Course Details

1. Examine the nature and structure of the financial system
2. Estimate various interest rates such as current yield, yield to maturity, coupon, and rates of return using actual country data
3. Analyze money markets and their relation to the interest rates, GDP, investment and inflation
4. Explain the various transmission channels of monetary policy, and assess its impact on economic activity in an open economy.
5. Compare and contrast different theoretical approaches to monetary policy
6. Critically examine the effectiveness of monetary policy in the open economy

Financial instruments, markets and institutions

Financial institutions. Financial instruments and markets (bonds, stocks, mortgages, derivatives).

Financial intermediaries: purpose and profile. Banking vs. non – banking financial institutions.

Interest rate measurement and behaviour

Calculating interest rates (simple, compound, coupon, current yield, yield to maturity, zero coupon). The bond market. Inverse relationship between yields and bond prices, long term versus short term, nominal versus real, annual versus yield to maturity. Factors, determining the level of interest rates (supply and demand, inflationary expectations, cyclical and long term trends).

Understanding foreign exchange

The foreign exchange market. Factors, determining foreign exchange rates fluctuations. Fixed versus floating exchange rates systems. The impact of foreign exchange fluctuations on economic activity.

Monetary theory

Classical economics. The quantity theory of money. The Cambridge school. The Keynesian framework vs. monetarism and new classicists. Instruments and effectiveness of monetary policy. Money multiplier vs. deposit multiplier.

Central banking

The nature and the functions of the Central Bank. The Central European Bank vs. National Central Banks. The Central Bank of Cyprus. The issue of central bank independence.

The IS-LM model

Assumptions of the IS-LM model. Equilibrium in the real sector and the IS curve.

• Frederic S. Mishkin (2010) Economics of Money, Banking, and Financial Markets, 9th edition, Prentice Hall

• Bain K. and P. Howells (2010 ) Monetary Economics: Policy and its Theoretical Basis. 2nd Edition. Palgrave Macmillan
• Godley W. and M. Lavoie (2010) Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth . Palgrave Macmillan.
• Ritter, L. Silber, W. and Udell, G. (2009) Principles of Money, Banking & Financial Markets, 12th edition, Prentice Hall

Ex cathedra lectures and discussions in class, by means of traditional tools or using computer demonstrations. Some of the key issues are revealed on the basis of simulation games.

Auditory exercises, where examples regarding matter represented at the lectures, are solved and further, questions related to particular open-ended topic issues are compiled by the students and answered, during the lecture or assigned as homework.

Topic notes are compiled by students, during the lecture which serve to cover the main issues under consideration and can also be downloaded from the lecturer’s webpage. Tutorial problems are also submitted as homework and these are solved during lectures or privately during lecturer’s office hours. Further literature search is encouraged by assigning students to identify a specific problem related to some issue, gather relevant scientific information about how others have addressed the problem and report this information in written or orally.