University of Bristol - Derivatives and International Finance (ACFI30013)

This unit focuses on derivatives and international finance, emphasising fundamental tools in derivatives markets, their relevance in global finance, and risk management strategies. Exploring widely traded financial derivatives like futures, forwards, swaps, and options, the curriculum delves into their properties, pricing principles, and suitable applications in financial contracts. In the context of international finance, the unit examines parity conditions governing essential relationships among spot and forward exchange rates, interest rates, and inflation rates. In this context we study a range of currency related derivatives and learn how to use them to manage currency risk.

Learning Outcomes:

• Describing the basic principles and terminology of derivative instruments, including futures, options, and swaps, as well as how contracts are traded and settled.
• Explaining the mechanics of key factors that drive derivative pricing, such as underlying asset value, time to expiration, and market volatility.
• Constructing and analysing the payoff structures, profit and loss, and risk exposure associated with various derivative strategies, including asset-liability management, hedging, speculation, and arbitrage.
• Explaining currency exchanges in terms of parity conditions relating exchange rates to interest rates and inflation rates.
• Evaluating and comparing different derivative contracts and strategies to make informed decisions, considering factors like risk management, leverage, and market conditions.

To enrol in this unit, you must have previously passed either Principles of Finance (ACFI20001) or Asset Markets (EFIM20043). In addition, you are required to take Financial Markets and Corporate Finance (ACFI30012) at the same time, unless you are a BSc Finance student, for whom this co-requisite does not apply.