module specification

This module aims to provide students with a knowledge of the trading of the major exchange-traded and over-the-counter traded financial products and develop an understanding of their use as investment vehicles, hedging tools, engineered products, arbitrage mechanisms, and speculative instruments.
The module discusses the characteristics, pricing and valuation of the fundamental instruments, terminologies and contract specifications for the trading of those financial instruments in both cash markets and derivative markets. The module evaluates the relationship between cash instruments and financial instruments, identifies the risk exposure on investments and explores the use of financial derivatives for risk hedging.
Students will also develop skills for data collection and analysis which may include the use of Bloomberg and MS Excel spreadsheets.

A blended teaching and learning approach includes the use of websites, videos, guest talks from industry and support for employability enhancing classroom activities.
The financial market Lab Bloomberg may be used to deliver teaching sessions.

The Foreign Exchange markets Instruments: The foreign exchange rates, quotations, trading contract specifications - LO1

The Money Market Instruments: Treasury bills, certificate of debts, commercial papers, Bank’s acceptance, Eurodollar deposits, repurchase agreements (REPO), LIBOR and EURIBOR. - LO1

The Bond market Instruments: Bond features and valuation, government bonds: Treasury notes / bonds, gilts. Corporate bonds:  zero coupon bonds, callable bonds, convertible bonds, bootstrapping, gilts STRIPs, bond portfolio immunisation - LO1

The equities markets instruments: Features of shares, share valuation models, share indexes, trading specification, forecasting the expected risk and return, measures of risks associated with trading equities. - LO2

The derivative market Instruments: The major exchange-traded and over-the-counter (OTC) traded derivatives. The use of software systems to identify exposure to risk from an investor’s and institutional perspective and to determine how a position might be hedged using the exchange-traded futures and options, and the OTC traded forwards, options and swaps. Speculating on Contracts for Differences (CFDs), Spread-Betting and exchange traded funds (ETFs). The use of short-term interest rate futures (STIRs) and forward rate agreements (FRAs), interest rate swaps (IRSs) to hedge interest rate risk. The use of currency forwards and futures to hedge foreign exchange rate risk. The use of futures and options on bonds and equity indices to hedge market risk of the investments. - LO2, LO3

Teaching is structured by lectures and seminars. The formal lectures of two hours will take place every week and these will be interactive, requiring students to participate in in-class exercises and discussion.

Lectures: A 2-hour lecture per week. The lecture will serve as a vehicle for introducing knowledge and trading terminologies and contract specifications of the financial instruments with examples of instruments being discussed.

Seminars: Each weekly lecture is supported by a 1-hour seminar. These are teaching sessions for trading financial instruments. Tutorial exercises will be provided to students with opportunities to consolidate their understanding of knowledge and skills by working through examples based on current real-world data which may be derived from Bloomberg and other sources, for example, the Financial Times and Wall Street Journal. The merits of each type of instrument will be explored and students will work through examples provided in the lectures and analyse additional examples.

Both lectures and seminars will draw on real-world financial data and case studies wherever possible. Data may be taken from published sources such as Bloomberg, the Financial Times and Wall Street Journal. Contract specifications of financial instruments from major derivative exchanges will be used where appropriate. This approach will enable students to appraise financial market issues in a realistic context and develop their ability to think critically and to produce solutions.

Students will be encouraged to form study groups in order to carry out independent research into the background of the topics introduced in lectures, and to solve set problems. Material may be supported by use of Bloomberg analytics.

On completion of this module students will be able to:

1. Develop the skills that are needed to trade financial instruments on the cash markets and derivative markets.
2. Construct a zero curve and use the zero curve to assess the fair pricing of simple products and multiple products for financial engineering.
3. Use knowledge and expertise in software systems to identify exposure to risk from an investor’s and institutional perspective and determine how a position might be hedged using exchange-traded and OTC traded derivative instruments.

The formative assessment for this module is a 1-hour In-Class-Test which will take place in week 7. In particular students will be tested in understanding of module contents covered from week 1 to week 6 out of solving problems. Students will receive formative feedback through discussing answers to the questions in the class immediately after students took the test. This examines students’ learning progress and prepares students’ ability of tackle problems in the examination at the end of their study. This formative assessment does not contribute to the overall performance of the module.

The summative assessment for this module is an examination. This is an unseen and closed standard examination and the weighting is 100% of overall module performance. The duration of this examination is 2 hours. This examination is designed to assess students’ in-depth theoretical, practical knowledge and critical understanding of the subject of financial instruments covered during teaching weeks. There will be questions, which focus on theoretical aspects of the subject material covered, and questions which will require numerical solutions. Feedback on this summative assessment will be provided in accordance with the university guidelines.

Library Talis Link:
https://rl.talis.com/3/londonmet/lists/D4CA6098-AE61-26C1-2E77-45A4FF914208.html?draft=1&lang=en-GB&login=1

Textbooks

Core Texts
Eales, B.A. and Choudhry, M., (2003). Derivative Instruments: a guide to theory and practice, Butterworth Heinemann.

Hull, J.C. (2017). Options, Futures and Other Derivatives, 10th Edition, Pearson Education

Other Textbooks
Cuthbertson, K. and Nitzsche, D. (2001), Financial Engineering: Derivatives and Risk Management,

Steiner, R. (2012). Mastering Financial Calculations: a step-by-step guide to the mathematics of financial market instruments, 3rd Edition, Financial Times, Prentice Hall

Data source:
Bloomberg and other sources


Internet Sources:
https://www.bloomberg.com/europe
https://derivatives.euronext.com/en
https://www.dmo.gov.uk/



Journals:
The Journal of Finance
The Journal of Economics and Finance

Media:
The Financial Times
The Wall Street Journal