Financial Markets

FIN B389 Financial Markets is a half-year five-credit higher level course designed for students pursuing a Bachelor of Business Administration (BBA) or BBA (Hons) degree and will provide a solid background for future higher level courses in this subject area. You are advised to have taken the prerequisite course, ECON A232 Introduction to Macroeconomics, before enrolling in this course. The course has been developed with you, the Hong Kong learner, in mind and it emphasizes both theoretical and practical aspects of the local financial markets.

FIN B389 Financial Markets provides you with a firm foundation for understanding activities and practices of financial markets in Hong Kong. The course also describes the major financial securities concepts, theories and statistics that you need in order to have a basic understanding of Hong Kong's investment environment. Since Hong Kong SAR is an international financial centre, the course also covers important aspects of international financial markets.

The major aims of this course focus on providing you with a framework and relevant materials to expand your knowledge and understanding of financial markets — to know their purpose and learn how they work. Since Hong Kong is a major international financial centre, it is appropriate to emphasize Hong Kong's markets and exchanges.

Course aims

The course aims to acquaint you with practical knowledge about the financial markets and exchanges by applying relevant theories to help you understand the structure, functions and operation of those financial markets and exchanges in Hong Kong and other international financial centres. It also aims to recognize the development and history of the international monetary and financial systems by using real-life examples.

Course learning outcomes

Upon completion of this course, you should be able to:

• discuss the structure of various financial markets to understand how these markets function and evolve;
• distinguish a wide range of financial instruments and their operation in the financial world;
• appraise the characteristics of various international exchange rate systems; and
• evaluate the past and future development of the international monetary system.

Materials

In addition to this Course Guide, the course has the following important components. Please ensure that you have all of these materials available.

Study units

The five study units in this course are as follows:

Unit 1 Financial markets: Money and debt markets explains the role and functions of financial markets. The structure and instruments of the money and debt markets in Hong Kong are discussed. In addition, the future of the debt market in Hong Kong and the impact of China's support on its development are evaluated.

Unit 2 Financial markets: Stock markets describes the development and structure of the Hong Kong stock market. The functions and regulations of the Hong Kong stock market are presented. The China factor is emphasized in the Hong Kong stock market. Finally, the role played by stock market indicators in the economy is assessed.

Unit 3 Financial markets: Markets for derivatives discusses the role of derivative products in financial markets and compares futures, options and swap contracts. This unit also evaluates the characteristics of the futures, options, warrants and swaps markets in Hong Kong. The current status of the markets for futures, options, warrants and swaps in Hong Kong are also contrasted.

Unit 4 Exchange rates and foreign exchange markets analyses the determinants of exchange rate movements and discusses the nature of modern theories of exchange rate determination. This unit also assesses the implications of the trade, current, and capital account imbalance on the economy by characterizing the major components of a balance of payments account. Interest rate parity and covered interest parity are compared. Finally, the spot, forward, futures and options markets for foreign exchange are discussed.

Unit 5 International monetary and financial systems outlines the historical perspective on the development of monetary systems, and evaluates the pros and cons of the current international monetary system. In addition, this unit evaluates the effectiveness of the current system in maintaining a stable international economic environment. In the end, problems in the mechanism of the international system of payments are delineated.

Set textbook

There is one compulsory textbook required for FIN B389 Financial Markets:

Mishkin, F S and Eakins, S G (2018) Financial Markets and Institutions, 9th edn (global edn), Pearson Education Limited.

Audiovisual materials/software

You will need access to a computer with Microsoft Windows and an Internet browser.

Assignment File

The Assignment File contains two assignments and guidelines for working on your assignments. You can refer to the Assessment's section below, and to the Assignment File itself for more information.

Presentation Schedule

The Presentation Schedule is available on the Online Learning Environment (OLE). It gives you the dates for completing assignments, and attending live online tutorials and surgeries, and so on.

Assessment

This course is designed to assist you in moving easily from the subject material to the assignments and examination. You are expected to apply concepts and techniques introduced during the course in attempting the assignments. Most problems require qualitative and narrative responses.

There are informal and assessments in this course. The informal assessment includes self-assessed activities and self-tests stipulated in each unit. The formal assessment includes two assignments and one final examination. Assignments must be submitted to your tutor for formal assessment according to the stated deadlines. The
non-assessed activities are not part of your formal assessment, but it is very important that you complete all these activities as you work through the units.

