FIN 414 Operation of Financial Institutions

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FIN 414 Syllabus
Operation of Financial Institutions
Winter 2024
Sections B1/B2

Instructor:
 Adelina Barbalau
Office:
 2-29B Business Building
Email:
 [email protected]
Office Hours:
 By appointment
Class Times
414 B1: BUS 3-10    Tue, Thu 11:00AM - 12:20PM
414 B2: BUS 3-10    Tue, Thu 12:30PM - 1:50PM
Course Description
Well-functioning capital markets are essential for economic growth. The allocation of scarce resources requires accurate prices and this includes accurate prices for investment capital (i.e. the cost of capital). This course examines the roles played by various financial intermediaries as they engage in activities that enhance the functionality of capital markets, the risks faced as they do so, and the ways that these risks are managed. At the end of this course you should understand the economic role of financial intermediaries in general, the risks faced by specific types of financial intermediaries as they fulfill their roles, and techniques for measuring and managing the risks. Success in this course requires a sound grasp of business fundamentals, critical thinking and problem solving, and the application of quantitative methods.
The learning goals for this course are in line with the Alberta School of Business learning goals.
Prerequisites
FIN 301 Introduction to Finance
Course Materials
• Textbook: Financial Institutions Management: A Risk Management Approach 8e, by Saunders and Cornett. Publisher: McGraw-Hill Education.
• Journal articles that can be accessed through the University Library’s webpage. Detailed instructions for accessing journal articles can be found at the end of this syllabus.
• Lecture notes and additional reading material posted on eClass.
• We will also go through a case study, which can be purchased from Ivey publishing. More details will be provided during the course.

The course lectures will be based on, but will not be confined to, material in the textbook and the articles on the reading list. Additional material will be covered during lectures. All relevant material and information will be provided to registered students on eClass. As the term progresses, I will post lecture slides, videos, links, and other reference material on the eClass course web page. It is the student’s responsibility to check the course web page on an ongoing basis for announcements, postings or additional learning material.

Course Delivery

This will be a hybrid course combining live in-person lectures with online pre-recorded lectures. For the in-person lectures we will meet at the times and in the classrooms indicated above. For the online lectures you are expected to go through the pre-recorded videos on your own; you will find these on eClass. The Course Outline below specifies which lectures are in person and online.
Grading and Evaluation
The course requirements consist of 4 Homeworks (5% each), 2 Quizzes (17% each), 1 Project (14%) and the Final Examination (32%). Homeworks will be administered on eClass. The Quizzes will be administrated in person, during scheduled class times at the dates and times indicated below. The Final Exam will take place in person; the exact date and time is yet to be determined by the Business undergrad office.
Grade Item
 Weight
 Due Date
 Mode of Delivery
Homework I
 5%
 29-January
 eClass
Homework II
 5%
 12-February
 eClass
Homework III
 5%
 18-March
 eClass
Homework IV
 5%
 27-March
 eClass
Quiz I
17%
15-February
 in class
Quiz II
 17%
 2-April
 in class
Group Project
 14%
 3-April
 eClass & in class
Final Exam
 32%
 TBA
 in class

The due dates and the weights allocated to each component of the course grade are not flexible. Make-up or extra work to improve your grade is not possible. Once assigned, the final grade will not be changed except in the case of a recording error. If you feel that your grade is incorrect, you must notify me in writing during the one-week period following the receipt of your result. After that, the problem will not be researched. 

Homework is due on eClass by 11:59PM (one minute before midnight) on the due date. It will be made available one week before the due date, so you have one week to work on each. You have unlimited attempts to work on each homework assignment and only your highest score will be recorded. Due dates are provided in the Course Schedule. Late homeworks will not be accepted, and the weight on missed homeworks will be lost. After their due dates, the homework problems will remain available to re-work for additional practice.

Quizzes are non-cumulative, that is, they will be testing the material covered between the quizzes. The weight on any missed quizzes will be moved to the final exam. If you miss the final exam you will need to make arrangements with the undergraduate office regarding a deferred exam. 

The Project is a group work (4 to 5 students), which involves submitting a written report and delivering a presentation. The presentations will be split over a couple of lectures and attending all other groups’ presentations is mandatory (this is part of your grade item). More details and project guidelines will be made available in a separate document.

