Program Overview

Unit Overview

The unit BAFN308 - Derivatives and Financial Risk Management is designed to introduce students to the fundamental business function of financial risk management. It aims to equip students with a foundational understanding of financial risk management and the strategic tools available, especially derivative market instruments, to mitigate these risks.

Unit Rationale, Description, and Aim

The purpose of this unit is to provide students with a comprehensive understanding of financial risk management, including the identification and evaluation of financial risks, and the use of derivative instruments to manage these risks. The unit covers various topics, including the financial risk management process, financial markets, products, and participants, as well as the mechanics of derivatives markets, including forwards, futures, options, and swaps.

Learning Outcomes

Upon completing this unit, students will be able to:

• Assess the various financial risks to which a business or investor might be exposed
• Evaluate the various types of derivative instruments available to manage financial risks
• Formulate hedging strategies to reduce or eliminate unwanted market or credit exposures
• Work collaboratively to analyze and propose solutions to financial risk exposure challenges
• Critically reflect upon the ethical use of derivative instruments by market participants

Content

The unit covers the following topics:

• The financial risk management process
• Identifying and evaluating financial risks
• Financial markets, products, participants, and derivatives
• Forwards and futures
• Options
• Swaps
• Hedging spot risk
• Hedging interest rate risk with forwards, futures, and options
• Hedging interest rate risk with swaps
• Hedging credit risk
• Managing other financial risks liquidity risk, derivatives exposures, and operational risk
• Ethics in derivatives markets

Assessment Strategy and Rationale

The assessment strategy for this unit includes a combination of written and video presentations, as well as individual and group tasks. The assessments are designed to test students' understanding of the unit material and their ability to apply this knowledge in practical scenarios.

Assessment Tasks

The unit includes the following assessment tasks:

1. Report: Written assignment that requires students to explore the derivatives market and products (30% weighting)
2. Case Study: Video presentation assignment that requires students to work together in developing appropriate strategies to manage financial risks based on a real-world case study (35% weighting)
3. Report: Final report that requires students to critically assess financial risk management and hedging decisions from a key stakeholder and stewardship perspective (35% weighting)

Learning and Teaching Strategy and Rationale

The unit is designed to be delivered in either Attendance or Online mode. Students can expect to undertake 150 hours of study for this unit over a twelve-week semester or equivalent study period. The unit utilizes an active learning approach, with students engaging in e-module activities, readings, and reflections, as well as opportunities to collaborate with peers in an online environment.

Representative Texts and References

The unit includes the following representative texts and references:

• Saunders, A., Cornett, M. M., & Erhemjamts, O. (2024). Financial institutions management: A risk management approach. 11th Edition, McGraw-Hill.
• Akhtaruzzaman, M., & Rahman, M. R. (2024). Commonality in systemic risk from green and conventional energy. Energy Economics.
• Akhtaruzzaman, M., Boubaker, S., Nguyen, D. K., & Rahman, M. R. (2022). Systemic risk-sharing framework of cryptocurrencies in the COVID19 crisis. Finance Research Letters.
• Bartram, S. M. (2019). Corporate hedging and speculation with derivatives. Journal of Corporate Finance, 57, 9-34.
• Chance, D. M., & Brooks, R. E. (2016). An introduction to derivatives and risk management (10th ed.). Cengage.

Credit Points and Year

The unit is worth 10 credit points and is offered in the year 2026.