2024/2025
Introduction to Finance 1
Type:
Minor
Delivered by:
International College of Economics and Finance
Open to:
students of all HSE University campuses
Language:
English
ECTS credits:
5
Course Syllabus
Abstract
This course will provide an introduction and overview of the Finance discipline. The course is designed as a foundational course in finance on which subsequent, more specialised finance courses are based. This course is divided into two parts. The first part revolves around asset pricing theory and its application to the valuation of securities that are traded in financial markets (eg, stocks, bonds, and derivatives).
Learning Objectives
- The course provides students with foundational analytical and institutional knowledge in banking and finance.
- The first part of the course emphasizes the key concepts of modern theory of finance such as the time value of money, the absence of arbitrage, the trade-off between risk and expected returns, the notion of diversifiable risk and its implications for asset pricing, and the different forms and tests of market efficiency. At the end of this part, students should be able to discuss the main theoretical and empirical drivers of financial and real asset valuation. Students are also expected to acquire general knowledge about standard financial assets and the risks they carry.
- In the second part of the course, students learn about the consequences of asymmetric information and transaction costs on banking. At the end of the course, they should also be able to highlight the main differences between financial systems, explain the role and origins of financial intermediaries, the methods used by banks to manage various types of risk, and the rationale for bank regulation. Students are also expected to be able to discuss the main factors and developments of the 2007-2009 financial crisis.
Expected Learning Outcomes
- - Analize the current state of financial structure, including crisis events.
- - Apply the two - fund separation theorem as a prerequisite for asset pricing theories.
- - Be able to apply stock pricing formula for the resulting price calcualtion.
- - Be able to apply the models to piricng financial instruments.
- - Be able to demonstrate the understanding of key differences between the CAPM & APT models;
- - Be able to demonstrate the understanding of models used by banks to mitigate those tisks.
- - Be able to demonstrate understanding of differences in functions, investment strategies
- - Be able to discuss functions of financial systems & types of financial systems with real - life examples.
- - Be able to perform valuation of bonds;
- - Be able to proceed with different project valuation techniques (NPV<, IRR< SPB, DPB) and understand key differences.
- - Be able to understand the concept of mean - variance frontier, investors' choice with & without risk - free asset;
- - Be able to use the concept of efficient markets including different forms of market efficiency and explanatory theories.
- - Distinguish between bank - and market - based financial systems, including historical background.
- - Estimate the risks assosiated with the banking business;
- - Learn different types of financial markets & financial instruments (stocks vs. bonds);
- - Understand the concept of yield curve, spot & forward rates;
- - Understand the concept of YTM
- -Be able to distinguish pecularities of Basel I, Basel II and Basel III
- -Distinguish different types of financial intermediaries;
- At the end of this part, students should be able to discuss the main theoretical and empirical drivers of project appraisal techniques.
- Be able to understand financial literature on the basis of theoretical notions shown above.
- Different forms and tests of market efficiency
- Discuss the main types of risks faced by banks, and use the main techniques employed by banks to manage their risks
- Discuss whether stock prices reflect all available information, and evaluate the empirical evidence on informational efficiency in financial markets
- Discuss why financial systems exist, and how they are structured
- Explain how to value financial assets (bonds and stocks)
- Explain how to value real assets and financial assets, and use the key capital budgeting techniques (Net Present Value and Internal Rate or Return)
- Explain why banks need regulation, and illustrate the key reasons for and against the regulation of banking systems
- Explain why the relative importance of financial intermediaries and financial markets is different around the world, and how bank-based systems differ from market-based systems
- Students are expected to acquire general knowledge about tradeoff between risk and return
- Students are expected to know methods used by banks to manage various types of risk
- Students shoukd be able to describe different banking types and their main characteristics
- Students should also be able to explain the role and origins of financial intermediaries, describe different FI
- Students should also be able to highlight the main differences between financial systems
- Students should be able to discuss the main theoretical and empirical drivers of stock valuation.
- Students should be able to discuss the main theoretical and empirical drivers of valuation of fixed income securities
- Students should be able to highlight the rationale for bank regulation.
- The ability to analyze and interpret financial, accounting and other information contained in the statements of enterprises of various forms of ownership, organizations, departments, etc.
- The notion of diversifiable risk and its implications for asset pricing
- Understand how risk affects the return of a risky asset, and hence how risk affects the value of the asset in equilibrium under the fundamental asset pricing paradigms (Capital Asset Pricing Model and Asset Pricing Theory)
- Understand why financial intermediaries exist, and discuss the role of transaction costs and information asymmetry theories in providing an economic justification
Course Contents
- Introduction
- Financial Markets and Instruments
- Capital Budgeting and Valuation
- Fixed Income
- Risk and return
- Asset pricing theories
- Stock Valuation
- Derivatives
Assessment Elements
- ParticipationParticipation includes classwork and lecture quizzes. Classwork tasks include elements of soft skills development such as teamwork, communication abilities, and management skills. Classwork includes participation in seminar discussions, problem-solving (individually and in groups), group presentation on several topics. Lecture quizzes are performed during the lecture using an online tool (application) and should be taken while physically present at the lecture. Lecture quizzes are closed-book quizzes. They are designed to test the students' understanding of the material.
- Final examIn order to get a passing grade for the course, the student must sit (all parts) of the examination.
- Home assignments
- October midterm
Interim Assessment
- 2024/2025 2nd module0.45 * Final exam + 0.15 * Home assignments + 0.25 * October midterm + 0.15 * Participation
Bibliography
Recommended Core Bibliography
- Corporate finance, Berk, J., 2007
- Financial institutions management : a risk management approach, Saunders, A., 2018
- Financial markets and institutions, Mishkin, F. S., 2018
- Principles of corporate finance, Brealey, R. A., 2008
Recommended Additional Bibliography
- Fabozzi, F. J., & Markowitz, H. (2011). The Theory and Practice of Investment Management : Asset Allocation, Valuation, Portfolio Construction, and Strategies (Vol. 2nd ed). Hoboken, N.J.: Wiley. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=364873
- Financial theory and corporate policy, Copeland, T. E., 2005