Lahore University of Management Sciences

FINN 341A - Financial Institutions and Markets

Fall Semester 2015
Instructor Muhammad Basharullah
Room No. 315 SDSB Building
Office Hours Monday to Thursday Hours TBA
Email bashar@lums.edu.pk
Telephone 042 3 560 8080 Ext: 8080 and 03004013446
Secretary/TA TBA
TA Office Hours TBA
Course URL (if any) Suraj.lums.edu.pk

COURSE BASICS
Credit Hours 3
Lecture(s) Nbr of Lec(s) Per Week Twice-weekly Duration 90 Minutes
Recitation/Lab (per week) Nbr of Lec(s) Per Week Once/every 2 weeks Duration 90 Minutes
Tutorial (per week) Nbr of Lec(s) Per Week Once/every 2 weeks Duration 90 Minutes

COURSE DISTRIBUTION
Core
Elective Yes
Open for Student Category All priority to seniors and juniors. Select sophomore may also apply.
Close for Student Category Freshman

COURSE DESCRIPTION
The course is designed to equip students with knowledge of a financial system, its regulatory framework and environments in
Pakistan, and as in other global economies. The course envisages a detailed discussion on Financial Markets. The money markets,
capital markets of Pakistan. The International Stock markets and global bond markets shall be discussed and compared with
markets in Pakistan. The course will also cover Foreign Exchange, Derivatives and commodities markets internationally and in
Pakistan.

The course shall cover the Institutional framework within Pakistan. Various banking and non banking institutions shall be discussed.
A comparative analysis of their functions, roles and impact on economic system shall be critically examined. Besides revisiting the
existing market oriented financial system and its fault lines, the alternate financial systems or paradigms shall be explored and
covered in the course. The course is intended also to identify the regulatory compliance initiatives to ethical and prudential issues.

COURSE CONDUCT:
 Primarily Lecture method based on assigned readings.
 Class discussions and presentations on assigned topics, various course relevant reports, articles and news on current
developments affecting Financial Markets and Institutions
 Services of outside specialist speakers shall be arranged as well.
 Course pack shall be made available through photocopier
COURSE PREREQUISITE(S)/CONDUCT
FINN 100 Principles of Finance
MECO 111 Principles of Microeconomics
MECO 121 Principles of Macroeconomics

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COURSE LEARNING OUTCOME (CLO)
On completion of the course the students shall be able to
1. Understand the various function, activities, issues and roles of different financial markets and examine its
nuts and bolts and the fault lines.
2. Understand the nature of different financial instruments, the rationale for structure, profile and the cash
flow implications for sound financial decisions.
3. Know the regulatory framework within Pakistan; understand the challenges posed by Global Regulatory
Architecture shaping up, and its implications for the global financial environments.
4. Critically evaluate the strength and weaknesses of some of the regulations.
5. Identify ethical issues and how they are addressed to improve the overall conduct of financial institutions
and markets
6. Demonstrate effective writing and oral communication skills. Students shall working a group environment
and shall write and present the report according to the standard report writing and presenting methods.
able to apply effective, written and verbal communication skills
7. Manage their group dynamics and team work.
8. Interpret the financial press releases and various financial situation analyses.
9. Engage in financial discourse on financial institutions and markets. They shall be able to critically examine
the salient features of financial systems and its institutional framework.
10. .Show a holistic understanding of systemic challenges and risks in the global financial environments.

UNDERGRADUATE PROGRAM LEARNING GOALS & OBJECTIVES

General Learning Goals & Objectives
Goal 1 –Effective Written and Oral Communication
Objective: Students will demonstrate effective writing and oral communication skills. Students shall working a
group environment and shall write and present the report according to the standard report writing and presenting
methods. The students shall besides group dynamics, learn effective, written and verbal communication.
Goal 2 –Ethical Understanding and Reasoning
Objective: Students will demonstrate that they are able to identify and address ethical issues in an organizational
context.
Goal 3 – Analytical Thinking and Problem Solving Skills
Objective: Students will demonstrate that they are able to identify key problems and generate viable solutions.
Goal 4 – Application of Information Technology
Objective: Students will demonstrate that they are able to use current technologies in business and management
context.
Goal 5 – Teamwork in Diverse and Multicultural Environments
Objective: Students will demonstrate that they are able to work effectively in diverse environments.
Goal 6 – Understanding Organizational Ecosystems
Objective: Students will demonstrate that they have an understanding of Economic, Political, Regulatory, Legal,
Technological, and Social environment of organizations.
Major Specific Learning Goals & Objectives
Goal 7 (a) – Discipline Specific Knowledge and Understanding
Objective: Students will demonstrate knowledge of key business disciplines and how they interact including
application to real world situations (Including subject knowledge).
Goal 7 (b) – Understanding the “science” behind the decision-making process (for MGS Majors)
Objective: Students will demonstrate ability to analyze a business problem, design and apply appropriate
decision-support tools, interpret results and make meaningful recommendations to support the decision-maker

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Indicate below how the course learning objectives specifically relate to any program learning goals and objectives.

