Financial Management

SM82.03: Financial Management [3 Credits]
Semester: January

Rationale:

This course concentrates on the principles of bank’s assets and liabilities. The course has an applied feel to it as it mainly focuses on the microeconomic problems of financial management of banking firms.

This course examines the role and importance of bank financial management to the modern bank. The course discusses the various trends shaping banking markets, such as institutionalisation, securitisation, globalisation and concentration. The course will enable participants to:

  • Discuss trends affecting the whole financial services industry
  • Assess the implications of change for bank risk management
  • Assess how interest-rate risk can be managed using hedging activities through the use of financial derivatives and securitization
  • Explain why funding mix and costs are important to bank management when making loan and investment decisions
  • Discuss how credit risk and default premiums are assessed and monitored
  • Assess the relationship between bank performance and capital adequacy

Catalog Description:

Asset Liability Management, Capital Adequacy, Credit Risk, Bank Financial Statements

Pre-requisite(s): None

Course Outline:

I. Banking Innovations and Financial statements

  • The Transformation of Banking - 1970 to 2007
  • Financial Innovation
  • Implications of Banking Innovations for Bank Financial Management
  • An Assessment of Credit Risk Transfer
  • The Bank's Balance Sheet: An Introduction
  • The Bank's Income Statement
  • Fair Value and Mark-to-Market Accounting: A Hot Topic with Real Potential Effects

II. Liquidity Management

  • Bank Risk Management
  • Concepts of Liquidity and Solvency
  • Sources of Liquidity and measuring Liquidity
  • Payments System Risk and its Potential Impact on Bank Liquidity

III. Funding Operations of Banks

  • Measuring the Cost of Funds
  • Risks Associated with Raising Funds
  • Funding Planning and Co-ordination
  • Credit Risk and Default Premiums
  • Credit Assessment
  • Loan Pricing

IV. Capital Management

  • Components of Bank Capital
  • Risk-based Capital Requirements
  • Basel and Capital Adequacy Rules
  • Impact of Capital Adequacy
  • Capital Planning and Dividend Management

Textbook(s):

Ross, S., Westerfield, R., Jaffe, J., and Jordan, B.:
Modern Financial Management, New York, McGraw-Hill (9th edition), 2009.

Lecture notes and handouts provided by the instructor.

Reference Books:

Koch, T., and MacDonald, S. S.:
Bank Management, Mason, OH, Thomson South-Western (7th Edition), 2010.

Petty, J., Keown, A.J., Scott, Jr, D.F., Martin, J.D., Burrow, M., Martin, P., and Nguyen, H:
Financial Management, Upper Saddle River, NJ, Pearson Education (4th Edition), 2006.

Gitman, L., Juchau, R., and Flanagan J.:
Principles of Managerial Finance, Upper Saddle River, NJ, Pearson Education (5th Edition), 2008.

Journals and Magazines:

Journal of Financial Management
Applied Journal of Corporate Finance,
Financial Management
Journal of Banking and Finance
International Journal of Banking, Accounting and Finance

Grading System: The final grade will be computed from the following constituent parts:
Mid-term exam (30%)
Final exam (40%)
Assignments (30%)

Instructor(s): Dr. Sundar Venkatesh