This is a comprehensive course on the theory and practice of risk management, which will teach students the various ways in which companies can manage business and financial risk mainly through hedging, but also touches on speculation and arbitrage.
The course contains a mixture of analytical and theoretical components
- builds on the principles of Corporate Finance studied in the third year of the programme
- is intended to enable students to specialise in the domain of Financial Services.
The module overview should be concise and succinct.
The Financial System:
Role and function of financial systems. Structure of the Irish financial market. Providers of financial services (specialist and general financial intermediaries). Users of investment products. Regulation of the Irish financial services market. Function of arbitrageurs, hedgers and speculators in the financial markets.
Money Markets and Money Market Instruments:
Domestic money market and instruments; T-Bills, Repurchase Agreements, Inter-Bank Market, Commercial Paper and Certificates of Deposit.
International money market and instruments; Eurocurrency Loans and Deposits.
Calculation of competitive advantage between these two markets.
Exchange Rate Risk:
Components of exchange rate risk (economic, transaction and translation).
Foreign Currency Market:
Foreign currency market and market conventions. Spot, cross and forward rates.
Causes of exchange rate fluctuations. Four-way equivalence model; interest rate parity theory (IRPT), purchasing power parity theory (PPPT), fisher effect, pure expectations theory. Forecasting exchange rates using both IRPT and PPPT. Devices for managing FX exposure:
Internal Hedging Techniques:
Netting inter-company debt; matching receipts and payments; leading and lagging payments, adjusting contract prices to forward rates, altering currency of invoicing.
External Hedging Techniques:
Forward Exchange Contracts (FEC); Money Market Hedging, Futures Contracts, Currency Futures Contracts, Option Contracts (Equity and Currency)
Interest Rate Risk:
Devices for managing interest rate exposure. Swaps and FRA’s
The learning and teaching methods employed will be achieved through a combination of lectures, tutorials, discussions, video-learning, problem solving exercises, practical questions and self-directed learning. Students will also engage in a significant group project as a learning methodology. The application of the concepts and the development of critical abilities, will be achieved through the use of practical examples based on Irish and international business scenarios. Students will also receive feedback on their learning, by marking their own solutions to problems, against suggested solutions, presented in class by the lecturer. Articles from financial journals and the financial press, will be utilised where appropriate, to illustrate material covered in class.
| Module Content & Assessment | |
|---|---|
| Assessment Breakdown | % |
| Formal Examination | 70 |
| Other Assessment(s) | 30 |