Unit title: Money and Capital Markets

Unit code: FIN505

Credit points: 8cp
Unit description: This course offers to explain the operations as well as a description and
explanation of the rationale behind the development trends and current
scenario of major financial markets. It provides an overview on the
various financing alternatives available to business enterprise and the
factors affecting the availability and pricing of these alternatives.
Unit objectives: This unit is designed to enable students to:
Knowledge
1. Identify the essential features of a financial system its key players
and trading mechanisms.
!. "ssess the various rate and risk exposure pertaining to various types
of financial instruments
#. $nderstand the forces affecting the behavior of rate of return on
financial assets and their intrinsic valuation
Skills
1. "naly%e and predict the impact on financial markets by policy
changes and stimuli from recent global developments
!. &elect appropriate financial instruments at the right rate and risk
with respect to company financing situations
#. 'ontrol interest risk exposure foreign exchange risk exposure
through derivative instruments
al!es"#ttit!des
1. (alue strategic foresight on the financial market environment
!. 'ritically sensitive towards the risk exposure of financial assets
Unit o!tco$es: 1. )ffer appropriate advice on financing arrangements with respect to
1*+
the operating environment
!. ,ormulate hedging strategies to align the risk-return profile of a
financial portfolio in line with investment objectives
%eadings: %eco$$ended te&ts
1. .adura /. 0!11#2 ,inancial .arkets and Institutions +
th
edn.
&outh-3estern
!. 4ose 5.&. 0!11#2 .oney "nd 'apital .arkets: ,inancial
Institutions and Instruments in " 6lobal .arketplace .c6raw 7ill
S!pple$entary readings
1. (an 7orne /.'. 0!1112 ,inancial .arket 4ates and ,lows +
th
edn.
5rentice 7all
!. 'houdhry .. /oannas 8. 5ereira 4. 9 5ienaar 4. 0!11!2 'apital
.arket Instruments: "nalysis and (aluation ,inancial Times
5rentice 7all
#. 7ull /.'. 0!11!2 ,undamentals of ,utures and )ptions .arkets :
th

