COLLEGE OF BUSINESS UNIVERSITI UTARA MALAYSIA

COURSE CODE : BWFN 3023COURSE NAME : FUTURES AND OPTIONS PREREQUISITE : BWFF 2023 FINANCIAL MANAGEMENT II

1.0 SYNOPSIS

This course aims to equip students with basic principles and exposure of Derivatives markets. This course also studies the development of Derivatives market in Malaysia as well as discussing the increasing role that it plays in the capital market. The discussions include the overview of financial markets and an introduction to derivative concepts, introduces the principles of futures and futures trading, describe options and explains different options trading strategies. This course will also focus on the market structure in terms of regulatory and analysis as well as the overview of other derivative contracts which are swaps and warrants.

2.0     OBJECTIVES

Upon completion of the course, students are expected to be able to

2.1 Discuss the concept of derivatives and the development of derivative market in Malaysia.

2.2 Identify futures contract available in the market.

2.3 Differentiate the trading strategies available for futures.

2.4 Understand the option markets and explain how options can be used to hedging, speculating and arbitraging.

2.5 Discuss the market structure in term of rules and regulations.

3.0 LEARNING OUTCOME

Upon completion of the course, students will be able to

3.1 Differentiate financial market and derivative; and the instruments available.(C1,P1,A1)

3.2 Define Futures, differentiate between commodity and financial futures as well as the market participants.(C1,P1,A1)

3.3 Explain the principles and application of hedging, speculating, spreading and arbitraging.(C3,P2,A3)

3.4 Define and categorize the options, including the methods of quoting options price.(C3,P3,A3)

3.5 Describe the properties of fundamental and technical analysis.(C3,P2,A3)

4.0     REFERENCES

Hull,J.C. (2013 ). “Fundamentals of Futures and Options Markets”, Pearson-Prentice Hall, 8th edition.

Don M.Chance & Robert Brooks (2013), “An Introduction to Derivatives and Risk Management”, South- Western Cengage Learning, 9th edition.

Malaysian Futures and Options, Securities Commission, Kuala Lumpur,2005.

Hull, J.C (2013), “Options, Futures and Other Derivative Securities”, Prentice Hall, 8th Edition.

5.0     COURSE CONTENT

NO. TOPICS/CONTENT HOURS1. 1.0 OVERVIEW OF DERIVATIVES

1.1 What are derivatives1.2 The exchange1.3 The clearing house1.4 Intermediaries in the futures and options market1.5 Users of futures and options

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2. 2.0 REGULATIONS OF FUTURES AND OPTIONS

2.1 Overview of futures and options markets regulations.2.2 Establishment of futures markets, participants2.3 Trading offences under the FLA

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3. 3.0 INTRODUCTION TO FUTURES

3.1 How the futures market works3.2 Differences between futures and forward contract

3.3 Futures contract in Malaysia3.4 Using futures to hedge3.5 Speculating with Futures3.6 Arbitraging with Future

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4. 4.0 FUTURES CONTRACT

4.1 General concept4.2 Determining futures/forward prices

- The cost and carry model - The reverse cost and carry model

4.3 Using futures contract to manage risk4.4 Crude Palm Oil Futures4.5 Stock Index and Bond Futures

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5. 5.0 OPTIONS

5.1 Types of options5.2 Option payoff diagram5.3 Option pricing5.4 Put Call Parity5.5 Binomial Option Pricing Model5.6 Black-Scholes Option Pricing Model5.7 Put Call Parity Arbitrage

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6. 6.0 OPTION STRATEGIES AND PROFIT DIAGRAM

6.1 Long/Short Call6.2 Long/Short Put6.3 Naked Call6.4 Covered Call6.5 Vertical Spreads6.6 Straddles and Strangles

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7. 7.0 SWAP

7.1 Types of swap – interest rate, currency, commodity, equity index.7.2 Pricing Swaps -Fixed-floating interest rate swap pricing - Pricing a commodity swap7.3 Using swaps to manage risk

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8. 8.0 MARKET ANALYSIS ON FUTURES

8.1 Overview of Market Analysis 3

8.2 Fundamental Analysis8.3 Technical Analysis

TOTAL 42

6.0     TEACHING AND LEARNING

Lectures and class discussions will be the main mode of teaching. In addition to the mid-term and the final examinations, students are required to hand-in one group project paper and sit for all quizzes as assigned.

7.0     COURSE EVALUATIONCoursework

Mid Term Examination 25% Group project and presentation 20% Class participation 5% Assignments and quizzes 10%

Final Examination 40%Total 100%