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2021/2022  KAN-CFIVO1006U  Financial Intermediation

English Title
Financial Intermediation

Course information
Language English
Course ECTS 7.5 ECTS
Type Mandatory
Level Full Degree Master
Duration One Quarter
Start time of the course Spring
Timetable Course schedule will be posted at calendar.cbs.dk
Study board
Study Board for MSc in Economics and Business Administration
Course coordinator
  • David Lando - Department of Finance (FI)
Main academic disciplines
  • Finance
  • Statistics and quantitative methods
Teaching methods
  • Face-to-face teaching
Last updated on 18-06-2021

Relevant links
Learning objectives
The course introduces students to financial intermediation with a main focus on banking:
  • Explain the assets, liabilities and key sources of risk of some main types of financial intermediaries, including banks, investment banks, pension funds, mortgage institutions, and insurance companies
  • Explain the key roles performed by banks in an economy including the role in the domestic and international payment system, maturity transformation, screening and monitoring of borrowers, and in the implementation of monetary policy
  • Explain and discuss the composition and riskiness of bank assets for a representative bank
  • Explain different short-term and long-term funding sources of banks, including deposits, interbank loans, repos, commercial paper, medium term notes, covered bonds, contingent capital, equity, funding in foreign currency, FX swaps
  • Understand a simplified version of the Diamond-Dybvig model
  • Use a structural (Merton) model of credit risk to value debt and equity and use the model flexibly to analyze deposit insurance, risk taking incentives, etc.
  • Explain the concept and importance of off-balance sheet commitments .Explain and discuss shadow banking
  • Explain the rationale behind banking regulation and discuss whether higher capital requirements affect bank lending. Explain and discuss key concepts in financial regulation such as risk weighted assets, capital ratios, the leverage ratio, net stable funding ratio, liquidity coverage ratios
  • Understand and apply the single factor portfolio credit risk model
  • Explain securitization and apply the single factor model to pricing of tranches with different priority in asset securitizations. Understand and apply the mixed binomial model.
  • Discuss cost of capital for banks and capital allocation within banks.
  • Understand the tools of monetary policy applied by central banks and how they operate through the banking system. Discuss payment systems and settlement,Introduce the market for Eurodollars..
Prerequisites for registering for the exam (activities during the teaching period)
Number of compulsory activities which must be approved (see section 13 of the Programme Regulations): 2
Compulsory home assignments
The student must get 2 out of 4 written home assignments approved in order to attend the
ordinary exam. The assignments should be solved in groups of 2-4 students. Maximum of 3 pages per student per assignment.

Students will not have extra opportunities to get the required number of compulsory activities approved prior to the ordinary exam. If a student has not received approval of the required number of compulsory activities or has been ill, the student cannot participate in the ordinary exam.
If a student prior to the retake is still missing approval for the required number of compulsory activities and meets the pre-conditions set out in the program regulations, an extra assignment is possible.

The extra assignment is a 10 page home assignment that will cover the required number of compulsory activities. If approved, the student will be able to attend retake.
Examination
Financial Intermediation:
Exam ECTS 7,5
Examination form Written sit-in exam on CBS' computers
Individual or group exam Individual exam
Assignment type Written assignment
Duration 4 hours
Grading scale 7-point grading scale
Examiner(s) One internal examiner
Exam period Spring
Aids Open book: all written and electronic aids, including internet access
Read more here about which exam aids the students are allowed to bring and will be given access to : Exam aids and IT application package
Make-up exam/re-exam
Same examination form as the ordinary exam
If the number of registered candidates for the make-up examination/re-take examination warrants that it may most appropriately be held as an oral examination, the programme office will inform the students that the make-up examination/re-take examination will be held as an oral examination instead.
Course content, structure and pedagogical approach

The course develops a deep understanding of financial markets and how investors use the securities traded in financial markets. The course covers the following topics:

  • Balance sheets and financial risks of financial intermediaries
  • The role of banks in the economy
  • Bank funding
  • Bank risk management
  • Banking regulation
  • Systemic risk in the banking system
  • Securitization, shadow banking
  • Central banks, payment systems, and monetary policy instruments

Excel is used throughout the course wherever relevant
Description of the teaching methods
Lectures with written assignments. Exercise sessions are offered, if not exercises will be integrated into lectures.
Feedback during the teaching period
Feedback is given on homework assignment. In addition, we have five exercise sessions in which the students do problems and have a dialogue with the instructor whenever they ‘stumble’ or are stuck. Students get immediate response to a proposed method or approach. Quizzes will be added after each lecture..
Student workload
Lectures 33 hours
Preparation for lectures 66 hours
Written assignments 40 hours
Exam 4 hours
Final preparation for exam 18 hours
Exercise sessions 10 hours
Preparation for exercise sessions 35 hours
Expected literature
  • Selected academic papers, including central bank publications
  • Lecture notes by David Lando
  • Annual reports and risk reports of major banks
Last updated on 18-06-2021