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CWA Final Group III – Financial Management & International Finance

Paper 14: Advanced Financial Management

ASSESSMENT STRATEGY
There will be written examination paper of three hours
OBJECTIVES
To provide expert knowledge on setting financial objectives and goals, managing financial resources,
financial risk management, thorough understanding of investment portfolios and financial
instruments.
Learning Aims
The syllabus aims to test the student’s ability to :

  •  Evaluate the role of agents and instruments in financial markets
  • Interpret the relevance of financial institutions
  • Analyze the degree of risk for its effective management
  • Advise on investment opportunities

Skill set required
Level C: Requiring skill levels of knowledge, comprehension, application, analysis, synthesis and
evaluation.

Section A: Financial Markets and Institutions [30 marks]

1. Agents in Financial Markets
(a) Reserve Bank of India; SEBI; Banking Institutions
(b) Non-Bank Financial Corporation’s (NBFCs)
(c) Insurance, Pension Plans and Mutual Funds
2. Financial Market Instruments
(a) Call money, Treasury Bills, Commercial Bills, Commercial Paper; Certificate of Deposits, Government
Securities and Bonds, Repo, Reverse Repo and Promissory Notes
(b) Futures, Options, other Derivatives
(c) Money Market Instruments & Mutual Funds
3. Commodity Exchange
(a) Regulatory Structure, Design of markets
(b) Issues in Agricultural, Non-Agricultural Markets, product design, contract specifications, spot price and
present practices of commodities exchanges
(c) Intermediaries, Clearing house operations, risk management procedures and delivery related issues
(d) Issues related to monitoring and surveillance by exchanges and regulator, Basic risk and its importance in
pricing
(e) Commodity options on futures and its mechanism
4. Infrastructure Financing
(a) Financial objectives, policies on financing, investments and dividends. Financial forecasting, planning and
uncertainties, interest rates, inflation, capital gains and losses exchange control regulation, government
credit policies and incentives statistics on production, price indices, labour, capital market based on
published statistical data
(b) Internal source, retained earnings, provisions etc, Issues in raising finance, legal form of organisation,
provisions of the companies Act, control of capital issues. Short term sources : Trade credit, factoring, Bill of
exchange, Bank Loan, Cash credit, overdraft, public deposit, SEBI regulations, primary and secondary
markets
(c) Securitization, Viability, GAP Funding
Section B: Financial Risk Management [25 marks]

5. Capital market instruments
(a) Primary and secondary markets and its instruments
(b) Optionally convertible debentures, Deep discount bonds
(c) Rolling settlement, Clearing house operations
(d) Dematerialization, Re-materialization
(e) Depository system
(f) Initial Public Offering (IPO)/ Follow on Public Offer (FPO) ; Book Building
(g) Auction, Insider trading
(h) Credit rating- objective, sources, process, credit rating agencies in India
6. Types of Financial Risks
(a) Asset based risk , Credit Risk, Liquidity Risk, Operational Risk
(b) Foreign investment risk, Market Risk

