PAPER No. DC II: FIN: 3.1

EVOLUTION OF GLOBAL FINANCIAL SYSTEM

Learning  Objective:  This paper will enable the students to understand  the evolution of various aspects of financial  markets  which in turn will help them in framing  the financial  policies,  development  of financial instruments and processes and evolving the strategies during crisis. The teaching will be done mainly through materials available on internet and published research papers.

Course Contents:

Unit I                                                                                                                                                       Lectures: 10

Global Financial  System: Introduction,  Origin, evolution  and development;  Debt Market and its social and commercial  impacts  on the economic  development  (2000BC  onward);  Evolution  and growth  of Corporate form of Business organizations; Integration of Global Financial System and role of capitalism in it; Making of Financial Markets; Gold and Silver: Aristocrats of Monetary Standards; Paper Money and world currencies; Free trade and its challenges.

Unit II                                                                                                                                                    Lectures: 10

Evolution of Global Financial System: Gold Standard System; Bretton Woods System; Introduction of Special Drawing  Rights  (SDR);  Exchange  Rates  Regime:  Managed  Float  and  Free  Float.  Evolution  of  Currency market in India; World Trade and Globalization (past 200years).

Unit III                                                                                                                                              Lectures: 11

Global   Financial   Markets:   History   and  Evolution   of  Banking   system;   Evolution   and  Integration   of International  Banking; Evolution of Basel norms: Understanding  Basel I, II, III, Evaluation of Basel norms; Banking sector in India; Evolution of Stock Markets and integration of global capital markets; Global Debt Market: Introduction  to Global Debt market; Evolution of Global sovereign  debt market and global private banking; Evolution of Derivative markets.

Unit IV                                                                                                                                                Lectures: 12

Financial Crisis: Great Depression of 1929, Evolution and evaluation of Glass-Steagall  Act 1933, Evolution and evaluation of Gramm–Leach–Bliley  Act 1999; Balance of Payment Crisis in India; Asian Currency crisis and its impact; Subprime crisis of USA: Dodd Frank Wall Street Reform and Consumer Protection Act 2010, European Sovereign Debt Crisis and its impact on Global Economy; Lesson Learnt from financial crisis.

Unit V                                                                                                                                                     Lectures: 13

Latest development and future Agenda: Critical Evaluation of IMF and WTO in Post crisis era. Emergence of G 20 Nations; BRICS Nations: issues and challenges, BRICS Development  Bank; India’s approach towards bilateral  trade  relations  with  other  countries  with special  reference  of Indo  –China,  Indo-US,  Indo-Japan, Indo-EU and Indo-ASEAN.

Text Books:

1.Allen, Larry (1750-2000). The Global Financial System.

2.Ian H. Giddy (1994). Global Financial Markets. Houghton Mifflin.

References:

1. Roy C. Smith and Ingo Walter (2003). Global Banking. New York: Oxford University Press.

2. Chase-Dunn, Kawano and Brewers. Trade Globalization since 1795.

3. World Trade Report 2008: Trade in a Globalizing World

4. Relevant material on IMF’s, RBI’s website and research papers of financial institutions

PAPER No. DC II: FIN: 4.1

MANAGEMENT OF FINANCIAL INSTITUTIONS

 Learning Objective: This Paper enables the students to understand the tools and techniques of management of banks and financial institutions.

Course Contents:

Unit I                                                                                                                                                      Lectures: 12

Structure of  Indian Financial System: An overview of the Indian financial system, financial sector reforms : context,   need   and   objectives;   major   reforms   in   the   last   decade;   competition;   deregulation;   capital requirements;  issues in financial reforms and restructuring;  future agenda of reforms; Regulation  of Banks, NBFCs & FIs: Salient provisions of banking regulation act and RBI Act; Role of RBI as a central banker; Products offered by Banks and FIs: Retail banking and corporate banking products. Universal Banking: need, importance,  trends and RBI guidelines,  Core banking solution (CBS); RTGS and internet banking, NBFCs and its types; comparison between Banks and NBFCs

Unit II                                                                                                                                                    Lectures: 11

Analyzing  Bank  Performance:  The  balance  sheet;  income  statement;  profitability,  liquidity  and  solvency analysis; CAMELS Risk system. Asset Liability Management: RBI guidelines on asset liability management; liquidity risk, liquidity management; setting up prudential limits; interest rate risk ALM vis a vis profitability; factors affecting interest rates; structure of interest rates; gap analysis (with numerical)

