At the heart of all modern economies lies a sophisticated network of financial intermediaries whose primary function is the collection of savings from households and their subsequent allocation to organizations that need this financing. We now have a better understanding of financial intermediation stemming from two new developments over the last 30 years. First, innovative financial contracts, well-forged financial institutions and the genesis of new financial markets have come to dominate most economies today. Second, increasingly sophisticated devices such as provided by option pricing models, information-theoretic tools and strategic interaction models have facilitated the introduction of a scientific approach to studying the issues raised by these new developments.
About these financial intermediaries we ask (1) who are they? (2) what do they do? (3) why do they exist? There are two main types of financial intermediaries: depository and non-depository intermediaries. Financial intermediaries provide two main services: brokerage services and qualitative asset transformation services and justify their existence from being able to supply such services more efficiently than financial markets. We then ask what instruments and markets are utilized in the qualitative asset transformation process. The five main financial markets and instrument classes are: equities, bonds, currencies, derivatives and commodities. Naturally, financial crisis, fraud and controversy are among the issues associated with the increasing regulation of global financial markets today and the banking sector and financial markets are among the most regulated parts of every economy. We examine some of the issues.
The aim of this course is two-fold. First, to familiarize you with the functions of the main financial markets. Second, to ensure you have an understanding of how the main financial intermediaries perform their roles and of the types of instruments employed by these financial intermediaries in the financial markets.
On successful completion of the module, students will be able to:
1) Distinguish between retail and investment banking.
2) Distinguish between pension funds, private equity and hedge funds.
3) Understand the role of insurance firms, pension funds, leasing and factoring firms.
4) Recognise the importance and functions of money and capital markets.
5) Identify and explain the main financial instruments traded on financial markets.
6) Appraise the current issues affecting the global financial marketplace.
- Module Supervisor: Senyu Wang