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The Economics of Money and Banking

Course Instructor: Assistant Professor Stephanos Papadamou, ECTS credits: 5

Course Description

The course focuses on special themes on economics of money and banking. It investigates the interrelationship between monetary policy and commercial bank behavior. Main banking theory is presented. Asset and liability management by banks is one of the most important subjects in banking. Main bank risks are measured and derivative products are used for covering these risks. Central bank theory is presented and monetary transmission mechanisms are investigated.The following subjects will be covered by the course:

  • Financial Intermediation and Trends in International Banking

The main forces in banking industry are analysed (financial innovation, deregulation and globalisation). The theory of financial intermediation is developed.

  • Banking Structures, Bank Performance, output and efficiency

Accounting measures of bank performance are presented and discussed

  • The Theory of the Banking Firm

Main models of industrial production are used for analysing bank behavior (such as the model of perfect competition, the model of Monti-Klein etc).

  • PrinciplesofBankManagement

Asset and liability strategies are presented while capital requirement are analysed for banks.

  • BankRisks & RiskManagement

In this lecture main risks face banks are presented. Particular attention is given on Interest rate and Foreign exchange risk. Gapanalysisisappliedoninterestrateriskmeasures, while futures, forwards and options are used for covering risks.

  • RecentissuesinPortfolioManagement

Passive or active management (Information Ratio, Tracking error, Style analysis, Portfolio Hedging).

  • BankRegulation

Bassle Accord and Value at Risk measure is the main topic of this lecture.

  • CentralBankingTheoryandMonetaryPolicy

New-Classical and New-Keynsian views about monetary policy. Discretionary monetary policy vs. monetary policy with rules. Presentation of the Barro-Gordon model.

  • Monetary Transmission Mechanism

Main channels of the monetary transmission mechanism to real economy will be presented.

 

Learning Objectives

The course aims to deepen theory on banking and monetary policy in order to enable a fuller understanding of how operating commercial banks and the central bank in modern economies. By successfully meeting the requirements of the course students are expected to:

  • Understand that commercial banks set interest rates on deposits and loans

  • Understand the key risks faced by banks and how to manage them with the use of derivative financial products.

  • Understand the concept of banking supervision & the role of central banks in modern economies.

  • Understand the transmission mechanisms of monetary policy on the real economy.

  • Formulate original ideas and expressing them in the form of research.

  • Apply with the help of the PC the derivatives in practice by managing problems faced by banks today.

 

Bibliography

  1. Matthews, K and Thompson (2005) The Economics of Banking, John Wiley and Sons, First Edition. (MT)

  2. Jagdish Handa, (2000) Monetary Economics, Routledge: London (JH)

  3. Mishkin F. S (2004) The Economics of Money, Banking and Financial Markets, (7th international edition), Addison-Wesley. (ΜISHK)

  4. Casu, B., Girardone, C., Molyneux, P. (2006) Introduction to Banking, FT Prentice Hall (CGM)

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