Financial Markets and Financial Instruments

1.

Financial Markets and Financial
Instruments

2.

Instructors for The Course
Elena Merekina,
PhD
Grishunin
Sergei, PhD
Ella Fokina
(Khromova),
PhD

3.

The core books for this course

4.

Core literature for this course
– Saunders and Cornett “Financial Markets and
Institutions” (Fifth Edition and Later)
– Stephen Valdez and Philip Molyneux “Global
Financial Markets” (Eighth Edition and Later
edition)
– Darren Lau, Daryl Lau, Teh Sze Jin, Kristian Kho, Erina
Azmi, TM Lee, Bobby Ong «How to DeFi»
– Economics of Money, Banking, and Financial
Markets, The by Frederic S Mishkin | Jan 4, 2021
– Principles of Corporate Finance - 10th edition,
Brealey Myers Allen
– Capital Markets, Frank Fabozzi

5.

The Seminar Schedule
Date
Topic
Instructor
10.10.2023
Introduction to the course. Explanation of
the project
Grishunin, Fokina
24.10.2023
Seminar 2, prepare and present the first
results of the project (by groups)
Grishunin,
Fokina, Merekina
07.11.2023
Seminar 3, presenting the interim results
for the projects (by groups)
Grishunin,
Fokina, Merekina
21.11.2023
Seminar 4, pre-defense of the project (by
groups)
Grishunin,
Fokina, Merekina
28.11.2023
Final exam – defense of the projects (all
together)
Grishunin,
Fokina, Merekina

6.

Create The Telegram Channel
Let’s create the group in Telegram for instant
communication with the instructors

7.

The course final project

8.

Project Topics for This Year
Divide into teams of 3-4 students. International teams or teams with
diverse backgrounds and skills are encouraged
Be ready to do the project on the following topics. Choice one of the
following four options.
Topic #1 (core). To analyze the key drivers of any national financial
markets (except for US or UK markets)
Topic #2. To analyze the key drivers of Russian financial market after
Feb 24, 2022. Will it survive and when it can recover?
Topic #3 (fun and my favorite this year). Develop portfolio proposal
for a certain high-wealth individual
Topic #4 (my favorite this year). Develop the rationale and proposal
for raising additional capital for the company of your choice
Hint: please select different projects, let’s have fun
No topics should remain unselected

9.

The Objectives of The Project: topic 1
1. To analyze the key drivers of any national financial markets
(please do not take well-known markets such as UK or US)
1.
2.
3.
4.
5.
6.
Sub-markets (if any)
Key drivers of supply and demand
Market participants: investors, companies and intermediaries
Market infrastructure and regulation
Technological advances and future developments
Environmental, social and governance issues
2. To explain the distinguishing characteristics of financial
instruments traded on the market
1.
2.
3.
4.
5.
Description and key characteristics of the instruments
Available benchmarks for performance evaluation
Role in the investment portfolio
Risks and return characteristics
What will happen with the
3. What can change in the market in the current situation of raising
interest rates and diminishing government stimulus? Any signs of
crisis?

10.

The Objectives of The Project: topic 2
1. To analyze the key drivers of Russia’s financial markets (except
the countries covered in the lecture)
1.
2.
3.
4.
5.
6.
Sub-markets (if any)
Key drivers of supply and demand
Market participants: investors, companies and intermediaries
Market infrastructure and regulation. Key indicies
Technological advances and future developments
Environmental, social and governance issues
2. Ideal Storm. What happened in the market after Feb 24th, 2022
1.
2.
3.
4.
What happened with key drivers of supply and demand
How has the volumes changed? What happened with the prices, indices
and interest rates. Will the companies continue pay dividends? How the
number of defaults changed?
How the sanctions and “cancel culture” affected the market?
What sectors were the most affected? Prepare a case study
3. Will the Russian market survive and grow? What the main ways of
its development? What should be the conditions?

11.

Financial Market Analysis: Factors To
Consider
• Market history and historical performance
Size of the market
Organized venues and sub-markets
Macrostructure (role of the market in national economy)
Microstructure (investors, companies, securities,
intermediaries, indices)
Technological advances and external threats
Relationship with other markets, exposures to systemic
risks
Regulations
Access to investors from abroad
Other issues which may prevent investing (including
ESG)

12.

