Finance II 2400-FiR2FI2a
1. Introduction. Market efficiency. Allocative, operational and informational efficiency. The EMH, the fair game model and random walk. The EMH and information. Tests of the efficient markets hypothesis. Does it really matter? What are the consequences of this ineffectiveness?
2. Market imperfections. adverse risk selection. Incentive effect. Moral hazard. Herding. The problem of cascades.
3. Shares market. Types of shares in the firm. Financial structure of the firm. Inflation accounting. Depreciation. Corporation tax and corporate capital gains tax. Pooling and no pooling of capital assets. The effect of overseas earnings on the domestic tax liability. The effect of accounting conventions on reported earnings.
4. The fair pricing of shares. Valuation based on expected dividends. Valuation based on expected earnings. Dividend policy
5. Money market securities. Problem of reinvestment risk Investing in the money market
Bonds. Bonds variations. Credit ratings. The fair pricing of bonds. Clean and dirty bond prices. Yield measures on bonds. Yield curve. The coupon yield curve. Theories of the yield curve. Main features of a bond: return on bond/risk from holding a bond. Duration, convexity, dispersion.
6. Option contracts. Option combinations. Put-call parity. Combinations/ strategies. Slope modifications. Combinations involving mixtures of long and short options – spreads. Rotation. Horizontal and diagonal spreads.
7. Synthetic securities. Financial engineering. Synthetic options and forwards/futures. Cross rate options.
8. The fair pricing of option contracts. Factors influencing the premium. Sensitivity factors. Binomial model. Riskless hedge portfolio. Sharpe formula. The Black-Scholes model of the fair European call option price. Pricing a European put option. Put-call parity. Modifications to the Black-Scholes model
9. Practical issues of financial management. Measuring and managing foreign exchange exposure. Portfolio analysis and asset pricing. Structuring the portfolio. Investing internationally - Country risk evaluation.
Type of course
Advanced knowlegdge about financial markets theis specific foundations and rules. The student should be able to construct effective investment portfolio. He/she should also learn how to correctly price different securities and analyse their features.
written exam, exercises similar to the presented during the course or an essay on a given topic
D. Blake, Financial market analysis, John Wiley & Sons, 2000
P. de Grauwe, Economics of Monetary Union, Oxford University Press, 2000
L. J. Gitman, Principles of managerial finance, Addison Wesley, 2000
F. S. Mishkin, The economic of money, banking, and financial markets, Addison Wesley, 1998
W. Dębski, Rynek finansowy i jego mechanizmy, WN PWN, Warszawa, 2002
B. Pietrzak et al., System finansowy w Polsce, WN PWN, Warszawa 2008
J. Czekaj et al., Rynki, instrumenty i instytucje finansowe, WN PWN, Warszawa 2008
Information on level of this course, year of study and semester when the course unit is delivered, types and amount of class hours - can be found in course structure diagrams of apropriate study programmes. This course is related to the following study programmes:
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