International financial institutions and markets 2011

1. International financial institutions and markets2011/2012 Lucia Poletti Department of Economics 1

2. General information Classes on: Mondays: 9 a.m. - 11 a.m. Tuesdays: 11 a.m. - 1 p.m. Wednesdays: 11 a.m. - 1 p.m. Office times: Mondays: 11 a.m. � 1 p.m. Wednesdays: 3 p.m. � 5 p.m. Please always check on the Internet for changes (�Avvisi�). Write to lucia.poletti@unipr.it to make an appointment on other days. Office on the first floor , Sezione Finanza Banca e Assicurazioni. Calendar available in a separate file. 2

3. Course Overview: Why Study the Financial System? On the evening news you hear that the bond market has been booming. What does this mean? Do I care about interest rates? Will this impact on my ability to get a bank loan? How does my bank assess me? Is it better to invest my money in stocks or bonds? You read on the Internet that you can finance a small farmer in Kenya through a microfinance program. What does this mean? What is microfinance? Couldn�t the farmer ask for a loan directly from a bank? Would this loan really help the farmer? 3

4. Course OverviewWhy Study Financial Markets? Financial markets, such as bond and stock markets, are crucial in our economy. These markets channel funds from savers to investors, thereby promoting economic efficiency. Market activity affects personal wealth, the behavior of business firms, and the economy as a whole Well functioning financial markets, such as the bond market, stock market, and foreign exchange market, are key factors in producing high economic growth. 4

5. Course Overview:Why Study Financial Institutions? We will spend considerable time discussing financial institutions�the corporations, organizations, and networks that operate the so-called �marketplaces.� Banks and other financial institutions play a crucial role in improving the efficiency of the economy. Financial institutions are among the largest employers... Knowing how financial institutions are managed may help you deal with them better. Knowing the financial system will help you to understand what happened during the 2007-2009 crisis. 5

6. Course Overview:Why Study Microfinance? When particular conditions occur, people (in particular poor people) may be excluded from the mainstream financial system. Lack of funds due to financial exclusion prevents small entrepreneurs from taking up opportunities offered by economic activities. Microfinance institutions provide financial services that allow people to save and invest in small businesses. Microfinance is widely used in development programs of international bodies and is heavily financed by donors. Microfinance does not work everywhere: it is important to understand why. 6

7. Course Overview:General Structure In the first part of the course we will describe what a financial system is: How does it work? What is the role of financial intermediaries? What is a market? What is the role of financial regulation? Why is the financial system particularly important to the whole economy? Textbook: Mishkin-Eakins The second part of the course focuses on microfinance, a specific segment of the financial system. What is microfinance? Why do we need it? In which countries can we find it? Does it really contribute to reducing poverty? Can it be a good investment? Textbook: Aghion-Morduch 7

8. Textbooks and other reading material Financial Markets and Institutions, Frederic S. Mishkin and Stanley Eakins, 7/E, Prentice Hall, 2012. (ISBN-10: 013213683X, ISBN-13: 9780132136839) The Economics of Microfinance, Beatriz Armend�riz de Aghion and Jonathan Morduch, The MIT Press, 2010. (ISBN-10:0-262-51398-6, ISBN-13: 978-0-262-51398-2) Slides available on my webpage (google LUCIA POLETTI ECONOMIA PARMA, then �International financial institutions and markets a.a. 2011-2012�, �Materiali didattici da scaricare�). To request the password write to lucia.poletti@unipr.it Additional compulsory readings will be indicated during the classes and on the Internet ("Materiali didattici da scaricare"). 8

9. Assessment The final mark is out of 30 (maximum mark?30; pass mark?18). Attending students can choose between the following alternatives: Written final exam for up to 30 marks. Written final exam (for up to 25 marks) + In class presentation (for up to 5 marks). Non-attending students are only allowed to take the written exam (for up to 30 marks). 9

