Contents:

Module 1: Banking and the Money Markets Preface History of money They are acceptable to all parties They can be easily carried and stored They are difficult to reproduce They are easily divided Functions of money Money in the modern economy The development of banking Origins The creation of credit Development of the present system Banking in the future Exercise 1.1 The banking system 1 – central banks Functions of the central bank Relationships with government Intervention by central banks on the foreign exchange markets The Bank of England The US Federal Reserve system The Bank of Japan The European Central Bank Exercise 1.2 The banking system 2 – commercial banks Clearing banks Gilt-edged market-makers Investment banks The US banking system The EU’s financial system The Japanese financial system Exercise 1.3 Other financial institutions Interest rates and borrowing What is interest? The conditions and usage of money Why do interest rates vary? Nominal and real interest rates Control of the interest rate by the central bank Expectations The relationship between interest rates and exchange rates Exercise 1.4 The money markets The discount market Certificates of deposit Commercial paper The interbank market in the United Kingdom Exercise 1.5 Module 2: Bond and Equity Markets Preface What is a capital market? Negotiability of instruments Non-bank funding Securities Longer maturities Basic instruments and terminology Debt instruments Interest Risk and guarantees Status of the debt Governing law Bearer or registered form Bonds or notes Bond variations Equity Types of ordinary share Types of preference share Hybrids Convertible bonds Bonds with equity warrants Index-linked bonds Exercise 2.1 Bond and equity market participants Issuers Supranational organisations Central governments Government agencies and companies Private sector companies Banks Investors Institutional Corporate Retail Intermediaries Exercise 2.2 Overview of debt instruments Government bonds Government bonds as a benchmark The United States Japan The United Kingdom Europe Germany France Corporate bonds Domestic bonds Foreign bonds Eurobonds Exercise 2.3 The issuer’s point of view Equity or debt? Currency Type of issue Private equity Tax and regulatory requirements Exercise 2.4 The investor’s point of view The risk/reward relationship Equity or debt? Maturity Yield Price Interest rate considerations Currency considerations Liquidity Status of the issue Credit risk Tax treatment Exercise 2.5 The intermediary’s point of view Origination Syndication — primary market Distribution Secondary market trading Risks Exercise 2.6 Regulation US capital markets International capital markets Capital adequacy Exercise 2.7 Documentation, procedures and clearing Documentation Waiting periods Clearing Module 3: Risk Management Products and Applications Preface Introduction The role of the treasurer What is risk? Interest rate risk Exchange rate risk What can be done? Exercise 3.1 The foreign exchange market Key players in the foreign exchange market Spot dealing Forward contracts Calculating the forward rate Characteristics of forward foreign exchange Exercise 3.2 The futures market What is a futures contract? Settlement and margin requirements Delivery Currency futures Interest rate futures Bond futures Exercise 3.3 Options Call options Put options Equity index options Pricing Option trading strategies Other types of options Warrants Embedded option products Exercise 3.4 Interest-rate risk management products Forward rate agreements Forward-forward loans and deposits Interest rate caps Premium Interest rate floors Interest rate collars Interest rate swaps Exercise 3.5 Exchange-rate risk management products Currency swaps Principal flows at maturity Currency options Exercise 3.6 Conclusion Module 4: Valuing a Company Preface Introduction Components of value Qualitative aspects of value Quantitative aspects of value Financial structure issues Cost of debt versus cost of equity Optimal capital structure Dividend policy Exercise 4.1 The importance of dividends Dividend yield Dividend cover Dividend payout8 Exercise 4.2 Earnings valuation Earnings per share Price/earnings (P/E) ratio P/E relatives Cash flow per share Historic and prospective data Exercise 4.3 Asset valuation Net asset value Exercise 4.4 Advanced valuation models Dividend discounting Exercise 4.5 Advanced earnings valuation Shareholder value Exercise 4.6 Capital asset pricing model Exercise 4.7 Economic value added (EVA) Calculating economic value added (EVA) Exercise 4.8 Pricing management options Liability options Asset options Decision-tree analysis Issuing shares Rights issues Open offers Timing and pricing Other types of issue Exercise 4.9 The distribution process Underwriting Deep-discounted share issues Dutch auction/tender offer Best efforts Private placements Exercise 4.10 Mergers and acquisitions Strategic issues Acquisition for growth Acquisition for diversification Exercise 4.11 Choosing the adviser Identifying the target Valuing the target Financial structure Exercise 4.12 Bid tactics Defence tactics Exercise 4.13 Module 5: Principles of Lending Preface Types of lending Temporary or seasonal finance Working investment finance Cash flow lending Exercise 5.1 Sources of information The annual report Other types of financial statement Outside information Exercise 5.2 Putting the company in context The environment Competitive position SWOT analysis Exercise 5.3 Understanding the financial statements How the statements relate to each other The income statement Exercise 5.4 The balance-sheet format Reviewing P&L Sales Trading profit Interest and other income and expenses Interest Profit before tax (and tax) Dividends and retained earnings Exercise 5.5 Assessing the balance sheet – working capital Stock Debtors/receivables Cash Creditors/payables Short-term debt The value of fixed assets The capital structure Items of special interest The cash flow statement Exercise 5.6 Analysis using ratios Performance ratios Ratios relating to financial standing Investment ratios Limitations of ratio analysis Exercise 5.7 Introduction to cash flow analysis Exercise 5.8 Interpreting cash flows Loan structure assessment Taking security and ranking of creditors Lending to group companies Taking guarantees Recognising problem loans Exercise 5.9 Conclusion: the importance of credit analysis Answers to exercises Glossary