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Management of Banks and Financial Institutions Instructor: Ashok Thampy Term: IV Programme: PGP Credit: 3 Objective: This course aims to equip students with an understanding of the issues in the management of financial institutions. Financial institutions are subject to risk on both sides of their balance sheet and this course will deal extensively with the techniques for measuring and managing these risks. The regulation of financial services is also be dealt with in some detail. Course outline: Topics Sessions 1. Overview of the financial system (1) Role of the financial system-historical developments-market structure Ref: Indian Financial System-Ch.2, MY Khan 2. Analyzing bank performance and valuation (2) Ref: Bank Management-Ch. 2,3 T. Koch Valuation: Measuring and Managing Value of Companies-Ch. 16, Tom Copeland, Tim Koller and Jack Murrin 3. Valuation and merger analysis Case: Finansbank (HBS) Case: Chase Manhattan Bank (HBS) (2) 4. Interest rate and liquidity risk for banks Interest rate risk management for banks Maturity model-duration gap-repricing gap models Ref: Bank Management-Ch. 4,5,6,8 Koch et al (2) 5. Managing interest rate risk with swaps Ref: Bank Management-Ch. 5,6,8 Koch Case: Banc One Corp: Asset and Liability Management (1) 6. Bank for International Settlements norms for capital standards Issues in capital management, capital adequacy ratios and BIS standards Ref: Bank Management-Ch. 9, T. Koch BIS publications (1) 7. Securitization and special issues in valuing securitized instruments Ref: Financial Institutions Management-Ch. 28, Anthony Saunders (1) 8. Credit risk management (3) Different approaches to evaluating credit risk such as Creditmetrics, KMV model Ref: : Bank Management-Ch. 10,11 Koch Financial Institutions Management-Ch. 11,12, Anthony Saunders 9. Credit derivatives and innovations in structuring products Ref: Notes, Enron, First American Bank (3) 10. Lessons from financial failure Case: Tip of the iceberg:JP Morgan Chase and Bear Stearns (HBS) Case: What happened to Citigroup? (HBS) (2) 11. Industry guest speakers (2) References: Timothy W. Koch and Scott MacDonald, Bank Management, 6th Edition, Thomson South Western. Anthony Saunders, Financial Institutions Management, 3rd Edition, Irwin McGraw Hill Meir Kohn, Financial Institutions and Markets, Tata McGraw Hill M. Y. Khan, Indian Financial System, Tata McGraw Hill L. M. Bhole, Financial Institutions and Market, Tata McGraw Hill Phillipe Jorion, Value at Risk, McGraw Hill Project: The project will involve the analysis of a bank. The project includes performing a financial ratio analysis and valuation of a bank. Evaluation: Midterm - 40%, Project - 20%, Final - 40% Examinations: Closed-book