Aims & Objectives:

• Explain the nature and sources of financial risk confronted by business entities and the benefits of financial risk management
• Comprehend the importance of implementing sound principles of effective risk management in business entities
• Calculate theoretical forward and futures prices and values
• Explain the principles that underlie option pricing models
• Construct interest rate and foreign currency swaps
• Devise strategies to implement hedge programs for identified financial risks using derivative instruments and to evaluate the outcome of the strategy

Teaching Methods:

Lecture (1 hour), Tutorials (2 hours)

Assessment:

Assignment 15%; Presentation 10%; Test 20 %; Exam 55%

Generic Skills Outcomes:

• Capable in their chosen professional, vocational or study areas
• Entrepreneurial in contributing to innovation and development within their business, workplace or community
• Effective and ethical in work and community situations
• Adaptable and able to manage change
• Aware of local and international environments in which they will be contributing (eg socio-cultural, economic, natural)

Content:

• An introduction to financial risk management
• Futures and forwards – pricing, valuation and their use in hedging financial risk
• Options – option types, option payoffs, principles of option pricing, option strategies, hedging with options
• Interest rate and foreign currency swaps
• Interest rate derivatives, using interest rate caps and collars for hedging
• Benefits of risk management and corporate hedging policies

Reading Materials:

Students are advised to check the unit outline in the relevant teaching period for appropriate textbooks and further reading.