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Finance
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:
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• 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 master’s programmes in finance are one year long. Many, such as that at London Business School, offer part-time options, but distance-learning opportunities are not common. Unsurprisingly, given the concentration of modern financial activities in London and New York, many of the leading programmes 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 programmes. 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 programmes, 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 programmes 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 programmes 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 master’s 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 programme is deciding the career path you intend to pursue.
Many finance programmes require prior coursework in calculus, statistics, economics (especially microeconomics), financial accounting, and perhaps managerial finance. Highly quantitative programmes, 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 programmes 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 programmes 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.
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.)
Typical job titles
• 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
• British Bankers Association
• American Finance Association
• American Bankers Association
• Securities Industry Association (US)
• Financial Management Association (US)
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. Robert C Higgins’s Analysis for Financial Management (McGraw-Hill) covers the usual financial management topics in a readable fashion. The same is true of John A Tracy’s The Fast Forward MBA in Finance (John Wiley & Sons). (These last two suggestions are best read after preparing for accounting, whereas the first one (Malkiel) can be read without having any accounting knowledge.)
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.
Accounting and economics overlap substantially with finance. See the discussions of these two fields for further information.
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Click on the link below to access our comprehensive database of European institutions that offer Finance related MA and MSc programmes taught in the English language:
Finance
