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.
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.
1.Allen, Larry (1750-2000). The Global Financial System.
2.Ian H. Giddy (1994). Global Financial Markets. Houghton Mifflin.
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.
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.
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.)
1. Madura, Jeff ; Financial institutions & market: Cengage Learning
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
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.
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
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
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.
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.
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.
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.
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
PAPER No. DC II: FIN: 8.1
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.
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,
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
1. Thaler, Richard & Barberis, Nicholas. (2002) A Survey of Behavioral Finance, http://dx.doi.org/10.2139/ssrn.327880