Unit III                                                                                                                                                  Lectures: 11

Investment & Funds Management: Funds Flow Analysis; Borrowing & lending behavior of FIs; valuation of investments;  SLR & CRR  management  (with  numerical).  Risk Management  in banks:  RBI guidelines  on credit  risk management;  credit  policy,  credit  process,  characteristics  of different  types  of loans;  assessing credit risk, credit risk rating and credit pricing;  exposure  norms; parameters  of financing  by banks & FIs, Prevention  and  detection  of  frauds.  Capital  Adequacy:  Capital  adequacy  norms;  Basel  agreement-II&III; effect of capital requirements on bank operating policies

Unit IV                                                                                                                                                    Lectures: 11

Management  of non-performing  loans: Classification  of assets; income recognition  and provisioning  norms (with numerical); reasons for NPAs; preventive and corrective steps-Corporate  Debt Restructuring,  recovery management policy, compromise and settlements.

Unit V                                                                                                                                                   Lectures:11

Insurance  companies:  Economics  of  insurance,  life  insurance,  general  insurance,  reinsurance;  Insurance Sector Reforms; liberalization of insurance sector; entry norms for insurance sector; investment management policies; exposure norms.

Text Books:

1. Saunders, Anthony & Cornett, Marica Millon.  Financial markets & institutions: A modern perspective: TMIT

2. LM Bhole.  Financial institutions & markets: Structure, growth & innovations. TMH (5th ed.)

References

1. Madura, Jeff ; Financial institutions & market: Cengage Learning

2. www.rbi.org

3. The teaching will be mainly through latest study material available from RBI, various stock exchanges, market regulators and Govt. agencies.

PAPER No. DC II: FIN: 5.1

CORPORATE ANALYSIS AND VALUATION

 Learning Objective:  This Paper will enable the students to analyze the health of a company  through their annual reports and will equip them to understand what an asset is worth and what determines that value.

Unit I                                                                                                                                               Lectures: 10

Analysis of Corporate Financial Statements: Income statements and Balance sheets through ratio analysis and analyzing the Chairman’s statement, Directors’ report, management discussion & analysis, report on corporate governance, auditor’s report to evaluate the financial soundness of the company.

Unit II                                                                                                                                                    Lectures:  10

Cash  Flows:  Firm  cash  flows,  Earnings,  Tax  effect,  Reinvestment  needs;  Equity  cash  flows:  Dividend, Forecasted Cash flows, terminal value estimation approaches. Equity discounted cash Flow Models-Dividend discount models, extensions of DDM; free cash flow to equity model

Unit III                                                                                                                                             Lectures: 12

Introduction  to  Valuation:  Approaches  to  valuation,  Discounted  Cash  Flow,  Relative  Valuation,  Role  of valuation; Discounted Cash flow Valuation: Estimating discount rates-cost of equity, cost of equity to cost of capital; Valuation of an asset with guaranteed cash flows, introducing uncertainty into valuation (valuing an asset with default risk & equity risk), valuing an asset with an infinite life.

Unit IV                                                                                                                                           Lectures: 12

Firm Valuation  Models: Cost of capital approach,  adjusted present value approach,  EVA, Capital structure and firm value. Relative valuation-popularity  and potential pitfalls; reconciling relative and discounted cash flow valuation Equity Multiples; Value Multiples; Valuation of different kinds of companies

Unit V                                                                                                                                                 Lectures: 12

Value of Synergy; operating and financial synergy, Cash and tax benefits, debt capacity, Evidence on synergy, common errors in valuing synergy; Valuing Real options

Text Books:

1.   Foster, George Financial Statement Analysis, 2nd ed., Pearson Education  Pvt Ltd

2.   Damodaran,  A.  (2008).  Damodaran  on  Valuation,  Security  Analysis  for  investment  and  Corporate

Finance (2nd ed.). Wiley India Pvt. Ltd.

