This course analyses how financial markets and financial institutions operate, interact, and why financial systems become increasingly complex. It covers the structure and functions of the financial system, the theory of financial intermediation, and the diversity of financial institutions from financial intermediaries to institutions that enable smooth functioning of markets. The course examines innovations such as securitisation, P2P lending, and fintech. It explores how expectations shape market outcomes, the role of central bank communication, and the causes and resolution of financial crises. Throughout, the course draws on current events, recent developments and empirical evidence to connect theory with practice, emphasising understanding and articulation of fundamental underpinnings of financial markets and institutions.

Lectures: 10 x 2-hour lectures

Tutorials: 4 x 1-hour tutorial

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1. Written assignment, including essay; Group; 2250 words; 25%; ILOs combination of 1-5.

2. Degree exam: in-person; Individual; 120 minutes; 75%; ILOs 1-4.

The course aims to:

■ Develop knowledge and understanding of the theories, institutions, and empirical findings that underpin the functioning of financial systems, such as the theory of financial intermediation, market equilibrium, market efficiency, the role of information and expectations, and the basic functions of regulation.

■ Build capacity to apply those theories and empirical findings in the analysis of real-world developments in finance, ranging from innovations such as securitisation, fintech, and alternative finance, to financial crises, regulatory changes, and central bank communications.

■ Build capacity to evaluate critically the functions of financial institutions and markets, the design of financial regulation, the roles of financial intermediaries, market participants, regulators, and central banks in serving the needs of shareholders, depositors, borrowers, and society at large.

■ Develop analytical skills, independent thinking, the ability to articulate and defend reasoned arguments about complex issues in finance and communication skills through engagement with academic literature, applied analysis of contemporary cases and events in financial markets and institutions.

By the end of this course students will be able to:

1. Explain and critically evaluate the key theories of financial intermediation and financial markets, and apply these theories to analyse how financial institutions and markets channel funds, transform risk, create liquidity and provide information.

2. Analyse how different types of financial institutions arise as responses to specific frictions such as asymmetric information, transaction costs, and liquidity needs, and how financial innovations, such as securitisation, alternative finance and fintech reshape these responses.

3. Apply key analytical frameworks to assess contemporary developments and events on financial markets and institutions, such as financial crises, regulatory changes, policy communications.

4. Evaluate critically the role of financial institutions, markets, and regulators in serving the needs of borrowers, lenders, and the wider society.

5. Work collaboratively in a group to produce a combined piece of coursework.