7. Financial Derivatives as a tool for Risk Management
(a) Forward & Futures – meaning, risks associated, difference, features, stock futures, benefits of future market,
components of future price, index and index futures, margin, hedging, hedging risks and portfolio returns
using index futures, hedge ratio, cross hedge, perfect and imperfect hedge, stock lending scheme, forward
rate interest, computation of appropriate interest rate
(b) Options – meaning, types, call and put options, terms and timing of exercise in options contract,
determination of premium, intrinsic value and time value, strategy – spread, bull spread, bear spread,
butterfly spread, box spread, combination, straddle, strangle, strips and straps, put-call parity, binomial tree
approach, risk neutral valuation, Black-Scholes and Merton, evaluation of option pricing – delta, gamma,
vega/lambda, theta, rho.
(c) Swaps and Swaption – meaning, types, features, benefits, role of financial intermediaries, interest rate
swaps, valuation of different swaps
(d) Interest rate derivatives – meaning, interest rate caps, interest rate collars, forward rate agreements,
interest rate futures
8. Financial Risk Management in International Operations
(a) Forex market, equilibrium exchange rate, exchange rate arrangements, bid-ask rate and bid-ask rate spread,
cross rate, currency arbitrage: two-point and three-point, parity conditions in International Finance:
Purchasing Power Parity – Unbiased Forward Rate Theorem – Interest Rate Parity – Fisher Effect –
International Fisher Effect, arbitrage operations, covered interest arbitrage
(b) Exchange rate risk management – forex hedging tools, exposure netting, currency forward, cross currency
roll over, currency futures, options, money market hedge, asset-liability management
(c) Foreign Investment Analysis: International Portfolio Investment – International Capital Budgeting.
(d) Sources of Foreign currency, debt route, depository receipts, American Depository Receipts (ADRs) –
sponsored, unsponsored, Global Depository Receipts (GDRs), Warrants, Foreign Currency Convertible Bonds
( FCCBs), Euro Issues, Euro Commercial Paper, Euro Convertible Bonds, Note Issuance Facility, Participating
Notes
(e) Foreign Investment in India, Joint Ventures, Foreign Technology
(f) Taxation Issues in cross-border financing and investments,
(g) International Transfer Pricing – Objectives – Arm’s length pricing – techniques, advance pricing agreements,
Maximization of MNC’s income through Transfer Pricing strategy
Section C: Security Analysis & Portfolio Management [20 marks]
9. Security Analysis & Portfolio Management
(a) Security analysis, Fundamental analysis, Economic analysis, Industry analysis, Company analysis, Technical
analysis, Momentum analysis – arguments and criticisms
(b) Market indicators, Support and resistance level, Patterns in stock price
(c) Statistic models, Bollinger bands
(d) Portfolio Management – meaning, objectives and basic principles, discretionary and non-discretionary
portfolio managers
(e) Theories on stock market movements – Daw Jones Theory, Markowitz Model
(f) Risk analysis- types, systematic and unsystematic risk, standard deviation and variance, security beta,
market model, alpha
(g) Portfolio analysis- CAPM and assumption, Security and Capital market line, decision making based on
valuation, risk return ratio, arbitrage pricing model, portfolio return, portfolio risk co-efficient of variance,
co-variance, correlation coefficient, correlation and diversification, minimum risk portfolio, hedging risks
using risk free investments, project beta, levered and unlevered firms and proxy beta

Section D: Investment Decisions [25 marks]
10. (a) Investment decisions under uncertainty
(i) Estimation of project cash flow
(ii) Relevant cost analysis
(iii) Project reports- features and contents
(iv) Project appraisal steps- general, inflationary and deflationary conditions
(v) Techniques of project evaluation
(vi) Investment decisions under uncertainties
(vii) Difference in project life – EAC and LCM approaches, Capital Rationing, NPV vs. PI, NPV vs. IRR
(viii) Social Cost Benefit Analysis, Break-even Analysis
(ix) Inflation and Financial Management
(x) Sensitivity Analysis, Certainty Equivalent Approach, Decision Tree Analysis, Standard Deviation in
Capital Budgeting
(xi) Hiller’s Model , Hertz’s Model
(xii) Discount Rate Component, Risk Adjusted Discount Rate
(xiii) Option in Capital Budgeting
(b) Investment in advanced technological environment
(i) Financial forecasting
(ii) Strategic management and Strategy levels
(iii) Interface of financial strategy with corporate strategic management
(iv) Completed financial plan, Corporate taxation and financing, Promoter’s contribution
(v) Cost of capital – cost of different sources of capital, weighted average cost of capital, marginal cost
of capital, capital asset pricing model
(vi) Debt financing- margin money, refinancing, bridge finance, syndication of loan and consortium, seed
capital assistance, venture capital financing, deferred payment guarantee
(vii) Lease financing – finance and operating lease, lease rentals, sale and lease back, cross-border leasing
(viii) Debt securitization- features, advantages, factoring, forfeiting, bill discounting
(c) International Investments
(i) World financial markets
(ii) Foreign portfolio investments
(iii) Modern portfolio theory
(iv) Issues posed by portfolio investment
(v) Foreign portfolio trends in India- emerging trends and policy developments

 

Faculty

CA Bhupesh Anand Sir, the faculty for this course, is an award winning visiting faculty to ICWA, CS and CA institutes. He is an author of several text books and his course notes are perhaps the most sought in the students’ community. His students have been consistently delivering best results over the years. His highly successful students keep sending him great wishes for the impact he has made on their career.

The highlights of his classes are:

• Amazing connect with the students present in the class
• Full use of live examples to explain theoretical concepts
• Motivating the student to not just clear the exams but to excel in every domain of life

The details of the program are in the presentation below.

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