PROGRAM LEARNING GOALS AND OBJECTIVES COURSE LEARNING COURSE ASSESSMENT ITEM
OBJECTIVES
Goal 1 –Effective Written and Oral Communication CLO # 6 Final Project Report, Article Presentation
and Class Participation.
Goal 2 –Ethical Understanding and Reasoning CLO # 3,4,5 Class Participations, Quizzes and Final
Examination.
Goal 3 – Analytical Thinking and Problem Solving Skills CLO # 1,2,3,4,5,6 Final Project Report , Article
Presentations and class participation
Goal 4 – Application of Information Technology CLO # 6,7 Final Project Report and Article
Presentation
Goal 5 – Teamwork in Diverse and Multicultural CLO # 6,7 Final Project Report and Article
Environments Presentation
Goal 6 – Understanding Organizational Ecosystems CLO # 1,2,3,4,5,,8,9,10 Final Exam, Quizzes and Class
Participation
Goal 7 (a) – Program Specific Knowledge and CLO # 5,6,7,8,9,10 Final Examinations, Quizzes, Final Project
Understanding Report and Article Presentations,
Goal 7 (b) – Understanding the “science” behind the N/A N/A
decision-making process

GRADING BREAKUP AND POLICY

POLICY REGARDING EXAMINAIONS QUIZZES AND OTHER GRADING INSTRUMENTS.

There is a zero tolerance policy (ZTP) for any undesirable behavior or undeserving attempt to improve grades during the quizzes
and examinations. Such action can result in cancellation of examination paper. It may also result in disciplinary actions by
Disciplinary Committee.
Students are strongly advised to please carefully weigh in their action’s costs and benefits. All students are also advised to show an
ethical and moral deportment and behavior at all times.

Attendance and Class Participation 15 %

 Each absence in sessions from (From 5th-25th) shall loose 1 marks for each day of absence. Failing to actively participate
intelligently shall cost 5 marks. (To get full 15 marks, a student shall attend all (From 5th-25th) sessions and participate in at
least 5).
 Missing final presentation sessions shall cost 2 marks per session, from marks earned till 25th sessions.
 An overall absence of 10 minutes or more, in a session shall be deemed as an absence for the full session.

Policy regarding class participation

 The course is intended to be highly interactive. All the students are expected to participate in the class discussions. In
order to ensure a positive learning climate, only intelligent and contributory observation and discussions shall be rewarded
 All ethical norms shall be observed in the class and examinations.
 Any attempt to disturb a classmate, engage in talking or whispering during the class or to vitiate the overall class
atmosphere may result in negative marks in class participation.
 Turn off your cell phones or put them on Silent mode.
 Use of smartphone, internet, on line chatting or use of technology related gadgetry of any kind is not allowed to be used
for any other purpose except to seek current financial information with the permission of the instructor.

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Quizzes 15 %
 There shall be total of 4 quizzes from the assigned and the last reading, Best 3 will be counted.
 No Makeup quizzes shall be allowed whatsoever. repeat whatsoever

Group Projects ( Reports & Presentation) 30 %

Group projects ( Group size of 4-5 persons, depending on class size)

 Each group shall select a Financial Institution and Markets or a topic of interest for the detailed analysis.
 Group members shall be asked to remain abreast with the developments taking place in the marketplace, through financial
press. The impact of current developments taking place, which are pertinent to their selection of study, shall be monitored and
compiled by the group.
 The group is expected to apprise the class with their observations through class participation.

Project 1 ( 15 Marks)

 A report on comprehensive and critical analysis of a selected Financial Market or a related topic shall be prepared and
presented by each group. The groups shall be finalized in the 5th session. The outline of the report shall be presented by
8th session for approval. The report must be submitted by 10th session. The report shall not exceed 10 pages 1½ space 12
Times New Roman excluding title index and bibliography etc. late submission shall be penalized.

