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Course Title : Financial Markets in China and Hong Kong.doc


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Course Title : Financial Markets in China and Hong Kong.doc

  1. 1. MSc. In International Banking and Finance Course Title : Financial Markets in China and Hong Kong Course Code : IBF606 No. of Credits/Semester : 3 Mode of Tuition : 2 hours lectures and 1 hour tutorial per week Teaching Hours : 36 Category in Program : Elective Pre-requisite : None Brief Course Description: The basic function of financial markets is to channel funds from savers who have an excess of funds to spenders who have a shortage of finds. Financial markets can do this either through direct finance, in which borrowers borrow funds directly from lenders by selling them securities, or through indirect finance, which involves a financial intermediary that stands between the lender- savers and the borrower-spenders and helps transfer funds from one to the other. This channeling of funds improves the economic welfare of everyone in the society. Because they allow funds to move from people who have no productive investment opportunities to those who have such opportunities, financial markets contribute to economic efficiency. This course examines how financial markets (such as those for bonds, stocks, mortgages) and financial institutions (banks, non-banks, investment banks, insurance companies, pension funds, mutual funds, and other institutions) work. Financial markets and institutions not only affect your everyday life but also involve huge flows of funds throughout our economies, which in turn affect business profits and the production of goods and services. The study of financial markets and institutions will reward you with an understanding of many exciting issues. The financial institutions in China and those in Hong Kong, as in the US, have undergone rapid changes in recent decades. This course provides a comprehensive survey of the nature and the role of financial markets and institutions, with particular emphasis on Hong Kong and China. It also examines the various dimensions of issues about regulation and prudential supervision, and the developments of such institutions. Aims: The aim of this course is to provide students with the necessary knowledge about the financial markets and institutions and the new changes that are taking place. Learning Outcomes: Upon completion of the course, students: 1.Will be familiar with a wide range of financial instruments and intermediaries available which equip them to be better managers in real-world situations. 2. Will be familiar with the new changes and the regulations governing the markets. 3. Will be able to (a) apply the knowledge, with applications to Hong Kong and China, and (b) create new ideas or suggest changes which could improve the efficiency of the market and the institutions. 4. Will be able to conduct research on financial markets and institutions in China and Hong Kong. Measurement of Learning Outcomes: 1
  2. 2. MSc. In International Banking and Finance 1. A final exam (50%) covering all the topics taught in the course will be provided. 2. Students will have to work on individual project including answering homework and assignment questions (10%). 3. Students will be divided into groups of 4 in the first lecture. Each group will be asked to do research work on a particular market or institution. Students in each group will be required to do group presentation as well (40%). Good Practices: 1. Newspaper cuttings relating to real-life situations will be discussed in the tutorials. 2. To prepare students for their future careers in finance, hands-on applications and case studies that emphasize the financial practitioners’ approach to financial markets and institutions will be discussed. 3. Complete integration of international perspectives will be provided 4. Reading of financial newspapers will be encouraged throughout the course. 5. Group research and presentation are assigned as students at the master level are expected to be able to do research and to present fluently and confidently in English. Indicative Contents: PART I Introductions 1. Why Study Financial Markets and Institutions? - Why Study Financial Markets? - Why Study Financial Institutions? - Applied Managerial Perspectives 2. Overview of the Financial Systems - Functions of financial markets - Structure of Financial Markets - Internationalization of Financial Market - Function of Financial Intermediaries as Indirect Finance - Types of Financial Intermediaries - Depository institutions, contractual saving institutions, investment intermediaries - Regulation of the Financial System PART II Fundamentals of Financial Markets 3. The Role of Interest Rates in valuation - Measuring Interest Rates - Interest Rates versus Returns 2
  3. 3. MSc. In International Banking and Finance - Interest Risks, Reinvestment Risks 4. Why Do Interest Rates Change? - Determinants of Asset Demand - Supply and Demand in The Bond Market - Changes in Equilibrium Interest Rates 5. How Do Risks and Term Structure Affect Interest Rates? - Risk Structure of Interest Rates - Term Structure of Interest Rates - Forecasting Interest Rates PART III Financial Markets 6. The Money Market - Definition - Purpose of the Money Market - Who Participates in the Money Market? - Money Market Instruments - Comparing Money Market Securities 7. The Bond Market - Purpose of Capital Market - Capital Market Participants - Capital Market Trading - Types of Bonds - Yield Calculations - Investing in Bonds 8. The Stock Market - Investing in Stocks - Computing the Price of Common Stock - How the Market Sets Security Prices? - Errors in valuation - Stock Market Indexes - Regulation 3
