Undergraduate study in Economics, Management, Finance and the Social Sciences

Correction
FN1024 Principles of banking and finance

January 2018: First correction to the 2011 edition of the subject guide
The 2011 edition of the subject guide contained the following errors. Please amend
your hard copy.
1. Page 22 Activity 2.5
The link to the ICI Fact Book is broken and the page references no longer apply.
Replace with text as follows.
“From the 2017 Investment Company Fact Book produced by the Investment
Company Institute, read the summary on the significant events in the mutual fund
industry; http://www.icifactbook.org/appb/17_fb_appb
Then write a short explanation of how you think these events have determined
the historical trend of the industry as described in Table 1 ‘Mutual Funds: Total Net
Assets, Number of Funds, and Number of Share Classes’; http://www.icifactbook.
org/data/17_fb_data/”
2. Pages 190–91 Random walk behaviour of stock prices and weak-form
efficiency
The first three full sentences on page 191 should be amended as follows.
‘Therefore your capital at the end of the first day can equally be $1,040 or $970. At
the end of the second day, the coin is tossed again. The outcomes associated with
the positive first-day outcome ($1,040) are $1,081.60 or $1,008.80.’
3. Directly below in Activity 9.5 on p.191, replace the number in brackets with $970
(not $997).
4. Page 202 Activity 9.5 (Solution)
Replace the text as follows.
‘At the end of the second day, the outcomes associated with the negative first-day
outcome are $1008.80 and $940.90.’
1
 Undergraduate study in Economics, Management, Finance and the Social Sciences

Correction
FN1024 Principles of banking and finance

July 2018: Second correction to the 2011 edition of the subject guide
The 2011 edition of the subject guide contained the following errors. Please amend
your hard copy.
1. Page 126
In the second paragraph (below equation 6.1), replace the sentence ‘A decline
in interest rates will increase liabilities costs faster than assets returns; as a
consequence the net interest margin and income will decrease.’
with:
‘A decline in interest rates will cause interest income from assets to fall more than
interest costs on liabilities thus leading to a fall in net interest income.’
2. Page 146
Replace the final sentence with: ‘However, when the discount rate is low, A has the
higher NPV; when the discount rate is high, B has the higher NPV. If we assume the
hurdle rate is the opportunity cost of capital (used in the NPV calculation), then the
NPV of project A is higher than the NPV of project B. Therefore project A should be
preferred.’
3. Page 201 Activity 7.2 (Solution)
The solutions to Activity 7.2 should read as follows:
• The NPV of Project B is $1,360, and thus it should be accepted.
• The NPV of Project C is –$49, and thus is should be rejected.
4. Page 201 Activity 8.1 (Solution)
The solution to Question 2 should read as follows:
• The standard deviation of the returns on the stock is 3.30 per cent.’

1
 Undergraduate study in Economics, Management, Finance and the Social Sciences

Reading supplement
FN1024 Principles of banking and finance

June 2016: First supplement to the 2011 edition of the subject guide
New editions of two essential textbooks (Mishkin. Brealey) listed in the subject guide
have now been published. Students should now attempt to obtain the most recent
editions, which are:
Mishkin, F. and S. Eakins Financial markets and institutions. (Harlow: Pearson, 2014) 8th
edition [ISBN 9780133423624].
Brealey, R.A, S.C. Myers and F. Allen Principles of corporate finance. (Maidenhead: McGraw-
Hill, 2013) 11th global edition [ISBN 9780077151560].
If you are using the new editions you will find that some of the page and chapter
references in the subject guide are different. You should refer to the table below for the
new page or chapter numbers.
We suggest that you go through the subject guide and mark up the following updates
immediately to prevent any confusion or oversight later on:
Page in
subject Reference in subject guide If using the 8th edition, replace with
guide

2 Brealey Chapters 2, 3, 4, 5, 7, 8, 13 and 14 Brealey Chapters 2, 3, 4, 5, 7, 8, 13 and 14

15 Mishkin Chapters 1, 2 and 10. Mishkin Chapters 1,2 and 12

Read Mishkin and Eakins (2009), section beginning on

20 Mishkin section beginning on p.491 p.479, to investigate the 1980s Savings and Loan (S&L)
and Banking Crisis and subsequent reform of S&L.

21 Mishkin pp.561–62 Mishkin pp.569–77

32 Mishkin pp.107–09 Mishkin pp.137–49

33 Mishkin pp.262–64 Mishkin pp.342–44

1
Page in
subject Reference in subject guide If using the 8th edition, replace with
guide

39 Mishkin Chapter 18 Mishkin Chapter 19

46 Mishkin pp.450–79 Mishkin pp 491–517

Refer to Figure 8.1 in Mishkin and Eakins (2014),
55 Mishkin p.390
p.208
Mishkin webchapter 25, W2–W7. See note 1 at the end
59 Mishkin pp.391–95
of this table for where to download webchapter 25
65 Mishkin Chapters 15 and 18 Mishkin Chapters 7 and 19

67 Mishkin p.367 Mishkin p 176

68 Mishkin Chapter 1 Mishkin Chapter 7

73 Mishkin p.27 Mishkin pp.67–68

75 Mishkin Table 10.2, p.249 Mishkin Table 12.2, p328

76 Mishkin Box on p.374 Mishkin Mini-case, p.184

80 Mishkin Chapter 15 Mishkin Chapter 7

84 Mishkin Chapter 18 Mishkin Chapter 19

89 Mishkin Chapter 20 Mishkin Chapter 18

106 Mishkin p.439 Mishkin pp.451–52

111 Mishkin p.523 Mishkin p.476

115 Mishkin Chapter 24 Mishkin Chapter 23

Mishkin webchapter 26, W25–W27
117 Mishkin pp.490–91 See note 2 at the end of the table for where to
download webchapter 26
127 Mishkin pp.624–25 Mishkin pp.610–12

128 Mishkin pp.61–68 Mishkin pp.98–103

139 Brealey Chapters 2, 3, 4 and 5 Brealey Chapters 2, 3, 4 and 5

139 Mishkin Chapters 3 and 11 Mishkin Chapters 3 and 13

153 Brealey Figure 4.1 Brealey Figure 4.1

159 Brealey Chapters 7 and 8 Brealey Chapters 7 and 8

159 Mishkin Chapter 4 Mishkin Chapter 4

166 Mishkin p.75 (footnote 2) Mishkin p.110 (footnote 2)

183 Brealey Chapter 13 Brealey Chapter 13

183 Mishkin Chapter 6 Mishkin Chapter 6

2
 Page in
subject Reference in subject guide If using the 8th edition, replace with
guide
Sentence should read: ‘Refer to Figure 13.2 in
Brealey, Myers and Allen to find empirical evidence
that supports the random walk behaviour of four
191 Figure 13.2
stocks: Microsoft, Deutsche Bank, Philips Electronics
and Sony. Each point in these scatter diagrams shows
the returns for the stock on successive days’
196 Mishkin p.141 Mishkin pp.170–71

Note 1: Download Mishkin and Eakins (2014) webchapter 25 from:

http://wps.prenhall.com/wps/media/objects/15583/15957813/web_chap/M25_MISH3624_08_SE_
Ch25_W-1-W-21.pdf
Note 2: Download Mishkin and Eakins (2014) webchapter 26 from:
http://wps.prenhall.com/wps/media/objects/15583/15957813/web_chap/M26_MISH3624_08_SE_
Ch26_W-22-W47.pdf