Assignments

There are two assignments for this course. Assignment 1 covers topics in Units 1 and 2 (due at the end of Unit 2) and Assignment 2 covers topics in Units 3 and 4 (due at the end of Unit 4). You can find the assignments in your Assignment File (available from OLE) along with detailed instructions on how to complete them. You are required to complete the two assignments and submit them to your tutor for evaluation and grading. The two assignments are compulsory and together account for 40% of the total grade for the course.

The assignments will help you to develop a better understanding of the financial markets in Hong Kong and will improve your understanding of the subject area in which the assignment is set.

How to submit assignments

You must use word processing software (such as Microsoft Word) to prepare the assignments, and submit the assignments via the Online Learning Environment (OLE). All assignments must be uploaded to the OLE by the due date.

Failure to upload an assignment in the required format to the OLE may result in the score of the assignment being adjusted to zero.

Assignment submission extension policy

The assignment policy of the University as stated in the Student Handbook should be observed. You are required to submit assignments for this course in accordance with the dates communicated by your Course Coordinator. You may apply for a submission extension on the grounds of illness, accident, disability, bereavement or other compassionate circumstances.

Applications for extensions must be submitted online via the OLE. Please note the following:

• Supporting documents must be submitted to justify applications for extensions of over seven days.
• Applications for extension should normally be lodged before or on the due date.
• Applications are considered by:
  
  • your tutor for extensions of up to seven days;
  • the Course Coordinator for extensions of 8 to 21 days; and
  • the Dean for extensions of over 21 days.

After an assignment is submitted via the OLE, it is your responsibility to check that the assignment has been successfully submitted. Extension applications due to any problem with uploading will not be accepted. The University cannot accept any responsibility for assignments that are not received by your tutor due to any problem with submission via the OLE. As a precaution, you are advised to keep a copy of each assignment you submit.

According to the University's policy, no extension of the due date will be allowed for the final assignment. This policy will be strictly enforced. Any late submission of the final assignment will result in the score of the assignment being adjusted to zero.

Final examination and grading

The final examination for FIN B389 Financial Markets will be of two hours' duration and has a value of 60% of the total course grade. The examination will consist of essay and quantitative questions that reflect the self-test exercises and assignments that you will have previously encountered.

Course marking scheme

The structure of the course marking scheme is summarized in the following table.

The following table gives a general overview of the course structure. It suggests the amount of time you should allow for completing units and provides a broad schedule for you to plan your work. These times are intended as a guide only and should be adjusted to fit your personal needs more closely. You will need between 10 and 15 hours per week to work through the course. This estimation includes time for reading the units, completing activities, self-tests and assignments, attending live online tutorials and preparing for you final examination.

The course materials include a printed course guide, study units and assignment booklet. You do not have to subscribe other additional materials, though we do suggest that you keep up-to-date on this topic by reading the newspapers regularly.  

There are a total of five units in this course. Each of the five units consists of between three to four weeks of work and includes specific objectives, directions for study, commentaries on the activities, and summaries of key concepts and techniques. The units direct you to work on exercises and activities related to the material covered. They can both help you gauge your progress and reinforce your understanding of the material covered in the unit. More importantly, they give examples to help you fully understand the concepts presented in the text, and can assist you in applying these concepts and techniques in the working environment. Together with the assignments, these activities will assist you in achieving the learning objectives of the individual units of the course. Also, you can read quality journals, websites and newspapers on related issues and events in banking to keep in pace with the latest development.

Please note that the biggest temptation that students face, when they are short of time, is just to read the course materials. When they get to a learning activity or self-test, they turn to the back of the study unit to see the suggested answer. It saves time and students still know the correct answer, right? Wrong! Terribly wrong! Many contemporary educationists believe that learning is not a process that happens when people listen to lecture or read a book passively. They think that learning takes place as people actively construct the knowledge. Do not take a shortcut that compromises your learning. Attempt the learning activities and self-tests presented in the study units.

When done properly, working with fellow students on difficult learning activities or assignments can be beneficial. However doing so without acknowledging the contributions of other students in your own work is plagiarism. It has happened that after making enough cosmetic changes made, the act of cheating may not be caught by the tutor who is marking the assignment. But in this case, the student's learning will suffer and it will show in the final examination. Be an honest and virtuous student!

Case studies are a useful and increasingly popular form of learning and assessment in HKMU's School of Business and Administration. In this section we will look at why case studies are used and then suggest some learning strategies that you can use to approach case studies. We will also briefly discuss some problems that you may encounter as you learn from case studies.

