THE UNIVERSITY OF THE WEST INDIES

Department of Management Studies

MGMT 3048 – Financial Management II

Course Description

 MGMT3048 Financial Management II

 Level: Three
 Prerequisites: MGMT 2023, MGMT 2032
 Number of Credits: Three
 The course is a continuation of Financial Management I (MGMT 2023) and therefore starts
off from where Financial Management I ends. It is intended to complete the work initiated
in the predecessor course and is for the consumption of Management / Finance students at
the undergraduate level. This course imparts knowledge and basic skills needed for a
financial officer with respect to long-term financing decisions (capital structure, financing
options), profit appropriation decisions, international finance, risk management, options,
corporate restructuring and leasing.
 The course is organized into seven topics that cover areas like capital structure decisions,
dividend policy decisions, international financial management, risk management, option
pricing, mergers and acquisitions and leasing
 This is a level 3 course and builds on the knowledge gained at level 1 about basic financial
management. The knowledge and skills acquired at level 1 are used to let the students focus
on key finance functions and allied areas.

Purpose of the Course

Since the course picks up the thread from its pre-requisite course MGMT 2023, the students are
expected to know that the finance function in an organization comprises of taking decisions regarding
short and long term investments, financing (long term and short term) and distribution of profits.

The purpose of this course is to complete Financial Management education by specifically focusing on
Capital Structure (long-term financing) and Dividend policy (profit appropriation). Other important
areas in Financial Management like International Finance, Risk Management, Options contracts,
Mergers and Leasing are covered as well.

Instructor information

Lecture hours : Thursdays 5:00 pm to 8:00 pm

Lecture venue : LRC, LT B.
Lecturer : Dr. Chandra Shekhar Bhatnagar
Office hours : Thursdays 11:00 am to 12 noon, RM 214
E-mail : csbhatnagar.work@gmail.com
Course Content

1. Financial Leverage and Capital Structure Policy

2. Dividends and Dividend Policy
3. International Corporate Finance
4. Risk Management: An Introduction
5. Options Contracts and their Valuation
6. Mergers & Acquisitions
7. Leasing

Goals/Aims

Financial Management is a core subject for anyone embarking on a career in finance. The fact that the
course is divided into two parts: MGMT2023 (Financial Management I) and MGMT3048 (Financial
Management II) is due to the fact that the entire course cannot be effectively taught in one semester. The
goal of this course is to bring Financial Management, as a course, to completion in its entirety by
equipping the students with knowledge and skills required of a typical finance manager in a corporate
setting.

General Learning Outcomes

The learning outcomes remain broadly similar in spirit to the Financial Management I (MGMT 2023)

By the end of the course, the students should be able to:

1. Infer the relationship between leverage and the value of a firm

2. Analyze the relationship between dividend policy and the value of a firm
3. Explain the broad functioning of the foreign exchange market
4. Comprehend the inter-connections between key macroeconomic variables and theories that
affect exchange rates
5. Use FOREX market misalignment to make arbitrage profits
6. Define financial risk
7. Distinguish between risk, exposure and hedging
8. Use hedging to mitigate risk
9. Comprehend Options contract as a derivative instrument
10. Explain simple option contract pay-offs
11. Use the Black-Scholes model to calculate the value of a European Option
12. Comprehend and explain option Greeks
13. Use options contracts as a hedging tool
14. Describe the various forms of Corporate Restructuring
15. Calculate the costs and benefits of Mergers and Acquisitions
16. Differentiate between types of leases
17. Decide on the suitability of leasing versus buying an asset.
18. Formulate educated decisions for maximizing shareholder wealth
19. Relate to the discipline of finance as a holistic field of study

Tutorial Assignment: All end-of-chapter questions and problems for chapters included in the course
content

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Course Assessment

The assessment of the students will be along the following lines:

Mid Term Exam : 25 marks

Final Exam : 75 marks
TOTAL 100 marks

Teaching/Learning Strategies

The presentation of course material is through:

1. In-class lectures
2. Summary class notes shared electronically
3. Online Instructional Videos
4. Tutorials

In addition, 1 hour per week will be specifically dedicated as office hours for discussing and resolving
individual problems of the students, if any.

The students can register themselves for the course site by logging in to http://classroom.google.com
with their Google credentials. Once logged in, the course can be joined by using the following course
code:

4jgc25e

The course site allows the students to download a copy of the course outline, lecture notes and other
relevant material. The course stream allows for communication with the lecturer outside office hours.
Resources

Required Text:

“Fundamentals of Corporate Finance” by Ross, Westerfield and Jordan, 10th Edition, Alternate Edition,
McGraw Hill Irwin

Online Instructional Videos at www.youtube.com/csbhatnagar

Summary Class notes as a complement to the book will be available on the course website

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Course Calendar

Weeks Topic Chapter Learning Videos*

1. Break Even EBIT:

https://www.youtube.com/watch?v=O8FLH5K7Hc8
2. Homemade Leverage 1:
https://www.youtube.com/watch?v=FlEWF3vlRrI
Financial Leverage and
1 and 2 16 3. Homemade Leverage 2:
Capital Structure Policy
https://www.youtube.com/watch?v=VSe0zklJTy8
4. MM Propositions: https://www.youtube.com/watch?v=oI70x-
S31gU

1. Homemade Dividends 1:
https://www.youtube.com/watch?v=udFKjciRO_I
2. Homemade Dividends 2:
Dividends and Dividend https://www.youtube.com/watch?v=RwUmKNQDQ_M
3 and 4 17
Policy 3. Stock Dividend& Stock Split:
https://www.youtube.com/watch?v=5HCRh1oGn2g

1. Currency conversion:
https://www.youtube.com/watch?v=0MPI1VL7gBg
2. Cross Rate Calculation:
https://www.youtube.com/watch?v=PeP3C_KN_v8
International Corporate 3. Triangular Arbitrage: http://blip.tv/file/2855537
5 and 6 21 4. Covered Interest Arbitrage 1:
Finance
https://www.youtube.com/watch?v=fS6La0Vs_Fo
5. Covered Interest Arbitrage 2:
https://www.youtube.com/watch?v=Jjcqj68vgXM
6. Purchasing Power Parity 1:
https://www.youtube.com/watch?v=oUzR7VO4_cg
 7. Purchasing Power Parity 2:
https://www.youtube.com/watch?v=3NYUSd8t7ds
8. Interest Rate Parity:
https://www.youtube.com/watch?v=bROJrFa3MZc

Risk Management: An
7 and 8 23
Introduction

1. Options as decaying assets:

https://www.youtube.com/watch?v=UNJdimUkptQ
2. Put-Call Parity:
Options Contracts and their https://www.youtube.com/watch?v=hTmtlmdE-Q0
9 and 10 25
Valuation 3. Black and Scholes Model 1: Finding N(d1) and N(d2):
http://www.youtube.com/watch?v=qZEeYylkpuY
4. Black and Scholes Model 2: Call and Put Values:
http://www.youtube.com/watch?v=3lMonK5x1QU
11 Mergers & Acquisitions 26

Leasing
12 27

* Since accessing the videos will require clicking on the web-links, it is suggested that you work with a soft copy of the course outline.