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Module Title: Capital Markets & Treasury Management

Module Director: Professor Owain ap Gwilym

Available Routes:

Elective Module All Routes

Module Overview:

This module will look at the three core elements of capital markets and treasury management as follows: liquidity management and capital markets, financial management and risk management and treasury operations. Students will look at the key theories and elements underpinning each section. Students will initially examine the context for international cash and liquidity management such as financial and banking systems and the time value of money. They will then move on to discussing core concepts such as equity and debt and the methods available for raising finance in the capital markets. Throughout the next sections students will evaluate further methods of raising capital; analyse bond markets and credit ratings and look at the fundamentals of equity valuation. It will develop an understanding of risk management and the framework within which financial risks can be managed before closing with an in-depth analysis of the treasury function, its organisation, policies, objectives and controls.

Aims & Objectives

On completing this module students will be able to:

  • Explain the context for cash and liquidity management
  • Explain the mechanics of money markets and the foreign exchange market
  • Explain the mechanics of raising finance in the debt and equity markets
  • Perform calculations relating to bond pricing, yield and duration
  • Analyse the uses, merits and performance of credit ratings
  • Discuss methods of equity valuation and issues surrounding dividend policy
  • Perform calculations relating to portfolio diversification and systematic risk
  • Explain the characteristics of generic risk management tools
  • Perform calculations relating to interest rate and exchange rate risk management
  • Explain the main features and objectives of treasury operations

Key Text:

Finance and Financial Markets 3rd Edition—Pilbeam, K (2010)

Means of Assessment:

This module is assessed by means of a single mini-project of 5,000 words in length.

Unit One covers:

This unit examines the context for liquidity management such as financial and banking systems and the time value of money. It introduces core tools used in treasury such as money markets and the foreign exchange market. The unit also examines core concepts of equity and debt, and introduces methods of raising finance in the capital markets. Hence it also provides a foundation for material covered in Units 2 and 3.

Unit Two covers:

This unit provides detailed coverage of important aspects of the capital markets (debt/equity or bond/stock markets) and builds on the foundations of Unit 1. In the context of the bond markets, we pursue current topical areas (e.g. credit ratings, the European sovereign debt crisis) and much of this material is not available in textbooks. These topics reflect research expertise at Bangor Business School. In the context of the equity markets, we initially focus on equity valuation and the role of dividend policy. Finally, we address principles of risk, return, portfolio diversification and asset pricing models.

Unit Three covers:

This unit examines the concepts and tools of risk management, and explores the motivations for hedging by banks. We proceed to discuss generic risk management techniques and the functions of derivative instruments. Commercial banks are faced with a long list of potential sources of risk and therefore many risks that need to be managed. In this unit, the focus is on the management of three types of risk, namely interest rate risk, foreign exchange risk and credit risk. In the final subsection, we aim to draw together several key issues within the syllabus which have relevance to a bank’s treasury functions and treasury management.

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