Financial Instruments: Factors To Consider
• What types of instruments are available in the market,
and what are their most important differences for an
investor?
• What are their historical performance and risks metrics
• What benchmarks are available to evaluate the
performance of investors, and what are their
limitations?
• What investment strategies and portfolio roles are
characteristic of each instrument?
• What should due diligence cover

13.

Concerns to Address In Emerging Markets
• Strength of the sovereign, government macroeconomic
and fiscal policies and their efficiency
• Linkages between sovereign and corporates
• Strength and volatility of the local currency
• Quality of country institutions and regulators
• Strength of domestic banking system
• Quality of financial market infrastructure
• Issues with the corporate governance
• Risks (e.g. demographics, productivity)
• Susceptibility to event risks

14.

The Objectives of The Project: topic 4
1. Select the company for the analysis (hint: take companies with high
level of financial and business transparency)
2. Using benchmarking/statistics and examples of specific companies
from different sectors in the financial markets, answer the following
questions:
o
o
o
o
o
o
What is the average amount of investment attracted by IPO/SPO/FPO/ICO by companies in the
market/industry?
What is the average cost of such financing (Who can act as an underwriter? At what rate? What is
the commission of the exchange, the state duty? Other costs?)
In what average period is an IPO/SPO/FPO/ICO being prepared and conducted (number of
days/months/years)?
How to choose the optimal moment to enter the stock exchange in the year/ in the company's life
cycle / stock market dynamics?
At which markets/exchanges the company should raise capital? Why
Who will be your investors? How will you pitch the capital raise? Domestic or international
investors? Private or institutional investors?

15.

The Objectives of The Project: topic 4
3. Specify the pros and cons of issuing bonds to raise capital for the
company
4. Using statistics and examples of specific companies from different
sectors in target financial markets, answer the following questions:
What is the average amount of investments attracted by issuing different types of bonds (according to
the website of the Moscow Exchange and CBonds: corporate, exchange, Eurobonds, replacement
bonds)?
What is the average cost of such financing (Who can act as an underwriter? At what rate? What is the
commission of the exchange, the state duty? Other costs?)
In what average period is the issue prepared and carried out (number of days/months/years)?
How to choose the optimal moment to enter the stock exchange in the year/ in the company's life cycle
/ stock market dynamics?
How to attract investors: choose zero-coupon, callable, puttable, convertible, other features?
Explain why to get a credit rating? What means debt services default and technical default?
Which companies can issue green bonds? Will the coupon for them be higher or lower?
Determine which investment method is the most suitable
and describe the conditions of such an issue in as much
detail sas possible for a COMPANY NAME

16.

Presentation of Key Finding and Grading
1. The outcome for the project should include presentation
which answer all above questions. The presentation should
be prepared in MS PowerPoint. Please keep presentations
within maximum 15 slides (30 slides including appendices)
2. Each team should present their results – 15 minutes for
team plus 10 minutes for Q&A and discussion. I will restrict
each team to this schedule.
3. The total mark for the team project (maximum 10 marks)
should be provided with the feedback
4. In case of disputes, the instructor will conduct an
independent evaluation of the paper and correct the mark if
required
5. Plagiarism is strictly prohibited. Please work independently

17.

Use Trustworthy Sources
Recommended online sources:
1. International economic and financial institutions (IMF,
World Bank, OECD, BIS etc.) – include major statistics
covering almost all countries, good for key indicators of
national economies and financial markets;
2. National government institutions (central banks,
ministries of finance, securities commissions etc.);
3. National stock exchanges and trading systems;
4. Articles in science/research and business press
(published within the last 3 years);
5. Information databases: Cbonds, Yahoo Finance
Bloomberg, Thomson Reuters (Refinitive)
6. Trusted analytical reports (investment banks, sell-side
analyst)

18.

Target-setting
Client Profile
Bonds
Stocks
Letter from your CEO
Dear financial analysts,
As you know we got 11 new clients this week and all of them are waiting for their portfolio proposal from our
Investment fund by Monday (24/04/2023). Please note that our clients are very busy, so you will have no more
than 12 minutes for your presentation and 5 minutes for Q&A session. Also note that all clients want to hear all
of the team members during presentation in order to get acquainted with their future investment consultants.
All our clients want a portfolio (that contains at least 5 securities) that is well-diversified in terms of different
financial instruments, countries and industries and that perfectly satisfies their needs. Clients' profiles with
detailed information can be seen below. If you cannot satisfy the requirements perfectly, provide the closest
estimate and explain why it was impossible to fulfill clients needs. If you can find better return under the risk
profile of your client – show it!
Our research team prepared some previous materials on bonds and stocks that will help you to construct a proper
portfolio. However, you are free to use any other sources to find out more information on these financial
instruments or even suggest investment in some other securities. Any current news about the companies that you
have decided to include in your portfolio is welcomed.
Good luck!
CEO of IR-INVEST Corp
Ella Khromova
Project
©Ella Khromova

19.

