Banking and Finance (English)
Bachelor	TR-NQF-HE: Level 6	QF-EHEA: First Cycle	EQF-LLL: Level 6

General course introduction information

Course Code:

FNCE203

Course Name:

Money and Banking

Course Semester:

Fall

Course Credits:

Theoretical	Practical	Credit	ECTS
3	0	3	6

Language of instruction:

Course Requisites:

Does the Course Require Work Experience?:

Type of course:

Compulsory

Course Level:

Bachelor

TR-NQF-HE:6. Master`s Degree

QF-EHEA:First Cycle

EQF-LLL:6. Master`s Degree

Mode of Delivery:

Face to face

Course Coordinator :

Dr.Öğr.Üyesi MEHMET GÖKHAN GÖKTAN

Course Lecturer(s):

Dr.Öğr.Üyesi MEHMET GÖKHAN GÖKTAN

Course Assistants:

Course Objective and Content

Course Objectives:

This objective of this course is to analyze the topics of definition of money, monetary aggregates, measuring interest rates, risk structure of interest rates, term structure of interest rates and the yield curve, demand for money, the bank balance sheet, liquidity, asset, liability and capital adequacy management in banking, credit and interest rate risk management in banking, gap and duration analysis, bank income statement, net interest margin, banking regulation, central banks and money creation, IS-LM model.

Course Content:

Definition of money; monetary aggregates; measuring interest rates; risk structure of interest rates; term structure of interest rates and the yield curve; demand for money; the bank balance sheet; liquidity, asset, liability and capital adequacy management in banking; credit and interest rate risk management in banking; gap and duration analysis; bank income statement; net interest margin; banking regulation; central banks and money creation; IS-LM model.

Learning Outcomes

The students who have succeeded in this course;

Learning Outcomes

1 - Knowledge
Theoretical - Conceptual
1) • Introduce the key concept of money in economics terms.
2) • Identify the concept of interest rate to analyze pricing of debt instruments.
3) • Recognize basic principles in banking.
4) • Illustrate how these basic principles can be addressed in bank risk management.
2 - Skills
Cognitive - Practical
3 - Competences
Communication and Social Competence
Learning Competence
Field Specific Competence
Competence to Work Independently and Take Responsibility

