Financial Institutions and Markets – KASNEB Syllabus

PAPER NO.5 FINANCIAL INSTITUTIONS AND MARKETS

GENERAL OBJECTIVE

This paper is intended to equip the candidate with the knowledge, skills and attitudes that will enable him/her to make investment decisions based on the analysis of financial markets.

LEARNING OUTCOMES

On successful completion of this paper, the candidate should be able to:

Identify financial intermediaries available for investment
Calculate security market indices
Comply with financial market regulations
Trade financial securities in the financial markets
Understand the roles and functions of Unclaimed Financial Assets Authority and Financial Reporting

CONTENT

Market organisation and structure

Functions of financial systems
Classifications of assets and markets
Structure of financial markets
Major types, subtype and characteristics of securities traded in organised markets: currencies, contracts, commodities and real assets
Flow of funds and financial systems
Characteristics of a well-functioning financial system
Organic theory of financial markets
Definitive approaches to financial markets
Automation of security exchanges: Automated trading systems (ATS) and Central Depository System (CDS)
Internationalisation of financial markets

Marketing financial services

Challenges of marketing financial services
The consumer decision process in financial services
Categories of financial products and services
Pricing and advertising of products relating to financial services
Distribution of financial services; traditional channels of distribution; technology driven delivery channels
The process of new product introduction in financial services markets
Segmentation bases within financial markets
Customer satisfaction with financial services; building financial consumers relationship; consumer retention and loyalty

Financial markets

Money markets: purpose, participants, trading; money market instruments(treasury bills, commercial papers, negotiable certificates of deposit)
Bond markets: purpose, participants; bond market instruments(treasury bonds, municipal bonds, corporate bonds, structured notes, exchange-traded notes)
Equity markets: purpose, participants, Initial Public Offering(IPO),share offering and repurchases, market orders
Mortgage markets: purpose, participants,classification, types of residential mortgages, participants, mortgage market instruments
Foreign exchange markets: purpose, participants; forex market currency pairs
Derivatives securities markets: futures markets, forward markets, option markets and swap markets, purpose, participants and instruments

Security market indices

Security market index
Calculation and interpretation of an index value, price return and total return
Choices and issues in index construction and management: different weighting methods used in index construction
Index rebalancing and reconstitution
Uses of security market indices
Types of equity indices: price weighted index, value weighted index, equally weighted index and float adjusted weighted index, global equity indices
Types of fixed-income indices
Indices representing alternative investments
Comparison of indices over time

Market efficiency

The concept of market efficiency: definition and assumptions; importance of market efficiency to investment participants
Market value and intrinsic value
Factors affecting a market’s efficiency
Forms of market efficiency: weak form, semi-strong form and strong form; implications of each form of market efficiency for fundamental analysis, technical analysis and the choice between active and passive portfolio management
Random walk theory and efficient markets
Tests of market efficiency
Market anomalies :size effect, P/E ratio effect, day of the week effect (Monday effect), year- end or January effect, return patterns (value line enigma, quarterly earnings surprises), Fama-French value/market value

Financial intermediation and disintermediation

Introduction to financial intermediation and disintermediation
Challenges of financial intermediation and irregularities of markets commercial banks: Islamic banking, internet banking, agency banking, international banking
Savings and loans associations and co-operative societies
Foreign exchange bureaus
Unit trusts and mutual funds
Insurance companies and pension firms
Insurance agencies and brokerage firms
Investment companies
Investment banks and stock brokerage firms
Micro-finance institutions and small and medium enterprises (SMEs)
Syndication by commercial banks on the operations of the capital markets
Private equity firms
Financial advisory firms

Financial markets regulation

Asymmetric information and financial regulation: government safety net, restrictions on asset holdings, capital
Role of government in the financial system; capital markets authority (CMA), central bank, central depository and settlement corporation (CDSC)
Role of ICIFA in regulating investment and financial analysts
Financial supervision: chartering and examination, assessment of risk
Management, disclosure requirements, restrictions on competition
Financial liberalisation, stratification and rationalisation
Financial deepening
Banks runs and panics
The liquidity crisis

Informal finance

Introduction to informal finance
Sources of informal finance
Features of informal finance
Informal investment organisations
Challenges of informal finance

Unclaimed Financial Assets Authority and Financial Reporting center

Objectives
Functions and powers
Due diligence requirements