THE OPEN UNIVERSITY OF TANZANIA
FACULTY OF BUSINESS MANAGEMENT
DEPARTMENT OF ACCOUNTING AND FINANCE
OAF 621
1.0
FINANCIAL MARKETS AND INSTITUTIONS
COURSE OUTLINE
Introduction:
Financial markets and institutions are at the heart of the financial system – a network of
markets and institutions to bring savers and borrowers together – of every economy.
Together they play a vital role in the flow of funds. Financial markets such as the stock
or bond markets provide a means for transferring funds from savers to borrowers while
financial institutions act as intermediaries between savers and borrowers.
The main objective of the course is to give students a solid understanding of the concepts,
theories, practice and operations of financial markets and institutions. The course aims at
introducing how the financial system works. The students will be introduced to Financial
Markets and Institutions and learn how they operate in the Financial System. The course
introduces several concepts about the Financial Markets and Institutions for the purpose
of promoting understanding, skills and capabilities for dealing with them.
Since the financial markets and institutions are the most important sources of short
medium and long term financing in Tanzania, it is then imperative that financial
managers to whom you all are aspiring become comfortable in dealing with their
operations and challenges. This course is designed to help you achieve such a goal.
Course Objectives:
At the end of the course students will be able to:
(i)
Review role, functions and mechanisms of the financial system in an economy
(ii)
Review the legal and regulatory environment governing financial markets and
institutions.
(iii) Review interest structure, trends and their impact on the economy.
(iv)
Examine the role/functions/workings of banks, financial institutions, and financial
markets and their relationship to economic activities with particular reference to
Tanzania and other parts of the world.
(v)
Evaluate their effectiveness and efficiency in offering the intermediation function
including micro financing to the economy.
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(vi)
Search and suggest ways which may enable these institutions to improve their
operations.
(vii) Review risk management in banks and financial institutions.
(viii) make decisions about portfolio choices for making investments
(ix)
distinguish the differences of dealing with deposit taking and non deposit taking
institutions.
(x)
deal with convertibility of foreign exchange with the general effects of derivatives
as well as the aspects of financial innovation and financial engineering.
2.0
Course Content
2.1
Overview of the Financial System
Function and Structure of Financial Markets
Primary and Secondary Markets
Regulations of the Financial System
The Internationalization of Financial Markets
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2.2
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Fundamentals of Financial Markets:
Functions of the Financial Markets
Structure of the Financial markets
Money and Capital Markets
Debt Markets
o Corporate debt securities
o Government securities
o Intermediary securities
o Global debt securities
Equity markets
Exchanges and Over the Counter Markets
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Financial Intermediaries:
Depository Institutions (Banks)
Contractual Saving Institutions
Investment Intermediaries
Government Financial Intermediation
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Financial Market Instruments:
Financial Market Instruments
Money Markets Instruments
Capital Market Instruments
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2.3
2.4
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2.5
Mortgage Backed Securities
o Agency mortgage backed securities
o Collateralized mortgage obligations
o Stripped mortgage backed securities
o Non-agency mortgage backed securities
o Commercial mortgage backed securities
o Asset backed securities
o Collateral debt instruments
o Analysis of assets-backed securities
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Managing Portfolio Choice:
Determinants of Asset Demand (Wealth, Expected Returns, Risk, and Liquidity)
The Theory of Asset Demand
The Loanable Funds Theory
Liquidity Preference Theory
Interest Rates Theory
Risk and Term Structure of Interest Rates.