Target-setting
Client Profile
Bonds
Stocks
Hints
1) Portfolio calculation
Expected return of a portfolio = Expected return of security A * weigh of security A in portfolio+ Expected return
of security B * weigh of security B in portfolio…
Portfolio risk=Portfolio volatility=
=
Volatility of security A2 ∗weigh of security A2 +Volatility of security B2 ∗ weigh of security B2
+2Covariance between returns of security A and B∗ weigh of A ∗ weigh of B …
You can assume during your calculations that Covariance between any securities is zero. However, you need
separately to comment whether your securities are correlated or not and whether it is good or bad in terms of
your portfolio risk. If you calculate Cov in the formula that would be a bonus.
2) Bond evaluation
Expected return of a bond can be approximated by YTM if you hold it until the maturity or YTS if you sell bond
before maturity
Bond risk can be approximated as Bond Duration (Mod DUR is calculated in %) + You need separately to discuss
Volatility of bonds prices (in case you are going to sell a bond before maturity) and Risk of default of a bond
(Rating)
3) Stock evaluation
First of all you need to compare Multipliers of a company with Industry Multipliers (Google them or calculate
from similar companies median) and find undervalued stocks.
Expected return of a stock can be approximated by Dividend Yield + You need separately discuss whether do
you expect to have capital gains or losses at the expected moment of sale (calculate ER in Excel)
Stock risk can be approximated as Volatility of stock prices (calculate st dev in Excel) and Risk of default of a
company (Rating)
4) Hedging
You can separately advise your client how to hedge his portfolio in terms of exchange rate risk, interest rate risk
or any other global events.
Project
©Ella Khromova

20.

Target-setting
Client Profile
Bonds
Stocks
Client profile
Overall info
Amount of investment
and investment
horizon
Expected annual
return in USD
Attitude to risk
(max loss for 60
days)
1
Kanye West
•USA
•Singer and
future
president
•Ex-husband of
Kim
Kardashian
300 mln USD for 4
years
100% (thinks that
100% is the
biggest possible
return)
85% (thinks the
more the better)
2
Din
Winchester
•USA
•Demon killer
•Everything is
complicated
20 mln USD for 100
years (he will reborn
several times during
this period)
As much as you
can
100%
3
Spiderman
•Unknown
100 mln USD for 5
years (wants
somebody to SAVE his
money FROM
INFLATION while he
saves the planet)
6%
4%
Client №
Project
Client photo
©Ella Khromova

21.

Target-setting
Client Profile
Bonds
Stocks
Client profile
Overall info
Amount of investment
and investment
horizon
Expected annual
return in USD
Attitude to risk(max
loss for 60 days)
4
Pavel Durov
•Russian
•Vkontakte and
Telegram
founder
•Unknown
1 bln RUB for 5 years
(will be glad to save
some money in AED)
10%
6%
5
Elon Musk
•American
•Head of Tesla
and Space X
•Has a
girlfriend
400 mln USD and 200
mln EUR for 5 years
200%
Doesn’t care about
that stuff
6
Tom Cruise
•American
•Actor and
Stuntman
•60 years old
bachelor
200 mln USD for 2
years
777% (mission
impossible)
777% (mission
impossible)
Client №
Project
Client photo
©Ella Khromova

22.

Target-setting
Client Profile
Bonds
Stocks
Client profile
Overall info
Amount of
investment and
investment horizon
Expected annual
return in USD
Attitude to risk(max
loss for 60 days)
7
Lionel Andrés
Messi
•Argentine
•Just best football
player
•Married, 3 kids
30 bln Argentinian
peso for 20 years
(wants to have
passive income after
he retires, however
he is ready to risk
before that)
10%
15% (until
retirement) and 5%
(after retirement)
8
Vin Diesel
•USA
•Actor
•Married, 3 kids
30 mln USD for 1
year (want to earn
money fast and
furiously)
20%
20%
9
Nastya Ivleeva
•Russian
•Blogger
•Divorced with a
wealthy singer
100 mln RUB for 10
years
7%
5%
Client №
Project
Client photo
©Ella Khromova

23.