Project 2 ( 15 Marks)

 A report on comprehensive and critical analysis of a selected Financial Institution or a topic shall be prepared and
presented by each group. The groups shall be finalized in the 12th session. The outline of the report shall be presented by
20th session for approval. The report must be submitted by 26th session. The report shall not exceed 10 pages 1½ space
12 Times New Roman excluding title index and bibliography etc. late submission will be penalized.

Final Comprehensive Examination 40%

The examination could be mix of MCQ short exercise and short explanations. Students may also expect a question or two from the
assigned report or a case or a situation analysis.
There is a zero tolerance for any undesirable behavior to undeserving attempt to improve your grades during the quizzes and
examinations

EXAMINATION DETAIL

Midterm Exam NO

Yes: Combined
Final Exam Duration: 120 minutes
Exam Specifications: only calculator is allowed, closed book, closed notes

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COURSE OVERVIEW
PART 1
INTRODUCTION AND OVERVIEW OF FINANCIAL MARKETS
CHAPTER 1, 2, 3, & 4
WEEK/
RECOMMENDED OBJECTIVES/
LECTURE/ TOPICS
READINGS APPLICATION
MODULE
Introduction to the course requirements
To Introduce and acquaint the
Introduction Why Study Financial Markets and Institution;
Day 1 subject matter to be covered in
An over view of the Economic System. Role of
the course.
Savings and Investments.
An Overview of Financial Overview of Comparative Financial Systems; To Introduce and acquaint the
Day 2 System An Overview of Islamic Financial System, subject matter to be covered in
Environments and Regulatory Framework the course. ( continues )
Globalization of Financial Institutions and
Financial Markets and markets.
An introduction of different types
Day 3 Institutions Recent developments in the world financial
of Institutions
markets.
An overview of Financial Institutions in Pakistan
Determination of Interest Interest rate fundamentals; Loan able funds To revisit TVM, with emphasis of
Rates theories; Movement of interest rates over time; relating cash flow patterns with
Determinants of interest rates; Term structure of various financial products.
Day 4 interest rates; Forecasting interest rates. Impact
of interest rates A short discussion on TVM and
security valuation issues.
PART 2
SECURITIES MARKETS
CHAPTERS 5, 6,7,8,9 &10
Money & Capital Markets An overview of Money and Capital Market and To be able to understand the
Fixed Income Securities Instruments; dynamics of Money and capital
Day 5 Brief Explanation of some of the Money Market markets
Instruments.
International Bond Market;
Some issues related to bond
Capital Markets Bond Valuation and simple Illustration of
markets and its recent
Bond Markets Concept of Duration and its use in financial
Day 6 developments
markets and institutions
Money Market and Bond market in Pakistan

QUIZ 1
A brief introduction to the mortgage backed
To have a basic understanding of
Mortgage Markets Securities; Asset backed securities.
Day 7 Real estate financing,
A brief review of subprime credit crunch.

Stock Markets around the world.

To understand the dynamics of
Capital Markets An Overview of the stock markets around the
Stock markets and essentials of
(Stock Markets) world and in Pakistan. Some issues pertaining to
stock exchanges
Day 8 Stock Market in Pakistan. Role CDC and NCCLP
and Issues such as Margin Financing.

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WEEK/ RECOMMENDED
OBJECTIVES/
LECTURE/ TOPICS READINGS
APPLICATION
MODULE
Other Financial Markets: Other Markets (Foreign Exchange Markets, To understand the forex markets
FOREX Market Commodity Markets & Derivative Securities from an International FOREX
Markets). conventions.
Day 9 An Overview of Forex market and Interest rates,
International quotations conventions; Foreign
exchange rates and transactions.

An overview of Derivative Securities Markets.

Other Financial Markets: An overview of the derivative
Spot, Forwards, Futures, FRAs and Swaps.
Derivative Securities products and Markets. An
Options; Calls, Puts, Caps; Floors and Collars etc.
Markets introductory discussion on risk
Exotics and Some new arrivals on derivative
management with derivatives
Day 10 markets
Risk management with swaps; Interest rate
swaps, currency swaps and credit swaps. Interest
rate Risk Management with Caps, Floors and
Collars.
Presentation on Financial Markets
Day 11
Maximum, 10-15 minutes each group.

