ECON F312:

Money, Banking and Financial

Markets
I Semester 2020-21
BITS Pilani
The Impact of COVID-19 on Financial Markets,
Banking Systems, and the Overall Economy

• COVID-19 emerged as a black swan event that stifled the

global economy.
• COVID-19 resulted in social isolation within countries,
closed borders, loss of business, loss of employment,
industry-wide shutdowns, and many more adverse
economic effects.
• Governments across the globe initiated fiscal and
monetary stimulus programs to combat the damaging
economic effects caused by the virus. 
• Volatility in the financial markets spiked in the aftermath
of the crisis, most likely due to difficulty in estimating the
extent of the economical damage caused by this global
event, which is still unfolding
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The Impact of COVID-19 on Financial Markets,
Banking Systems, and the Overall Economy

• The extent of the downturn could be felt over many

years.
• The Impact of COVID-19 on Financial Markets, Banking
systems, and the Overall Economy has become one of
most debatable topic in the literature of Macroeconomics.
• The impact of fiscal and monetary policy responses
• The impact on consumer spending and behavioral
Economics
• The impact on savings and Investments.
• The impact on financial markets
• Investor sentiment and Behavioral Finance.
• Changes to capital structure
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Introduction

• The field of financial markets and financial institutions is an

exciting area.
• Not only you will develop skills that will be valuable in your
career, but also you will gain clear understanding of events
in financial markets and institutions you frequently hear in
the news media.
• On the evening news you have just heard that the stock
market has been booming.
• Does this mean that interest rates will fall so that it is easier
for you to finance the purchase of a new computer system
for your small business?

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Introduction

• Will the economy improve in the future so that it is a

good time to build a new house in future or add to the to
the portfolio now?
• Should we invest in bonds or gold?
• Should you try to raise funds by issuing stocks or bonds,
or instead go to the bank for a loan?
• If you import goods from abroad, should you be
concerned that they will become more expensive or
cheap?

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Interest rates and Financial
Development and Economic Growth
• Interest rates are important on a number of levels.
• On personal level, high interest rate could deter you from
buying a car or house
• It could encourage you to buy more bonds.
• On the contrary, high interest could discourage the
economic business and low interest rate encourage the
business
• Because changes in the interest rate have important
effect on individuals, financial institutions, business and
over all economy, it is important to explain fluctuations.
• Hence, understanding interest rate and its fluctuations is
one of the objectives of this course.

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Business news and financial
markets
• Sensex is trading in Green
• BSE Sensex is increased to 38,528
• Sensex jumps 477 pts on 18th of Aug
• The Fed cut rates for the second time since 2008.
• Asian markets fell in early trading
• Gold and silver prices are decreasing .
• RBI cuts repo rate by 40 bps for 3rd time in 2020. 
• Post the policy announcement, the repo rate stands at
4.00 and reverse repo at 3.35
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Questions on its impact on
financial markets

• What effect might this have on the interest rate in the

economy?
• What effect it will have on the interest rate on an car loan
and house loan you finance?
• How does the monetary policy help economic growth?
• How savings will help economy to grow?
• How the foreign markets affect the Indian markets?
• How does the volatility in the stock market affect the
economic growth?
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Nature and Scope

• The course will provide answer to the above said

questions by examining how financial markets (bond,
stock and foreign markets) and financial institutions
(banks, insurance companies and other institutions) work

and by exploring the role of money in the economy.

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Learning Objectives
• To study the mechanisms of debt market and role played by
interest rate
• To study the dynamics and money market and stock market
• To explore the structure of financial system and understand
the reasons financial crisis
• To analyze the role of central banks and commercial banks
in regulation money supply in the economy.
• To discuss the role of central banks in the conduct of
monetary policy
• To study the foreign exchange rate dynamics and foreign
exchange risk
• To discuss the risk management techniques for financial
institutions.
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Upon successful completion of this
course, the student will be able to:
• Acquire and demonstrate analytical and problem solving
skills within money, banking, and financial market concepts.
• Able to assess how monetary activities affect an economy.
• Describe the structure of financial markets, the factors that
shape them, and how they are regulated.
• Able to explain the role of financial markets in the economy.
• Able to explain the role of banks and other financial
intermediaries.
• Analyze how the central bank affects the economy.
• Assess how a financial crisis happens and how policy
makers should respond.
• Can quantify various market and financial risk related to
financial markets and institution operation.
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Money, Banking, and Financial
Markets

• To examine how financial markets

such as bond, stock and foreign exchange markets work
• To examine how financial institutions such as banks and
insurance companies work
• To examine the role of money in
the economy

BITS Pilani, Pilani Campus

Overview of the Course
• Monetary System, Banking System and Financial System
as a whole plays a vital role in the national economy.
• The total quantity of money and the rate at which that
quantity grows overtime have important implications for
the interest rates, inflation and economy’s overall growth.
• Central Bank of the country plays an important role to
regulate the quantity of money and oversee the health of
the banking system and entire financial system.
• The Finance Ministry have the responsibility of ensuring
financial stability of the country.
• At this point, we have a little knowledge about the
functioning of all the system.

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Course Content in brief and
modules
Module I: Financial System, Financial Markets, Rational
Expectation Hypothesis, Understanding interest rates, Behavior
of interest rates, Risk and Term structure, Efficient Market
Hypothesis,
Module II: Money, Money market, Monetary policy, Central Bank,
Conduct of monetary policy: goals and targets, Monetary
transmission mechanism
Module III: Banking, The banking firm, Banking and management
of financial institutions, Banking industry; structure and
competition, Economic analysis of banking regulation, Indian
Banking
Module IV: International Financial system and risk management in
Financial institutions, hedging with financial derivatives and Risk
management in Foreign exchange markets.
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Text Book
Mishkin, Frederic S, Stanley G Eakins, Tulsi
Jayakumar and R K Pattnaik “Financial Markets and
Institutions, Pearson Education, Eighth Edition, 2017.

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Evaluation Scheme

Duration Weightage Nature of

Component (Mins) (%) Date component
Test I 30 15 10/9 to 20/9 (TBA) Open Book
Test II 30 15 9/10 to 20/10 (TBA) Open Book
Test III 30 15 10/11 to 20/11 (TBA) Open Book
Continuous
Evaluation -- 15 + 10 Continuous Open Book
Comprehen
sive Exam 120 30 03/12 (FN) Closed Book

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