The world of modern finance is quite unlike what came before it. Developments in financial theory – embodied in the capital asset-pricing model, for instance – have changed how assets are valued, firms are structured, and much else. Firms in what used to be seen as disparate industries – commercial banking, investment banking, insurance, real estate/property, and so on – have ripped pages from one another’s books, only to end up competing with one another. Venerable financial institutions have been bought, merged, sold, and bankrupted. And on and on.
And yet, for all of this change, much remains the same. There are periodic meltdowns, whether from a housing-driven credit crisis or an investment firm of Nobel Prize winners being over-confident in their ability to escape the effects of a downturn. People shout about the immense salaries and bonuses paid to the high-flyers in the industry.
But what remains critically important is that these developments, whether new or repetitious, take place against the remarkable growth of the sector. Finance continues to grow in importance. More and more people are employed to help firms and individuals (and governments and non-profits/not-for-profits) meet their various financial needs and goals, whether to raise capital for a new venture, reduce the riskiness of their personal investments, or speculate on what might prove to be the next big thing in the markets.
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Numerous substantial trends continue to drive this field, including:
• Increases in computing power
• Shift to electronic stock exchanges
• Consolidation of stock exchanges
• New techniques for distributing risk
• Increasing globalisation
• Deregulation (and re-regulation) of various markets
• Efforts to limit systemic risk
• Development of new financial products
• Shift in wealth to developing countries
• Demand for capital from new participants in the global marketplace.
Most masters programs in finance are one year long. Many, such as that at London Business School, offer part-time options, while The Open University Business School offers excellent distance-learning opportunities. Unsurprisingly, given the concentration of modern financial activities in London and New York, many of the leading programs are in the UK and US. Even those courses elsewhere in the world that were once taught largely or partially in languages other than English are switching their courses to English because the international language of finance is definitively English.
There are several fundamental divides in finance programs. Some are meant as conversion courses for those without substantial prior preparation for the field. These tend not to be found at the world’s leading universities, so the combination of a lack of sophisticated subject matter and less-than-highly-prestigious universities means that their graduates are unable to get jobs in the fanciest parts of the finance world.
Some programs, usually with titles such as ‘financial engineering’, are extremely mathematical in nature and geared to producing ‘quants’ – the financial engineers meant to design new derivatives and other immensely complicated products for Wall Street and the City (of London) to sell. These programs are generally found at highly prestigious universities (including Cambridge, Princeton, Stanford, and the like). Competition to get into them is fierce. Predictably, their graduates command high salaries from the leading finance firms in the world.
Other programs continue to focus on turning out traditional financial analysts, corporate finance specialists, and the like. These courses can be found at a full range of universities (except in the United States, where elite universities offer few masters degrees in finance except of the financial engineering variety). Some of these are geared to a specific industry, such as insurance, healthcare, and the like. Thus, the first step in choosing a postgraduate finance program is deciding the career path you intend to pursue.
Many finance programs require prior coursework in calculus, statistics, economics (especially microeconomics), financial accounting, and perhaps managerial finance. Highly quantitative programs, such as those at Cambridge University (UK), UCLA (US), and HEC (France), accept few students who have done their undergraduate studies in a field outside of mathematics, physics, or engineering – ie highly quantitative first degrees. Their formal prerequisites include coursework in probability and calculus-based statistics, microeconomics, and calculus (through multivariable calculus, at a minimum). Although not required, these programs encourage students to take courses in linear algebra and differential equations, and computer programming, plus acquire a working knowledge of a statistical/econometric software package such as SAS or Stata.
Many programs also look for:
• modelling experience
• computer-programming ability (perhaps including a working knowledge of a statistical/econometric software package such as SAS or Stat)
• general quantitative and analytical skills.
An MBA in Finance will usually be offered as a one-year full-time program – the structure of which will be based on a selection of compulsory modules – with an additional selection of optional finance-based modules to choose from. The core subjects of the MBA program will include: Accounting; Economics; Finance; Marketing; and Project Management. The finance-based electives will probably include: Corporate Governance; Derivatives; Financial Risk Management; Mergers and Acquisitions; and Quantitative Methods.
Edinburgh Business School at Heriot-Watt University offers an MBA in Finance that can be studied full time on campus or via distance learning. Meanwhile the University of Liverpool Management School offers a great MBA program specialising in Finance and Management. Liverpool’s Finance and Management MBA is designed to develop the students’ management schools with a particular emphasis on business finance. This MBA program is available to study over one year full time or over two years part time.
Studying a PhD in Finance will give students the chance to undertake original research into this fascinating area of study. Warwick Business School at the University of Warwick offers a PhD in Finance that is only available to study on a full-time basis for 3-4 years. On this PhD program students are attached to Warwick Business School’s Finance group with areas of research including corporate finance, international finance and financial markets.
London School of Economics’ PhD in Finance is designed to give students research expertise in both Economics and Finance. On this PhD program the first two years consist of taught courses via LSE’s MRes Finance. Students take first-year micro and macro courses together with PhD students in Economics as well as taking advanced courses in financial econometrics, asset pricing and corporate finance.Visit our BUSINESS STUDY ZONE
The world of finance is infinitely varied. Jobs are to be found not just at financial services firms, such as commercial or investment banks, but also at operating companies. One way to look at finance careers is in terms of their subject focus rather than employer type:
• Corporate finance emphasis: typical jobs would involve managing a firm’s investments, determining the optimal allocation of a firm’s assets, evaluating how best the firm can finance its growth, and analysing potential mergers and acquisitions.
• Investment and portfolio management emphasis: typical jobs would involve choosing debt or equities in which to invest, for private investors, firms, and financial institutions.
• Risk management emphasis: typical jobs would involve using highly quantitative techniques to model potential business and investment risks in order to limit such risks – or make the best of them.
(And, of course, this list could be multiplied to include numerous additional emphases.)
• Asset management: buy-side research analyst, sell-side research analyst, portfolio manager, private banker, economist.
• Commercial banking: loan officer, trust officer, private banker, economist.
• Corporate finance: assistant treasurer, foreign exchange analyst, business development associate, internal auditor, financial analyst, capital budgeting specialist.
• Investment banking: stockbroker, trader, equity analyst, fixed income analyst, merger and acquisition associate, corporate finance (leveraged finance) associate, economist.
• Insurance: risk manager, underwriter, broker, actuary, economist.
• Real estate/property: broker, analyst, economist.
• Venture capital: analyst.
Burton G Malkiel’s A Random Walk Down Wall Street (W W Norton) discusses modern financial theory and its relevance to personal investing. Although it focuses on investment decisions rather than financial management, its explanation of risk and return, basic concepts of valuation, the capital asset pricing model, and other foundation stones of modern financial theory makes it a good introduction to finance as well. It is highly readable despite being written at a high conceptual level. John A Tracy’s The Fast Forward MBA in Finance (John Wiley & Sons) covers the usual financial management topics in a readable fashion.
Those wishing a traditional textbook approach can consult Eugene F Brigham and Joel F Houston, Fundamentals of Financial Management (South-Western College Publishing), which provides comprehensive treatment of the subject at an introductory, but still fairly demanding, level.