What is a case study approach to learning?

One main purpose of a case study is to explore an issue or a number of issues in relation to an organization. The intention is to get you to carefully diagnose an organization; to focus on key problems, and to suggest how these might be resolved. Often the case is a real-life account of an organization which you are required to analyse in order to focus on a problem. Usually, the information that is provided is incomplete and you are often expected to observe developments in the organization over a period of time. The case study approach is an excellent opportunity to actively apply material that you have read and conceptual knowledge to the reality of an organization.

At HKMU, case studies may be used as part of assignments, exams, study units, or day-school exercises. You normally are given some information about a company (this could be both text and graphical information, such as figures and tables). You are then asked to think about some problems related to the company and to use concepts and apply theories that you have learned in your course to propose possible solutions for the company.

Let's have a look at two kinds of case study questions that you might be asked to work through in your courses. The first example is quite structured, while the second is much more open-ended.

Two examples of case study questions

1. Read the case study entitled 'ABC Consultants' and consider the following issues:
   • Using your understanding of the resource-based model, what measures could be taken to improve ABC's returns?
   • Drawing on your broad understanding of the consultancy industry, assess ABC's relative competitiveness and its profit potential.
   • To what extent do internal factors account for ABC's financial weaknesses?
   • Based on your assessment of ABC's financial weaknesses, formulate a new strategic intent and develop a mission statement for ABC.
2. Read the case study entitled 'XYZ Industries'.
   • Identify the key problems that are currently faced by XYZ's management.
   • Propose viable solutions to these problems.

Why case studies?

As you can see from the above examples, a case study approach to learning requires a great deal of thinking and often will not easily yield a quick 'wrong' or 'right' answer. However, case studies are also good preparation for dealing with real-life business problems. Cases may be short and relatively simple, or longer and complex. The purpose is the same for both types: to give you an opportunity to develop your skills in analysing the strengths and weaknesses of the organization under examination, to consider the processes at work within the organization, and to make decisions about future actions.

Case studies are not meant to replace textbooks, but rather to ask you to draw connections between theories and practice and to apply abstract ideas, concepts, and principles to specific concrete situations. Consequently, case analysis develops a number of skills that are crucial in business. In particular, they help you to:

• analyse complex, unstructured, sometimes ambiguous situations;
• identify critical issues and problems;
• question your own and others' assumptions;
• improve your problem-solving skills;
• develop your ability to find alternatives and make informed decisions;
• make decisions with incomplete information and think strategically;
• self-educate yourself and draw on a broad range of resources and knowledge; and
• present and justify recommendations in writing.

You may find that there are many possible 'right' answers to the questions in a case study. This illustrates that there is often no single best way to responsibly manage and solve real-life business problems.

Some guidelines for analysing case studies

The following strategies should help you to successfully analyse case studies:

1　Read the case and become familiar with the facts

First, skim read the case to obtain a general understanding of the main point(s). Highlight or underline the pertinent points as you read.

Read the case again, and this time note down critical facts (such as names, time sequences, and where events occurred). Try to understand how events have influenced decisions. Identify the important individuals or stakeholders, and try to assess the importance of supporting information in the case. How reliable is this supporting information? Are there any gaps in the information that is given?

Make a note of any questions that you have as you read the case.

2　Assess the context of the case

Try to understand the environment of the organization and the wider context of the case.

Ask yourself questions about:

• The state of the organization: What is the state of this organization: good, bad or in-between? Usually this involves thinking about interpersonal relationships, and assessing production or financial problems.
• Key players and systems: How do systems and people operate in this organization? Why do they operate like this? Are the systems undergoing change? How successful are the changes? Is there someone who could sabotage any future strategy? Is there someone who can ensure the success of a future strategy?
• Significant trends: How does this industry operate? What are the main or unique characteristics of the industry? What were they five or ten years ago, and what are they likely to be in the future? What impact are trends likely to have on the organization under investigation? How does this organization's performance compare with that of competitors?
• Constraints: Clearly identify all constraints in the case. A constraint may be viewed as anything (usually beyond the control of the organization) that may prevent an otherwise feasible course of action from becoming a success. What is outside the control of individuals in the case study? For example, it is unlikely that any company or individual in Hong Kong could prevent a foreign government from imposing tariff barriers on imports.

