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 – IAN TONKS
OCTOBER 2006
THE SCHOOL RESERVES THE RIGHT TO REVISE THE PROGRAMME AS NECESSARY
FINANCIAL INSTRUMENTS
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;
 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.
2


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, previously Chief
Investment Officer, Foreign & Colonial Management, Dominic Wallington, Fund
Manager, INVESCO, will present practical sessions and assist in the assessment.
Stephen Zhang Yi (yi1.zhang@ex.ac.uk) will take the classes, and can be contacted
via Ian Tonks or Shirley Learmonth.
Ian Tonks, Room F01, Xfi Building
Contact: tel: (+44) (0)1392 263461
email: I.Tonks@exeter.ac.uk
Office Contact: Fridays 11.00-12.00, or 16.00-17.00 any other time by appointment
with the programme administrator Shirley Learmonth, Room 224, Streatham Court,
Contact: tel: (+44) (0)1392 263320
fax: (+44) (0)1392 264426
email: S.J.Learmonth@exeter.ac.uk
4. MODULE DELIVERY
Lectures: There is a lecture each Friday 9-11am in Xfi Lecture Theatre. At the end of
each lecture, students are assigned exercises to be completed during individual study.
Classes: There is a weekly 1 hour class-tutorial on Friday each week, in which the
exercises assigned from the previous week’s lecture are covered. 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 in November.
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.
Required Reading
Investment Analysis and Portfolio Management, 7th edition, Frank K. Reilly and
Keith C. Brown (Dryden, 2000)
Additional reading
This will be assigned in the lecture handouts. Some of the lectures include material
from the following textbooks
Solnik, B. and D. McLeavey (2003), International Investments, 5th ed, Addison
Wesley.
Fabozzi, F.J. Fixed Income Analysis for the CFA Program (2nd edn. Fabozzi
Associates, 2004)
Chamce, D. Analysis of Derivatives for the CFA Program (AIMR, 2003)
3
6. SYLLABUS PLAN AND READING
Week
1
2
3
4
5
6
7
8
9
10
11
12
13
Portfolio Management Overview; The Investment
Management Process; Principles of portfolio
construction; Review of available instruments:
currency, money markets, equity, bonds,
derivatives; alternative investments
Selecting Investments in a Global Market;
Organisation and functioning of securities markets;
Security market indicators;
Equities: Security valuation; Stock-market
analysis;
Equities: Industry analysis; Company analysis and
stock selection; Technical analysis, Price Multiples;
Discounted cash flow applications;
Debt instruments; features of fixed income
securities; bond sectors and instruments; yield
spreads; bond fundamentals
Debt Investments: Risks of bond investments;
measurement of interest rate risk;
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
Practitioner Session: Practical
Portfolio
Construction Exercise. Dominic Wallington,
Credit Suisse Asset Management (Required
coursework assignment).
Derivatives: Markets & Instruments; forward and Chance Ch. 1,
futures markets and contracts, options; swaps.
2,3,4,5,7
Reilly
&
Brown
Ch.
21,22,23,24
Alternative Investments; Real estate; hedge Solnik
&
funds; venture capital; commodities. Professional McLeavey Ch.
Asset Management
8
Reilly
&
Brown Ch. 25
Practice Exams
International Finance: Parity Relations - PPP, Solnik
&
International Fisher Effect, (un)covered interest rate McLeavey Ch.
parity.
1,2
Portfolio Performance Analysis: Performance Reilly
&
measurement, Risk adjustment, Timing and Brown Ch. 26
Attribution
Revision
Examinations
4
7. MODULE ASSESSMENT
The Financial Instruments module is assessed by a group assignment (20%), an
individual assignment (20%) and a written examination (60%).
The University’s postgraduate marking criteria can be found at the website
http://www.ex.ac.uk/admin/academic/tls/tqa/pgtcrit1.htm, and is also reproduced in
the programme handbook.
8. EXAMINATION
The Financial Instruments module will have a two hour written examination in
January 2007. 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 2007.
5