SCHOOL OF BUSINESS AND ECONOMICS XFI CENTRE FOR FINANCE AND INVESTMENT BEAM012: FINANCIAL INSTRUMENTS (20 CREDITS) FOR

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1 SCHOOL OF BUSINESS AND ECONOMICS XFI CENTRE FOR FINANCE AND INVESTMENT BEAM012: FINANCIAL INSTRUMENTS (20 CREDITS) FOR MA FINANCE AND INVESTMENT MSC FINANCIAL MANAGEMENT MSC FINANCE AND MANAGEMENT MSC MARKETING AND FINANCE MODULE INFORMATION HANDBOOK MODULE CO-ORDINATOR PROFESSOR IAN TONKS OCTOBER 2004 THE SCHOOL RESERVES THE RIGHT TO REVISE THE PROGRAMME AS NECESSARY

2 FINANCIAL INSTRUMENTS Module Title Financial Instruments Module Code BEAM020 Credit Value 20 ECTS Value 10 Level M Pre-requisites None Co-requisites None Member of Staff Professor Ian Tonks (Module Leader) Duration of Module One Semester Timing of Module Semester One Total Student Study Time 36 contact hours and 170 private study hours 1. MODULE AIMS The general aim of this module is to provide students with a comprehensive overview of competing models and valuation techniques for equity, bond, derivative, venture capital and real estate type instruments. The purpose of the module is to equip students to analyse major issues confronting managers of portfolios of assets and to use their analysis in making portfolio decisions. The module takes existing instruments and organised markets as its starting point and aims to develop not only a scholarly knowledge of contracts but a critical ability able to judge the appropriate use of each instrument type. 2. INTENDED LEARNING OUTCOMES After completing the module students will have developed their skills in three categories: Subject-Specific Skills Have the ability to use critically company and industry analysis for equity securities Be able to use selectively various approaches to the valuation of traded bond instruments. Critically appraise the operation of derivative markets and the specifications of instruments traded. Ability to employ appropriate methods of valuation and forecasting to major asset classes (equities, bonds, derivatives) and to evaluate the empirical support of each methodology. Have sufficient knowledge of a wide variety of other investment vehicles such as real estate, venture capital funds and professionally managed funds as to evaluate critically and comparatively their usefulness to both suppliers and demanders of financial instruments. Ability to develop and apply portfolio formation techniques. Core Academic Skills Ability to apply formal models (eg valuation) to complex phenomena (in this case financial and investment instruments) to achieve a stated aim and to appraise the validity of the conclusion in the light of model assumptions and of relevant empirical evidence. Ability to formulate decision problems in a formal, soluble fashion while preserving key aspects of the real world processes generating the data facing the decision maker. Personal and Key Skills Ability to plan and manage his/her own study both individually and within a group; Ability to make appropriate use of learning resources, including sophisticated computer datasets; Ability to analyse critically problems arising in both academic and practical contexts; 2

3 Ability to present effectively results and achievements of individual and collaborative projects as developed through the mode of instruction using both individual and group assignments Ability to isolate and clarify relevant issues and use resources independently to achieve a solution to a complex problem. Ability to construct work within a group structure to arrive efficiently at a stated goal. Ability to present effectively results and achievements of individual and collaborative projects as developed through the mode of instruction using both individual and group assignments. 3. MODULE LECTURER(S) Ian Tonks is the module co-ordinator. Anthony Broccardo, Chief Investment Officer, Foreign & Colonial Management, Dominic Wallington, Fund Manager, INVESCO, will present practical sessions and assist in the assessment. Santosh Abraham and Yang Hui will take the classes. Ian Tonks, Room F01, Xfi Building Contact: tel: I.Tonks@exeter.ac.uk Office Contact: Fridays , or any other time by appointment with: Francine Carter, Room F2, Xfi Building Contact: tel: ( F.Carter@exeter.ac.uk) Teaching Assistants: Santhosh Abraham, Room 223, Streatham Court Contact: tel: S.Abraham@exeter.ac.uk Yang Hui, Room120, Streatham Court Contact: tel: Hui.Yang@exeter.ac.uk Programme Administrator Shirley Learmonth, Room 224, Streatham Court, Contact: tel: fax: S.J.Learmonth@exeter.ac.uk 4. MODULE DELIVERY Lectures: There is a lecture each Friday am in Xfi Lecture Theatre. Tutorials: There is a weekly 1 hour tutorial on either Friday or Monday each week. Students will be assigned to a group after the first lecture. There will be no tutorial during the first week of the Semester. Practicals: Students are required to attend at least two practical sessions arranged, mostly on Saturday and Sunday. 5. MODULE READING The exam for this module is based on the lecture handouts, and associated exercises. The reading provides a check and should help deepen your knowledge of the material. 3

4 Required Reading Investment Analysis and Portfolio Management, 7th edition, Frank K. Reilly and Keith C. Brown (Dryden, 2000) Solnik, B. and D. McLeavey (2003), International Investments, 5th ed, Addison Wesley. Additional reading will be assigned in the lecture handouts. 6. SYLLABUS PLAN AND READING Week 1 Portfolio Management Overview; The Investment Management Process; Principles of portfolio construction; Review of available instruments: currency, money markets, equity, bonds, derivatives; alternative investments 2 Selecting Investments in a Global Market; Organisation and functioning of securities markets; Security market indicators; 3 Equities: Security valuation; Stock-market analysis; 4 Equities: Industry analysis; Company analysis and stock selection; Technical analysis, Price Multiples; Discounted cash flow applications; 5 Debt instruments; features of fixed income securities; bond sectors and instruments; yield spreads; bond fundamentals 6 Debt Investments: Risks of bond investments; measurement of interest rate risk; Practitioner Session: Practical Portfolio Construction Exercise. Dominic Wallington, Credit Suisse Asset Management (Required coursework assignment). 7 Derivatives: Markets & Instruments; forward and futures markets and contracts, options; swaps. 8 Alternative Investments; Real estate; hedge funds; venture capital; commodities. Professional Asset Management 9 Practice Exams 10 International Finance: Parity Relations - PPP, International Fisher Effect, (un)covered interest rate parity. 11 Portfolio Performance Analysis: Performance measurement, Risk adjustment, Timing and Attribution 12 Revision 13 Examinations Reading Reilly & Brown Ch. 1, 2, 17, 25 Reilly & Brown Ch. 3, 4, 5, 12 Reilly & Brown Ch. 11, 13 Reilly & Brown Ch. 14, 15, 16 Fabozzi Ch. 1, 2, 3, 4 Reilly & Brown Ch. 18 Fabozzi Ch. 7 Reilly & Brown Ch. 19 Chance Ch. 1, 2,3,4,5,7 Reilly & Brown Ch. 21,22,23,24 Solnik & McLeavey Ch. 8 Reilly & Brown Ch. 25 Solnik & McLeavey Ch. 1,2 Reilly & Brown Ch. 26 4

5 7. MODULE ASSESSMENT The Financial Instruments module is assessed by an assignment (40%) and a written examination (60%). The University s postgraduate marking criteria can be found at the website and is also reproduced in the programme handbook. 8. EXAMINATION The Financial Instruments module will have a two hour written examination in January. The exam has six questions and students must answer three. Only silent non-programmable calculators are permitted. 9. REFERRED EXAMINATION If you fail the examination, you will be advised of this and will be allowed to resit the examination once. The resit examination is in early September