10. Assessment If you are an attending student and choose the Exam+Presentation option you have to: Take a written exam (on the whole program) that counts for up to 25 marks. Give a presentation that counts for up to 5 marks. The presentation involves group work on a specific topic. For group work you will have 2 lessons. The final total mark is the sum of the two partial scores (ex.: 24+2=26). You can fail the exam in two cases: If your final total mark is below 18 (ex.: 15+1=16). Or If you score less than 15 (out of 25) in the written exam. In this case you will fail the exam regardless of the score in your presentation. In order to pass the exam, you must gain at least 15 out of 25 in the written exam (ex.: 13+5=18?fail). 10

11. Group work and presentations (for attending students) Groups of 4-5 people will be formed. Each group will choose a topic and prepare a presentation divided into 4-5 sections (according to the number of group members). Each group member will present his/her section (5 minutes per person). Each group member�s presentation will be assessed individually. The assessment will be based on the following items: Are the structure and the objectives of the individual presentation clear? Are the structure and the objectives of the group work clear? Are the different parts well coordinated and organized? Considering the time available, has the topic been adequately dealt with? 11

12. Group Work: Topics 1 - Pension funds. Pension schemes come in many forms and are run by both the State and private sector. What are the characteristics of pension schemes in some of the main European countries? What is the role of pension funds? 12

13. Group Work: Topics 2 - Venture capital companies. Many start-ups or rapidly growing small companies find it difficult to raise finance from banks because they cannot provide sufficient asset security and are often regarded as high risk. What is the role of venture capital companies in some of the main European countries? What are their main activities? 13

14. Group Work: Topics 3 - Behavioural finance The field of behavioural finance seeks to explain why and how financial markets can be inefficient by bringing in insights from human psychology to explain the behaviour of financial market participants. What are the main findings of behavioural finance studies? 14

15. Group Work: Topics 4 - Forecasting interest rates Review information about the credit market in a recent issue of the Wall Street Journal and identify the factors that are given attention because they may affect future interest rate movements. Then create your own forecasts as to whether interest rates will increase or decrease in the next six months 15

16. Group Work: Topics 5 � Client protection in microfinance In microfinance the issue of client protection is becoming prominent. Why is client protection important in microfinance? What are the main principles of client protection? How can they be implemented by microfinance institutions? 16

17. Group Work: Topics 6 � ICT in microfinance Information and communication technology is being implemented in microfinance. How can ICT help improve microfinance services? In what activities do microfinance institutions tend to implement it? Can you find a few examples among microfinance institutions? 17

18. Group Work: Topics 7 � Rating of microfinance institutions Along with the development of microfinance, bodies specialised in assessing microfinance institutions have been set up. Identify the main rating companies. Choose one and describe its rating methodology. Explain how its social and performance rating reports are structured. 18

19. Group Work: Topics 8 � Microfinance in Europe Even if it is not as widespread as in other areas, microfinance is developing in Europe. Describe the general picture of microfinance in Europe. What are the main features? In which countries is it more developed? What kind of institutions operate in Europe? What kind of customers do they serve? 19

20. Group Work: Topics 9 � The impact of microfinance One of the most important issues in microfinance is its actual impact on poverty reduction. What methodologies can be used to assess impact? What are the main impact indicators? What problems arise in assessing the impact of microfinance? 20

21. Group Work: Topics 10 � The governance of microfinance institutions The ownership structure of microfinance institutions influences their governance mechanisms. What do we mean by �governance�? What are the main stakeholders of a microfinance institution? What problems arise in the decision making? 21

22. Group Work: Topics 11 � Credit bureaus for microfinance institutions One of the main problems in microfinance is checking how much customers are indebted. Credit bureaus collect information on the customers of microfinance institutions. How does a credit bureau work? Why is it useful? Can you describe a few examples of existing credit bureaus? 22

23. Group Work: Topics 12 � Case study: ADIE in France ADIE is an example of successful microfinance institution in Europe. Explain its history, how it operates, and what problems it has faced up to now. 23