HD and Dean's List Full Course Notes

Description

HD and Dean's List Extensive Complete Course Notes. Covering every topic and lecture for the whole term. Topics covered: Part 1 (Chapters 1 to 3, Financial Institutions): Chapter 1 (A Modern Financial System): Theory and facts in finance (Karl Popper, foundational concepts: risk-return, arbitrage, TVM), three risk preference categories (risk averse, neutral, seeking), the financial system and financial institutions (six institution categories: depository, investment banks, contractual savings, finance companies, unit trusts, investment vehicles), three financial instrument types (equity, debt, derivatives), primary vs secondary markets, direct vs intermediated finance (four reasons for financial intermediation), wholesale vs retail markets, money markets vs capital markets, flow of funds, the GFC 2008 (causes: sub-prime mortgages, securitisation, leverage, maturity mismatch, contagion; policy response: bailouts, QE, Basel III). Chapter 2 (Commercial Banks): Asset management vs liability management models (pre and post-deregulation), sources of funds table (current account deposits, call deposits, term deposits, negotiable CDs, bill acceptance liabilities, debt liabilities, foreign currency liabilities, loan capital and shareholders equity), uses of funds (personal and housing finance, commercial lending, government securities, other bank assets), off-balance-sheet business (direct credit substitutes, trade and performance items, commitments, FX and interest rate contracts), four Australian bank regulators and their roles (APRA, ASIC, RBA, ACCC), Basel Accords evolution (Basel I 1988: 8 percent CAR, five risk weights; Basel II 2004: three pillars, IRB approach; Basel III post-GFC: capital quality and quantity, LCR, NSFR, leverage ratio, G-SIB surcharges), Basel III capital components (CET1 minimum percent, Tier 1 minimum 6 percent, Total Capital minimum 8 percent of RWA, capital conservation buffer percent, countercyclical buffer 0 to percent, G-SIB surcharge 1 to percent), LCR formula (HQLA divided by Net Cash Outflows over 30 days, minimum 100 percent), NSFR formula (Available Stable Funding divided by Required Stable Funding, minimum 100 percent). Chapter 3 (Non-Bank Financial Institutions): Investment banks (underwriting, advisory, trading, research), life insurance companies and superannuation (long-duration matching, compulsory super at percent), finance companies and unit trusts (ETFs: passive index tracking), building societies and credit unions (mutual ADIs, consolidation trend). Part 2 (Chapters 4 to 7, Equity Markets): Chapter 4 (The Share Market and the Corporation): Corporation as separate legal entity, shareholder wealth maximisation as primary objective, ASX structure (CHESS, S and P/ASX 200, market capitalisation), corporate capital structure (debt vs equity six-dimension comparison table: claim priority, maturity, return, tax treatment, risk, leverage impact), optimal capital structure (WACC minimisation, tax shield vs financial distress trade-off), capital budgeting methods (NPV, IRR, payback period). Chapter 5 (Corporations Issuing Equity): IPO process (7 steps from appointment to listing), prospectus requirements under Corporations Act 2001 Chapter 6D, investment bank fees (1 to 3 percent), seasoned equity offerings (rights issues: renounceable vs non-renounceable, share placement up to 15 percent per year, share purchase plan), rights issue pricing formulas (Price of Right = (Market Price minus Subscription Price) divided by (N plus 1); TERP = (N x Market Price plus Subscription Price) divided by (N plus 1)), worked example (3-for-10 at $, TERP $, right value $), dividends and payout policy (interim and final dividends, dividend imputation system, franking credits at 30 percent company tax rate, payout ratio, retention rate, dividend yield). Chapter 6 (Investors in the Share Market): Four investor types (retail, institutional, foreign, company insiders), stock market index construction (price-weighted, market cap-weighted, equal-weighted), margin lending (LVR, margin call mechanics, leverage amplification), short selling (borrowed shares, profit if price falls, naked short selling prohibited in Australia), securities lending (institutional income from lending long-term equity holdings). Chapter 7 (Forecasting Share Price Movements): Fundamental