Pre-requisites: Corporate Finance
The economic impact of financial development has long been a controversial issue. Indeed, even Nobel Laureates in economics could not agree. For example, while Bagehot (1873), and Schumpeter (1912) argued that financial development (money & capital) impacts economic growth in a positive manner, another Laureate (Robinson, 1952), states that real economic growth that affects financial development. To make the issue even more confusing, Lucas (1988), who is also a Nobel Laureate, argues that the impact of financial development on growth is exaggerated. Irrespective of what the relationship between financial development and growth is, one can argue that banks (and stock markets) provide economies with a myriad of financial services which facilitate economic growth. These include the pooling of savings, allocation of capital resources, monitoring of investments, risk diversification and risk management, and the exchange of goods and services. While well financial systems provide the above-mentioned financial functions, there are large differences in how well they are provided. Three basic characteristics capture the impact of the services on growth. (1) The level of intermediation. (2) The efficiency of intermediation. (3) The composition of intermediation. This course contains four main parts: The first part focuses on measuring financial development and its relationship with growth. The second part examines the microstructure fs securities and its implications in finance. In addition, this part considers the issue of developing government securities market. The third part considers a myriad of issues that deal with the performance of banks. Finally, the course examines the issue of interest rate and the tools and goals of monetary policy.