1. FINANCIAL ENGINEERING

2. MEANING
 Corporate finance,bank finance,and investment
finance have changed in recent years has given
birth to a new discipline that has come to known as
financial engineering.
 Financial engineering involves the design,the
development,and the implimentation of innovatives
financial instruments and processes,and the
formulation of creatives solution to problem in
finance

3. For many firms, their risk exposure is unique
in the sense that the risk exposure is based
on an asset whose value is not easily
hedged.
By combining elements of forwards, futures,
options, and swaps, firms can create a
financial instrument that meets the needs of
the corporation that is trying to hedge its risk
exposure or one that offers the institutional
investor an investment opportunity with a
unique payoff structure.

4. DEFINITION
 INVESTOPEDIA EXPLAIN'
 Financial engineers use various mathematical tools
in order to create new investment strategies. The
new products created by financial engineers can
serve as solutions to problems or as ways to
maximize returns from potential investment
opportunities.
 Financial engineering, at least for our purposes
here, can be defined as the process of using the
principles of financial economics to design and
price financial instruments

5. ADVANTANGES
 Return on investment frequency of return, rate of
return, mode of return.
· Safetygrade assigned by rating agencies,
security, potentiality of investment.
· Volatility of volume, volatility of price.
· Liquidity.
· Convenience of investing.
· Tax aspects.
· Investment period.
· Financing source.
· Securitization scope (to pledge, and/or to
raise funds on investments).

6. TOOLS
 (1).CONCCEPTUL TOOL.
 (2)PHYSICAL TOOL.

7. CONCEPTUAL TOOL
 It involve the idea and concept which underlie
finance as a formal discipline.these tools are taught
as a part of modern finance cirricula in graduate-
level business programs.
 Eg:
 valuation of theory,portfoliotheory,hedging
 theory,accounting relationship.

8. PHYSICAL TOOL
 The financial engineer include the instrument and
the processes which can be pieced together to
accomblish specific purpose.
 This include
securities,equities,futures,options,swaps,and
dozens of variants on these basic themes

9. FINANCIAL ENGINEERING VS
FINANCIAL ANALYSIS
FINANCIAL ANALYSIS FINANCIAL ENGINEERING
 The person  The person engaged
in the practice for
engaged in the finacialengineering
practices  The process or
financial analysis. method studying the
nature of something
 Formulating and inoder to determine
implimenting new its essential features
instrument. and their
relationships

10. FINANCIAL ENGINEERING TEAM
Financial engineers often work as a part of a larger
team. The elements of the team will very depending
on the nature of the engineering involved.
Team members:
Accountant,
Tax specialist,underwriters,compliance
officers,traders,financial
analysist,programmers,information service
personnel

11.  The important point to remember is that financial
engineer does not usually work alone. All the
member of the team are carefully selected work
together efficently and with the speed required by
the solution.communication is the key.

12. FACTORS CONTRIBUTING TO THE
GROWTH OF FIANCIAL ENGINEERING
 (1)ENVIRONMENTAL FACTORS
It may be regarded as the factors
external to the firm and over which the firm has no
direct control but which are nevertheless of great
concern to the because they impact the firms
performance.

13. It include:
 price volatility
 tax asymmetries
 technological advances
 regulatory change&
 increased competition

14. INTRAFIRM FACTORS
 The factors that we have considered thus far have
all contributed in their own way to the rapid growth
in fiancial engineering activity.

15. It includes:
 liquidity needs
 risk aversion
 agency cost
 accounting policies.