References:

1. Chandra, P. (2011).Corporate Valuation and Value Creation, (1st ed). TMH

2. Weston, Chung, Hoag, Mergers, Restructuring and Corporate Control, Prentice Hall Of India

PAPER No. DC-II: FIN: 6.1

INFRASTRUCTURAL FINANCE

 Learning Objective: This course focuses on Infrastructure finance. Topics in the course are viewed from the Indian perspective  and issues and challenges  faced during Infrastructure  projects. The main focus is on the changing scenario and emerging trends with respect to sources of finance, regulations and risk management. It  will  help  the  students  in  understanding  the  emerging  trends  like  PPP,  BOOT,  BOT,  BOLT  etc.  in Infrastructure development and role of FIs, FIIs and FDI in Indian Infrastructure.

Unit I                                                                                                                                                       Lecture: 11

Introduction of Infrastructure Finance: Overview of Infrastructure Finance, Difference between Infrastructure Finance and other Project Finance, Structural  Finance, Risk Participation  Assistance,  Types of Guarantees, contemporary  products,  pricing  of issues-  current  scenario  in India,  Outlook  for Infrastructure  projects  in India-Demand  and Supply  condition,  Issues and challenges  in Infrastructure  projects  as compared  to other projects, Discussion of the World Bank’s latest report on Indian infrastructure

Unit II                                                                                                                                                    Lecture: 11

Financial Institutions for Infrastructure  Projects in India: Infrastructure  Finance business and major players, emerging  trends  in  Infrastructure   Project  financing,  Product  types,  Role  of  FIs  and  Banks;  Financial Institutions and their approach towards financing the various projects with special reference to PFC, IIFCL, IDFC; Process Flow chart of Infrastructure  Projects; Role of Independent  Regulations;  Case study on Delhi Metro Projects.

Unit III                                                                                                                                                  Lecture: 11

Commercialization     of    Infrastructure    Projects    in    India:    Evolution    of    Private    participation    and commercialization    of   Infrastructure    projects    in   India;    Infrastructure    project    appraisals-    Political, environmental,  social, technical and financial appraisal; Social Cost Benefit Analysis; BOOT, BOLT, BOT, BOO types of projects; PPP-issues and challenges; India’s financial need for Power Projects in near future.

Unit IV                                                                                                                                                 Lecture: 14

Energy Economics: Past, Present and Prospects for the Future. The energy cycle: introduction; production or

extraction; processing; transportation and storage; refining; distribution; Risks in The Energy Cycle; Financial

Market for Energy Products. Emission trading

Unit V                                                                                                                                                    Lecture: 08

Risk Associated  with Infrastructure  Projects:  Risks in Infrastructure  Projects,  Types and Sources  of Risks, Risk analysis and its management; Preparation of Detailed Project Report (DPR) of an Infrastructure Projects

Text Book:

1.   Morris S. (2001). Indian Infrastructure Report. Oxford University Press,

2.   John Wiley & sons. Foundation  of Energy Risk Management.  an overview of the energy sector and its physical and financial markets – Global association of risk professionals. inc.

References:

1.    Betty Simkins  &  Russell  Simkins.  Energy  Finance:  analysis  and valuation,  risk management,  and the future of energy.

2.   Raghuram, S., Jain, R., Sinha, S. Pangotra, P., and Morris, S., Infrastructure Development and Financing. New Delhi. Macmillan Publication

3.   International    Finance    Corporation:    Financing    Private    Infrastructure:    Lessons    of   Experience. Washington. World Bank. 1996

 PAPER No. DC-II: FIN: 7.1

FINANCIAL MODELING AND DERIVATIVES

 Learning Objective: To equip students with principles and techniques of Complex Derivatives like Greeks & Exotic  Options  and Financial  modeling  to enable  them to apply  these  techniques  to financial  analysis  and decision making.

Course Contents:

Unit I                                                                                                                                                     Lectures: 12

Introduction:  Financial  Time  Series  and  Their  Characteristics:  Asset  Returns;  Distributional  Properties  of Returns;  Review  of  Statistical  Distributions  and  Their  Moments,  Distributions  of  Returns,  Multivariate Returns, Likelihood Function of Returns and Empirical Properties of Returns

Unit II                                                                                                                                                  Lectures: 12

Linear Time Series Analysis  and Its Applications:   Stationarity;  Correlation  and Autocorrelation  Function; White Noise and Linear Time Series; Simple Autoregressive Models, Properties of AR Models, Goodness of Fit; Forecasting.

