1. Introduction to the Module (MOD004164_Financial Management)
Magdalena Partac

2. Your Tutor
Magdalena Partac

3. Main links: Canvas (replacing VLE)
My.Anglia Module Catalogue at
Anglia Ruskin’s module search engine facility at

4. Learning outcomes Knowledge and understanding:
LO 1. Demonstrate a good understanding of the financial markets, financial instruments and related parties in corporate finance
LO 2. Illustrate theories and mechanisms of primary assets used in investments
Intellectual, practical, affective and transferable skills:
LO 3. Synthesise the concepts of risk, return and diversification in the context of portfolio management
LO 4. Conduct and evaluate advanced investment appraisal methods as a part of a broader role of an organisation competing in a highly efficient market

5. Employability Skills in this Module
Communication (oral and written);
Interpersonal Skills
Data Handling
Project Management
Decision making
Problem Solving and analytical skills
Enterprising
Responsibility
Flexibility
Time management
Initiative

6. Assessment
Individual assignment (1500 words) – Submit to Turnitin no later than 2PM on Tuesday, 21st November 2017 – 50% of your marks;
Exam (1.5 hours) – Wednesday, 3rd of January 2018 – Tuesday, 9th January 2018 – 50% of your marks;

7. Generic Assessment Criteria
Level 7 is characterised by an expectation of students’ expertise in their specialism.
Students are semi-autonomous, demonstrating independence in the negotiation of assessment tasks (including the major project) and the ability to evaluate, challenge, modify and develop theory and practice.
Students are expected to demonstrate an ability to isolate and focus on the significant features of problems and to offer synthetic and coherent solutions, with some students producing original or innovative work in their specialism that is worthy of publication or public performance or display.

8. Learning process and expectations
Lecture/Seminar materials are already uploaded on Canvas
You have to prepare to Lecture/Seminar activities before attending the class;
You have to read essential materials from the Reading List;
Any issues have to be discussed immediately after Lecture/Seminar, or by arranging a private face-to-face meeting by ;

9. Team working?

10. Disruptive Behaviour
No late arrivals (it is your own responsibility to scan Student Cards on arrival);
No phone calls during Lecture/Seminar; Chats with peers during discussion time only;
Mutual respect;
Students busy with activities that are not related to the module will be asked to leave the classroom.

11. Any questions?

12. Magdalena Partac LAIBS Chelmsford
Lecture 1. Introduction to Financial Markets, Institutions and Instruments
Magdalena Partac
LAIBS
Chelmsford

13. Aims: To describe alternative views on the purpose of the business
To explain the differences between shareholder wealth maximization and stakeholder approaches;
To show the role of financial intermediaries;
To introduce financial institution and instruments
Direct Learning:
Glen Arnold (Chapter 1);

14. Adam Smith (1776) in his book “The Wealth of Nations” claims:
The businessman by directing industry in such a manner as its produce may be of the greatest value, intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it…”

15. Discussion
Consider Smith’s quote and discuss with peers what are the primary goals of running a business?

16. Some possible objectives of the firm
Achieving a target market share;
Keeping employee agitation to a minimum;
Survival;
Creating an ever-expanding empire;
Maximisation of profit;
Maximisation of long-term shareholder wealth.

17. Shareholder Wealth Maximisation Approach
Supported by pro- capitalist economists, i.e. Friedrich Hayek and Milton Friedman;
Maximisation of shareholders' returns is not the same as profit maximisation;
Benefits to both: firm and society?
Source: Arnold (2013), Ch.1, p.15

18. A company has responsibilities to a number of interested parties:
Source: Arnold (2013), Ch.1, p.4

19. Michael Jensen attacks the stakeholder approach:
Stakeholder theory effectively leaves managers and directors unaccountable for their stewardship of firm’s resources…[it] plays into the hands of managers by allowing them to pursue their own interest at the expense of the firms' financial claimants and society at large. It allows managers and directors to devote the firm’s resources to their own favourite causes – the environment, arts, cities, medical research – without being held accountable…it is not surprising that stakeholder theory receives substantial support from them.
(Jensen, 2001)

20. Discussion ?
Have you ever heard about “Agency theory” or “Principal–agent problem”?

21. Ownership and control Diffuse and fragmented set of shareholders;
Control often lies in the hands of directors;
Separation, or a divorce, of ownership and control;
The management team may pursue objectives attractive to them;
‘Managerialism’ or ‘managementism’;
An example of the principal–agent problem;
Agency costs;
Monitor managers’ behavior;
Create incentive schemes and controls for managers to encourage the pursuit of shareholders’ wealth maximization;
Agency cost of the loss of wealth caused by the extent to which prevention measures do not work.

22. Corporate governance
The system by which companies are managed and controlled. Its main focus is on the responsibilities and obligations placed on the executive directors and the non-executive directors, and on the relationships between the firm’s owners, the board of directors and the top tier of managers.
Defining of the corporate objective, the placing of constraints on managerial behaviour and the setting of targets and incentive payments based on achievement.

23. The introduction of financial intermediaries
Brokers
Asset transformers
Risk transformation
Maturity (liquidity) transformation
Volume transformation
Intermediaries’ economies of scale
Efficiencies in gathering information
Risk spreading
Transaction costs
Financial markets

24. Savings into investment in an economy with financial intermediaries and financial markets

25. The financial system: the banking sector
Retail banks;
Investment banks:
Raising external finance for companies
Broking and dealing
Fund management (asset management)
Assistance in corporate restructuring
Assisting risk management using derivatives
International banks;
Foreign banking
Eurocurrency banking
Building societies;
Finance houses

26. The financial system: long-term savings institutions
Pension funds
The long time horizon of the pension business means that large sums are built up and available for investment – currently over £1,100bn.
Insurance funds
General insurance
Life assurance
Term assurance, whole-of-life policies,
Endowment policies, annuities
Life assurance companies have over £1,500bn under management.

27. Thank you for your attention