analysis (top-down: 7 macroeconomic variables including GDP, interest rates, inflation, exchange rates, employment, commodity prices, current account; bottom-up: 8-ratio accounting analysis table: EPS, P/E, dividend yield, ROE, current ratio, interest cover, debt-to-equity, price-to-NTA), technical analysis (trend analysis, support and resistance, moving averages, momentum, chart patterns), EMH (weak, semi-strong, strong form with practical implications and anomalies), behavioural finance (6-bias table: overconfidence, herding, loss aversion, anchoring, representativeness, disposition effect), share valuation framework (Gordon Growth Model P0 = D1 divided by (re minus g), CAPM re = Rf plus Beta x MRP, buy/sell signals, sensitivity warning, other multiples). Part 3 (Chapters 8 to 11, Corporate Debt Market): Chapter 8 (Mathematics of Finance): Simple interest (S = P x (1 plus r x t), yield formula, present value formula, holding period yield formula, full worked example: 90-day BAB discounted then sold after 30 days at HPY of percent), compound interest (S = P x (1 plus i)^n, EAR formula: (1 plus i/m)^m minus 1, present value, annuity PV and FV, instalment formula C = PV x i divided by (1 minus (1 plus i)^(-n)), term loan worked example at percent quarterly, EAR comparison of Bank A ( percent), Bank B ( percent), Bank C ( percent)). Chapter 9 (Short-Term Debt): Trade credit (opportunity cost formula: (Discount% divided by (100% minus Discount%)) x (365 divided by (Total days minus Discount days)), worked example 2/10 n/30 = percent ), bank overdrafts (revolving, interest on daily balance, annual review), commercial bills and BABs (6-step BAB facility structure: drawer, accepting bank, discounting, money market sale, maturity payment, roll-over), discount security pricing formulas (price from yield P = S divided by (1 plus r x t), yield from price, price from discount rate, discount rate from price, face value formula), commercial bill pricing worked example ($1,000,000 face value at percent = $988,179), promissory notes (no bank guarantee, underwritten vs non-underwritten programs), negotiable CDs (secondary market liquidity), inventory finance, receivables finance, factoring, BBSW as Australian benchmark rate (analogous to LIBOR). Chapter 10 (Medium- to Long-Term Debt): Term loans and fully drawn advances (loan covenants, security, instalment calculation), mortgage finance (amortising over 25 to 30 years, worked example: $600,000 at percent monthly = $3,864 per month, total interest $559,200), securitisation and RMBS (off-balance-sheet treatment, GFC connection), bond market instruments (debentures: secured; unsecured notes: senior unsecured; subordinated debt: Tier 2 capital), fixed-interest bond pricing (P = C x PVA(r,n) plus FV divided by (1 plus r)^n, semi-annual convention, price-yield relationship table: at par/discount/premium, dirty vs clean price, worked example: 5-year 6 percent coupon at 7 percent YTM = $), leasing (operating vs finance lease, IFRS 16 capitalisation from 2019, leasing advantages). Chapter 11 (International Debt Markets): Euromarkets (offshore currency deposits, London as dominant centre, origin in 1950s to 1960s), eurocurrency market (short-term advances, standby facilities, syndicated loans at LIBOR/SOFR plus spread), euronote and eurocommercial paper (NIF/RUF with underwriting backstop vs ECP without, 360-day convention), eurobond market (four bond types: straight/plain vanilla, FRNs, convertible bonds, zero-coupon bonds), credit rating agencies (S and P, Moody's, Fitch, four-tier rating table from AAA to D, investment grade vs speculative grade, post-GFC criticism and reforms). Part 4 (Chapters 12 to 14, Government Debt, Monetary Policy and Interest Rates): Chapter 12 (Government Debt, Monetary Policy and the Payments System): CGS (Treasury bonds: fixed coupon semi-annual, 2 to 30 years; Treasury notes: short-term discount up to 26 weeks, competitive tender/auction, stop-out yield, risk-free benchmark), state government securities (semi-government securities, central borrowing authorities, credit spread above CGS), RBA monetary policy (Reserve Bank Act 1959 (Cth), 2 to 3 percent inflation target band, cash rate as primary tool, open market operations via repos, QE and yield curve control in 2020, forward guidance, ESA liquidity management), open market operations in detail (repos as primary