Learning Business Finance 2

Contents

 

Executive Corporate Finance

Check the availability and buy your books from our Bookshop.

Contact us here

Online Business School  for the delivery and management of your own existing or the customised versions of our programmes for in-class or global distance learning.

Teaching and Research Skills

 

Teaching Online

 

 

For further information see also

 

The Bookshop

Today's Videos Playlist

Rationale

Teaching and Learning Resources

 

Related Workshops

 

Case Studies

Learner Support

 

Recommended Texts

Resources

Assignments, Assessments

 

Learning Centres

 

 

Business Finance II

 

Rationale

 

 

Corporate Finance is a specific area of finance dealing with the financial decisions corporations make and the tools as well as analysis used to make these decisions. The primary goal of Corporate finance is to enhance corporate value, without taking excessive financial risks.

 

Bond

 

The discipline may be divided among long-term and short-term decisions and techniques. Capital investment decisions comprise the long-term choices about which projects receive investment, whether to finance that investment with equity or debt, and when or whether to pay dividends to shareholders. Short-term corporate finance decisions are called working capital management and deal with the balance of current assets and current liabilities; the focus here is on managing cash, inventories, and short-term borrowing and lending (e.g., the credit terms extended to customers).

The time frames, and the goal of the discipline, are inter-related: value is enhanced when return on capital, a function of working capital management, exceeds cost of capital, a function of previous capital investment decisions.

Corporate finance is closely related to managerial finance, which is slightly broader in scope, describing the financial techniques available to all forms of business enterprise, corporate or not.

 

Bank of America capital raising and working capital management capabilities

 

 

See also

 

External links and references

 

General

 

This module has been scheduled to run over a 10-week period. It is the second of the two BA business finance level modules continuing from Business Finance I.

 

Today's Videos

Teacher Tube

 

 

Teaching and Learning Resources

Click on titles

Learning Contents Tutorials and Lectures Assignments Recommended Texys Readings Learner Support Discussion Forums Workshops Web Cases Case Studies Resources Staff Development Subject Reviews

 

An Overview of Risk Management

Risk and Financial Decision Making. Conceptual Framework for Risk Management. Efficient Allocation of Risk-Bearing. What is Risk? Risk and Economic Decisions. The Risk Management Process. The Three Dimensions of Risk Transfer. Risk Transfer and Economic Efficiency. Institutions for Risk Management. Portfolio Theory:  Quantitative Analysis for Optimal Risk Management. Probability Distributions of Returns. Standard Deviation as a Measure of Risk.

Tutorials

 

Readings

Risk management is the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives, whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events[1] or to maximize the realization of opportunities. Risks can come from uncertainty in financial markets, project failures, legal liabilities, credit risk, accidents, natural causes and disasters as well as deliberate attacks from an adversary. Several risk management standards have been developed including the Project Management Institute, the National Institute of Science and Technology, actuarial societies, and ISO standards.[2][3] Methods, definitions and goals vary widely according to whether the risk management method is in the context of project management, security, engineering, industrial processes, financial portfolios, actuarial assessments, or public health and safety.

Description of the internal risk management and control systems

The strategies to manage risk include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk.

Certain aspects of many of the risk management standards have come under criticism for having no measurable improvement on risk even though the confidence in estimates and decisions increase.[1]

 

See also

 

External links

 

 

Risk Modelling and Management

 

 

Hedging, Insuring, and Diversifying

Explain market mechanisms for implementing hedges and insurance. Using Forward & Futures Contracts to Hedge Risks. Hedging Foreign-Exchange Risk with Swap Contracts. Hedging Shortfall-Risk by Matching Assets to Liabilities. Minimizing the Cost of Hedging. Insuring versus Hedging. Basic Features of Insurance Contracts. Financial Guarantees. Caps & Floors on Interest Rates. Options as Insurance. The Diversification Principle. Insuring a Diversified Portfolio.

Tutorials

 

Readings

In finance, a hedge is a position established in one market in an attempt to offset exposure to price changes or fluctuations in some opposite position with the goal of minimizing one's exposure to unwanted risk. There are many specific financial vehicles to accomplish this, including insurance policies, forward contracts, swaps, options, many types of over-the-counter and derivative products, and perhaps most popularly, futures contracts. Public futures markets were established in the 1800s to allow transparent, standardized, and efficient hedging of agricultural commodity prices; they have since expanded to include futures contracts for hedging the values of energy, precious metals, foreign currency, and interest rate fluctuations.

 

Currency Hedging

 

 

See also

How Companies Use Derivatives To Hedge Risk

 

External links

 

Pricing and Hedging of Derivative Securities

Pricing and Hedging of Derivative Securities

Check the availability and buy your books from our Bookshop.

 

Choosing an Investment Portfolio

To understand the theory of personal portfolio selection in theory and in practice. The process of personal portfolio selection. The trade-off between expected return and risk. Efficient diversification with many risky assets. 

Tutorials

 

Readings

In finance, a portfolio is a collection of investments held by an institution or an individual.

Holding a portfolio is a part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced. The assets in the portfolio could include bank accounts, stocks, bonds, options, warrants, gold certificates, real estate, futures contracts, production facilities, or any other item that is expected to retain its value.

 

Dividend Tree

In building up an investment portfolio a financial institution will typically conduct its own investment analysis, while a private individual may make use of the services of a financial advisor or a financial institution which offers portfolio management services.

 

See also

 

External links

 

 

Portfolio Management

An Introduction to Investment Theory

 

The Capital Asset Pricing Model

The Theory of the CAPM. Use of CAPM in benchmarking.  Using CAPM to determine correct rate for discounting. The Capital Asset Pricing Model in Brief. Determining the Risk Premium on the Market Portfolio. Beta and Risk Premiums on Individual Securities. Using the CAPM in Portfolio Selection. Valuation & Regulating Rates of Return. 

