C2-Economics and Financial Mathematics

PAPER C2-ECONOMICS AND FINANCIAL MATHEMATICS

This Paper introduces students to the foundational aspects of Economics and Financial Mathematics and covers topics such as Macro-economics, money, banking & other financial institutions, public finance, international trade and payments, Theory of taxation, Basic Financial measures, Time value of money, Bond pricing and Yield Curve Analysis.

Objective

On completion of this paper, the student should be able to:

1. Explain the concepts of Macro and Micro Economics
2. Explain the Nature of money and financial institutions
3. Explain the key attributes of public finance
4. Carry out calculations of Financial Mathematics

Structure of the examination paper

There shall be a three hour examination consisting of five (5) compulsory questions of twenty (20) marks each. Candidates will be allowed fifteen minutes’ reading and planning time.

Detailed Syllabus

• UNIT 1 - THE MACRO-ECONOMICS

• Element 1: Gross National Products and its sectorial contribution (manufacture, mining, including petroleum, agriculture, distribution and services)
• Element 2: Aggregate consumption, saving and investment (the multiplier effect theory)
• Element 3: Aggregate demand, employment and income, inflation, geographical distribution of economic activities.

• UNIT 2 - MONEY, BANKING AND OTHER FINANCIAL INSTITUTIONS

• Element 1: Nature and functions of money and credit;
• Element 2: The banking system -Central Bank, commercial banks, merchant banks, and development banks;
• Element 3: The capital market – the Lusaka Stock Exchange, Securities and Exchange Commission.

• UNIT 3 - PUBLIC FINANCE

• Element 1: Source of income to Government-direct taxation, indirect taxation;
• Element 2: Public Revenue allocation to the various tiers of government;
• Element 3: Nature and Scope of government intervention in industries and common features and problems of public sector enterprises, privatization versus commercialization-control of monopolies, mergers and restrictive trade practices;
• Element 4: Fiscal functions, with respect to fiscal institutions in Zambia;
• Element 5: Public goods and merits goods;
• Element 6: Trends in government activity;
• Element 7: Efficiency in government expenditures;
• Element 8: Introduction to fiscal stabilization;
• Element 9: Economics of the public debt;
• Element 10: Structure of public revenue;
• Element 11: Structure of public expenditure;
• Element 12: Problems of public debt and private international debt in Zambia.
• Element 13: Budgetary process of the Zambian Government.

• UNIT 4 - INTERNATIONAL TRADE AND PAYMENTS

• Element 1: The law of comparative advantage;
• Element 2: Volume of international trade;
• Element 3: Terms of trade and balance of payments;
• Element 4: Exchange rate determinations;
• Element 5: Fixed versus floating exchange rate, and multiple exchange rates;
• Element 6: Foreign Exchange Markets;
• Element 7: Devaluation, Depreciation of currency;
• Element 8: International Trade and financial institutions; and
• Element 9: Regional bodies and other international economic organs.

• UNIT 5 - THEORY OF TAXATION

• Element 1: The Zambian National Budget Process
• Element 2: Tax Policy in Zambia
• Element 3: General Tax and Revenue Design in Zambia
• Element 4: Categories and Classification of taxation
• Element 5: Objectives and functions of taxation
• Element 6: Cannons of Taxation
• Element 7: Determination of fiscal incidence in Zambia
• Element 8: Determination of the effective tax burden
• Element 9: Calculation of marginal effective tax rates
• Element 10: Measurement of the productivity of the Zambian tax system
• Element 11: Widening of the Zambian Tax Base

• UNIT 6-BASIC FINANCIAL MEASURES

• Element 1: Objectives Element 2: Yield Measures
• Element 3: Total Return Analysis
• Element 4: Net Present Value
• Element 5: Duration
• Element 6: Convexity
• Element 7: Price Value of a Basis Point

• UNIT 7-TIME VALUE OF MONEY

• Element 1: Objectives
• Element 2: Future Value of Money
• Element 3: Present Value of Money
• Element 4: Future Value of Annuities
• Element 5: Present Value of Annuities
• Element 6: Present Value of Perpetuities
• Element 7: Amortisation
• Element 8: Internal Rate of Return

• UNIT 8-BOND PRICING

• Element 1: Objectives
• Element 2: Pricing of Option –free Bond
• Element 3: Pricing of Floater & Inverse Floater
• Element 4: Price Determination between Coupon Periods
• Element 5: Yield Analysis
• Element 6: Price Volatility
• Element 7: Yield to Call
• Element 8: Yield to Maturity

• UNIT 9-YIELD CURVE ANALYSIS

• Element 1: Objectives
• Element 2: Introduction to yield curve analysis
• Element 3: Types of Yield Curves
• Element 4: Analyzing Yield Curves
• Element 5: Bond Arbitrage Strategies
• Element 6: Application of Yield Curves

• UNIT 10-PROBABILITY DISTRIBUTIONS

• Element 1: Objectives
• Element 2: Types of Probability Distribution

• UNIT 11-MEASURING VOLATILITY

• Element 1: Objectives
• Element 2: Review of Concepts
• Element 3: Normal Distribution
• Element 4: Introduction to Volatility
• Element 5: Estimating Volatility

• UNIT 12 – CORRELATION & REGRESSION ANALYSIS

• Element 1: Objectives
• Element 2: Introduction to correlation
• Element 3: Calculating Correlation
• Element 4: Regression Analysis