Attendance
Attendance is not mandatory, but strongly encouraged. Missed classes are solely your responsibility. If you want to know what was covered in a class that you missed (including administrative announcements), or receive handouts from a missed class, you will have to find a classmate who attended class and is willing to share their notes.
Office Hours and Email Policy
Office hours are by appointment and can be held in person or on Zoom. Questions and requests for appointments can be made by sending me an email to [email protected]. Please make sure to include “FIN 414” in the subject of your email. Your email should include your question(s) and, if requesting an appointment, the times that you are available. I will reply within 48 hours with either: (i) a typed response to your question(s) or (ii) indicating a time for us to meet.
Grade Assignation
The overall grade from this course will be based on the grade item weights given above. Letter grades will be assigned to the percentage marks in accordance with University Regulations [Section 23.4(4) of the University Calendar]. Your final course grade will be based on your absolute achievement and relative performance in the course. You will need at least 50% of the total points to pass this class.
Code of Conduct
The University of Alberta is committed to the highest standards of academic integrity and honesty. Students are expected to be familiar with these standards regarding academic honesty and to uphold the policies of the University in this respect. Students are particularly urged to familiarize themselves with the provisions of the Code of Student Behaviour (online at www.governance.ualberta.ca) and avoid any behaviour which could potentially result in suspicions of cheating, plagiarism, misrepresentation of facts and/or participation in an offence. Academic dishonesty is a serious offence and can result in suspension or expulsion from the University.
Use of Electronic Devices in Class
Students are permitted the use of laptops or tablet devices in class to take notes or access the course website or other materials relevant to the class. Other uses are disruptive to the class, the instructor and other students and are not permitted. Use of cellphones for making or receiving calls or texting is prohibited. Cellphones should be turned off prior to class. Audio or video recording of lectures, labs, seminars or any other teaching environment by students is allowed only with the prior written consent of the instructor or as a part of an approved accommodation plan. Student or instructor content, digital or otherwise, created and/or used within the context of the course is to be used solely for personal study, and is not to be used or distributed for any other purpose without prior written consent from the content author(s).
Course Outlines, Evaluation Procedures and Grading System
Policy about course outlines can be found in Course Requirements, Evaluation Procedures and Grading of the University Calendar.

Accommodations can be made for students with recognized Accessibility Issues link.

Course Outline and Readings


Date
 Topic
 Readings
9-Jan
Introduction
 Chapter 1
11-Jan
 Depository Institutions *
 Chapter 2
16-Jan
 Securities Firms and Investment Banks
 Chapter 4
18-Jan
 Investment Companies *
 Chapter 5
23-Jan
 Fintech Companies
 Lecture notes
25-Jan
 Insurance Companies *
 Chapter 6
30-Jan
 Liquidity Risk I
 Chapter 12
1-Feb
 Liquidity Risk II
 Lecture notes
6-Feb
 Interest Rate Risk I *
 Chapter 8
8-Feb
 Interest Rate Risk II
 Chapter 9
13-Feb
 Review for Quiz I
15-Feb
 Quiz I
27-Feb
 Credit Risk I
 Chapter 25
29-Feb
 Credit Risk II
 Chapter 26
5-Mar
 Climate Change Risk
 Lecture notes
7-Mar
 Forwards and Futures *
 Chapter 22
12-Mar
 Options
 Chapter 23
14-Mar
 Caps, Floors and Collars
 Chapter 23
19-Mar
 Swaps
 Chapter 24
21-Mar
 Complex Retail Products I *
 Lecture notes
26-Mar
 Complex Retail Products II
 Lecture notes
28-Mar
 Review for Quiz II
2-Apr
 Quiz II
4-Apr
 Review for Final Exam
9-Apr
 Presentations
 Ivey case study
11-Apr
 Presentations
 Ivey case study
Topics marked with * indicate online lectures.
Please note that this outline is only a guide and is subject to change with appropriate notification.
Relevant Journal Articles
The Journal Article covered in the lecture on Credit Risk is
• Berg, T., V. Burg, A. Gombović & M. Puri, 2019, On the Rise of FinTechs–Credit Scoring Using Digital Footprints, Review of Financial Studies, 33(7), 2845-2897.
The Journal Article covered in the lecture on Climate Risk is
• Andersson, M., Bolton, P., & Samama, F. (2016). Hedging climate risk. Financial Analysts Journal, 72(3), 13-32.
The Journal Articles covered in the lectures on Complex Retail Products are
• Choi, J., D. Laibson, & B.C. Madrian, 2010, Why does the law of one price fail? An experiment on index mutual funds, Review of Financial Studies, 23 (4), 1405-1432. • Celerier, C. and B. Vallee, 2017, Catering to investors through security design: Headline rate and complexity, Quarterly Journal of Economics, 132 (3), 1469-1508.
All Journal articles are accessed via the University of Alberta’s Library’s database page https://library.ualberta.ca/
Review of Financial Studies / Quarterly Journal of Economics / Financial Analysts Journal
a. The Journals are accessed via the Library’s eJournals search.
b. Select “Search for eJournals” on the Library homepage.
c. Type Review of Financial Studies / Quarterly Journal of Economics / Financial Analysts Journal into the search box and search.
d. It should be the first result returned. Select it.
e. You will be presented with several choices. Business Source Complete will work just fine.
f. On the right hand side of the screen, select the issue year and issue number of interest.
g. Select the suggested article.

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