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2023/2024  KAN-CFIAO1006U  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 Third Quarter
Timetable Course schedule will be posted at calendar.cbs.dk
Study board
Study Board for cand.merc. and CFIA (CFIA)
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 02-06-2023

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.
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 Limited aids, see the list below:
The student is allowed to bring
  • USB key for uploading of notes, books and compendiums in a non-executable format (no applications, application fragments, IT tools etc.)
  • Any calculator
  • In Paper format: Books (including translation dictionaries), compendiums and notes
The student will have access to
  • Access to Canvas
  • Access to the personal drive (S-drive) on CBS´ network
  • Advanced IT application package
Make-up exam/re-exam
Same examination form as the ordinary exam
The number of registered candidates for the make-up examination/re-take examination may warrant that it most appropriately be held as an oral examination. The programme office will inform the students if the make-up examination/re-take examination instead is held as an oral examination including a second examiner or external examiner.
Course content, structure and pedagogical approach

The course develops a deep understanding of banking. The course covers the following topics:

  • Balance sheets and financial risks of banks
  • 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
  • Benchmark rates

Excel is used throughout the course wherever relevant

Description of the teaching methods
Lectures with written assignments. Exercise sessions are offered, Some exercises may 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 02-06-2023