Postgraduate taught 

Economics, International Banking & Finance MSc

Modern Theory Of Banking And Finance ECON5023

  • Academic Session: 2023-24
  • School: Adam Smith Business School
  • Credits: 20
  • Level: Level 5 (SCQF level 11)
  • Typically Offered: Semester 2
  • Available to Visiting Students: No

Short Description

The course begins with an outline of the role of a financial system in an economy. We then pass to the study of financial assets. Bond finance is treated in detail, as is the determination of interest rates in bond markets. We continue with analysis of the importance of imperfect information between parties in credit relationships, and discuss the adverse selection and moral hazard problems. We then touch upon the issue of transmission mechanism of monetary policy. Banks are the subject of more detailed analysis, including bank runs and bank regulation. We finish by studying financial liberalisation and the factors that led to the financial crisis of 2008-2010.


A 2-hour lecture each week for 10 weeks.


Group Coursework: Group assignment (40% of final grade for course).

Examination: 90 minute end-of-course examination (60% of final grade for course).

Main Assessment In: April/May

Course Aims

The main aims of the course are to:

■ outline the role of a financial system;

■ discuss the financial approach for asset valuation;

■ analyse the functioning of bond markets and how they interact with different parts of the economy;

■ examine the importance of imperfect information between parties in credit

■ relationships, and discuss the problems of adverse selection and moral hazard;

■ analyse the functioning of banks, understand their financial statements and risk management problems, and

■ discuss the various issues of financial market regulation, and the importance of bank health.

Intended Learning Outcomes of Course

At the end of the course, students will be able to:


1. Demonstrate an understanding of why financial institutions exist and what role financial system plays in an economy

2. Use core concepts in banking to assess the role of financial management and risk management in bank management

3. Understand how bank-based and marked-based systems differ from each other

4. Critically assess the factors leading to financial crises with a focus on bank failures and banking crises

5. Discuss the rationale for central banks and regulatory financial institutions and their objectives and functions

Minimum Requirement for Award of Credits

Students must submit at least 75% by weight of the components (including examinations) of the course's summative assessment.