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Financial Modelling

Module description

Summary

This module equips you with the knowledge and tools to implement financial models using Excel. The module covers a range of topics in finance drawn from investment analysis, corporate finance, fixed income analysis, risk measurement and international finance.  The emphasis of the module is on the practical application of finance theory, with lectures on each topic followed by in- depth practical classes, in which you will work through real world problems using Excel.

Additional Information:

Employability

This is an applied module that covers the implementation of quantitative financial models that are widely used in financial institutions such as investment banks, mutual funds and hedge funds, and in non-financial corporations.

Internationalisation

The content of this module is relevant to the finance industry in an international setting, with examples drawn from a number of global financial markets.  The international aspects of finance are explicitly addressed through the modelling of exchange rates.

Sustainability

The sustainable operation of financial markets relies on the fact that security prices reflect the fair value of the future cash flows that they promise to pay.  The fair valuation of security prices is maintained by the actions of investors, who exploit deviations from fair value through the implementation of financial models such as those covered in this module.

Research in Teaching

Some of the material covered in the module draws on research in the area of applied finance undertaken by the module convener, and either published in academic journals or used as a basis for commercial consultancy.  Where appropriate, references to this research will be provided.

Module aims - intentions of the module

The aim of this module is to equip you with the knowledge and tools to implement financial models using Excel.  The course introduces you to the general principles of building financial models, as well as a number of specific financial modelling tools including regression analysis, statistical functions, matrix functions, optimization and simulation.  These methods are applied to a range of practical problems in finance, including financial statement modelling, yield curve modelling, risk measurement and exchange rate modelling.  The emphasis of the course is on practical application of the theory, with lectures on each topic followed by in-depth practical classes, in which you will work through real world problems using Excel.  The module will also introduce you to the use of VBA (Microsoft’s programming language) in financial modelling.

Intended Learning Outcomes (ILOs)

ILO: Module-specific skills

On successfully completing the module you will be able to...

• 1. Understand the objectives of financial modelling and the characteristics of financial data
• 2. Design a modelling strategy to address a specific financial problem
• 3. Implement a financial model using appropriate data and interpret the model’s output

ILO: Discipline-specific skills

On successfully completing the module you will be able to...

• 4. Undertake financial calculations in Excel and VBA
• 5. Download financial data from the internet for a range of securities, including stocks, bonds and currencies
• 6. Use simulation to model the distribution of financial security returns

ILO: Personal and key skills

On successfully completing the module you will be able to...

• 7. Solve applied finance problems using Excel and VBA
• 8. Manage complex tasks in a team
• 9. Plan and undertake independent research
• 10. Present research analysis and results in a professional manner

Syllabus plan

• Introduction
• Financial statement modelling
• Portfolio analysis/measurement
• Fixed Income/Derivative
• Risk measurement
• Exchange rate modelling

Learning activities and teaching methods (given in hours of study time)

Details of learning activities and teaching methods

Formative assessment

Summative assessment (% of credit)

Details of summative assessment

Details of re-assessment (where required by referral or deferral)

Re-assessment notes

Deferral – if you have been deferred for any assessment you will be expected to submit the relevant assessment. The mark given for a re-assessment taken as a result of deferral will not be capped and will be treated as it would be if it were your first attempt at the assessment.

Referral – if you have failed the module overall (i.e. a final overall module mark of less than 40%) you will be expected to submit the relevant assessment. The mark given for a re-assessment taken as a result of referral will be capped at 40%.

Indicative learning resources - Basic reading

Basic reading:

• Benninga, S. and Mofkadi. T (2021). Financial modeling (5th ed.). Cambridge, Mass: MIT Press
• Web-based and electronic resources: ELE – https://ele.exeter.ac.uk

Indicative learning resources - Web based and electronic resources

To be advised during the course.

Indicative learning resources - Other resources

To be advised during the course.

Key words search

Financial Modelling, Applied Finance, Excel