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Finance, Risk Management and Instability

  • Module code: FE6002
  • Year: 2018/9
  • Level: Year 6
  • Credits: 30.00
  • Pre-requisites: None
  • Co-requisites: None

Summary

This module is a core course in the field of Financial Economics for students at level 6. It may also be taken by students from the Business and Economics fields.

The module introduces students to the contemporary workings of financial markets with emphasis on risk management. The module will cover some of the main topics of financial theory including economic risk, portfolio theory and the efficient markets hypothesis. It will also introduce students to the key instruments of derivatives markets, analyzing their trading mechanisms and established patterns. The module will further deal with advanced aspects of corporate finance and it will conclude by addressing the policy responses in the context of a contemporary world characterized by increasing financial instability. Core factual material is provided via StudySpace with keynote lectures and selected worksheets used to explain concepts. The module provides the essential groundwork not only for the understanding of practical issues regarding financial markets and corporation management but also for a successful postgraduate studies.

Aims

  • To introduce students to the workings of contemporary financial markets
  • To give students a clear understanding of advanced corporate finance
  • To make students able to critically evaluate fundamental theoretical issues of contemporary financial theory
  • To develop the skills of writing practical reports and analysis of contemporary events

Learning outcomes

On successful completion of the module, students will be able to:

 

  • Have a fundamental understanding of economic risk and its relation to return
  • Be able to critically evaluate modern portfolio theory and the efficient market hypothesis
  • Have a comprehensive understanding of the mechanics and use of modern instruments of financial risk management
  • Have a basic grasp of the design and implementation of complex strategies of hedging, speculation, and arbitrage
  • Have a good understanding of financing decisions from the viewpoint of corporate management
  • Be able to apply economic and financial theory to practical examples

Curriculum content

  • Brief introduction to the conceptions of risk and modern portfolio theory
  • Modelling of the risk-return relationship with regard to financial assets in the context of Capital Asset Pricing Model
  • General discussion of the issue of market efficiency in light of recent theoretical developments
  • Introduction to financial derivatives (futures, forwards, options, and swaps), their trading mechanisms and purposes
  • Exposition of forward and futures contracts, emphasizing the management of interest rate and exchange rate risk; stock index futures and their applications to portfolio hedging
  • Options markets; arbitrage strategies on the basis of put-call parity; trading strategies involving option portfolios
  • Introduction to swaps market focusing on interest rate and exchange rate swaps
  • Emergence of credit derivatives and modern securitization practises
  • Introduction to derivatives pricing: risk neutral valuation and the Black-Scholes formula
  • Revisiting corporate finance in light of recent developments in risk management: departures from the Modigliani-Miller theorem and how they affect corporate finance and dividend policy
  • Policy responses in the context of contemporary financial instability
  • Enhance the employability of students

Teaching and learning strategy

The module is delivered by weekly lectures and seminars. The lectures will discuss the key issues of each topic. Students can follow up with more detailed reading in their own time. Lectures lay the preparatory ground for the application of knowledge and expanded discussion with regard to practical issues via the group seminars. Students will be given worksheets to prepare for the seminars. The worksheets are intended to assess students’ understanding of the material covered in the lectures and also prepare them for the exams.

Breakdown of Teaching and Learning Hours

Definitive KIS Category Indicative Description Hours
Scheduled learning and teaching 22 two hour lectures 44
Guided independent study 22 one hour seminars 22
Study abroad / placement Student independent study 234
Total (number of credits x 10) 300

Assessment strategy

The final grade for this module is a weighted average of the marks for coursework and the final exam. There are two parts to the coursework which accounts for 50% of the overall mark. A class test will be given on the material taught during the first half of the course (25% of the total mark). The second element of coursework is group work. Each group will be required to submit a written report on topics taught during the second half of the semester (25% of the total mark). The final exam counts for 50% of the module grade.

The weekly question sheets are an important part of the self-assessment for this module. The most difficult questions will be gone through in the seminars and this will give students important feedback on their level of understanding and progress. On-going discussion via the module leader will assist the student in the development of strategies for improvement and enhancement.

Mapping of Learning Outcomes to Assessment Strategy (Indicative)

Learning Outcome Assessment Strategy
Have a fundamental understanding of economic risk and its relation to return The class test and final exam assess understanding of risk and return.
Be able to critically evaluate modern portfolio theory and the efficient market hypothesis The final exam and weekly question sheets (formative) test critical understanding of these concepts.
Have a comprehensive understanding of the mechanics and use of modern instruments of financial risk management The final exam assesses understanding of modern financial instruments.
Have a basic grasp of the design and implementation of complex strategies of hedging, speculation, and arbitrage The question sheets (formative) and final exam assess mastery of complex strategies.
Have a good understanding of financing decisions from the viewpoint of corporate management The question sheets (formative), group work and final exam assess understanding of corporate financing decisions
Be able to apply economic and financial theory to practical examples Group work plays a central role in assessing the understanding of practical approaches to finance.

Breakdown of Major Categories of Assessment

Assessment Type Assessment Name Assessment Weighting
CWK Group Essay 25
PRC Class test 25
EXWR Two hour unseen examination 50
Total (to equal 100%) 100%

Achieving a pass

It IS NOT a requirement that any major assessment category is passed separately in order to achieve an overall pass for the module

Bibliography core texts

Brealey, R. A., Myers, S. C., and Allen, F. (2011) Principles of Corporate Finance (10th Edition), New York: McGraw-Hill/Irwin.

Hull, J. C. (2011) Fundamentals of Futures and Options Markets (7th Edition), Pearson Education Limited.

 

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