# FINANCIAL ECONOMICS 1 - 2019/0

Module code: ECO2049

## Module Overview

This module covers fundamental concepts in finance. We start with an introductory analysis of the role of financial markets in allocating resources and the determination of the interest rate (both real and nominal). We then consider the time value of money and derive present and future value formulas that will help us in pricing a range of financial assets. Next, we explore the characteristics and valuation of securities traded in the money and capital markets, such as certificates of deposit, treasury bills, bonds and stocks. Finally, we introduce the foreign exchange market and examine the derivative markets for options and futures.

### Module provider

Economics

GARFAGNINI Umberto (Economics)

Semester 1

None

## Module content

Indicative content includes:

• The role of financial markets

• Determining the interest rate

• Time value of money: present and future values

• Money market securities

• Bonds and stocks

• Foreign exchange markets

• Derivative markets: futures and options

## Assessment pattern

Assessment type Unit of assessment Weighting
School-timetabled exam/test CLASS TEST - 90 MINUTES, MULTIPLE CHOICE QUESTIONS WITH NUMERICAL EXERCISES AND THEORETICAL QUESTIONS 30
Examination 2 HOUR EXAMINATION - NUMERICAL EXERCISES AND THEORETICAL QUESTIONS 70

Not applicable.

## Assessment Strategy

The assessment strategy is designed to provide students with the opportunity to demonstrate

• Key knowledge on the main types of financial securities and their pricing methods.

• Knowledge of the key skills required for pricing different financial securities.

• Technical mathematical ability.

• Ability to apply the course’s content to unfamiliar problems.

• Discuss real world issues in light of the course’s content.

Thus, the summative assessment for this module consists of:

• A 90 minutes classwork test in (or around) week 7. The test consists of two sections. Section A contains 15 multiple choice questions which include numerical exercises on pricing securities, as well as very short theoretical questions. Section B contains two essay-type questions and asks students to select and answer ONE of these two questions. The test is designed to ensure that everyone has internalised the skills and mathematical tricks needed to price money market and capital market securities.

• A two-hour long final exam. The exam consists of two sections. Section A asks students to answer TWO out of FOUR questions, which could include both theoretical and essay-type aspects. Section B asks students to answer ONE out of TWO questions, which involve numerical exercises on pricing securities.

• The questions in the both the class test and the final exam require students to apply their acquired knowledge of financial markets and pricing of securities.

Formative assessment and feedback

Students will receive verbal feedback in class and office hours through direct questioning and solving exercises together. They also receive feedback following the class test as I go through the correct answers in class.

Within the first few weeks of the semester I will provide a detailed explanation of the structure of both assessments as well as sample papers.

## Module aims

• introduce a broad set of basic concepts and tools in modern finance;
• help students understand how to determine the fair value of various financial securities
• help students understand how risk is quantified for various types securities and what are the sources of risks

## Learning outcomes

 Attributes Developed 1 Display an understanding of the basic workings of financial markets, including the money, capital, foreign exchange and financial derivatives markets 2 Apply valuation methods to a range of securities including stocks, bonds and financial options and futures contracts 3 Problem solving T 4 Insights into financial modelling T 5 Basic training in the operations of financial decision-making T

Attributes Developed

C - Cognitive/analytical

K - Subject knowledge

T - Transferable skills

P - Professional/Practical skills

## Methods of Teaching / Learning

The learning and teaching strategy is designed to:

• Key knowledge on the main types of financial securities and their pricing methods.

• Knowledge of the key skills required for pricing different financial securities.

• Technical mathematical ability.

• Ability to apply the course’s content to unfamiliar problems.

• Discuss real world issues in light of the course’s content.

The learning and teaching methods include:

• 2 hour lecture per week x 11 weeks

• Problem sets and solutions to accompany lecturers that are posted on SurreyLearn

Indicated Lecture Hours (which may also include seminars, tutorials, workshops and other contact time) are approximate and may include in-class tests where one or more of these are an assessment on the module. In-class tests are scheduled/organised separately to taught content and will be published on to student personal timetables, where they apply to taken modules, as soon as they are finalised by central administration. This will usually be after the initial publication of the teaching timetable for the relevant semester.