Unit III                                                                                                                                                Lectures: 13

Stochastic   Processes:   Concept   of  Stochastic   Process,   A  time  series,   Distribution,   Gaussian   Process, Expectations  and  Covariance  function,  Dependence  structure,  Homogeneous  Poisson  process;  Brownian motion, Path properties: Non differentiability and Unbounded Variation; Geometric Brownian Motion; Martingales (only properties); Binomial Processes; General Random Walks; Geometric Random Walks

Unit IV                                                                                                                                                    Lectures: 10

The  Greek  Letters:  A  Stop  Loss  strategy;  Delta  Hedging,  Delta  of  European  Stock  Options;  Delta  of  a portfolio;  Theta  of  a  portfolio;  Gamma:  Making  a  portfolio  Gamma  Neutral,  calculation  of  Gamma, relationship  between  Delta,  Theta  and Gamma;  Vega  and its calculation;  Rho;  Portfolio  Insurance;  Stock market Volatility.

Unit V                                                                                                                                                   Lectures: 9

Credit Derivatives: Credit ratings, Default intensities, recovery rates, estimating default probabilities from bond prices; Credit Default Swaps (CDS), Valuation of CDS; MTM a CDS; Binary CDS; Credit Indices.

Text Books:

1. Ruey S. Tsay (2005). Analysis of Financial Time Series (2nd ed.). John Wiley.

2. John C. Hull. Options, Futures and Other Derivatives (7th ed.). Pearson Education.

References:

1. Jurgen Franke, Wolfgang Hardle and Christian Hafner. Introduction to Statistics of Financial Markets.

2. R. Madhumathi,  M. Ranganatham. Derivatives and risk management (1st ed.)

3. Redhead, K. Financial Derivatives- An introduction to futures, forwards, options, swaps. Prentice Hall of

India

PAPER No. DC II: FIN: 8.1

BEHAVIORAL FINANCE

 Learning Objective: The objective of this paper is to introduce the students to the role of human behavior in financial  decision  making.  This  will  enable  them  to understand  some  psychological  biases  which  lead to various anomalies.

The latest published research papers will be used for teaching to a greater extent.

Course Contents:

Unit 1                                                                                                                                                   Lectures: 10

Introduction  to Behavioural  Finance-Overview,  History  of  Behavioral  Finance;  From  standard  finance  to behavioral  finance-  Are  financial  markets  efficient?,  Limits  to  arbitrage-Fundamental  Risk,  Noise  Trader Risk, Implementation cost, evidence of limits to arbitrage

Unit II                                                                                                                                                  Lectures: 12

Cognitive  biases,  beliefs  and heuristics-Preferences:  Prospect  Theory,  Ambiguity  aversion,  Loss  aversion, Framing, Non-consequentialism:  Disjunction Effect, Self-deception, Neurofinance (introduction only); Mental Accounting,  Self-control,  Regret avoidance  and Cognitive  dissonance,  Representativeness  and Availability, Anchoring and Belief perseverance, Overconfidence, Optimism and wishful thinking, Overreaction and Conservatism, Self attribution, Recency bias

Unit III                                                                                                                                                 Lectures: 10

Endowment  effect,  Disposition  effect,    reference  price  effect,  Herd  Behavior,  hindsight,  winners’  curse, cognitive dissonance, familiarity bias, status quo bias, law of small numbers, information overload

Unit IV                                                                                                                                                 Lectures: 14

Application-The   Aggregate  Stock  Market:  Equity  Premium  Puzzle-prospect   theory,  loss  aversion;  The Volatility  Puzzle-beliefs,   preferences;   The  Cross  Section  of  Average  returns-size   premium,  long  term reversals, predictive power of scaled price ratios, momentum, event studies

Unit V                                                                                                                                                  Lectures: 10

Application-The  closed end funds and co movement: investor behavior (saving and investment)-insufficient diversification, naïve diversification, excessive trading, the selling decision, the buying decision Application-Corporate  Finance: Security Issuance,  Capital structure and Investment,  Dividends,  Managerial Irrationality,

Text Books:

1.   Kahneman, Daniel & Tversky, Amos. (2000). Choices, Values and Frames. Cambridge University Press

2.   Shleifer, Andrei.Inefficient Markets-An Introduction to Behavioral Finance. Oxford University Press

References:

1.   Thaler,      Richard      &     Barberis,      Nicholas.      (2002)     A     Survey      of     Behavioral      Finance, http://dx.doi.org/10.2139/ssrn.327880

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