Lesson Plan

Week	Subject	Related Preparation
1)	• Describe the course. • Explain why financial markets exist. • Explain why financial intermediaries exist. • Describe debt and equity markets. • Describe primary and secondary Markets • Explain money and capital markets • Syllabus. • Explain why Study Financial Markets? • Explan why Study Money and Monetary Policy? • Identify the Function of Financial Markets . • Discuss the Structure of Financial Markets • Discuss the Function of Financial Intermediaries .
2)	• Define Money in economic sense • Explain the Functions of Money • Describe the evolution of the payment systems • Recognize Money and the monetary aggregates (emphasis on different measurements across countries) • Descibe the effect of Financial Innovation on the measurement of Money • Explain the Meaning of Money. • Identify the Medium of Exchange property as function money. • Identify the Unit of Account property as a Function of Money. • Identify the Store of Value property as a Function of Money. • Evaluate the evolution of the Payments System • Determine how to measure Money.	Review the Syllabus. Read chapter 3 on pages 53-66.
3)	• Define The time value of money and the present value concept • Identify the four basic credit market instruments and yield to maturity concept • Special emphasis on the bonds: Definition, types and pricing • Basic facts on bonds • Special case of Perpetuity (Consol): The current yield and its importance as an approximation of long-term bond yields. • Determine how to measure Interest Rates • Compute Present Values. • Describe four types of credit market instruments. • Identify and evaluate the Yield to Maturity. • Compute Current Yield and discuss its implications. • Analyze the yield on a Discount Basis.	Read, in Mishkin, chapter 4 on pages 61-82.
4)	• Recognize the distinction between the rate of return and the yield to maturity • Identify the maturity and the volatility of bond returns: Interest-Rate Risk • Explain and compare Real and Nominal Interest Rates • Identify the interest rate risk and the effective maturity of bonds: Duration Analysis • Explain the theory of asset demand. • Evaluate the Distinction Between Interest Rates and Returns • Evaluate the Distncition between Real and Nominal Interest Rates • Determine the relationship between the Maturity and the Volatility of Bond Returns: Interest-Rate Risk • Determine how to measure Interest Rate Risk: Duration Analysis • Identify the factors affecting Asset Demand.	Read, in Mishkin, chapter 5 on pages 91-123. Review Lecture Notes.
5)	• Explain and illustrate the Risk Structure of Interest Rates. • Explain and illustrate Term Structure of Interest Rates. • Justify the Yield Curve. • Define the Expectations Theory. • Define the Segmented Markets Theory. • Define the Liquidity Premium Theory. • Analyze the effect of default risk on the determination of Risk Structure of Interest Rates. • Analyze the effect of liquidity risk on the determination of Risk Structure of Interest Rates. • Analyze the effect of income tax considerations on the determination of Risk Structure of Interest Rates. • Assess and discuss the implications of Expectations Theory in terms of the explanation of the Term Structure of Interest Rates. • Assess and discuss the implications of Segmented Markets Theory in terms of the explanation of the Term Structure of Interest Rates. • Assess and discuss implications the of Liquidity Premium Theory in terms of the explanation of the Term Structure of Interest Rates. • Illustrate the yield curve and analyze it as a forecasting tool for inflation and the business cycle.	Read, in Mishkin and Eakins, chapter 5 on pages 89-115. Review the Lecture Notes.
6)	• Explain the Quantity Theory of Money • Explain the Keynes' Liquidity Preference Theory • Explain the Friedman's Modern Quantity Theory of Money: Restatement of Classicals • Compare Keynes and Friedman • State the empirical evidence on the demand for money • Define Quantity Theory of Money. • Assess the Velocity of Money and Equation of Exchange. • Discuss the Quantity Theory of Money Demand. • Discuss whether Velocity is a constant. • Analyze the Keynes’s Liquidity Preference Theory. • Analyze the Friedman’s Modern Quantity Theory of Money.	Read, in Mishkin, chapter 19 on pages 497-518. Review Lecture Notes
7)	• Identify The Bank Balance Sheet: Assets, Liabilities and Net Worth • Explain the Basic Banking using T-Accounts • Regonize the General Principals of Bank Management • Liquidity Management and the Role of Reserves • Asset Management • Liability Management (strong emphasis on its increasing importance through time) • Capital Adequacy Management • Applications: i. Strategies for Managing Bank Capital, ii. How a Capital Crunch Caused a Credit Crunch in 2008 • Identify the Bank Balance Sheet • Illustrate the Basic Banking in accounting terms. • Evaluate the General Principles of Bank Management • Discuss the implications of Managing Credit Risk. • Discuss the implications Managing Interest-Rate Risk.	Read, in Mishkin, chapter 10 on pages 225-255. Review Lecture Notes
8)	• Midterm Exam • Discuss the Midterm Exam. • Explaining the specifics of the Midterm Exam. • Solutions of the Midterm Exam (if time permits).	Read, in Mishkin, chapter 10 on pages 225-255. Review Lecture Notes.
9)	• Identification of Managing Credit Risk • Managing Interest-Rate Risk: Gap and Duration Analysis • Application: Strategies for Managing Risk • List and recognize the Off-Balance Sheet Activities • Evaluate the Bank Performance: Bank's Income Statement • Evaluate the implications Managing Credit Risk. • Discuss further issues in managing Interest Rate Risk: Gap and Duration Analysis. • Define the Off-Balance-Sheet Activities. • Identify the Risk Management Techniques. • Explain the Bank’s Income Statement. • Evaluate the implications of Net Interest Margin.	Read chapter 10 on pages 225-255. Review Lecture Notes.
10)	• Define the Asymmetric Information (Adverse Selection and Moral Hazard) and Financial Regulation • Describe the Government Safety Net (emphasis on "Too Big To Fail" phenomenon) • Explain the Restrictions on Assets Holdings and Bank Capital Requirements (strong emphasis on off-balance-sheet activities and the Basel Accord) • State the importance of Risk Management • Identify the Disclosure Requirements and ethics in financial reporting. • Explain the International Financial Regulation • Explain Asymmetric Information. • Describe Government Safety Net. • Describe the Basel Accord (Basel II vs Basel III). • Discuss Risk Management in Banking. • Identify the specifics of International Financial Regulations regarding thecode of ethics in financial reporting.	Read, in Mishkin, chapter 11 on pages 255-281. Review Lecture Notes.
11)	• Define the Players in the Money Supply • Explain the CB's Balance Sheet • Illustrate the control of the Monetary Base • Explain the Multiple Deposit Creation • State and discuss the factors that determine the Money Supply • Analyze the derivation of Money Multiplier • Identify Four Players in the Money Supply Process • Analyze The Fed’s Balance Sheet • Discuss Control of the Monetary Base • Discuss Open Market Operations • Recognize Discount Loans (Liqudity Window) Policy • Justify Multiple Deposit Creation	Read, in Mishkin (2013), chapter 14 on pages 345-372. Review Lecture Notes.
12)	• Define and explain The ISLM Model • Equilibrium in the Goods Market: The IS Curve • Equilibrium in the Market for Money: The LM Curve • Analyze the Factors That Cause The IS and LM Curves to Shift • Analyze the Equilibrium Rates of Interest Rates and Aggregate Output • Recognize the ISLM Model • Explain the IS Curve • Explain the LM Curve	Read, in Mishkin (2013), chapter 20&21 on pages 519-560. Review Lecture Notes.
13)	• Review: Week 2-6 • Explain the Functions of Money • Time Value of Money • Identify the interest rate risk and the effective maturity of bonds: Duration Analysis • The determination of interest rates: Keynes vs Friedman • Quantity Theory of Money. • Meaning of Money. • Yield to Maturity. • Maturity and the Volatility of Bond Returns: Interest-Rate Risk. • Measuring Interest Rate Risk: Duration Analysis. • Supply and Demand in the Bond and Market for Money.	Read, in Mishkin (2013), chapter 20&21 on pages 519-560. Review Lecture Notes.
14)	• Review: Weeks (7, 9-12) • Regonize the General Principals of Bank Management • Identification of Managing Credit Risk • Managing Interest-Rate Risk: Gap and Duration Analysis • Define the Asymmetric Information (Adverse Selection and Moral Hazard) and Financial Regulation • Define and explain the money supply process • Analyze the IS-LM model. • General Principles of Bank Management • Managing Credit Risk • Managing Interest-Rate Risk. • Bank’s Income Statement • Net Interest Margin. • Money supply process • IS-LM model.	Review Lecture Notes.
15)	• Evaluate students via final exam. • Assess the student’s performance throughout the semester. • Analyze the final exam results in terms of further amelioration of the course. • Assess how to measure monetary aggregates • Assess how to value a bond and analyze the determination of interest rates • Assess how to analyze the quantity theory of money • Assess how to analyze the financial statements of banks • Assess how to determine the duration for a bank. • Assess how to analyze and distinguish asset, liability, credit risk management • Assess how to recognize the recent wave of securitization in terms of the implications of the financial innovation period.	None