QUIZ 2
PART 3:
FINANCIAL INSTITUTIONS
COMMERCIAL BANKS AND REGULATIONS
CHAPTER 11, 12 AND 13
Commercial Banks
Definition of a Commercial Bank; Balance sheet To introduce Commercial Banking
and recent trends; Commercial Banking as a Industry and its Balance sheet
Day 12
sector of Financial service Industry; Structure
and composition of Industry
Commercial Banks. Role of technology in Commercial
Technology in commercial Banking;
(Continues) Banks. Recent developments and
Regulations; Global issues.
how futures look like
Day 13 Commercial Banking in Pakistan.
Islamic banking overview. And
Islamic Banking initiatives in Pakistan:
the scope and developments.
Micro finance Banking.
Depository Institutions' Financial Statement
Analysis, Financial statements of a commercial
Commercial Banks and To understand the framework of
bank; Return on Equity and its components. SBP
Day 14 Financial Statement financial Analysis of Commercial
suggested ROE decomposition.
Analysis Banking
What is CAMEL?

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WEEK/
RECOMMENDED OBJECTIVES/
LECTURE/ TOPICS
READINGS APPLICATION
MODULE
Regulatory environments of commercial banks in
USA and in Pakistan; Pakistan banking council
and scope of Pakistan banking association. Some
Important Regulations. Global Regulatory issues Regulatory architecture in place,
Regulation of Commercial
Role of a Central Bank; Money supply & interest A review of historic regulatory
Day15 Banks
rates; monetary policy tools; other issues related land marks and recent
to monetary policy; Central Banking and its developments.
regulatory role in Pakistan; Prudential
regulations.

QUIZ 3
PART 4
OTHER FINANCIAL INSTITUTIONS
CHAPTER 14, 15, 16, 17& 18

Role of SECP in regulating non bank FI’s;

Experience of Development Financial
Institutions, Role of DFIs in Pakistan. Study of
To apprise with regulatory
Regulation of. On Bank Modarabas, other Islamic Modes of Financing in
Day 16 challenges for non banking
Financial Institutions Pakistan, Leasing Association of Pakistan;
institutions
Investment Bankers Association of Pakistan and
Mutual Funds association of Pakistan.

Thrifts, Saving Institutions, Credit Unions Finance

Companies; Cooperative Credit societies. in
To have basic understanding of
Day 17 Other Lending Institutions Pakistan , Postal Saving Banks and National
thrift institutions
Directorate of Savings

The categories of insurance companies. Life

To understand the role and place
Insurance companies, Balance sheet trends.
of insurance industry in a
Property and causality insurance. Global Issues.
Day 18 Insurance Companies financial system. To critically
Insurance in Pakistan Takaful the Islamic
examine the challenges of
Insurance.
Insurance Industry in Pakistan.
Services Offered by Securities Firm and
Investment Banks. Main Activities, Investment
Security Firms and banking, Trading, Investing M& A, Private Equity, To understand the issues related
Day 19
Investments Banks. Venture Capital, Wealth Management and other to Investment banking
services.

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WEEK/
RECOMMENDED OBJECTIVES/
LECTURE/ TOPICS
READINGS APPLICATION
MODULE
An overview of Mutual funds. Closed End Funds
To get acquainted with different
and Open End Mutual Funds Different Types of
Day 20 Mutual Funds types of Mutual Funds and
Mutual Funds, ETF’s and Ultras
investment companies
Mutual Funds return and Costs. Mutual Funds
balance sheet and recent trends. Some Global
Day21 Mutual Funds Continues
and regulatory issues.

To understand the phenomenon

Types of Hedge Funds, Offshore Hedge Funds. of Hedge funds. How they
Day 22 Hedge Funds and
Regulatory challenges for hedge funds. emerged and the regulatory
challenges it poses.
Pension Funds .defined benefits vs. Defined
contribution pension funds; Private and Public State of Pension Funds and its
Pension Funds
Day 23 Pension Funds. A brief overview of Pension developments.
Funds in Pakistan.