edn. 5rentice 7all
:. 5hillips ../. 01**12 3hat 5rice .oney; 4eserve <ank of
"ustralia <ulletin .arch 1**1 pp. :!-:+
=. &tanford /. 9 <eale T. 01**=2 The >aw and ?conomics of
,inancial Institutions in "ustralia <utterworths:&ydney
+. (alentine T. ,ord 6. 9 'opp 4. 0!11#2 ,inancial .arkets and
Institutions in "ustralia 5earson ?ducation &ydney
@. <ank Aegara .alaysia "nnual 4eport !11!
8. ,abo%%i ,./. .odigliani ,. 0!11!2 'apital .arkets: Institutions
and Instruments #
rd
edn. 5rentice 7all
*. 4yan &.6. 0!11!2 ,inancial Instruments and Institutions 3iley 'o
1*@
/ournals
1. "sia 5acific /ournal of .anagement
!. <usiness 3eek
#. ,ar ?astern ?conomic 4eview
:. ,ortune
=. ,orbes
+. 7arvard <usiness 4eview
@. /ournal of .arketing
8. Aewsweek
*. &loan .anagement 4eview
11. Time
11. The ?conomist
1*8
Unit contents: '()ICS
*+ %ole o, Financial Markets and Instit!tions
?xplain the role of financial intermediaries in transferring funds
from surplus units to deficit units.
Introduce the types of financial markets available and their
functions.
Introduce the various financial institutions that facilitate the flow
of funds.
-earning actions:
&hort introduction followed by role playing the funds raising exercise of
a finance manager for small medium and large firms.
%eadings:
.adura 'hapter 1
7orne 'hapter 1
.+ Financial ,low analysis
'onstruct ,low of ,unds matrix from publicly available
financial flow information as a basis for analy%ing the capital
markets
-earning actions:
&imple exercise on flow of funds analysis with <A. reports
%eadings:
7orne 'hapter !
,inancial section of <A. "nnual 4eport !11!
1**
/+ '0e deter$inants and str!ct!re o, Interest %ates
?xplain the >oanable ,unds Theory by deriving demand and
supply schedules for loanable funds.
?xplain the ,isher ?ffect and tie it in with >oanable ,unds
Theory by explaining how inflation affects the demand and
supply schedules for loanable funds
$se Buotation from newspaper to show how yields vary among
securities and explain the cause of disparity in yields.
5rovide logic behind how default risk liBuidity tax status
maturity and special provisions can affect yields. )ffer various
theories for the term structure of interest rates and then combine
these theories to provide an integrated explanation.
-earning actions:
&imple exercise on interest rate forecasting and yield curves estimation
using bootstrapping method
%eadings:
.adura 'hapter ! 9 #
5hillips 01**12
!11
1+ '0e Central 2ank and Monetary )olicy
8escribe the role and the organi%ation of the ,ederal 4eserve
<ank 0,ed2 and explain how monetary policy tools are used by
the ,ed to control economic conditions
?xplain the tradeoff involved in the ,edCs use of a loose or tight
monetary policy.
?xplain how financial market participants would react to a
particular monetary policy.
?xplain how fiscal policy may influence the monetary policy
-earning actions:
<asics on the conduct of .onetary 5olicy and 5olicy objectives with a
comparison of $& and .alaysian monetary settings.
%eadings:
.adura 'hapter : 9 =
7ull 'hapter =
!11
5+ 3ebt Sec!rity Markets 4 Money Market
Identify the more popular types of short-term bonds
?xplain how finance managers could perform cash management
through money market
The concept of default risk and corporate credit rating
-earning actions:
The presence of money market enables corporation treasurer to earn
interest on idle cash and yet maintain liBuidity position. Illustrate
through a few scenarios.
%eadings:
.adura 'hapter +
5+ 3ebt Sec!rity Markets 4 2onds Market
?xplain the various aspects of a long-term loan agreement and
the variety of bonds
8iscuss the potential problems with excessive financial leverage.
4ole of the bond markets in facilitating corporate capital
restructuring
5redicting market reactions to various types of economic
stimulus in bond trading
-earning actions:
Dualitative discussion how a bondholder could be ripped off by firmCs
excessive leveraging and bond investors should trade in response to
various anticipated changes.
%eadings:
!1!
.adura 'hapter @
6+ 2ond al!ation and Invest$ent Strategy
The discount cash flow concept and bond valuation
5rice risk and reinvestment risk due to interest rate moment
'oncept of bond duration and bond investment strategy
-earning actions:
&imple valuation exercise under different interest rate movement to
illustrate the concept of price risk and reinvestment risk. <ring in the
concept of duration as a measure of interest risk exposure and various
bond investment strategy in managing the risk
%eadings:
.adura 'hapter 8
7+ 89!ity Markets
Identify the various types of stock.
8escribe the process of an initial public offering and a secondary
offering.
?xplain how firms are monitored within the stock market.
?xplain stock valuation models and how to assess the risk of
stocks and stock portfolios
-earning actions:
?xplain the process of raising long-term capital funds through eBuity
instruments and intuitively describe the way eBuity is valued and how
stock market scrutini%e the management of a publicly listed company.
%eadings:
!1#
.adura 'hapter 11 9 11
:+ M!t!al F!nd and Sec!rities (perations
8escribe various type of mutual funds available how they
operate and elaborate on their strengths and weaknesses
8escribe and explain the main functions of securities firms and
how securities firms facilitate corporate acBuisitions.
8escribe how securities firms participate in financial markets
-earning actions:
The operations of two financial intermediaries that is most likely
encountered by average individual investors are explained and
evaluated.
%eadings:
.adura 'hapter !: 9 !=
!1:
*0+ 3erivative sec!rity $arkets I 4 F!t!res Markets
?xplain why speculators take positions in financial futures and
how the outcome is determined.
?xplain how institutional investors hedge with interest rate
futures and the tradeoff involved.
?xplain how stock index futures can be used by institutional
investors
-earning actions:
" short description on the futures market organi%ation and function of
the instrument followed with a hypothetical scenario. The class is
assigned to discuss on the decision process in hedging strategy and how
to execute the hedging with futuresEforwards
%eadings:
.adura 'hapter 1# 7ull 'hapter ! to :
!1=
**+ 3erivative sec!rity $arkets II 4 (ptions Markets
?xplain why speculators take positions in stock options and how
the outcome is determined.
?xplain why institutional investors take positions in stock
options and the tradeoff involved.
?xplain how stock index options are used by institutional
investors.
?xplain how options on financial futures are used by
institutional investors
-earning actions:
?xamples to illustrate how the use of option could alter the risk-return
profile of financial securities. "pply the option pricing techniBues in a
simple case study on the pricing of convertible - 6roup exercise using
?xcel.
%eadings:
.adura 'hapter 1:
7ull 'hapter 8 to 1#
!1+
*.+ Interest %ate %isks and Controlling devices
7ow interest rate movements can adversely affect the
performance of various financial institutions.
?xplain in general terms how interest rate swaps can hedge
interest rate risk.
Identify the various types of interest rate swaps and the
advantages of each
-earning actions:
" brief introduction on the instrument followed by a mini-case study to
illustrate the use of interest rate swap in protecting a portfolio held by a
banking institution.
%eadings:
.adura 'hapter 1=
7ull 'hapter +
!1@
*/+ 8&c0ange %ate %isks and Controlling devices
8escribe various types of exchange rate systems and identify
factors that influence exchange rates.
?xplain how various foreign exchange derivatives can be used to
hedge against exchange rate movements.
?xplain the lessons learned from the "sian crisis
-earning actions:
<egin with an anatomy of forex risks exposure then assess the state of
pre-crisis forex exposure of some "sian countries. ,ollowed by
description of hedgingEspeculation with derivative instruments and
illustrations on how to use exchange derivatives to safeguard the bottom
line of cross border business operations. &ome short exercise on
'overed Interest 5arity.
%eadings:
.adura 'hapter 1+
7ull 'hapter +
!18
*1+ Str!ct!red ,inancial prod!cts
Introduction to "sset-backed bonds &ecuriti%ing mortgages
.ortgage-backed securities and 'ollaterali%ed mortgage
securities
?valuation and analysis of mortgage-backed bonds
-earning actions:
&ome simple exercises just to illustrate how securiti%ation could create
liBuidity however at the expense of compromise on the risk structure
%eadings:
'houdhry .. 'hapter 11
!1*