Technical articles and topic explainers

A library of articles and bite-sized videos to help you improve your understanding of areas you find more difficult or develop a broader insight into the subject.

Note: The volume of technical articles does not reflect syllabus coverage within an exam.

Explain and evaluate the role and responsibility of the senior financial executive or advisor in meeting conflicting needs of stakeholders and recognise the role of international financial institutions in the financial management of multinationals (A)

Patterns of behaviour
Behavioural finance attempts to explain how decision makers take financial decisions in real life, and why their decisions might not appear to be rational every time and, hence, have unpredictable consequences. This article looks at how behavioural factors may influence decision making and, therefore, stock markets’ and companies’ financial strategies.

Topic explainer video: Dividend theory & dividend policy                               In this video, expert tutor Milind Date unpacks the topic of 'Dividend theory & dividend policy' (YouTube)

Evaluate potential investment decisions and assessing their financial and strategic consequences, both domestically and internationally (B)

Using real options when making financial strategy decisions
This article considers how an individual traditional project could be reassessed using option valuation and how option valuation could assist when assessing a portfolio of projects. It then concludes with a brief discussion regarding inter-dependent projects.

Investment appraisal and real options
This article looks at how real options can be incorporated into investment appraisal decisions. It discusses real options and then considers the types of real options calculations which may be encountered in Advanced Financial Management (AFM), through three examples. The article then considers the limitations of the application of real options in practice and how some of these may be mitigated.

International project appraisal – part 1
International project appraisal is an integral part of the Advanced Financial Management (AFM) syllabus. This article suggests a methodical approach to answering any exam question that may arise on this topic, with the first article of two looking at how to tackle a Section B, 25-mark question using materials from your Advanced Financial Management (AFM) studies.

International project appraisal – part 2
Part 1 underlined the importance of international project appraisal within the Advanced Financial Management (AFM) syllabus with a demonstration as to how to tackle a Section B question worth 25 marks. This follow-up piece looks at how to methodically approach an international project appraisal question that may arise in Section A, worth 50 marks.

Bond valuation and bond yields
In the first of two related articles, we consider how bonds are valued and the relationship between the bond value or price, the yield to maturity and the spot yield curve.

Securitisation and tranching
Securitisation became a topical issue during the credit crunch, and still remains a relevant issue for financial management and Advanced Financial Management (AFM) students.

Aspects of Islamic finance
This article provides a general overview of the different aspects, issues and developments of Islamic finance and extends the explanations provided in the article ‘Islamic finance – theory and practical use of sukuk bonds’.

Islamic finance – theory and practical use of sukuk bonds
This article looks at Islamic finance as a growing and important source of finance, including the success and failure of the use.

Conditional probability
Management decision making in both financial and performance management involves making choices based upon what may happen in the future. This article looks at how to consider all possible outcomes that may arise, together with their associated chances of occurring.

Topic explainer video: Cost of capital
In this video, expert tutor Ben Wilson examines the topic of 'Cost of capital' (YouTube)

Topic explainer video: Black-Scholes Options Pricing (BSOP) model               In this video, expert tutor Milind Date unpacks the Black-Scholes Options Pricing (BSOP) model (YouTube)

Topic explainer video: Adjusted Present Value                                              In this video, expert tutor Milind Date unpacks the topic of 'Adjusted Present Value' (YouTube)

How to use the AFM Modigliani and Miller formula                                               From the September 2024 exam session onwards, the AFM formula sheet has been amended to include a rearranged version of the Modigliani and Miller (M&M) proposition 2 formula. Check out our new video to understand when you should and should not use the formula and how to use it in a spreadsheet. (YouTube)

Assess and plan acquisitions and mergers as an alternative growth strategy (C)

Business valuations
The primary purpose of this article is to demonstrate how to tackle a business valuation question. The detailed understanding of this topic will be gained from your Advanced Financial Management (AFM) studies, whichever mode you choose to use.

Alternative methods of listing
This article begins with a brief summary of the method which companies have traditionally used to achieve a stock market listing, ie an initial public offering (IPO), and then discusses each of the alternative approaches highlighted – Dutch auctions, special purpose acquisition companies, and direct listings – including their advantages and disadvantages.

Reverse takeovers
Reverse takeovers is a topic that is now examinable in Advanced Financial Management (AFM). This article aims to provide an explanation of reverse takeovers and to discuss the potential benefits and drawbacks associated with reverse takeovers.

Topic explainer video: Valuations
In this video, expert tutor Rashaad Hussain unpacks the topic of 'Valuations' (YouTube)

Topic explainer video: Valuation of acquisitions
In this video, expert tutor Milind Date unpacks the topic of 'Valuation of aquisitions' (YouTube)

Evaluate and advise on alternative corporate re-organisation strategies (D)

Topic explainer video: Corporate restructuring
In this video, expert tutor Tze Kang examines the topic of 'Corporate restructuring' (YouTube)

Apply and evaluate alternative advanced treasury and risk management techniques (E)

Foreign currency futures – step by step
This article highlights the different approaches which can be taken for foreign currency futures hedging transactions in the AFM exam. There is the lock-in rate method which is most commonly seen in published AFM answers, but there is also a future spot-rate method as well. 

How to answer a foreign exchange risk management question
This article will explain the significance of the information you’ll be given in foreign exchange risk management questions and show you what you’ll be asked to do.

How to answer an interest rate risk management question
This article explains the significance of the information you’ll be given in interest rate risk management questions and shows you what you’ll be asked to do.

Basis risk
This article looks at basis risk, which arises when the price of a futures contract does not have a predictable relationship with the spot price of the instrument being hedged.

Currency swaps
This article looks at currency swaps, an agreement in which two parties exchange the principal amount of a loan and the interest in one currency for the principal and interest in another currency.

Exchange traded foreign exchange derivatives
This article considers both foreign exchange futures and options using real market data, as well as focusing on other areas of significant importance.

Determining interest rate forwards and their application to swap valuation
A look at how interest rate forwards may be determined from the spot yield curve, before considering what they mean and showing how they may be used in determining the value of an interest rate swap valuation.

Risk management
This article explores the circumstances where the management of risk may lead to an increase in the value of a corporation.

Topic explainer video: Risk management
In this video, expert tutor Ben Wilson examines the tricky topic of 'Risk management' (YouTube)

Topic explainer video: Marking to market
In this video, expert tutor Tze Kang examines the topic of 'Marking to market' (YouTube)

Topic explainer video: Basis risk
In this video, expert tutor Tze Kang examines the topic of 'Basis risk' (YouTube)

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