Introductory description

The aim of this module is to give an introduction to the financial markets and instruments as well as the analysis and management of risk within financial markets.The objective is to develop a conceptual framework for thinking about financial markets and financial risk, and to show how these concepts are implemented in practice in a variety of contexts.

Module aims

Outline syllabus

This is an indicative module outline only to give an indication of the sort of topics that may be covered. Actual sessions held may differ.

Introduction to financial markets
Interest rates and term structure
Central banks and financial markets
Financial intermediation and business models for banks/insurers
Money, bond, FX and equity markets
Basic principles of risk management
Financial instruments
Limits to arbitrage and the funds industry
Hedging in financial markets
Risk measures
Credit risk and credit derivatives
The housing market and mortgage-based securities
Rare events and regulatory responses

Learning outcomes

By the end of the module, students should be able to:

• Demonstrate an in depth understanding of Financial Markets and Financial Risk Management in central banking.
• Demonstrate a systematic understanding of foreign exchange markets and how the foreign exchange risk is managed.
• Demonstrate a systematic understanding of the role and importance of financial risk management in theory and in practice.
• To develop an understanding of financial risk management in banks and insurers, when operating domestically and internationally.
• Demonstrate a critical awareness of research and advanced scholarship in the area of financial markets and risk management.
• Reflect on and learn from some prior experience and thus be able to integrate new knowledge with past experience and apply it to a new situation.
• Make sound judgements whilst understanding the limitations on judgements made in the absence of complete data.

Indicative reading list

The main textbooks for the course are:
Mishkin, F. S. and S. G. Eakins, 2017 (ME). Financial markets and Institutions. Pearson Education, Global Edition (9th)
John C. Hull, Risk Management and Financial Institutions, Wiley, 2018, 5th edition.
Other recommended textbooks are:
Michel Crouhy, Dan Galai and Robert Mark, Risk Management, McGraw-Hill, 2001.
Jon Danielsson, Financial Risk Forecasting, Wiley, 2011.
Pietro Veronesi, Fixed Income Securities: Valuation, Risk, and Risk Management, Wiley and Sons, 2010.
A number of additional readings will be assigned for individual lessons.

Subject specific skills

Demonstrate the ability to apply knowledge of financial risk management to other areas of central banking.
Demonstrate an ability to acquire and analyse data and information, and to evaluate its relevance and validity to topics in financial risk management.
Draw on a range of concepts, information, techniques and perspectives in financial risk management.
Demonstrate an ability to conduct research into foreign exchange markets that require familiarity with FX data, research sources and appropriate methodologies.

Transferable skills

Written communication
Independent learning