Tutorials

 

Readings

In finance, the capital asset pricing model (CAPM) is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk. The model takes into account the asset's sensitivity to non-diversifiable risk (also known as systematic risk or market risk), often represented by the quantity beta (β) in the financial industry, as well as the expected return of the market and the expected return of a theoretical risk-free asset.

Arbitrage Capital Asset Pricing Model

The model was introduced by Jack Treynor (1961, 1962),[1] William Sharpe (1964), John Lintner (1965a,b) and Jan Mossin (1966) independently, building on the earlier work of Harry Markowitz on diversification and modern portfolio theory. Sharpe, Markowitz and Merton Miller jointly received the Nobel Memorial Prize in Economics for this contribution to the field of financial economics.

 

See also

 

External links

 

An Introduction to Investment Theory

Forwards and Futures Prices

How to price forward and futures. Storage of commodities. Cost of carry. Understanding financial futures. Distinction Between Forward & Futures Contracts. The Economic Function of Futures Markets. The Role of Speculators. Relationship Between Commodity Spot & Futures Prices. Extracting Information from Commodity Futures Prices. Spot-Futures Price Parity for Gold. Financial Futures. The "Implied" Risk-Free Rate. The Forward Price is not a Forecast of the Spot Price. Forward-Spot Parity with Cash Payouts. "Implied" Dividends. The Foreign Exchange Parity Relation. The Role of Expectations in Determining Exchange Rates.

 

Options, forwards and futures
 

Tutorials

 

Readings

 

Options and Contingent Claims

Show how the law of one price may be used to derive prices of options. Show how to infer implied volatility from option prices. How Options Work. Investing with Options. The Put-Call Parity Relationship. Volatility & Option Prices. Two-State Option Pricing. Dynamic Replication & the Binomial Model. The Black-Scholes Model. Implied Volatility. Contingent Claims Analysis of Corporate Debt and Equity. Credit Guarantees. Other Applications of Option-Pricing Methodology.

Tutorials

 

Readings

 Contingent Claims Analysis of Patent Value

 


 

Capital Structure

The objective is to understand how a firm can create value through its capital structure decisions. Internal Verses External Financing. Equity Financing. Debt Financing. The Irrelevance of Capital Structure in a Frictionless Environment. Creating Value Through Financing Decisions. Reducing Costs. Dealing with Conflicts of Interest. Creating New Opportunities for Stakeholders. Financing Decisions in Practice. How to Evaluate Leveraged Investments.

 

Capital Structure Analysis

Tutorials

 

Readings

 

Finance and Corporate Strategy

Tutorials

 

Readings

Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments.It entails specifying the organization's mission, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs. A balanced scorecard is often used to evaluate the overall performance of the business and its progress towards objectives. Recent studies and leading management theorists have advocated that strategy needs to start with stakeholders expectations and use a modified balanced scorecard which includes all stakeholders.

 

Optimal Finance Strategy for Shareholders Value Creation

Strategic management is a level of managerial activity under setting goals and over Tactics. Strategic management provides overall direction to the enterprise and is closely related to the field of Organization Studies. In the field of business administration it is useful to talk about "strategic alignment" between the organization and its environment or "strategic consistency." According to Arieu (2007), "there is strategic consistency when the actions of an organization are consistent with the expectations of management, and these in turn are with the market and the context." Strategic management includes not only the management team but can also include the Board of Directors and other stakeholders of the organization. It depends on the organizational structure.

“Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment.” (Lamb, 1984:ix)

 

See also

 

External links

 

Financial Markets & Corporate Strategy

Financial Markets & Corporate Strategy
by Mark Grinblatt, Sheridan Titman

 

Check the availability and buy your books from our Bookshop.

 

International Finance

The module introduces concepts and techniques used in the financial decision making of a multinational firm, extending the principles of finance to an international setting.   Multinational operation expands the investment opportunity set of a firm.  Unlike domestic firms, however, firms operating internationally face fluctuating exchange rates and significant market imperfections in the international capital market reflecting various barriers to cross-border capital flows.  The emphasis of the course is on how to deal with exchange rate risk and market imperfections while maximizing the benefits from expanded global opportunity set.  

Tutorials

 

Reading


 

Module Review and Assessment Weeks

 

Recommended Texts

Applied Corporate Finance: A User's Manual

Applied Corporate Finance: A User's Manual
Aswath Damodaran
ISBN: 0-471-23970-4
Paperback
592 pages
June 1998

Check the availability and buy your books from our Bookshop.

 

 

Principles of Corporate Finance

Principles of Corporate Finance

Video Clips

Role of the CFO (28k)
Role of the CFO (56k)
Right Sizing (28k)
Right Sizing (56k)
Capital Budgeting (28k)
Capital Budgeting (56k)
Bonds (28k)
Bonds (56k)
Financial Markets (28k)
Financial Markets (56k)
Derivitives (28k)
Derivitives (56k)
Portfolio Management (28k)
Portfolio Management (56k)
International Finance (28k)
International Finance (56k)
EVA: Economic Value Added (28k)
EVA: Economic Value Added (56k)
Going Public (28k)
Going Public (56k)
Careers (28k)
Careers (56k)
Mergers (28k)
Mergers (56k)

Check the availability and buy your books from our Bookshop.

 

 

Resources

 

Focus on Leasing

 

 

AIG’s Financial Crisis – Forget Business Ethics – We Need More Money!

Lecture Notes

You can read these notes online, but the download due to generous images will take a while. Please note, the files are in a portable document format (pdf) format, and you must have Adobe Acrobat Reader installed on your computer.

Problem Sets and Solutions: Corporate Finance


Introduction to Finance