Strategic Financial Management ICAI Syllabus
Paper 2: Strategic Financial Management
(One paper – Three hours – 100 marks)
Level of Knowledge: Advanced knowledge
Objective:
To apply financial management theories and techniques for strategic decision making.
Contents:
1. Financial Policy and Corporate Strategy
Strategic decision making framework
Interface of Financial Policy and strategic management
Balancing financial goals vis-à-vis sustainable growth.
2. Project Planning and Capital Budgeting
Feasibility study
Cash flow Projections – Impact of taxation, depreciation, inflation and working capital
Capital Budgeting Decisions – Certainty Equivalent approach, Evaluation of Risky
Investment Proposals, Risk and Return analysis, Simulation and decision tree analysis, Sensitivity analysis, Capital Rationing, Adjusted Net Present Value, Replacement decisions, Application of Real Options in capital budgeting, Impact of inflation on capital budgeting decisions Preparation of Project Report
Social cost benefit analysis.
3. Leasing decision including cross border leasing
4. Dividend Decisions
Dividend theories, Determinants of dividend policies.
5.
(a) Indian Capital Market including role of various primary and secondary market institutions
(b) Capital Market Instruments
Financial derivatives – stock futures, stock options, index futures, index options
Option valuation techniques : Binomial model, Black Scholes Option Pricing Model, Greeks
– Delta, Gamma, Theta, Rho and Vega
Pricing of Futures – Cost of carry model
Imbedded derivatives
5 (c) Commodity derivatives
(d) OTC derivatives -Swaps, Swaptions, Forward Rate Agreements (FRAs), Caps, Floors and Collors.
6. Security Analysis
Fundamental analysis – Economic analysis, Industry analysis and Company Analysis
Bond valuation, Price Yield relationship, Bond Price forecasting – application of duration and convexity, Yield curve strategies Technical Analysis – market cycle model and basic trend identification, different types of charting, support and resistance, price patterns, moving averages, Bollinger Bands,
momentum analysis.
7. Portfolio Theory and Asset Pricing
Efficient Market Theory – Random walk theory ; Markowitz model of risk return optimization
Capital Asset Pricing Model (CAPM)
Arbitrage Pricing Theory (APT)
Sharpe Index Model
Portfolio Management – Formulation, Monitoring and Evaluation
Equity Style Management
Principles and Management of Hedge Funds
International Portfolio Management.
8. Financial Services in India
Investment Banking
Retail Banking
On Line Share Trading
Depository Service.
9.
(a) Mutual Funds: Regulatory framework, formulation, monitoring and evaluation of various schemes of Mutual funds, Money market mutual funds.
(b) Exchange Traded Funds.
10. Money Market operations
11. (a) Foreign Direct Investment, Foreign Institutional Investment.
(b) International Financial Management
Raising of capital abroad – American Depository Receipts, Global Depository Receipts,
External Commercial Borrowings and Foreign Currency Convertible Bonds
6
International Capital Budgeting
International Working Capital Management.
12. Foreign Exchange Exposure and Risk Management
Exchange rate determination, Exchange rate forecasting
Foreign currency market
Foreign exchange derivatives – Forward, futures, options and swaps
Management of transaction, translation and economic exposures
Hedging currency risk.
13. Mergers, Acquisitions and Restructuring
Meaning of mergers and acquisition, categories, purposes
Process of mergers and acquisition – Identification and valuation of the target, acquisition through negotiation, due diligence, post – merger integration
Legal and regulatory requirements
Merger and Acquisition agreement
Reverse merger
Potential adverse competitive effects of mergers
Corporate Takeovers: Motivations, Co-insurance effect, Cross-border takeovers, Forms of takeovers, Takeover defenses
Going Private and Other Control Transactions: Leveraged Buyouts (LBOs), Management Buyouts (MBOs), Spin Offs and Asset Divestitures Corporate Restructuring : Refinancing and rescue financing, reorganizations of debtors and creditors, Sale of assets, targeted stock offerings, downsizing and layoff programmes, negotiated wage give-backs, employee buyouts.