OMO tool, buy securities to inject cash if above target, sell to drain if below), payments system (Exchange Settlement Accounts, Real-Time Gross Settlement via RITS, New Payments Platform from 2018 with PayID). Chapter 13 (Interest Rate Determination and Forecasting): Three sequential effects of monetary policy tightening (liquidity effect: immediate upward pressure; income effect: medium-term demand reduction; inflation effect: long-term downward pressure on nominal rates), loanable funds model (demand from businesses, households and government; supply from savings, retained earnings, monetary policy, foreign inflows; equilibrium rate; factors shifting curves: economic activity, budget deficits, savings rates, inflation expectations, capital flows), term structure of interest rates (four yield curve shapes: normal, inverted, flat, humped; three theories: expectations theory, segmented markets theory, liquidity premium theory), risk structure of interest rates (credit spread = default risk plus liquidity premium plus tax considerations, flight to quality in stress). Chapter 14 (Interest Rate Risk Measurement): Three types of interest rate risk (price risk, reinvestment risk, net interest margin risk), ARBL principle (asset-sensitive vs liability-sensitive institutions, managing the repricing gap), Macaulay duration formula (D = sum of t x PV(CFt) divided by Price), modified duration formula (D_mod = D_mac divided by (1 plus r/m)), price change approximation (dP/P = negative D_mod x dr), five duration properties (zero coupon bond, coupon bond, higher coupon, higher yield, longer maturity), worked duration example (3-year 10 percent annual bond at par: Macaulay = years, Modified = , 1 percent yield rise = negative percent price change), convexity (curvature of price-yield relationship, second-order approximation formula, always positive, higher convexity benefits investor), internal and external interest rate risk management techniques (duration matching, IRS, futures, options, FRAs). Part 5 (Chapters 15 to 17, Foreign Exchange Market): Chapter 15 (Foreign Exchange: Structure and Operation): Three exchange rate regimes (fixed, floating, managed/dirty float; Australia operates managed float), six categories of FX market participants (dealers and brokers, central banks, importers and exporters, investors and borrowers, speculators, arbitrageurs), FX market structure (OTC, USD 7 trillion daily turnover, 24-hour operation following the sun), long vs short positions, FX rate quotation conventions (direct vs indirect quotes, bid vs offer rate, bid-offer spread, cross-rates), cross-rate calculations with worked examples (AUD/JPY = x = ; EUR/AUD = divided by = ), forward exchange market (FEC structure, covered interest rate parity, forward rate formula, premium vs discount determination), forward rate worked example (Spot AUD/USD , AUD rate percent, USD rate percent, 90 days, Forward = , AUD at forward discount). Chapter 16 (Foreign Exchange: Factors Influencing the Exchange Rate): Demand and supply of AUD (demand creators vs supply creators, demand curve slopes down, supply curve slopes up), six-factor exchange rate determinants table with directional effects on AUD (relative inflation via PPP, relative national income growth, relative interest rates via IRP, commodity prices as AUD driver, exchange rate expectations, central bank intervention), PPP theory (absolute and relative, formula: E1/E0 = (1 plus inflation_foreign) divided by (1 plus inflation_domestic), approximate: percent change = inflation_foreign minus inflation_domestic, worked example: 4 percent Australia vs 2 percent US = 2 percent AUD depreciation, Big Mac Index). Chapter 17 (Foreign Exchange Risk Identification and Management): Three FX exposure types (transaction, translation, economic/operating), formal FX risk policy components, net exposure measurement (offsetting inflows and outflows), market-based hedging (FEC: eliminates uncertainty and upside; money-market hedge: borrow in foreign currency, convert, invest, repay), money-market hedge worked example (USD 1,000,000 receivable in 90 days, result: AUD 1,545,990 locked in), internal hedging techniques (invoicing in home currency, natural hedge, currency diversification, leading and lagging, counter-trade). Part 6 (Chapters 18 to 21, Derivative Markets): Chapter 18 (Introduction to Risk Management and