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BFC5926 Unit Revision

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43 views13 pages

BFC5926 Unit Revision

Uploaded by

shruunofficial
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MONASH

BUSINESS
SCHOOL

BFC5926
Financial Institutions and Markets

Unit Review
Unit Schedule
Week 1 Unit overview - Financial markets and institutions

Week 2 Financial mathematics


Week 3 Risk, interest rates & yields
Week 4 Short-term debt markets
Week 5 Long-term debt markets
Week 6 Mid-Term Test
Week 7 Equity markets
Week 8 Foreign exchange markets
Week 9 Derivative markets

Week 10 Financial institutions

Week 11 Regulations and capital adequacy

Week 12 Other financial institutions & Revision

2
Unit Review
 Week 1 Introduction to Unit
– Introduction to unit
– Introduction to money & flow of funds

 Week 2: Financial Mathematics


– Time value of money - present value and future value
– Present value of ordinary annuity, annuity due and ordinary
perpetuity
– Understand the role of present value in determining the
price of bond

3 3
Lecture Weeks 3 - 9

• These lectures examined the financial


markets including:
– Debt Markets
• Week 3: Risk and interest rates
• Week 4: Short term debt market
• Week 5: Long term debt market
– Equity Markets (Week 7)
– Foreign Exchange Markets (Week 8)
– Derivative Markets (Week 9)

4
Unit Review
 Week 3 Risk, interest rates & yields
– Utility, risk and uncertainty
– Determinants of interest rates, term structure of interest rates
– Shapes of yield curve
– Term structure of interest rate related theories and their implications:
unbiased/pure expectations; liquidity premium; market segmentation

 Week 4 Short-term debt markets


– Australian debt market
– Australian money market - Interbank/cash market, Government
securities market
– Money market securities - Bills of exchange, Promissory
notes/Commercial paper, Certificates of deposits
FV
Price of a discount security (e.g. bank bill) P=
 ni 
1 + 
 365

5
Unit Review
 Week 5 Long-term debt markets
– Features of debt securities - coupon rate, reinvestment, other factors,
collateral
– Government bonds and Corporate debt securities
– Price of a coupon bond = PVA (coupons) + PV (bond FV)
PB =
[
C (1 + i )n − 1 ]+ FV
i (1 + i )n (1 + i )n
– Securitisation - mortgage / asset backed

 Week 7 Equity markets


– Role & development of the stock exchange
– Stock trading techniques, high frequency trading, short selling practice
– Equity raisings methods and procedures – IPOs, Rights offer, dividend
reinvestment plan
– Share indices

6
Unit Review
 Week 8 Foreign exchange markets
– Foreign exchange markets
– Foreign exchange rates - direct/indirect quotations, spot/forward rates,
cross exchange rates, forward premiums/discount
– Be able to conduct the relevant calculations as presented in seminar
and workshops.
– FX related theories - Purchasing power parity

 Week 9 Derivative Markets


– Introduction to derivatives markets
– Forwards, futures and options
– Futures and basis risk
– How market participants use futures and options

7
Lectures 1 - 9
• These lectures presented the basic theories relating to the
pricing of financial instruments via interest rates and
foreign exchange rates.

• Students are expected to be familiar with these theories.

• You are expected to be able to define and discuss the terms


and concepts presented in the lectures.

• Besides the terms and definitions, students are expected to


be familiar with the calculation examples covered in class.

8
Lecture Weeks 10 - 12
• These lectures concerned Financial
institutions, their operations & regulation:
– Week 10: Financial institutions - ADIs
– Week 11: Regulations and capital adequacy
– Week 12: Other financial institutions

9
Unit Review
 Week 10: Financial Institutions - ADIs
– Authorised deposit‐taking institutions - types, roles,
characteristics
– Bank performance measurement
– Sources of bank funding
– Bank market structure
– Other ADIs in Australia

10 10
Unit Review
 Week 11: Regulations and capital adequacy
– Regulatory theory – the need for regulation
– Australia’s main financial regulators and their roles
 Reserve Bank of Australia,
 Australian Prudential Regulation Authority
 Australian Securities & Investments Commission
– Key regulatory issues:
 Financial institution ownership
 Large exposure controls
 Four pillars

– Bank capital adequacy and its importance


– CAR = Total capital (Tier 1 + Tier 2)
r w assets for credit risk + r w asset equivalent for market risk + r w asset equivalent for operational risk

11
Unit Review
 Week 12: Other financial institutions
– National retirement planning and its importance
– Funds management business –
 Superannuation funds, Life insurance companies.

12
Lectures 10 - 12
• You should understand the differences between
the different types of institutions, how they
operate and be able to discuss past and future
trends.
• You are expected to know terms and definitions.
• You should understand the regulation of financial
institutions and able to discuss key regulatory
issues faced by financial institutions.

13

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