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ADVANCED FINANCIAL INSTRUMENTS AND MARKETS

CourseGuideBookforMS,MBA17.5years
This course is intended to provide students with an exposure to the general concepts (theory and practice) of financial markets and broad themes in capital markets instruments. This course will also provide detailed discussion on design and formulation of innovative financial instruments of modern time. The objective is to set the foundations for further in-depth study of various areas of interest for PhD studies.

HammadHassanMirza,AssistantProf.(Finance) PhDFinance(Sch)

Department of Business Administration University of Sargodha

Spring, 2013

[ADVANCED FINANCIAL INSTRUMENTS AND MARKETS]

UNIVERSITY OF SARGODHA Department of Business Administration Course Guide Book

(MSFN-7102/BFIN-8108) ADVANCED FINANCIAL INSTRUMENTS AND MARKETS


Instructor: Hammad Hassan Mirza Program: MS1st; Session 2013-15 Program: MBA1.5 2nd Session 2013-14 Program: MBA3.5 6th Session 2011-14 Office contact timings : Credit Hours: 3 Class Day/Time (MS): Friday 6:00-9:00pm Class Days/Time (MBA1.5): Monday & Tuesday Class Days/Time (MBA3.5): Wednesday & Friday

1. Introduction
An overview of the ideas, methods, and institutions that permit human society to manage risks and foster enterprise. Description of practices today and analysis of prospects for the future. Introduction to risk management and behavioral finance principles to understand the functioning of securities, insurance, and banking industries. The major objective of this paper is to develop an understanding and appreciation of Finance theories as they apply to corporate financial decisions and to understand the implications for problem solving. The focus is on how financial management can create value for the firm.

2. Aims and Objectives of the Course


Financial institutions are a mainstay of elegant society, supporting people in their creative ventures and supervising the economic risks they take on. The mechanism of these institutions are vital to understand if we are to forecast their actions today and their development in the coming information age. The course strives to present understanding of the theory of finance and its relation to the history, strengths and imperfections of such institutions as banking, insurance, securities, futures, and other derivatives markets, and the future of these institutions over the next century. By the end of a successful completion of this module students should possess knowledge of the theoretical tools and current practices of financial markets. In addition, they should be able to understand, analyze and evaluate issues in theory and practice in financial markets and appreciate the sources of and possible solutions to controversies in financial innovations. With the help of real life case studies and published research articles successful students should understand the role and application of financial instruments in Multinational Organizations and be able to explore their understanding to real world problems. Successful students should also be able to evaluate financial instruments, exchange rate moments, the structure and role of the foreign-exchange markets, currency futures and options markets and the parity relations in international markets. In addition students will also enhance their understanding of different ways in which multinational companies can raise additional finance and assess different risks faced by these organizations.

DepartmentofBusinessAdministration,UniversityofSargodha(contact: hammadhassan@uos.edu.pk)

Spring, 2013

[ADVANCED FINANCIAL INSTRUMENTS AND MARKETS]

The selected published research articles and other relevant working papers will be discussed side by side during the sessions to illustrate the various elements of capital markets research and contemporary advancements. We will use these published research papers to discuss and critique the motivation for empirical research, the connection between theory and empirical work, the research designs typically used, and the methods of analysis typically employed. On successful completion of this module, you are expected to: Gain some knowledge of the main functions of financial markets and institutions Develop an understanding of the workings of equity capital markets Understand the nature of financial instruments and the reasons for innovating such instruments Be aware of the relevant empirical capital markets research Become familiar with the key research methods used in the financial markets literature

3. Teaching Methodology
1. 2. 3. Lecture for disseminating key concepts Discussion on practical issues Assignments and Presentations/Projects

PowerPoint slides will be provided for all topics in the syllabus. However, it should be kept in mind that students should not be relying on the PowerPoint Slides only. The module covers both the theoretical and empirical sides of the topic and for mastering the course, studying all the materials mentioned in this handbook is a necessity.

4. Assessment/Evaluation
The module is assessed by the group assignments and individual class presentation of relevant topics (20%), and a 3 hours closed-book examination (80%).
Individual Class Presentations/Projects* Regular Class Presentations/Participation (7%) Term Paper/Assignment (8%) Class Quiz/Case Studies (5%) Mid Term Examination (1 hour) Final Examination (2 hours) 20%

30% 50% 100%

*For MBA 3.5, 1.5 year programs session marks will be given on the basis of class participation (5%) and written assignments (12%) and attendance (3%) only

5. Recommended Core Text:


Fabozzi, Frank J., Franco Modigliani, Frank J. Jones, and Michael G. Ferri. Foundations of Financial Markets and Institutions, 4th ed. Prentice Hall, 2010. John C. Hull, Options, Futures and Other Derivatives, 6th Edition. Frank J. Fabozzi: Bond Market Analysis and Strategies, Prentice Hall. Szymon Borak Wolfgang Karl Hrdle Brenda Lpez Cabrera Statistics of Financial Markets, Springer Heidelberg Dordrecht London New York Robert Dubil, An Arbitrage Guide to Financial Markets2004 , John Wiley & Sons Ltd Relevant Research Articles 3

DepartmentofBusinessAdministration,UniversityofSargodha(contact: hammadhassan@uos.edu.pk)

Spring, 2013

[ADVANCED FINANCIAL INSTRUMENTS AND MARKETS]