QUIZ 4
PART 5
RISK MANAGEMENT IN FINANCIAL INSTITUTIONS
CHAPTER19,&24

Why Financial Institutions need to manage a risk;

Types of Risks faced
Day24 A brief discussion on different types of risks. Understand various type of risks.
Financial Institutions
Securitization
Day25

Day26
Reviews and Or day off In Lieu of out of class quizzes

Final Presentations

Day 27, Presentation (Group 1 to 4)

Day 28 Presentation (Group 5 to 8)

TEXTBOOK(S)/SUPPLEMENTARY READINGS
Required Text
Financial Markets and Institutions.
By Anthony Saunders & Marcia Millon Cornett 4th edition
Recommended Additional Readings, Books and Other Material

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SOME OF THE SUGGESTED TOPICS
(3)Trends in Lending (2)Risk Management (2)Islamic Banking in (3)Insurance industry in (3)Mutual Funds
policies in Banking Process, and Risk Pakistan Islamic Pakistan Industry in Pakistan
Industry Management in
Pakistan Insurance(Takuful)
Derivative Markets in (Islamic Bonds, Sakuks
Pakistan
(3)Role SBP and SECP in (2)Regulatory (1)IMF conditional ties (3)Rating in Pakistan (1)PIIGS debt crises and
Regulatory agencies in challenges being faced and its impact on (PACRA & JCR-VIS) its fallout on Financial
Pakistan. and efforts to find a Financial institutions in International rating of Markets(2
Financial Conduct and global regulatory Pakistan (1) Pakistani Banking
Prudential Authority in Architecture Sector (1)
UK. and is it efficient?
(1)Shape of Emerging (2)Foreign Exchange (3)Micro credit in (3)Presentation on (2)Foreign Exchange
Financial System Market in Pakistan Pakistan, Securitization Crises. Rise and Fall of
Fixed Income Securities FDI , Flight of capital Successes and Failures. In Pakistan Dollar and the Euro
Market in Pakistan and Money Laundering Indian experience. Global impact of Sub
Yield curve of Pakistan And Hawala System Prime lending and its
debt market. Its impact on economy impact on Pakistan
of Pakistan

(3)Trends in commercial Efficiencies and (3)Specialized Financial (3)Associations of non- (2)Demutualization of

Banking; Consolidation Inefficiencies in capital Institution Role and Banking Financial Pakistan stock Markets
and mergers in Banking Markets of Pakistan. Scope of SMEADA sector, Housing Finance and merits and
Sectors in Pakistan Forensic Reports on SME Banking by HBFC and demerits(2)
Privatization of Banking Stock Market /CFS, commercial Banks in
sector Badla and Margin Pakistan, S
Financing, Insiders cope of REITS
trading Rules and
controlling it.
(3)Pension Funds and (1)Wall Street (1)The Dodd-Frank Act (3)Syndication in (3)Trend in -use of
Employees Welfare movement. What is it (fully known as the Pakistan modern technology in
Funds in Pakistan, EBOI and is it fizzling Dodd-Frank Wall Street The State and scope of Pakistan NIFT, CHIPS,
Reform and Consumer Consumer Financing in Swift and other
Protection Act) What is Pakistan payment systems
it Where it Stands(1)
(2)Capital Market Union (2)Emerging and (3)Cooperative banking Any other topics (1)Islamic Finance
Frontier Markets experience in Pakistan proposed by a students
and approved by the
instructor
(3) Central Depository (2)Debt Market in (3)European Central Bank (2)Stock markets in 2)TFC’s &Islamic Bonds
Scope of a other Europe China (Sakuks
Custodian Banking
(3)Role of Custodian (3)Central Bank (2)HFT and its impact (1)Interest Rates. (3)Postal Saving and
Banking Is Zero or near zero insurance in Japan and
CDC interest rates are here in Pakistan
to stay
(3)Leasing Scenario in (3)Presentation on (2)Stock markets in (2)Stock markets in (2)Stock markets in
Pakistan. Modarabas; China North America Europe

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ON THE SIDE AGENDA

A brief study of Stock Market in Pakistan; Inefficiencies in Stock Market

Bonds Market in Pakistan;
 Foreign Exchange and Scope of Derivative Markets in Pakistan
 Islamic Banking in Pakistan
 Saving Institutions
 Cooperative banking experience in Pakistan
 Analytical framework of
 Statement Analysis of financial sectors in Pakistan
 SMEDA and Microfinance.
 Grameen Bank of Bangladesh &. Kashaf Bank. of Pakistan
 Derivative Markets in Pakistan
 Presentation on Securitization in Pakistan
 Recent Developments and Role of Investment Banking in Pakistan.
 Pension Funds and Employees Welfare Fund
 SECP regulation on Insurance
 Risk Management in Pakistan
 Islamic Modes of Financing
 Regulatory Framework
 Islamic Insurance (Takuful)
 Presentation on Diminishing
 Musharika

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