Course Outline for Financial Institutions

Course Description
The course examines how do financial markets (such as those for bonds, stocks, and foreign
exchange) and financial institutions (banks, insurance companies, mutual funds, and others) work.
It also discusses the role of central bank and monetary policy in the financial system. More
specifically, it helps students to understand why the financial markets exist; how are interest rates
and exchange rates determined; how to value a stock; the role of financial institutions in modern
economy; and etc. It will also discuss some financial news and address practical issues facing
financial managers and regulators.

Introduction
Basic functions of financial markets and institutions
1
An overview of the financial system

Fundamentals of Financial Markets

Primary and Secondary Markets
Money and Capital Markets
2-3
Debt and Equity Market
Spot and Forward market

Financial Institutions in Pakistan

4-5 Financial Instruments in Pakistan
Debt and equity securities
Determinants of Interest Rate
Loanable fund theory
6-7 Inflation, Liquidity, Default risk in interest
Maturity premium

Theories of term structure of interest rate

Liquidity premium theory
8-9 Unbiased expectation theory
Market segmentation theory

Interest Rate and Security Valuation

Expected Rate of return
10-11
Realized rate of return
Bond valuation and yields
Monetry Policy of Pakistan
State bank of Pakistan and monetry policy
12-13 SECP
Mutual funds

Money and Capital Markets of Pakistan

14-15
Other Financial Institutions
16
Text Book:
Financial Markets and Institutions, by Frederic S. Mishkin and Stanley G. Eakins (ME), sixth edition,
Pearson Education