Doing a SWOT analysis is a good way to get a better understanding of the organization and the context or environment in which it is operating. A SWOT analysis considers the Strengths and Weaknesses of the organization, and the Opportunities and Threats which the organization faces in the external environment.

3　Recognize the case's symptoms

Read the case again and as you read, try listing all the symptoms of the case. The symptoms of a case are not the problems, but they may help you to identify the problems. Symptoms are all the things that are undesirable or that are not as expected. For example, falling sales could be a symptom of several problems such as poor market segmentation, poor product quality, or problems in a supply chain. At this stage of your analysis, you should just try to observe all the symptoms, and avoid prematurely identifying problems or suggesting solutions. Like a doctor who consults a patient, you first need to observe and note all the symptoms before you can give a definite diagnosis of the problem. Think about how the symptoms may be interrelated. Relationship diagrams, like the one below, may help you to see the relationships between symptoms.

4　Diagnose the case's problems

After you have a good sense of the symptoms, you're ready to determine key issues that need to be analysed more closely. You are now diagnosing the situation, like a doctor diagnosing a patient's symptoms. Ask yourself 'what seems to be the trouble in this organization?' and make a list of what you now perceive to be the key problem(s). You will probably need to go back to the details of the case and as you do this, you may add to or refine your list of potential problems.

If there are several problems, you need to order and prioritize them. You might want to number problems according to how you perceive their importance, or make a matrix, like the one below, which shows relationships between various criteria and each problem.

Also try to establish if there are relationships or themes in common among the various problems. Perhaps different problems in your list are actually variations of a broader central problem.

Ask yourself what assumptions you have made about the case. Are these assumptions reasonable, and are they supported by the facts? Would other people objectively suggest the same problems, based on the facts that you have? Are you suggesting problems that are not supported by the facts of the case?

After you have considered and put into order the possible problems and questioned your assumptions relating to these problems, you should write a statement of the problems as you perceive them. Avoid suggesting solutions at this stage.

Once you have a problem statement, you need to find evidence in the case to support your problem diagnosis. Also, try to identify ideas, concepts and theories from your textbook and course units which help to explain what is happening in the case.

5　Formulate criteria for a 'good' solution and identify possible constraints to solutions

Before you propose a solution, you need to consider the characteristics of a 'good' solution. Obviously, your solution should bring benefits such as improved productivity, reduced costs or greater profits. However, it also needs to be viable and to accommodate the constraints that you have already identified, i.e. Is the solution legal? Is there a budget for this solution? Does it conflict with the organization's culture?

Try to brainstorm alternative solutions. Aim to generate a broad and creative range of options and then try to rate each according to various criteria.

The following matrix demonstrates how this can be done.

Also refer to ideas, concepts and theories from your course materials as you consider and assess each possible solution.

It's often wise to propose a solution that allows for plausible alternatives if it should fail. Managers use the term satisfice when they are considering acceptable alternative solutions, that is, the solution is able to satisfy the situation while also making some realistic sacrifices to existing constraints. Therefore, it is a satisficing rather than a maximizing solution.

Finally, don't forget to consider the possibility of taking no action. What will actually happen if no action is taken? Are any (or all) of the solutions less viable than taking no action at all?

6　Recommend a viable solution

After you have assessed the merits and pitfalls of each alternative solution, select the best solution for the situation.

Remember that the solution needs to be viable. Can the recommended solution be introduced? Are there the resources and the willingness to implement it? Be realistic about what may work. Explain why it is the best solution within the constraints of the existing context and explain how it can be applied to the organization. Suggest a time-frame for the solution's implementation.

Outline possible strategies for implementing your solution, either partially or completely. As many feasible courses of action as possible should be considered before you choose the one that seems the most likely to succeed. The more ideas you have, the greater your chance will be of finding a solution that will work well. The complexity of most organizational problems means that it is highly unlikely that one idea alone will correct the situation. Usually a combination of actions is required, and these need to be funded differently, timed carefully and staffed as necessary.

7　Present your solution as a written recommendation

Review your final solutions and then prepare a set of written recommendations. These should clearly outline your proposed solution in relation to the problems that you have identified. Your recommendations should also include details of why these solutions are the most appropriate given the circumstances and constraints of the case. Finally, you need to clearly state how and when your proposals will be implemented.

Your tutor and your course Assignment File can provide some guidelines on how to present your recommendations.