Measurement of Interest Rates
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Deposit Taking Instructions:
Banks: Definition and Functions
Dual Banking System
The process of Money Creation by banks
Bank Lending and Demand for Money
Bank Capital Requirement
Branching Regulations
International Banking
Bank Regulation System
Mutual Savings Banks
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Non Depository Institutions
Insurance Companies\
Pension Funds
Unit Trusts
Saving and |Loan Associations
Credit Unions and SACCOS
Security Market Institutions
Finance Companies
Mutual Funds
2.6
2.7
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2.8
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Money and Capital Markets
Fundamental Functions
Financial Tools
Market Significance
Market Efficiency
Market Similarities
Market Differences
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Foreign Exchange Markets
Nature of Forex Markets
Efficient Market Hypothesis
Interest Rate Parity
Difference in Interest Rates-(Fisher Effect)
Fixed Exchange Rate Systems
2.9
2.10
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3.0
Financial Innovation:
Economic Analysis of Innovation
Financial Innovation- Risk Avoidance
Future and Options for Financial Instruments
Swaps
o Interest rate swaps
o Currency/foreign exchange swaps
o Valuing swaps
o Credit default in swaps
Securitization
Foreign Exchange Hedging
ASSESSMENT
The course will be assessed by three items as follows
Compulsory student progressive portfolio
(ungraded)
Timed test
30%
Final examination
70%
Total
100%
Pass mark shall be 50%
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LIST OF REFERENCES
1. Roy Crum, Eugene Fundamentals of International Finance (with Thomson ONE and
InfoTrac ) (Hardcover - Sep 8, 2004)
2. Brigham, and Joel F. Houston Fundamentals of International Finance (with Thomson
ONE and InfoTrac ) (Hardcover - Sep 8, 2004)
3.David S. Kidwell, David W. Blackwell, David A. Whidbee and Richard L. Peterson
and Richard L. Peterson- Financial Institutions, Markets, and Money (Hardcover - Jan 14,
2008)
4. Foundations of Financial Markets and Institutions (4th Edition) by Frank J. Fabozzi,
Franco P. Modigliani, and Frank J. Jones (Hardcover - Feb 1, 2009)
5. Study Guide for Financial Markets and Institutions by Frederic S. Mishkin and Stanley
G. Eakins (Paperback - Feb 16, 2008)
6. Financial Markets and Institutions: Customized: Selected Chapters and Study Guide,
Eighth (8th) Edition by Jeff Madura (Paperback - 2008)
7. Financial Institutions, Markets And Money, 9th (Hardcover - Jan 1, 2005)
8. The Origin and Development of Financial Markets and Institutions: From the
Seventeenth Century to the Present by Jeremy Atack and Larry Neal (Hardcover - Mar
16, 2009)
9. The Origin and Development of Financial Markets and Institutions: From the
Seventeenth Century to the Present by Jeremy Atack and Larry Neal (Hardcover - Mar
16, 2009)
10.Financial Markets and Institutions: A Modern Perspective (The Mcgraw-Hill/Irwin
Series in Finance, Insurance, and Real Estate) by Anthony Saunders (Hardcover - Feb
2003)
11.The U.S. Financial System: Money, Markets, and Institutions by George G. Kaufman
(Hardcover - Feb 1995)
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12 The U.S. Financial System: Money, Markets, and Institutions by George G. Kaufman
(Hardcover - Feb 1995)
13. Financial Markets and Institutions in the Arab Economy by Nidal Rashid Sabri
(Hardcover - May 2008)
14. Money and Capital Markets with S&P Bind-in Card (McGraw-Hill/Irwin Series in
Finance, Insurance, and Real Est) by Peter Rose and Milton Marquis (Hardcover - Dec 7,
2007)
15. Capital Markets: Institutions and Instruments (4th Edition) by Frank J Fabozzi
(Hardcover - Aug 4, 2008)
16.Money and Capital Markets by Miles Livingston (Paperback - Jun 13, 1996)
17.Investing From the Top Down: A Macro Approach to Capital Markets by Anthony
Crescenzi (Hardcover - Sep 12, 2008)
18. Trading Strategies for Capital Markets by Joseph Benning (Hardcover - Aug 7, 2007)
19. Chaos and Order in the Capital Markets: A New View of Cycles, Prices, and Market
Volatility (Wiley Finance) by Edgar E. Peters (Hardcover - Aug 1996)
20. Emerging Capital Markets and Globalization: The Latin American Experience (Latin
American Development Forum) by Augusto de la Torre and Sergio Schmukler
(Hardcover - Oct 30, 2006)
21. Economics of Money, Banking and Financial Markets (9th Edition) by Frederic S.
Mishkin (Hardcover - Jul 25, 2009)
22. Stigum's Money Market, 4E by Marcia Stigum and Anthony Crescenzi (Hardcover Feb 9, 2007)
23. Principles of Money, Banking & Financial Markets plus MyEconLab plus eBook 1semester Student Access Kit (12th Edition) by Lawrence S. Ritter, William L. Silber, and
Gregory F. Udell (Hardcover - Sep 28, 2008)
24. The Money Market by Marcia Stigum (Hardcover - Dec 1, 1989)
25. Commodity Market Money Management by Fred Gehm (Hardcover - Jan 1, 1983)
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26. Bond and Money Markets: Strategy, Trading, Analysis (Paperback)
by Moorad Choudhry
27. The Treasury Bond Basis: An in-Depth Analysis for Hedgers, Speculators, and
Arbitrageurs (McGraw-Hill Library of Investment and Finance) (Hardcover)
by Galen Burghardt
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