  4. 4. MSc. In International Banking and Finance 9. The Mortgage Market - Characteristics of the Residential Mortgages - Types of Mortgage Loans - Mortgage-Lending Institutions - Loan Servicing - Secondary Mortgage Market - Securitization of Mortgages PART IV Financial Institutions 10. Commercial Banking Industry - Financial Innovation and the Evolution of the Banking industry - Structure of the Industry - Bank Consolidation - International Banking 11. Savings Associations and Credit Unions - Mutual Savings Banks - Savings and Loan Associations - Financial Reforms - Credit Unions: Retrospect and Prospects; Sources and Uses of Funds; Pros and Cons 12. The Mutual Fund Industry - Growth of Mutual Funds - Structure - Investment Classes - Fee Structure - Regulation - Hedge Funds 13. Insurance Companies and Pension Funds - Fundamentals of Insurance - Growth and Organization - Types of Products - Pensions: Types of Pensions - Regulation of Pension Plans 14. Investment Banks, Security Brokers and Dealers, and Private Equity 4
  5. 5. MSc. In International Banking and Finance - Investment Banks: Background, Underwriting of Bonds and Stocks, Equity Sales, M&A - Securities Brokers and Dealer: The Differences - Regulation of Securities Firms - Private Equity Investment - Private Equity Buyouts A. Individual Efforts Tutorial Participations Tutorial questions will be assigned from time to time. They are designed to help you prepare for the final exam. We discuss the questions and their solutions in the lectures or tutorials. B. Team Efforts The class will be divided into several groups, each of which consists of about 4 students, depending on class size. We would like students to form groups of their own. In the event that this does not work, we will form groups for you according to alphabetic order of your last names. We will finalize the grouping on the first lecture. Each group is required to do a case study of the financial institutions or markets on Hong Kong and China. The topics for research include the following: Financial Markets in China and Hong Kong 1. Money Market 2. Bond Market 3. Stock Market 4. Mortgage Market Financial Institutions in China and Hong Kong 5. Commercial Banks 6. Saving Associations and Credit Union 7. Mutual Fund Industry 8. Insurance Company 9. Pensions Funds 10. Investment Banks 11. Security Brokers and Dealers 5
  6. 6. MSc. In International Banking and Finance 12. Private Equity We would like each group to choose a different case from the above list of financial markets/institutions (by drawing lots). Each group is required to present their research using transparencies or power points in the tutorial class and hand in their research report after the presentation. Marks will be given for their presentations and written reports. The report to be presented includes the following: historical developments; rationale for its existence, structure, characteristics and overview; types of products/services; the industry size, relevant data, comparisons, relevant graphs; how the business or service is conducted, risks and valuations, government regulations, and any other relevant information that embellishes your presentation/report. Recommended Readings: Joseph J. Norton, C.J. Li, and Yangxin Huang, Financial regulation in the greater China area : Mainland China, Taiwan and Hong Kong SAR, The Haque; Boston : Kluwer Law International, 2000 Low Chee Keong, Financial markets in Hong Kong, New York : Springer 2000 Gao Jian, Debt Capital Markets in China, Hoboken, N.J.: John Wiley & Sons, c2007 Simon S.M. Ho, Robert Haney Scott, and Kie Ann Wong, The Hong Kong financial system : A new age, Hong Kong; Oxford : Oxford University Press, 2004 Jao, Y.C., The Asian financial crisis and the ordeal of Hong Kong, Westport, Conn.: Quorum Books,2001 Lardy, Nicholas R., China’s Unfinished Economic Revolution, Washington D.C.: Brooking Institution Press, 1998 Tan, Chwee Huat, Financial Sourcebook for Southeast Asia and Hong Kong, Singapore: World Scientific 2000 World Bank, China: Finance and Investment, Washington D.C. : The World Bank, 1998 Beecham, B.Julian, Monetary and Financial System in Hong Kong, HK: HK Institute of Bankers, 2nd edition, 1998 Gao Jian, Zhongguo zhaiquan (Chinese Bonds), Beijing : Jingji kexue chubanshe, 1999 Kumar, A., Lardy, N., Albrecht, W., and Chuppe, T., China’s Non-Bank Financial Institutions: Trust and Investment Companies, Washington, D.C.: The World Bank, 1997 Langlois, Jr. John D., “The WTO and China’s Financial System” in The China Quarterly, No. 167, 6
  7. 7. MSc. In International Banking and Finance September 2001, pp. 610-629 People’s Bank of China, China Financial Outlook, Beijing: China Financial Publishing House, various years Schenk, Catherine R., Hong Kong as an International Financial Centre: Emergence and Development 1945-65, London; New York : Routledge, 2001 Tam, O.K (ed.), Financial Reform in China, London: Routledge, 1995 Wen, Jiandong, “China’s WTO entry and revision of foreign exchange control regulations, rules,” China Law, August 2000, pp. 65-69 (Chinese version available in “Jiaru WTO yu Zhongguo waihui gunali fagui di tiaozheng,” Zhongguo falu”) August 2000, pp. 11-13 Xu Xiaoping, China’s Financial System under Transition, London: MacMillan Press 1998 Yao Chengxi, Stock Market and Futures Market in the People’s Republic of China, Hong Kong: Oxford University Press, 1998 Government Document Available on the Web: “Banking Policy and Regulation” HK Monetary Authority Fact Sheets: “Deregulation of Interest Rate Rules,” HK Monetary Authority Quarterly Bullet, May 2001 “HKMA’s Policy Response to the Banking Sector Consultancy Study”, HKMA Quarterly Report, August 1999 “Hong Kong: a Regional Insurance Centre”, by Benjamin Tang, Speech made on 8 May 2001 by the Commissioner of Insurance to the National Club in Toronto, Canada: “The Way Forward for Banking Sector Reform,” HK Monetary Authority Quarterly Bulletin, May 2001 7