic related academic related academic to related academic Information sources There are proper There are proper There are insufficient and others work are There are proper not properly cited. Or the report is not submitted. A4 & A5. Midterm and Final Examination Midterm and final examination contain both qualitative and quantitative type questions (including multiple choice questions). They are graded according to the marks assigned to each question with reference to the assessment criteria in A2. COURSE CONTENT AND TENTATIVE TEACHING SCHEDULE

5 The course consists of four parts: Part I. Introduction (~3 hours/1 week) This part provides a preliminary overview of financial system, and the basic functions of financial markets and institutions. Ch. 1 Why study financial markets and institutions? Ch. 2 Overview of the financial system? Part II. Fundamentals of Financial Markets (~15 hours/5 weeks) This part covers the determinants and behaviors of interest and exchange rates; and discusses the efficiency of financial markets together with the introduction to specific markets, namely, the money, bond, foreign exchange, and derivatives markets. Ch. 3 What do interest rates mean and what is their role in valuation? Ch. 4 Why do interest rates change? Ch. 5 How do risk and term structure affect interest rates? Ch. 11 The money markets Ch. 12 The bond markets Ch. 6 Are financial markets efficient? Ch. 13 The stock market Ch. 15 The foreign exchange market Ch. 24 Hedging with financial derivatives Part III. Central Banking and Monetary Policy, and International Finance System (~6 hours/2 weeks) This part discusses the basic structure of central bank, and how the central bank uses different tools to conduct its monetary policy. It also covers the effects of central bank intervention on the foreign exchange market. Ch. 10 Conduct of monetary policy: Tools, goals, strategy, and tactics Ch. 16 The international financial system Part IV. Fundamentals of financial institutions and banking (~9 hours/3 weeks) This part addresses the question why financial institutions exist, and some of the corporate governance issues in them. Specific topics such as the structure and competition of banking industry and regulations will also be covered. Ch. 7 Why do financial institutions exist? Ch. 8 Why do financial crisis occur and why are they so damaging to the economy? Ch. 17 Banking and the management of financial institutions Ch. 18 Financial regulation Ch. 19 Banking industry: Structure and competition Ch. 23 Risk management in financial institutions REQUIRED/RECOMMENDED READINGS & ONLINE MATERIALS (e.g. journals, textbooks, website addresses etc.) Required Textbook: Financial Markets and Institutions, by Frederic S. Mishkin and Stanley G. Eakins (ME), seventh edition, Pearson Education Class Materials: Lecture notes will be posted, prior to each class, onto the course website for students to download. Supplementary readings may also be distributed during classes and Online Materials: News or articles from, for example, Wall Street Journal ( and Financial Times ( are recommended to read. This can deepen the understanding of the textbook knowledges and their implications to practical financial issues. MEANS/PROCESSES FOR STUDENT FEEDBACK ON COURSE

6 Conducting mid-term survey in additional to SETL around the end of the semester COURSE POLICY (e.g. plagiarism, academic honesty, attendance, etc.) Academic Conduct: The University Regulations on academic dishonesty will be strictly enforced! Please check the University Statement on plagiarism on the web: To quote from the website, Put it simply, plagiarism is copying the work of another person without proper acknowledgement. There are two parts in the definition: copying and the absence of proper acknowledgement Plagiarism covers any other form of work submitted for assessment as part of a University examination. It covers theses, dissertations, take-home examinations, assignments, projects, and other forms of coursework. It applies to both undergraduate and graduate students. Cheating on assignments or examinations is another act of academic dishonesty. If you are caught committing cheating, you will receive an F grade for the subject. Furthermore, the relevant Board of Examiners may impose a penalty in relation to the seriousness of the offence; or report the candidate to the Senate, where there is prima facie evidence of an intention to deceive. Class Decorum: The principle is based on mutual respect in the classroom. Mobile phone and/or alarming device must be switched off or muted. No eating is allowed during class periods. Discussions and questions are encouraged but student should first inform the instructor beforehand, but not chat with others in private. ADDITIONAL COURSE INFORMATION (e.g. e-learning platforms & materials, penalty for late assignments, etc.) Any late submitted homework (assignments and/or project report) will be subjected to a penalty of 20% deduction of that homework s total marks for every day after the submission due date.