Semester 1 

This module focuses on the external environment surrounding financial services organisations.  It looks at the theory of intermediation and various aspects of economic, political, legal, regulatory, social and technological drivers that impact on the financial services industry.  Students will be encouraged to consider how these influences interact with each other and how they impact on a financial services organisation’s operations in practical terms.  While the syllabus uses legislation and practices for illustrative purposes, students will be encouraged to make relevant comparisons with international legislation and practices with which they are familiar. 

This syllabus aims to draw together the student’s knowledge of basic aspects of the economic environment, financial markets, institutions and competition and encourages them to reflect on how such issues interrelate in the overall management of an organisation.  The first syllabus sections review the concepts of intermediation and credit creation and examine how financial markets are structured.  There is a focus on the functions and characteristics of key institutions and markets, how they operate and how competition acts as a pricing mechanism.  The syllabus then focuses on deepening students’ understanding of the monetary system and looks in some detail at the ways in which monetary and fiscal policy are used as key instruments in economic management.  The next syllabus section examines the need for and rationale behind regulation of financial institutions and markets.  It covers relevant legal provisions in respect of consumer protection, voluntary codes of practice, capital adequacy and liquidity requirements and how EU directives impact on the regulatory regime.  The final section of the syllabus then encourages students to draw together various social, ethical, demographic and technological issues that act as important external influences on the financial services industry. 

On completion of this module, students will be able to: 
·              Explain the concepts of intermediation and disintermediation. 
·              explain and discuss the main external forces affecting the financial services industry 
·              Analyse different approaches to financial services regulation. 
·              Use economic data and legal information, from various sources, to explain and analyse key areas of the financial services industry. 
·              Identify links between the external environment and the behaviour of financial services organisations. 

·              Intermediation: This section of the syllabus builds on learning in the Level 1 Financial Institutions and Markets module and is designed to provide students with a basic understanding of the nature and purposes of financial intermediation as a means of bringing individual borrowers and lenders together, and the role of financial services organisations in that process.  Students will gain an appreciation of how financial institutions facilitate the creation of credit.  It focuses on the following issues: 
o       the nature of financial intermediation and disintermediation 
o       major theories of financial intermediation 
o       the role of financial institutions in both intermediation and disintermediation 
o       the creation of credit 
·              Financial Markets and Competition: This section of the syllabus looks at the nature and operations of the main primary and secondary financial markets, their structures, the legal framework in which they operate and the ways in which they function as a pricing mechanism. It focuses on the following issues:  
o             the functions and characteristics of the key financial and financial services markets 
o             the legislative framework for competition 
o             the features of different market structures, the importance of price and non-price competition 
o             the role of primary and secondary markets 
o             the principles of pricing financial assets 
·              Monetary and Fiscal Policy: This section of the syllabus provides students with a thorough understanding of the role of monetary and fiscal policy as key elements in the management of a national economy.  It uses the system as the basis for illustrating core macro economic concepts and instruments of monetary and fiscal policy but recognises that international students will be seeking to relate these concepts to their own particular domestic environments.  It focuses on the following issues: 
o             the macroeconomic context of monetary policy
o             the macroeconomic context of fiscal policy 
o             the objectives of monetary and fiscal policy in the UK
o             the instruments of monetary policy 
o             the role of intermediate and final targets in the monetary control process 
o             a recap on the policy framework adopted by the Bank of England Monetary Policy Committee for securing inflation targets
o             the instruments of fiscal policy 
o             the relationship between monetary and fiscal policy in the macro-economic management of the business cycle 
·              Law and Regulation: This section of the syllabus is concerned with all aspects of the legal and regulatory supervision of the workings of financial institutions and markets.  It covers the need for regulation, whether legal or voluntary: again, while using UK-based legislation for illustrative purposes, it puts these into an international and especially an EU context.  Students will become familiar with a range of concepts such as consumer protection, the need for capital adequacy and the dangers of over-regulation.
It focuses on the following issues: 
o             the rationale for the regulation of financial institutions and markets
o             the economic risks of over-regulation (moral hazard) 
o             the causes of regulatory reform, including financial crises, financial innovation and globalisation 
o             the influence of international institutions and the EU on the framework for supervising and regulating the financial system 
o             the concepts of economic and regulatory capital, including the major stipulations of the EU Banking Directives on capital adequacy and liquidity 
o             the impact of proposed changes in the regulatory regime, including Basel II 
o             the principles of contract law and their application to key contractual relationships such as bank accounts, security contracts and plastic card agreements 
o             the nature and impact of the Banking Code 
o             the organisational impact of relevant legislation, e.g. the Data Protection Act, Consumer Credit Act, etc. 
·              Social and Technological issues: This final section of the syllabus draws together a variety of contemporary issues that exert significant pressure as important external influences affecting the behaviour of financial services organisations and the industry.  During their study of this section, students are encouraged to explore these issues, by identifying relevant data and information, analyse their implications and interrelationships and examine how different sectors of the industry respond to them. 
It focuses on the following issues: 
o             the impact of demographics on financial services
o             the importance of financial education 
o             the importance of corporate ethics 
o             the technological framework and key systems that are used by financial institutions 
o             the costs and benefits of technology in the financial services sector 

The teaching and learning strategy is designed to ensure that the students achieve the learning outcomes by the end of the module.  The teaching and learning methods include formal lecture and tutorial, private study of text and other supporting materials, a formal coursework assignment, informal exercises, both individual and group-based and pooling of experience and knowledge through class and individual discussion. 
Assessment Strategy: The assessment strategy is designed to achieve a balance between testing the student's skills of knowledge recall and understanding and those of analysis, research, reflection and application.  This distinction is reflected in the different assessment instruments and the balance between the coursework assignment and the final written examination. 

Essential Reading
Brighouse, D. and Hontoir, J. (2007) Financial Services Commercial Environment.  ifs School of Finance. 
Recommended Reading 
Buckle, M. and Thompson, J. (2006) The Fincial System.  4^th edn.  Manchester University Press. 
Howell, P. and Bain, K. (2005) The Economics of Money, Banking and Finance: A European Text.  3^rd edn.  FT Prentice Hall. 
Loader, D. (2003) Understanding the Markets – Operations Management Series.  Butterworth and Heinemann. 
Background Reading 
Journals/Newspapers
Financial Times 
Financial World 
The Economist 
Websites 
www.ecb.int
www.fsa.gov.uk
www.bis.org
www.imf.org 
www.bbc.co.uk
www.econ.yale.edu/~corsetti/euro/ 
www.stern.nyu.edu/globalmacro/ 
Additional reading sources (and links thereto) will be available through ifs knowledgebank.