Derivatives): Definition of risk, operational risks (system failure, fraud, natural disaster, supply chain, legal), seven financial risk categories table (interest rate, FX, credit, liquidity, capital, commodity price, equity price with definitions and examples), interrelation of financial risks, seven-step risk management process (identify, analyse, assess tolerance, select strategy, establish controls, implement, monitor and review), futures contracts introduction (standardised, exchange-traded, clearing house via novation, margined, marked-to-market daily, highly liquid, 100-yield price quotation), forward contracts and FRAs introduction (OTC, customised, no clearing house guarantee), options introduction (call vs put, buyer vs writer rights and obligations table, premium limited downside for buyer), swap contracts introduction (IRS and cross-currency swaps). Chapter 19 (Futures Contracts and Forward Rate Agreements): Basic rule of futures hedging (do in futures today what you plan to do in physical market later), borrower hedge (sell futures, rising rates = falling prices = profit offsets higher borrowing cost) vs investment hedge (buy futures, falling rates = rising prices = profit offsets lower investment yield), margin requirements (initial margin, variation/maintenance margin, margin call process, daily mark-to-market mechanics), closing out (over 98 percent closed before delivery, enter equal and opposite contract), futures market instruments table (90-day BAB futures at ASX Trade24 at $1M face value; 3-year and 10-year Treasury bond futures; SPI 200 futures at $25 per index point; FX futures at CME; commodity futures), four futures market participants (hedgers, speculators, traders, arbitrageurs), borrowing hedge worked example ($10M BAB facility, sell 10 contracts at , rates rise to , buy back at , futures profit approximately $12,329 offsets higher borrowing cost), investment hedge description, SPI equity portfolio hedge (N = portfolio value divided by futures price x $25), three hedging risks (basis risk, contract size mismatch, margin call timing), FRA mechanics (OTC, cash settled, no actual lending, settlement on start date of reference period), FRA settlement formula (NP x (r_market minus r_FRA) x (n/365) divided by (1 plus r_market x (n/365))), FRA vs futures comparison table, FRA worked example ($5M 60-against-150 at percent, BBSW settles at percent, buyer receives $6,062). Chapter 20 (Options): American vs European options, three moneyness states (ITM, ATM, OTM), long call payoff summary (exercise if spot greater than strike, break-even = strike plus premium, max loss = premium, max profit = unlimited), short call payoff summary (max gain = premium, potential loss = unlimited naked), call option worked example (Aurizon spot $, strike $, premium $, break-even $, profit $ at $, loss $ at $), long put payoff summary (exercise if spot less than strike, break-even = strike minus premium, max loss = premium), short put payoff summary (max gain = premium, max loss = strike minus premium), put option worked example (Wesfarmers spot $, strike $, premium $, break-even $, profit $ at $), exchange-traded vs OTC options, covered vs naked options, six factors affecting option premium table (spot price, exercise price, time to expiry, volatility, interest rates; direction for calls and puts), intrinsic value vs time value vs volatility, options risk management strategies (cap, floor, collar for interest rate protection), combined option strategies (straddle, strangle, bull call spread, protective put). Chapter 21 (Interest Rate Swaps, Cross-Currency Swaps and Credit Default Swaps): IRS plain vanilla structure (fixed for floating on notional principal, no principal exchange, net settlement), four reasons to use an IRS (convert floating to fixed, convert fixed to floating, comparative advantage, balance sheet management), IRS worked example (Company X $100M BBSW plus 150bp loan enters swap paying percent fixed, effective fixed cost = percent), cross-currency swaps (exchange of principal and interest in two currencies, initial and final principal exchange at original rate, used after foreign currency bond issuance), credit default swaps (protection buyer pays CDS spread in basis points, seller compensates on credit event, naked CDS possible, CDS and AIG in the GFC, post-GFC reforms: central clearing, mandatory reporting).