College of Business and Economics
Department of Economics
BA in Economics Program
Financial Economics (Econ 3091) Course Outline
Instructor: Jemberu L. (PhD.) Credit Hrs. 5 ECTS
Course objective
The changes and advances in finance theory and practice over the past decades have resulted in a
profoundly change in the financial world. These changes have been further accelerated by the
extensive globalization of financial markets and the rapid development in financial technologies in
recent years. This course provides a rigorous introduction to the fundamentals of modern financial
system and their applications in capital budgeting, project evaluation, corporate investment and
financing decisions, and basic security analysis and investment management.
The major topics to be covered are: The structure of financial system, The time-value of money,
Financial institutions, Financial markets, Risk and return, Portfolio theory, Asset Pricing models such
as the Capital Asset Pricing Model, Market efficiency, Equity valuation, Bond pricing and the Term
Structure of Interest Rates.
Learning Outcomes
At the end of the course, students are expected to be able to:
• Explain the financial system
• Explain the role of financial markets and financial intermediaries in the financial system
• Explain the behavior of interest rates and interest rates determination
• Explain the nexus between risk and return, and asset pricing
• Explain the need for regulation in the financial system
• Explain the Ethiopian financial system
1
Course content
Chapter 1: Nature and role of financial system in economic development
1.1. Structure of the financial system
1.2. Types of financial markets and institutions
1.3. Finance and the real economy
Chapter 2: Interest Rate Determination
2.1. Interest rates and their behavior
2.2. Interest rate determination
2.3. Factors that change interest rates
2.4. The term structure of interest rates
Chapter 3: Financial Institutions
3.1. Depository institutions
3.1.1. Saving associations, credit unions and cooperatives
3.1.2. Banks
3.2. Non-depository institutions
3.2.1. Investment banks
3.2.2. Investment funds
3.2.3. Pension funds
3.2.4. Insurances
Chapter 4: Financial Markets
4.1. Money markets
4.2. Bond markets
4.3. Stock market
4.4. Derivatives market
4.5. Mortgage market
4.6. Foreign exchange market
4.7. Financial markets efficiency
Chapter 5: Risk, Return and the opportunity cost of capital
5.1. Time value of money
5.2. Return, risk and risk measurement
2
5.3. Portfolio theory
5.4. Capital asset pricing model
Chapter 6: Regulation in finance
6.1. The need for regulation
6.2. Commercial banks regulation
6.3. Financial markets regulation
Chapter 7: Financial Market and Institutions in Ethiopia
Chapter 8: Basics of Islamic finance
Course Delivery Methods
The delivery method shall be student-centered. Students are highly expected to participate in class
works at the middle and end of each session and in group discussions inside and outside of the class.
Specifically, the course will be delivered through the following methods:
• Lecture Method
• In-class problem solving
• Group Work
• Assignment
Assessment Methods
Student evaluation in this Course consist both formative and summative assessments including
quizzes, tests, assignments and final exam. Marks will be allocated according to the following grading
schedule.
Assessment methods Weight
Test 25%
Assignment 25%
Final exam 50%
Total 100%
3
References
David S. Kidwell, David W. Blackwell, David A. Whidbee, Richard W. Sias (2019), Financial
Institutions: Markets and Money, John Wiley & Sons; 12th EMEA edition (May 17, 2019)
Glen Arnold (2011) Modern Financial Markets, Financial Times and Prentice-Ha.
Fabozzi Modigliani Jones (2014), Foundations of Financial Markets and Institutions, Pearson New
International Edition, Fourth Edition, Pearson Education Limited.
Frederic S. Mishkin, The Economics of Money, Banking and Financial Markets, 12th edition, 2019,
Pearson Education Limited.
Howells, P., and K. Bain (2007), Financial Markets and Institutions, 5th ed. Financial Times/ Prentice
Hall.
Peter, S. Rose (2003) Money and Capital Markets: Financial Institutions and Instruments in a Global
Market Place, 8thEd.
Richard A. Brealey, Stewart C. Myers, and Franklin Allen (2011), PRINCIPLES OF CORPORATE
FINANCE, 10th ed, McGraw-Hill/Irwin, New York, NY, 10020.
*Publications of the NBE, CBE, Private Banks, and Other Finance Institution in Ethiopia: Various
Issues
