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Derivatives and risk management

The global financial crisis of 2007-08 brought into sharp focus the need for sound risk management practices in all organisations. Yet, despite the lessons said to have been learnt by this crisis we have recently seen further bank failures in the US and the rescue of the banking giant Credit Suisse by the Swiss authorities. Seemingly there is still more that needs to be done to get organisations to understand and manage risks properly.

In this module you'll examine the financial and non-financial risks faced by organisations, first by considering the nature of each risk and how exposure to that risk can be measured. This is important since management attention and risk management resources should focus on those risks that are both likely to arise and are potentially costly – perhaps fatal – to organisations. You'll study various risk management techniques used to mitigate unwanted risk exposures. These methods include 'hedging' techniques and the use of derivatives.

In addition to financial theory, you'll look at real cases encompassing both failures and successes in different aspects of risk management. You'll also look at risk management across a number of organisations.

Vocational relevance

Employment opportunities in the field of risk management have grown in recent years, partly in response to the litany of reported risk management failings. This module will be of particular interest to you if you're working, or planning to work, in an organisation in the financial sector or in the finance division of a company or public sector/not-for-profit organisation.

The subject matter of the module is, though, designed to be useful for managers and prospective managers whose immediate responsibilities are outside the domain of risk management. Given the growing catalogue of risk management failures in all sectors – and the growing emphasis being placed on effective risk management by all organisations – the content provides knowledge and skills that all effective managers should possess.

Qualifications

B819 is an optional module in our:

Excluded combinations

Sometimes you will not be able to count a module towards a qualification if you have already taken another module with similar content. To check any excluded combinations relating to this module, visit our excluded combination finder or check with an adviser before registering.

Module

Module code
B819
Credits

Credits

  • Credits measure the student workload required for the successful completion of a module or qualification.
  • One credit represents about 10 hours of study over the duration of the course.
  • You are awarded credits after you have successfully completed a module.
  • For example, if you study a 60-credit module and successfully pass it, you will be awarded 60 credits.
30
Study level
Across the UK, there are two parallel frameworks for higher education qualifications, the Framework for Higher Education Qualifications in England, Northern Ireland and Wales (FHEQ) and the Scottish Credit and Qualifications Framework (SCQF). These define a hierarchy of levels and describe the achievement expected at each level. The information provided shows how OU postgraduate modules correspond to these frameworks.
OU Postgraduate
SCQF 11
FHEQ 7
Study method
Distance learning
Module cost
See Module registration
Entry requirements

Find out more about entry requirements.

Module details Entry requirements Module registration Study materials

What you will study

The module is divided into the following five units, and each unit comprises sessions that involve readings, discussions and other activities.

Unit 1
The module begins by introducing the various financial risks that confront organisations – credit risk, liquidity and refinancing risk, interest-rate risk, foreign exchange risk and operational risk. You'll also be introduced to the main types of derivatives instruments and the reference interest rates that are used in conjunction with them.

Unit 2
This unit studies derivatives known as forward contracts and their exchange traded equivalents, futures contracts. These contracts can be used to fix the future price at which an asset can be bought or sold. They can be used by speculators expecting the actual future price to differ from the fixed price or by hedgers, such as farmers, who want to fix the price at which they can sell their produce. Forwards and futures can be based on many different types of assets, including foreign exchange, equities, bonds and commodities.

Unit 3
This unit covers different types of options. We examine how options are valued by looking at the valuation components of intrinsic and time value and the exercise price. The analysis is somewhat technical, but you'll have an option valuation spreadsheet and software guide to assist you. In addition, a detailed explanation of the principles of option pricing is provided.

We'll also look at two other important derivatives: swaps and swaptions, to see how these are priced and how they can be used to manage risks.

Unit 4
This unit covers a number of financial risks. These include currency risk and commodity risk and how organisations can manage these; interest rate risk and how various financial instruments can be used to help manage (or hedge) this risk; liquidity and credit risk management – two key areas of risk management that have come under intense scrutiny in recent years.

You'll also explore the management of risk in bond portfolios. This includes the subject of immunisation, which is a way of managing interest rate risk arising from fixed income investments.

Unit 5
The unit starts by looking at how aggregate interest rate and other financial risks can be measured and managed by organisations. This involves understanding the concepts of gap analysis and Value-at-Risk (VaR). Other market risks – like FX risk – can also be managed by VaR.

Attention then turns to operational risk – the risk arising from the failure of systems and controls. This is not, in itself, a financial risk, but operational risk failures are commonly the root cause of losses arising from financial transactions. This unit then focuses on enterprise risk management (ERM) processes for risk management. This is a holistic approach to risk management that involves managing risks in aggregate rather than separately.

