IB266-15 Financial Markets for Business
Introductory description
This second-year module builds on Finance for Business and introduces students to how equity, bond and derivatives markets work in practice and in theory. Students learn how investors trade off risk and return, how diversification reduces risk, and why financial markets provide benchmark prices for non-diversifiable risk. The module develops practical skills in valuing key securities. It provides a rigorous foundation for practice and more advanced undergraduate finance electives.
This is an elective module available for WBS students, and some students taking joint degrees with WBS and another department. To find detailed availability and to apply for this module, log in to my.wbs.ac.uk using your normal IT login details and apply via the my.wbs module application system. Once you’ve secured a place on my.wbs you should apply via your home department’s usual process, which usually takes place via eVision.
Note that you do not require the module leader’s permission to study a WBS module, so please do not contact them to request it.
Module aims
- Introduce students to the workings of the equity, bond and derivatives markets.
- Equip students with the skills and understanding to use quantitative tools for pricing stocks, bonds and derivatives.
- Develop in students a critical understanding of the trade-off between risk and return, and of techniques for exploiting that trade-off to maximum effect.
- Make students aware of key empirical tests of the Efficient Markets Hypothesis, and the implications of those empirical findings.
- Provide students with structured opportunities to practise using the key tools and techniques of Financial Markets theory.
- Prepare students for advanced undergraduate and postgraduate studies in Finance.
Outline syllabus
This is an indicative module outline only to give an indication of the sort of topics that may be covered. Actual sessions held may differ.
Investment under Certainty: Inter-temporal consumption, Fisher Separation.
Investor Preferences: Risk aversion, Expected utility.
Optimal Portfolio Selection: Diversification, Risk vs. Return, Capital Market Line.
Capital Asset Pricing Model: Beta, CAPM, Securities Market Line.
Bonds and Interest Rates: Spot rates, forward rates, bond pricing, term structure of interest rates, Pure Expectations and Liquidity Preference Hypotheses.
Financial Derivatives: Arbitrage-free futures pricing, binomial and Black-Scholes option pricing.
Market Efficiency: Efficient Markets Hypothesis, calendar anomalies, speculative bubbles, empirical tests.
Learning outcomes
By the end of the module, students should be able to:
- Describe how equity and bond markets function, and their importance to both individual investors and institutions.
- Explain how these markets price stocks and bonds.
- Explain how risk can be diversified by forming portfolios of assets, and how to construct the optimum portfolio.
- Explain theoretical relationships between risk and return.
- Define different forms of market efficiency, and interpret the results of key tests of the Efficient Markets Hypothesis.
- Describe how derivatives markets function and price securities.
- Reflect critically on the limitations of key theoretical models and the assumptions that underpin them.
- Analyse case-study information.
- Communicate complex ideas effectively, both verbally and in writing.
Indicative reading list
Reading lists can be found in Talis
Subject specific skills
Apply discounted cash-flow techniques to value financial securities.
Critically assess major issues and limitations in asset valuation
Interpret empirical evidence.
Price option contracts using the binomial model or the Black-Scholes model.
Transferable skills
Solve structured numerical problems.
Write informed critiques of key issues in valuing risky assets.
Analyse case studies and construct arguments to support a particular solution.
Construct spreadsheets to:
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determine the risk-return characteristics of portfolios of risky assets.
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price stocks, bonds and options.
Study time
| Type | Required |
|---|---|
| Lectures | 10 sessions of 1 hour (7%) |
| Seminars | 9 sessions of 1 hour (6%) |
| Online learning (independent) | 10 sessions of 1 hour (7%) |
| Private study | 49 hours (33%) |
| Assessment | 72 hours (48%) |
| Total | 150 hours |
Private study description
No private study requirements defined for this module.
Costs
No further costs have been identified for this module.
You do not need to pass all assessment components to pass the module.
Assessment group D5
| Weighting | Study time | Eligible for self-certification | |
|---|---|---|---|
Assessment component |
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| Participation | 10% | 7 hours | No |
Reassessment component |
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| Individual Assignment | Yes (extension) | ||
Assessment component |
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| Centrally-timetabled examination (On-campus) | 90% | 65 hours | No |
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Reassessment component is the same |
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Feedback on assessment
In-class and on my.wbs
Pre-requisites
To take this module, you must have passed:
Post-requisite modules
If you pass this module, you can take:
- IB3M7-15 Alternative and Responsible Investments
- IB3H7-15 Mergers and Acquisitions
- IB2CF-15 Corporate Finance for Business
- IB394-15 International Financial Management
- IB357-15 Investment Management
- IB359-15 Derivatives and Risk Management
- IB3J8-15 Banks and Financial Systems
- IB3M1-15 Fintech
Anti-requisite modules
If you take this module, you cannot also take:
- IB235-15 Finance 1: Financial Markets
- IB253-15 Principles of Finance 1
There is currently no information about the courses for which this module is core or optional.