UNIVERSITY OF BOTSWANA

DEPARTMENT OF ECONOMICS
Semester I 2023/24 ECO 469: Money and Banking
Course Outline

NAME Ms M.Seemule
OFFICE Block 230/209
EMAIL [email protected]
TELEPHONE +267 355 2377
CONSULTATION Monday: 1030 -1145
HOURS Wednesday: 1030 – 1145
OR By Appointment

Course Structure
Faculty Social Science
Department Economics
Course Code and Title ECO469: Money and Banking
Credits 3
Type Optional
(Core/Optional/Elective/GEC
Semester in which course is 1
taught
/Pre-requisites ECO 211/ECO 212
BNCQF 9

COURSE SYNOPSIS:
ECO 469 is a course on the economics of money and banking. The course
aims at providing students with an introduction to the theoretical and
empirical role of financial markets, financial intermediaries including banks
in economic development. It also aims at exposing students to management
of banks, the role of the central bank and understanding the functioning of
the financial system in general and Botswana’s financial system in
particular. The course will have an applicability focus but will also provide
students with theoretical foundation for further study and help prepare
them to succeed in the financial and government sectors inter alia.

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RATIONALE
Money is important for the day to day running of transactions. Banks play a
crucial role of channeling funds from those who save to those who borrow.
Central bank policies are transmitted to the real economy through banks.
Hence money and banking is important course. The course will help
students to understand the interrelationship between savers and borrowers
in the financial system and the role of commercial banks, financial markets
and the central bank.
In this course students will learn to apply concepts learnt in their
intermediate macroeconomics course to analyze relevant money and
banking issues. Lastly the course is aimed at providing a strong foundation
and preparation of students for postgraduate study as well as application of
money and banking.

AIMS AND LEARNING OUTCOMES:

The aim of the course is to expose students to money and banking and
introduce the concepts essential to understanding the financial system and
how it operates.
The learning objectives are to enable the student to:

(a) Familiarise with the concepts of money and banking and the
operations of the financial system
(b) Lay a foundation for subsequent study on money and banking and
monetary economics issues
(c) Develop interest in the subject and apply money and banking to
current financial system issues

On successful completion of this course, the students should be able to:

i. Explain the difference between various financial assets, who might
want to buy (and sell) them and how they contribute to the broader
economy.
ii. Describe the role of the different types of banks that exist, how
commercial banks create money, how banks stay in business and why
banks sometimes fail.

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 iii. Interpret policy choices of the central bank and how the monetary
policy decisions affect businesses and individuals.
iv. Explain why the central bank decisions were made.
v. Analyze monetary questions.
vi. Understand the functioning of the financial system in general and the
Botswana financial system in particular.

TEACHING & LEARNING METHODS

i. Lectures and discussions to instill concepts and theories in Money and
Banking.
There are 3 hours of teaching every week. Please consult the lecture
timetable for times and venues.

Lecture slides/ notes or any relevant resources will be posted on the course
page on Moodle Students are encouraged to spend at least 2 hours every
week going through the notes and other relevant material in preparation for
the lectures.

ii. Analysis of relevant newspaper articles and real life events as and when they
occur as a way of applying classroom learning. Students are encouraged to
bring course relevant weekly newspaper articles to class for discussion and
analysis.

ASSESSMENT STRATEGIES, REQUIREMENTSAND WEIGHTINGS

There will be two pieces of work in the form of tests and or assignments
which shall contribute 40% towards a student’s final grade in the course. A
final written exam with a total mark allocation of 60% will be written at the
end of the semester.

MODERATION
All assignments, tests and final examinations will be moderated through an
internal process under the supervision of the Departmental Quality
Assurance Committee. The moderation process involves the moderation of
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set question papers before and moderation of marked examinations scripts
after the marking has been done. The ex-ante moderation process takes into
account the content of questions in terms of theory and real life
applications, the clarity of the questions and the expected answers. The ex-
post moderation process focuses on the quality of grading in terms of
consistency of marking across scripts, correct allocation of marks and
correct addition of marks. Since ECO 469 class size fluctuates between
small and large from one semester to another, all scripts shall be moderated
if the class size is small and if its large, a sample shall be moderated.

COURSE OVERVIEW

Week Topic
1 Introduction and Overview
2 Overview of the Financial System
3 Understanding Interest Rates
4 Measuring Interest Rates
5 The Behavior of Interest Rates
6 Term Structure of Interest Rates
Banking and the Management of Financial
7
Institutions
8 Non Bank Financial Institutions
9 The Central Bank
10 Monetary Policy Transmission Mechanism
11 Finance and Development
12 Financial Reform and Financial Liberalization
13 Botswana Financial Sector

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TOPIC CONTENT:

The following basic concepts will be defined and discussed. The students
will descriptively compare and contrast various meanings attached to the
following concepts:
 Introduction and Overview
- Why study money, banking and financial markets?
- What is money, history of money
- Functions of money
- Measuring money
 Overview of the Financial System
- Functions of Financial Markets
- Role of Financial Intermediaries
- Direct Finance vs. Indirect Finance
- Types of Financial Market Instruments (bonds,debt,equity)
- Types of Financial Markets ( Primary and Secondary markets;
Money and Capital Markets)
- Basic Concepts; Risk, Return, Security, Maturity
- Insurance companies and Pension funds
 Understanding Interest Rates
- Yield to Maturity
- Current Yield
- Interest Rate vs. Returns
- Nominal Interest Rate vs. Real Interest Rate
 The Behavior of Interest Rates
- Determinants of Asset Demand (Loanable Funds Framework,
Liquidity Preference Framework)
- Term Structure of Interest Rates (Yield Curves, Expectation
Hypothesis, Segmented Markets Hypothesis, Preferred Habitat
Hypothesis)
 Money demand and money supply
- Microeconomic determinants of the demand for money
- Macroeconomic determinants of the demand for money
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 - Money supply theories
 Stylized facts of monetary policy
- Money and macro variables
 Welfare effects of monetary policy
- Neutrality of money
- Seigniorage
 Banking and the Management and Regulation of Financial
Institutions
- Bank Balance Sheet
- Liquidity Management
- Asset Management
- Liability Management
- Capital Adequacy Management
- Managing Credit Risk
 The Central Bank
- Independence of the Central Bank
- Monetary Policy (Goals, Instruments and Targets)
- Rules vs. discretion
- Credibility of policy
 Monetary Policy Transmission Mechanism
- Interest Channel
- Credit Channel
 Finance and Development
- Importance of the Financial Sector in Developing Countries
- Financial Development and Economic Growth
- Financial Depth
- Financial Repression
- Financial Reform and Financial Liberalization
 Financial Policies in Botswana
- Development of the Financial System

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TEACHING AND LEARNING STRATEGIES
Preferred:

i. Lecture
ii. Class discussion
iii. In class exercises to enable students relate their lives to money and
banking issues (e.g. starting the day exercise, impact on people
policies, newspaper review)

Reading list:

Required: 1. Frederic S. Mishkin, The Economics of Money, Banking

and Financial Markets, Pearson Addison-Wesley (latest edition).
2. Karin Van Wyk et al, Understanding South African Financial
Markets (latest edition)

These are suggested core references that will be used for the topic.
Recommended:
1. Hubbard R. Glenn (2008), Money, the Financial System and the
Economy (latest edition)
2. Bank of Botswana Annual Reports
3. Lewis M.K. amd Mizen P.D , Monetary Economics
4. Goodhart C.A.EMoney Information and Uncertainty