6. Course Contents
7. FinancialInstitutionsandRoleofGovt. RiskandFinancialcrisis TechnologyandInventioninFinance PortfolioDiversificationandSupportingFinancialInst. DeterminantsofAssetPricesandInterestRates OrganizationandStructureofMarkets MarketforGovernmentandCorporateSecurities MortgageandSecuritizedAssetMarkets MarketDerivativeSecurities CollateralPresentValueandVocabularyofFinance MechanicsofFutureMarkets HedgingStrategiesusingfutures InterestratesandDeterminantsofForwardandFutureprices MechanicsofOptionMarkets OptionStrategiesandBlackScholesMetronModel FinancialInstrumentsandMajorWorldFinancialCrisis

WEEKLY LECTURE PLAN


Week No.
1

Lecture Plan
What this course will do for you and your purpose to attend. Scheme of study Financial Institutions and Role of Government. Presentation 02: A Model of Financial Structure and Financial Fragility Risk and Financial Market Crisis
Presentation 01: Conflicts of Interest in Financial Intermediation

Technology and Invention in Finance

Presentation 03: On the Political Economy of the Financial Crisis and Bailout of 2008-2009 Presentation 04: Hedge Fund, Systematic Risk and Crisis of 2008 Presentation 05: Collateralized Debt Obligation and Risk Transfer.

Presentation 06a: Role of Basel II in Subprime Crisis Presentation 06b: Financial Innovation Portfolio Diversification and Supporting Financial Inst. Determinants of Asset Prices and Interest Rates Presentation 07 Arbitrage Pricing, Capital Asset Pricing, and Agricultural Assets Presentation 08 Rational Asset Pricing Bubbles Organization and Structure of Markets Market for Government and Corporate Securities Presentation 09 Financial Market and Allocation of Capital Presentation 10 Financial Sector Regulations (Pakistan) Presentation 10b: Financial Market Reforms in Pakistan 4

DepartmentofBusinessAdministration,UniversityofSargodha(contact: hammadhassan@uos.edu.pk)

Spring, 2013
6

[ADVANCED FINANCIAL INSTRUMENTS AND MARKETS]

8 9

Mortgage and Securitized Asset Markets Presentation 11Securitization A tool of Financial Transformation Presentation 12 SPV and Securitization Market Derivative Securities Presentation 13 Interest Rate Derivatives and Commercial Banks Presentation 14 Understanding Securitization of Subprime Mortgages Guest Speaker: Topic : Structure of Pakistans Equity Market

----------MID TERM EXAMINATION--------- Introduction to Financial Instruments Collateral Present Value and Vocabulary of Finance Presentation 15 New Financial Markets who Gains and Who Losses Presentation 16 The Future of the International Financial System Mechanics of Future Markets Hedging Strategies using futures Presentation 17 When hedging fails what every CEO should know about Presentation 18 Does the Use of Financial Derivatives Affect Earnings Management Decisions Interest rates and Determinants of Forward and Future prices Presentation 19 An International Comparison of Derivatives Use Presentation 20 Banks and Derivatives Interest Rate Futures and Swaps Presentation 21The Market for Interest Rate Swaps Presentation 22 The Impact of Collateralization on Swap Rate Mechanics of Option Markets Presentation 23 Options on Commodity Forward Contracts Presentation 24 Real Options Analysis and Strategic Decision Making Insurance: The Archetypal Risk Management Institution Presentation 25 Financial Liberalization in Turkey Presentation 26 Financial Instruments and Major World Financial Crisis Presentation 27 Asia's Post-Crisis Regionalism Bringing the State Back in, Keeping the (United) States Out Presentation 28 Financial and World Economic Crisis Guest Speaker: Equity and Debt Instruments in Pakistan

10

11

12

13

14

15

16

----------FINAL TERM EXAMINATION----------

Research Papers will be the part of MS curriculum only. All relevant material, including above mentioned research papers and Power Point Slides of Lectures, is downloadable from www.financecottage.com
DepartmentofBusinessAdministration,UniversityofSargodha(contact: hammadhassan@uos.edu.pk)

Spring, 2013

[ADVANCED FINANCIAL INSTRUMENTS AND MARKETS]

GENERAL CRITERIA FOR EVALUATION The following is meant to give a general indication of the attributes which are normally expected of written work for it to be awarded marks in particular degree classes. This is indicative only since an answer can have a number of attributes, strengths and weaknesses and the overall classification given to individual answers and to a script is based on the judgment of the examiners about the inter-play of these attributes, strengths and weaknesses. (80%+) Excellent, logical and well-presented answer showing clear evidence of recent research findings on the topic, evidence of additional readings, and showing content of original thought and ideas. Very good, well-presented answer showing clear evidence supplementary reading and some original thought and ideas. of

(70-79%)

(60-69%)

Good comprehensive answer. Clear, logical, thorough with evidence of breadth and depth in reading. Understanding of inter-relationships between parts of the course and of the subject. Adequate to good answer. Material limited to basic reading and lectures, Competent understanding of individual topics with only limited grasp of links between topics. Incomplete answer. Material is sparse with inaccuracies and little evidence of even basic reading. Reliance on lecture material with only limited indication of understanding. Deficient answer. Inaccuracies, omissions, errors in approach, no evidence of understanding or work.

(50-59%)

(40-49%)

(<40%)

Attendance Policy (Zero Tolerance): As per university policy atleast 75% attendance in the class will be mandatory for every student to become eligible for final term exam.

DepartmentofBusinessAdministration,UniversityofSargodha(contact: hammadhassan@uos.edu.pk)