Target-setting
Client Profile
Bonds
Stocks
Client profile
Overall info
Amount of
investment and
investment horizon
Expected annual
return in USD
Attitude to risk(max
loss for 60 days)
10
Danya Milokhin
•Russian
•TickTok
influencer
•Everything is
complicated
2 mln AED and
1 Maybach, 1
Bentley, 3 Rolex for
10 years
Doesn’t know
what % is =>
wants to double
in 10 years
Doesn’t know what
% is => wants to
have low risk
11
Miley Cyrus
•USA
•Singer
•Loudly divorced
50 mln USD for 10
years
Wants to buy in
10 years her own
island where she
can write her own
name on the sand
10%
Client №
Project
Client photo
©Ella Khromova

24.

Target-setting
Client Profile
Bonds
Stocks
Italy government bond
Project
©Ella Khromova

25.

Target-setting
Client Profile
Bonds
Stocks
Turkey government bond
Project
©Ella Khromova

26.

Target-setting
Client Profile
Bonds
Stocks
US Treasury bond
Project
©Ella Khromova

27.

Target-setting
Client Profile
Bonds
Stocks
Societe Generale bond
Project
©Ella Khromova

28.

Target-setting
Client Profile
Bonds
Stocks
Volkswagen bond
Project
©Ella Khromova

29.

Target-setting
Client Profile
Bonds
Stocks
Tinkoff bond
Project
©Ella Khromova

30.

Target-setting
Client Profile
Bonds
Stocks
PETROLEOS MEXICANOS bond
Project
©Ella Khromova

31.

Target-setting
Client Profile
Bonds
Stocks
Amazon bond
Project
©Ella Khromova

32.

Target-setting
Client Profile
Bonds
Stocks
Gamestop bond
Project
©Ella Khromova

33.

Target-setting
Client Profile
Bonds
Stocks
Teva bond
Project
©Ella Khromova

34.

Target-setting
Bonds
Stocks
MC
EV
$M
$M
EBITDA
EV /
EV / Sales*
margin* EBITDA*
107,524
84,427
19,437
2,045
1,595,917
891,470
49,837
288,094
122,597
197,392
994,714
7,261
19,947
154,395
134,597
19,994
11,428
1,646,457
846,614
44,216
346,848
165,195
241,903
990,186
18,229
38,141
Client Profile
Equity estimation (as for Jan 2022)
Company
GAZPROM
ROSNEFT
YANDEX
AEROFLOT
AMAZON.COM
FACEBOOK
ZOOM
EXXON MOBIL
BOEING
MCDONALD'S
TESLA
X 5 RETAIL GROUP
ROYAL CARIBBEAN
Company
GAZPROM
ROSNEFT
YANDEX
AEROFLOT
AMAZON.COM
FACEBOOK
ZOOM
EXXON MOBIL
BOEING
MCDONALD'S
TESLA
X 5 RETAIL GROUP
ROYAL CARIBBEAN
Country
Russia
Russia
Russia
Russia
USA
USA
USA
USA
USA
USA
USA
Russia
USA
Currency
RUB
RUB
USD
RUB
USD
USD
USD
USD
USD
USD
USD
USD
USD
Closing
Price
YTD
342
599
54
63
3,147
320
167
68
209
264
990
27
78
-0.5%
-0.2%
-10.4%
6.7%
-5.6%
-4.7%
-9.1%
11.2%
3.6%
-1.5%
-6.3%
1.0%
1.8%
35.6%
27.3%
11.1%
28.7%
15.0%
47.3%
35.9%
19.5%
10.5%
52.1%
22.2%
12.3%
23.9%
2.8x
3.8x
27.6x
4.5x
19.8x
12.8x
27.3x
5.9x
18.1x
18.8x
59.5x
4.5x
15.7x
Share Price Performance
-12 м
-6 м
-3 м
52.4%
26.2%
-23.5%
-14.2%
-1.1%
19.8%
-52.2%
49.7%
-0.6%
22.4%
12.6%
-29.8%
7.3%
16.0%
4.1%
-23.0%
-8.7%
-15.4%
-8.5%
-56.6%
11.1%
-12.9%
12.1%
50.8%
-19.8%
-4.9%
-6.9%
-5.4%
-31.9%
-11.4%
-4.3%
-2.9%
-34.4%
9.4%
-7.9%
6.6%
26.1%
-20.5%
-10.8%
P / E*
1.0x
2.9x
1.0x
5.0x
3.1x 63.4x
1.3x 15.6x
3.0x 43.3x
6.0x 20.8x
10.8x 34.0x
1.1x 11.3x
1.9x 36.8x
9.8x 26.2x
13.2x 97.6x
0.6x 10.4x
3.8x 189.5x
-1 м
3.2%
5.0%
-14.4%
4.9%
-8.6%
-2.8%
-9.7%
8.0%
1.7%
-0.3%
-2.6%
-6.3%
3.7%
Volatility 60D
31.6
28.8
39.5
26.8
26.2
33.8
54.3
27.4
40.3
16.3
71.6
31.0
58.3
Notes: * expected for FY 2022
Project
©Ella Khromova