Some mistakes to avoid as you analyse cases

When you first tackle case studies, you should be careful to guard against the following mistakes:

1. One of the most common mistakes made in case analysis is repeating or simply summarizing the facts of the case. Your tutor is already very familiar with the case details, so you do not have to restate them. You are required to use and analyse the facts, not repeat them. Your analysis should contain only enough case material to support your arguments. Therefore, be analytical!
2. You may often be tempted to just deal with symptoms and ignore the causes of the problem. It is very important to analyse the background of the case (and the climate in which the events of the case unfold).
3. Avoid discussing problems in isolation and do not overlook their interrelatedness. If you try to think in terms of 'systems' rather than in terms of individual problems, you are more likely to avoid this pitfall.
4. Students often fail to state the assumptions underlying their analysis. If any important assumptions have been made, have you questioned them and are they reasonable and appropriate? Avoid selectively using and interpreting case material in order to justify a preconceived solution.
5. Practical limitations and constraints may sometimes be overlooked. For example, a recommendation that a whole team be fired is probably unrealistic.
6. A very common mistake is poor integration of the facts in the case with the concepts, principles, and theories in the textbook. Such integration is vital. Ask yourself if relevant theories from your course have been fully and constructively applied.
7. Finally, recommendations are too often not spelled out in detail or are unrealistic. A timetable for implementing them is also often not given.

Analysing cases poses many challenges, and this is one reason the case study method is so rewarding. It is a very active form of learning. It offers you a risk-free opportunity to gain managerial and organizational experience and should greatly increase your confidence to make informed decisions in the real world.

Good luck and we hope you enjoy working through the cases that you encounter!

Compared to the mega classes attended by hundreds of students in a typical university, live online tutorials with fewer participants provide a good opportunity for you to meet your classmates and to get to know your tutor. You will find that support and encouragement from classmates and tutors are very helpful.

Attendance in live online tutorials is optional but you are urged to take advantage of them. You can get the most from tutorials by pre-studying the relevant materials, making comments and asking questions. Remember that learning does not happen passively. Your active participation in tutorials is crucial.

Your assignments will be marked and commented on by your tutor, who will keep an eye on your progress and assist you if you encounter problems during the course. Marked assignments will be returned to you as soon as possible.

It is good practice to keep a copy of each assignment submitted for marking, so that you can always refer to queries with the tutor during discussion. Please contact your tutor should the following arise:

1. You do not understand any part of the study units or the assigned readings.
2. You have any difficulty with self-tests.
3. You have a question or problem with the assignment, or with your tutor's comments on or grading of an assignment.

Apart from providing self-study materials, live online tutorials and a live online surgery will also be organized to assist you in your learning process. Details of the dates and times of these learning support sessions as well as the name, email address and phone number of your tutor will be sent to you in due course.

It is strongly recommended that you attend all the live online tutorials and the live online surgery, which will provide considerable assistance in your study of this course. Moreover, you will have the chance to meet fellow students and be with other distance learners who are studying at HKMU.

While you may think you are studying on your own, it doesn't need to be that way. You can be in regular contact with your tutor and, once you've met for the first live online tutorial, you can be in contact with your fellow students. Make a point, when you meet fellow students, to exchange phone numbers or email addresses. In this way, you will be well on the way to developing a learning network of your own.

The learning support sessions will be held throughout the course. Live online tutorials will be based on the major course units and tutors may also introduce further explanation, examples and readings. Full details are given in the Presentation Schedule on the OLE.

FIN B389 Financial Markets is designed to provide you with a firm foundation for understanding the activities and practices of financial markets in Hong Kong. It also focuses on describing the major financial securities concepts, theories and statistics that you will need in order to have a basic understanding of Hong Kong's investment environment, as well discussing Hong Kong SAR as an international financial centre and important aspects of international financial markets.

To understand the content of this course you will need to analyse the course materials and apply the concepts and techniques you are learning. I hope you will find FIN B389 Financial Markets interesting and engaging, and more importantly, you will be able to use the knowledge and skills acquired from this course throughout your career or even your daily life. I wish you every success in your study and hope you enjoy the course.

Bob Leung Wai-ho has worked with major international banks in Hong Kong and Australia for many years. Besides retail banking, where he started his banking career, he has also worked in Private Banking, Private Trust and Wealth Management departments in various banks. Before returning to his family business, he was an investment manager of a USD120M private portfolio. Currently, Mr Leung is a Business Development Associate of an international marketing firm and a part-time tutor of the University.

Click here and view the Lee Shau Kee School of Business and Administration.