UI Professor Highlights the Importance of Financial Mathematics in Understanding Investment Page all

JAKARTA, KOMPAS.com – Economist as well as Financial and Capital Market Expert Budi frensidy highlighting the importance of the concept financial mathematics in studying economics and investment.

In his speech when he was inaugurated as Professor of the University of Indonesia (UI), Saturday (13/3/2021), he stated that mathematics cannot be separated from business and accounting. Therefore, financial mathematics is an important thing that business and accounting students need to learn.

Budi explained, to help students study economics, universities need to equip them with economic math concepts such as marginality, elasticity, differential matrices, systems of linear equations, and optimization.

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However, it is only studied for two semesters by business and accounting students, so it is not quite right. Therefore, he considered it would be more appropriate if students studied financial mathematics.

“It would be better if given a mathematical concept that can help understand financial management, financial accounting, investment and asset valuation, and that is financial mathematics,” said Budi, who is also an Independent Commissioner of PT Lotte Chemical Titan Tbk.

As a capital market practitioner and former investment advisor in two state-owned enterprises, Budi said that financial mathematics is necessary to know, while economic mathematics and management science are nice to know for business and accounting students.

According to him, financial mathematics equips students with logic and financial intelligence to value assets, uncover bank tricks, calculate effective interest, compile an installment schedule, and carry out independent financial planning.

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This expertise is indispensable for studying financial management, financial accounting, investing, and valuation. With financial mathematics, said Budi, business and accounting graduate students are not only financially literate but will also be financially savvy.

“It is ironic if business and accounting students are taught corporate finance to be able to manage corporate finance, but they are not equipped with personal finance, the knowledge needed to organize personal and family finances,” he said.

Five Reasons

Budi revealed, there are five reasons that financial mathematics is more relevant and more attractive to business and accounting students.

First, by mastering financial mathematics, business and accounting students will be able to compile credit schedules, leasing, amortization of premium and discount bonds, financial planning schedules, and mortgage refinancing.

Second, armed with financial mathematics, it is hoped that students will be able to calculate the effective interest and yield on all financial and investment products that are widely offered. Through this ability, they will be able to judge whether the offer is attractive or not.

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“This includes identifying fraud under the guise of investment. The use of this knowledge will enable someone to sort out honey and poisons in bank products,” he said.

Third, financial mathematics imparts the basic knowledge necessary to value all assets. If you can find out the value of an asset, making investment decisions will be easy because the basic principle of investing is comparing value and price.

Fourth, financial mathematics will equip students with the ability to do financial planning independently. This is the basic knowledge that is given in courses, training and workshops to become a financial planner.

“To become a financial planner, someone needs 50 percent financial math skills and the other 50 percent of the knowledge about financial & investment products, insurance, taxation, and inheritance law,” he explained.

Fifth, unlike economic mathematics, financial mathematics has four methods of solving, namely using tables, scientific calculators, financial calculators, and Excel to get the same calculation result.

Financial Markets

He said, there are three markets in the economy, namely goods and services, labor and finance. In the market for goods and services the main variable is price, then in the labor market the main variable is salary.

While in the financial market the main variable is the interest rate, where the math used to calculate the interest rate is financial mathematics. Therefore, financial mathematics really needs to be studied.

“Do not let accounting students and graduates not be able to distinguish between interest rates and discount rates,” said Budi.

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