This textbook investigates key questions of banking and finance organized in three main subject areas (financial systems, principles of banking, and principles of finance). Why do financial systems exist? How is the structure of a financial system? How does the structure of financial systems differ across countries in the world? We first investigate the structure and functions of financial systems focusing on each of the three main entities that compose financial systems: financial intermediaries, securities, and financial markets. Then we find out the difference in the relative importance of financial intermediaries and financial markets around the world, and thus proposes a historical and economic investigation of the reasons behind the emergence of bank-based systems against market-based systems in different countries. Why do financial intermediaries exist? Why do banks need regulation? What are the main risks faced by banks? How do banks manage risk? We examine the issues that come under the broad heading of principles of banking and the key economic reasons used to justify the existence of financial intermediaries (and specifically banks). Then we investigate the peculiar nature of banking regulation and finally outline the key risks in banking and the main methods used for risk management. How can real assets and financial securities be evaluated? What are the risk and return characteristics of securities and portfolios How good are financial markets in establishing 'fair prices' for securities? We move to the issues known as principles of finance. Here we examine the techniques used by firms to value real investments, and the models used by investor to value bonds and stocks; then we investigate the issues related to the formation of an optimal portfolio by investors, and we derive the equilibrium asset pricing models. Finally, we investigate the efficiency of the market in pricing securities.