'Following the abrupt increase in home prices in the 2004-2006 period many financial institutions increased their holdings of mortgages and mortgage-backed securities, whose performance was based on the timely mortgage

payments made by home-owners. Some financial institutions (especially commercial banks and saving institutions) aggressively attempted to expand their mortgage business in order to capitalize on the strong housing market.'

(Madura 2012, p17)

1.Discussion of 'systemic risk'

2. Explain the spread of systemic risk through a financial system.

3. Factors causing the systemic risk to spread more quickly through a financial system

Two core strategies:

1st Core Strategies: Monetary StabilityMonetary stability means stable prices and confidence in the currency. Stable prices aredefined by the Government's inflation target, which the Bank seeks to meet through thedecisions delegated to the Monetary Policy Committee, explaining those decisionstransparently and implementing them effectively in the money markets.

2nd Core Strategies: Financial StabilityFinancial stability entails detecting and reducing threats to the financial system as a whole.This is pursued through the Bank's financial and other operations, including lender of lastresort, oversight of key infrastructure and the surveillance and policy roles delegated to theFinancial Policy Committee.

The Bank of England ‘Trends in Lending Report’ (October, 2012) – a reportwhich analyses lending trends to UK individuals and businesses – there has been littlebusiness demand for credit Q3 2012. The report states-:‘Demand for credit from small and large businesses fell in2012 Q3, according to lenders in the Credit Conditions Survey(Chart 3.1). In recent discussions, most major UK lendersnoted that demand from SMEs (small-medium enterprises)remained muted over thequarter. …… Most major UK lenders reported that alack of confidence among some firms and the wider economicenvironment were weighing down on demand for credit.’(The Bank of England ‘Trends in Lending Report’ Oct 2012)

The RBI: ?

• Demand and supply of credit during last quarter of 2012

The competitiveness of the market is dependent to development and efficiency of the financial market.

Competitiveness report: http://reports.weforum.org/global-competitiveness-report-2012-2013

Financial Market: ? Participants( investors, borrowers), Securities ( Bond, equity)

Efficiency of the market:?

UK economy ranked 3rd in world on ‘Availability of Financial Services’

The People’s Republic of China (26th) continues to lead the way among large developing economies, improving by one more place and solidifying its position among the top 30. Among the four other BRICS economies, South Africa (50th) and Brazil (53rd) move upwards while India (56th) and Russia (66th) experience small declines. Several Asian economies perform strongly, with Japan (9th) and Hong Kong SAR (11th) also in the top 20.

Needed for :1. Corporate Finance

Corporations are deficit units may wish to get funds from investors as surplus units.2. Investment

Financial Markets

Participants:Surplus units ( investors) Deficit units( Borrowers)

Securities

Primary markets ( issuing new security) : IPO

Secondary markets trading of listed securities

Trading ? www.financemodel.in Valuation of IPO: www.financemodel.in

http://www.nseindia.com/live_market/dynaContent/live_watch/live_index_watch.htm

Securities Market

money market : To sale short term debt to surplus unit from deficit unit

Stock market : www.financemodel.in learn data analysis in stock trading

Above types an be segmented based on liquidity, risk and return.

Derivative Market: www.financemodel.in learn Greeks in derivatives

Capital Market :1. Bonds2. Mortgages3. Mortgage backed securities4. Stocks

Speculation ?

Risk management: Draw down , margin ratio, equity curve in trading ?

Hedging? How to calculate hedge ratio?

They have different impact in portfolio?

www.financemodel.in

Valuation of Securities*

1. Using different approach like DCF, P/E2. Fundamental analysis of security3. Technical Analysis using R4. EIC approach

* Comprehensive course is available at www.financemodel.in

Internet and social network has impact on timing , accuracy and efficiency of the market ?

Behavioral Finance can explain the pricing ?

Arbitrage ?

Effect of emotions in valuation?

mis-valuation? Rhodes-Kropf and Viswanathan (2004)

Behavioral Finance can explain the pricing ?

Stock price can be downloaded, learn to get free data in R ?

Financial Institutions

Commercial Banks

Securities firms

Mutual funds

NBFCs

DII

FII

Insurance companies

Pension funds

Role RBI, SEBI, IRDA etc

http://www.nseindia.com/

http://www.sebi.gov.in/sebiweb/

www.irda.gov.in/

www.rbi.org.in/

I BANKs Role of FDI, FII in stock market and development ?

Wall Street Reform Act or Consumer Protection Act ?

Reforms post Crisis?

Financial crisis ?

BASEL III ?

Find reports from www.financemodel.in/report

SOX ?