35.

Target-setting
Bonds
Stocks
MC
EV
$M
$M
EBITDA
EV /
EV / Sales*
margin* EBITDA*
51,435
53,308
21,330
871
1,646,249
753,369
140,052
146,889
94,449
167,297
404,405
10,021
15,261
101,891
112,152
20,440
9,989
1,665,529
706,133
138,629
210,798
123,683
215,963
412,616
20,403
31,200
Client Profile
Equity estimation (as for Jan 2021)
Company
GAZPROM
ROSNEFT
YANDEX
AEROFLOT
AMAZON.COM
FACEBOOK
ZOOM
EXXON MOBIL
BOEING
MCDONALD'S
TESLA
X 5 RETAIL GROUP
ROYAL CARIBBEAN
Company
GAZPROM
ROSNEFT
YANDEX
AEROFLOT
AMAZON.COM
FACEBOOK
ZOOM
EXXON MOBIL
BOEING
MCDONALD'S
TESLA
X 5 RETAIL GROUP
ROYAL CARIBBEAN
Country
Currency
Russia
Russia
Russia
Russia
USA
USA
USA
USA
USA
USA
USA
Russia
USA
RUB
RUB
USD
RUB
USD
USD
USD
USD
USD
USD
USD
USD
USD
Dividend
Yield, %
Closing
Price
YTD
9.59
6.51
0.00
14.45
0.00
0.00
0.00
10.07
0.00
2.41
0.00
5.86
3.40
167
387
61
60
3,287
264
492
35
167
225
434
37
71
-34.9%
-14.0%
40.1%
-41.8%
77.9%
28.8%
623.7%
-50.2%
-48.6%
13.8%
418.7%
7.0%
-46.8%
23.7%
24.1%
21.8%
26.2%
15.4%
50.3%
28.9%
13.7%
9.9%
50.6%
16.3%
10.8%
6.6%
4.5x
5.3x
23.0x
4.2x
24.8x
14.1x
172.0x
7.3x
15.2x
19.5x
58.7x
6.7x
87.7x
Share Price Performance
-12 м
-6 м
-3 м
-25.6%
-5.5%
71.3%
-40.5%
91.1%
46.9%
593.4%
-49.1%
-54.9%
6.2%
786.7%
15.1%
-31.4%
-13.0%
12.4%
68.6%
-23.5%
60.9%
51.0%
295.5%
-19.5%
10.2%
22.4%
278.7%
20.7%
76.8%
-16.9%
6.2%
18.7%
-26.1%
2.7%
7.9%
78.5%
-18.5%
-6.2%
21.6%
40.5%
4.8%
37.3%
P / E*
1.1x
5.1x
1.3x
7.8x
5.0x 45.5x
1.1x
3.3x
3.8x 51.9x
7.1x 23.0x
58.4x 191.0x
1.0x 26.1x
1.5x 36.7x
9.9x 27.4x
9.6x 115.8x
0.7x 16.2x
5.8x
-7.6x
-1 м
-3.9%
5.4%
0.0%
-26.2%
3.5%
-1.4%
28.1%
-6.1%
6.1%
3.5%
16.9%
6.4%
1.4%
Volatility 60D
18.6
20.9
40.1
30.4
40.1
40.2
98.4
32.9
45.8
15.8
99.0
28.2
48.1
Notes: * expected for FY 2021
Project
©Ella Khromova

36.

Good Luck with Your Projects
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