Solusi University

Faculty of Business

Department of Finance

FNCE 294 – Financial Derivatives – (3 Credits)

Course Outline

 

 

Course Description

This course presents and analyzes derivatives, such as forwards, futures, and options. These instruments have become extremely popular investment tools over the past several decades, as they allow one to tailor the amount and kind of risk one takes, be it risk associated with changes in interest rates, exchange rates, stock prices, commodity prices, inflation, weather, etc. They are used by institutions as well as investors, sometimes to hedge (reduce) unwanted risks, sometimes to take on additional risk motivated by views regarding future market movements.

 

The course defines the main kind of derivatives, shows how they are used to achieve various hedging and speculating objectives, introduces a framework for pricing derivatives, and studies several applications of derivative-pricing techniques outside derivative markets. By its very nature a course like this involves some advanced mathematics and statistics. However, in this course the math will be kept to the minimum that is required.

 

Course Prerequisite

Required class pre-requisite is FNCE 255, Investment and Portfolio Management.

Students should have a good knowledge of basic finance concepts, including risk, return, arbitrage, efficient markets, and the time value of money. In addition, an introductory course in basic statistics and probability theory would be useful because the many numerical examples have been included.

 

Course Objectives

This course aims at equipping students with the basic skills of using derivatives in areas such as investment management and foreign currency exposure management. Once students have gone through the course, they must be able to:

·         Describe and differentiate amongst different types of derivative securities

·         Explain the mechanics of each and every type of derivative security

·         Price and value derivative securities of all types

·         Use derivative securities for hedging, speculative, arbitrage and investment purposes.

·         Manage potential risk (hazards) caused by derivatives trading.

Course Delivery

Course delivery will consist of virtual lectures via Moodle, emails and WhatsApp. 

Course Assessment and Grade

Continuous Assessment and the Examination will consist 40 % each towards the overall grade. The course grade will be calculated as follows:

Assessment Method	Weighting  (%)
Participation and Attendance	5	Includes non-graded problems and attendance
Assignments	10	Two Individual and One Group
Presentations	10	Two Group Presentations
Quizzes	5	5 Quizzes
Midterm Exam	10	In-class
Final Exam	60	End of Semester