Sources

Course Notes / Textbooks:	The Economics of Money, Banking and Financial Markets Frederick Mishkin, 10th ed., 2013 ISBN-10: 0-273-76673-8 • ISBN-13: 978-0-273-76573-8
References:	The Economics of Money, Banking and Financial Markets Frederick Mishkin, 10th ed., 2013 ISBN-10: 0-273-76673-8 • ISBN-13: 978-0-273-76573-8

Course-Program Learning Outcome Relationship

Learning Outcomes	1	2	3	4
Program Outcomes
1) Explain the essential body of knowledge in the area of banking and finance, including evolution of the discipline, the state-of-the-art concepts, scientific methodology, theories and models.
2) Employ the appropriate tools and analytical techniques to collect and analyze quantitative and qualitative data in the related areas, interpret results and propose solutions.
3) Recognize why financial institutions and financial intermediation exist and how they are structured.
4) Distinguish the insight about basic banking principles and regulations surrounding the banking industry.
5) Discover and create entrepreneurial opportunities and expertise to successfully establish and develop their own ventures.
6) Recognize, interpret and discuss the current global economic issues.
7) Communicate in written and oral English with people from diverse backgrounds, and have the English proficiency to follow and interpret the global dynamics in the areas of banking and finance.
8) Express the role of international capital markets in the global economy; accordingly define the concept of risk in terms of measurement and management.
9) Identify standards of personal, professional, social and business ethics, evaluate the ethical implications of various practices in the related areas, and be aware the importance of ethical behavior in adding value to the society.

Course - Learning Outcome Relationship

No Effect	1 Lowest	2 Low	3 Average	4 High	5 Highest

	Program Outcomes	Level of Contribution
1)	Explain the essential body of knowledge in the area of banking and finance, including evolution of the discipline, the state-of-the-art concepts, scientific methodology, theories and models.	5
2)	Employ the appropriate tools and analytical techniques to collect and analyze quantitative and qualitative data in the related areas, interpret results and propose solutions.	5
3)	Recognize why financial institutions and financial intermediation exist and how they are structured.	5
4)	Distinguish the insight about basic banking principles and regulations surrounding the banking industry.	5
5)	Discover and create entrepreneurial opportunities and expertise to successfully establish and develop their own ventures.	1
6)	Recognize, interpret and discuss the current global economic issues.	4
7)	Communicate in written and oral English with people from diverse backgrounds, and have the English proficiency to follow and interpret the global dynamics in the areas of banking and finance.	3
8)	Express the role of international capital markets in the global economy; accordingly define the concept of risk in terms of measurement and management.	1
9)	Identify standards of personal, professional, social and business ethics, evaluate the ethical implications of various practices in the related areas, and be aware the importance of ethical behavior in adding value to the society.	1

Learning Activity and Teaching Methods

Field Study
Expression
Individual study and homework
Lesson
Lab
Homework
Case Study

Assessment & Grading Methods and Criteria

Written Exam (Open-ended questions, multiple choice, true-false, matching, fill in the blanks, sequencing)
Homework
Group project

Assessment & Grading

Semester Requirements	Number of Activities	Level of Contribution
Quizzes	2	% 10
Midterms	1	% 40
Final	1	% 50
total		% 100
PERCENTAGE OF SEMESTER WORK		% 50
PERCENTAGE OF FINAL WORK		% 50
total		% 100

Workload and ECTS Credit Grading

Activities	Number of Activities	Workload
Course Hours	16	48
Study Hours Out of Class	16	48
Project	1	12
Homework Assignments	5	20
Quizzes	4	8
Midterms	1	15
Final	1	22
Total Workload		173