Finance II

source: http://www.visionapexcollege.blogspot.com 

FIN 102.3 (Credit hours 3)

BBA, Third Year, Fifth Semester

Course Objectives:

The two core courses on Finance, Finance I and Finance II, aim to provide students with basic understanding of important concepts in finance and investments. For students choosing to specialize in finance, the two core courses give them solid foundation. For students choosing to concentrate on other areas of management, the two core courses equip them adequately to understand financial decisions and communicate effectively with finance managers or finance professionals.

Course Contents:

1.      Economics of Financial System                             3 hours

                Basic needs served by the financial system: payments, resource transfer, risk trading, the technology adopted in serving these needs: delegation, credit submission, polling, netting.

2.      Interest Rates and Risk Premiums                    3 hours

                Interest rates and their determination, term structure of interest rates and theories of term structures; real and nominal interest rates.

3.      Financial Intermediaries                                       9 hours

                Depository institutions, their functions, and risks associated with their management -- liquidity risk, market or interest rate risk, credit risk, operations risk and other risks. Moral hazard and adverse selection problems in lending and insurance services. The economics of regulation of financial services. Structure of Nepalese Financial Markets and their regulation.

4.      Introduction to Derivatives                                      6 hours

Call options and put options and comparison of their payoff patterns with that of bonds and stocks.

Determinants of option values; valuation of options using a) Black Formula, b) Binomial Model; Put call parity relation. Forward Contract and Future Contract; Marking to market and the margin account; Convergence of Forward and Future Price to Spot Price; The difference between Forward and Future Contract.

5.      Application of options on capital Budgeting          3 hours

                Flexibility in capital budgeting and the use of decision trees. Computing the value of options to expand and option to abandon.

6.      Warrants and Convertibles                                      3 hours

                Conversion value, straight bond value and market value of convertible bond. Effect of conversion on earning dilutions; Reasons for issuing convertibles and warrants; Valuation of warrants; Comparison of convertibles and warrants.

7.      Raising Capital                                                         9 hours

                Cost and Benefit of Debt vs Equity; Private Placement vs General Public Offering; Venture Capital; Lease Financing

8.      Special Topics                                                           12 hours

                Mergers and Acquisitions: Their Motives, their problems, their benefits; The problems and prospects for M&A in some industries in Nepali Market. Foreign Direct Investments and Foreign Portfolio Investments: Problem and prospects in Nepalese context. Foreign Exchange Risk and Exposures Exchange rate risk and exposure, nature of exchange rate risk and exposure, exposure on domestic assets and liabilities and operating income.

Text Books:

      1.       Brealey, R.A.,. Myers S.C., Marcus A.J.: Fundamentals of Corporate Finance, McGraw- Hill International edition.

      2.       Kohn, Meir: Financial Institutions and Markets

      3.       Levi, Maurice D., International Finance, McGraw- Hill International editions.