The unit and the module end by reflecting on the dangers of derivatives and some ethical issues that may arise from their use.

You will learn

This module aims to enable you to:

  • understand derivatives and their use in risk management
  • explain credit risk, liquidity risk, FX risk, interest rate risk, and operational risk and understand how these risks can be measured and managed
  • understand the different features of derivative instruments
  • undertake a 'risk-mapping' of a company or organisation 
  • understand operational risk and how it can be managed 
  • appreciate the benefits of an integrated enterprise risk management (ERM) approach to risk management. 

Teaching and assessment

Support from your tutor

Your tutor will help you with the study material, mark and comment on your assignments and provide advice and guidance. You will contact your tutor by email, phone or via your tutor group forum on the module website.

Contact us if you want to know more about studying with The Open University before you register.

Assessment

The assessment details can be found in the facts box.

Professional recognition

This is an optional module in the MSc in Finance which has been accepted into the CFA University Affiliation Program. This status is granted to institutions whose degree programmes incorporate at least 70% of the CFA Program Candidate Body of Knowledge (CBOK), which provide students with a solid grounding in the CBOK and positions them well to sit the exams to become CFA charter holders.

Course work includes

2 Tutor-marked assignments (TMAs)
Examination

Future availability

Derivatives and risk management starts once a year – in May. This page describes the module that will start in May 2025. We expect it to start for the last time in May 2031.

Regulations

As a student of The Open University, you should be aware of the content of the academic regulations which are available on our Student Policies and Regulations website.

Entry requirements

All entrants must hold a BA/BSc degree awarded by a recognised university or equivalent.

Various higher education and professional qualifications are considered equivalent to a degree. If you hold a qualification that you believe is an equivalent level to a UK degree, you should contact us. The Open University Business School Masters Programme Committee is responsible for judging whether applicants' qualifications meet the requirements for admission.

You will also need an appropriate facility in English language, sufficient to be able to work effectively at postgraduate level; generally, this means capability equivalent to an International English Language Test System (IELTS) score of 6.5. To assess your English language skills in relation to your proposed studies you can visit the IELTS website. If you think either of these possibilities may apply to you, please speak to an adviser.

It is strongly recommended that you are comfortable with the use of numerical methods and use of spreadsheets. If you are unsure about these skills, we suggest you familiarise yourself with illustrative numerical skills and methods prior to studying.

If you have any doubt about the suitability of the course, please contact us.

Preparatory work

No preparatory work is required, although you may want to assess your maths skills using the diagnostic quiz for the MSc in Finance if you have not already done so prior to your earlier studies.

Register

Start End England fee Register
03 May 2025 Oct 2025 £1865.00

Registration closes 17/04/25 (places subject to availability)

Register
This module is expected to start for the last time in May 2031.

Future availability

Derivatives and risk management starts once a year – in May. This page describes the module that will start in May 2025. We expect it to start for the last time in May 2031.

Additional costs

Study costs

There may be extra costs on top of the tuition fee, such as set books, a computer and internet access.

Ways to pay for this module

We know there’s a lot to think about when choosing to study, not least how much it’s going to cost and how you can pay.

That’s why we keep our fees as low as possible and offer a range of flexible payment and funding options, including a postgraduate loan, if you study this module as part of an eligible qualification. To find out more, see Fees and funding.

Study materials

What's included

You will have access to a module website with an extensive variety of specially written resources for this module. This includes:

  • audio and video content
  • case studies
  • published articles
  • a week-by-week study planner
  • online tutorial access
  • access to The Open University library.

You will also be provided with a module book which contains CFA readings relevant to each unit.

Computing requirements

You’ll need broadband internet access and a desktop or laptop computer with an up-to-date version of Windows (10 or 11) or macOS Ventura or higher.

Any additional software will be provided or is generally freely available.

To join in spoken conversations in tutorials, we recommend a wired headset (headphones/earphones with a built-in microphone).

Our module websites comply with web standards, and any modern browser is suitable for most activities.

Our OU Study mobile app will operate on all current, supported versions of Android and iOS. It’s not available on Kindle.

It’s also possible to access some module materials on a mobile phone, tablet device or Chromebook. However, as you may be asked to install additional software or use certain applications, you’ll also require a desktop or laptop, as described above.

If you have a disability

This module is delivered online, and time spent using a computer and the internet will therefore be extensive. Written transcripts of any audio components are available, as are printable versions of the online text-based material. Some online material may not be available or fully accessible using a screen reader (mathematical and scientific materials may be particularly difficult to read in this way).

To find out more about what kind of support and adjustments might be available, contact us or visit our disability support pages.

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