Why study financial instruments? According to the four colleagues of Harvard Business School who joined forces for this comprehensive textbook, it’s not just hedge funds that rely on financial instruments. Rather, they write, using such instruments “has become standard operating procedure at most large- and mid-sized businesses, whether public or private, financial or non-financial. As a result, the modern business manager now needs to be well-trained in financial instruments and the capital markets.” Despite its form as a textbook, this book makes a good primer or refresher for managers long out of business school.
“The main theme that runs throughout this book is how these securities accomplish risk transfer from actors who do not want risk to those who are willing to take it on—for a fee of course,” the authors write. Other themes include efficient structuring of risk transfers and how to devise fair fees. Chapters cover concepts and applications of fixed-income securities and equity options; credit and interest rate derivatives; equity and options exchanges; and real options.
Most of the book’s cases were developed for the second-year MBA course Capital Markets, which focuses on fixed income securities and derivatives, thus preparing students for careers in sales and trading, hedge funds, and risk management. The book’s twenty-five cases are a strength, covering organizations from Deutsche Bank to the International Securities Exchange.
Accompanying explanations of concepts are clear and well illustrated, making this a timely finance book worth dipping into.