International Finance y6e27

INTERNATIONAL FINANCE Dr STANISŁAW KUBIELAS Lecture: 30 hours The course is designed to learn the main issues in international finance, international financial markets and international financial management. Special focus will be put on operation of exchange market, exchange risk hedging, financing and capital structure of multinational corporation, investing in foreign assets.

Programme 1.

Foreign exchange market 1.1 The foreign exchange market 1.2 Spot and forward contracts 1.3 Currency derivatives: futures, options and swaps 1.4 Exchange rates quotations and contract settlements 1.5 Cross rates and intermarket arbitrage D. Eiteman, A. Stonehill, M. Moffet, Multinational Business Finance: ch. 4. A.C. Shapiro, Multinational Financial Management: ch. 5.

2.

Parity conditions in international finance 2.1 Purchasing power parity 2.2 International Fisher relation 2.3 Interest rate parity 2.4 Foreign exchange expectations D. Eiteman, A. Stonehill, M. Moffet, Multinational Business Finance: ch. 5. A.C. Shapiro, Multinational Financial Management: ch. 7. P. Krugman, M. Obstfeld, International Economics. Theory and Policy, ch. 13, 14.

3.

Foreign exchange determination 3.1 Balance of payments and exchange rate regimes 3.2 Equilibrium mechanism of exchange rate markets 3.3 International currency system and currency crises P. Krugman, M. Obstfeld, International Economics. Theory and Policy, ch. 13, 14. P. R. Krugman, Currences and Crises: ch. 1,2.

D. Eiteman, A. Stonehill, M. Moffet, Multinational Business Finance: ch. 2. A.C. Shapiro, Multinational Financial Management: ch. 3, 4.

4.

Currency options 4.1 Currency option contracts and quotations 4.2 Intrinsic value and time value of an option 4.3 Currency option pricing 4.4 Put-call option parity J. C. Hull, Options, Futures and Other Derivatives: ch. 8, 11, 12. D. Eiteman, A. Stonehill, M. Moffet, Multinational Business Finance: ch. 6.

5.

Managing foreign exchange exposure and hedging 5.1 Currency position and liquidity position 5.2 Foreign exchange exposure: types and measurement 5.3 Managing transaction exposure 5.4 Managing economic exposure 5.5 Managing translation exposure D. Eiteman, A. Stonehill, M. Moffet, Multinational Business Finance: ch. 7, 8, 9. A.C. Shapiro, Multinational Financial Management: ch. 8, 9, 10, 11.

6.

Multinational financial system 6.1 6.2 6.4 6.5

Repositioning funds and financial arbitrage Inter-company loans Transfer pricing Taxation and global remittance policy

D. Eiteman, A. Stonehill, M. Moffet, Multinational Business Finance: ch. 19, 20, 17. A.C. Shapiro, Multinational Financial Management: ch. 15. 7.

Short-term financing 7.1 Short-term financing options 7.2 Financing international trade 7.3 Effective cost of international borrowing D. Eiteman, A. Stonehill, M. Moffet, Multinational Business Finance: ch. 21. A.C. Shapiro, Multinational Financial Management: ch. 12, 13, 14.

8.

Long-term financing 8.1 8.2 8.3 8.4

The multinational’s optimal capital structure International stock markets International banking and debt instruments: eurocurrency Hedging interest rate exposure

D. Eiteman, A. Stonehill, M. Moffet, Multinational Business Finance: ch. 10-14. A.C. Shapiro, Multinational Financial Management: ch. 22, 23, 24. P. Krugman, M. Obstfeld, International Economics. Theory and Policy, ch. 20. 9.

International investment 9.1 9.2 9.3 9.4 9.5

Country risk and international cost of capital Portfolio investment and diversification Foreign direct investment and multinational corporation Multinational capital budgeting: international CAPM Foreign project appraisal: real option analysis

D. Eiteman, A. Stonehill, M. Moffet, Multinational Business Finance: ch. 15, 16, 18. A.C. Shapiro, Multinational Financial Management: ch. 16, 17, 18, 19, 20. B. Solnik, "An Equilibrium Model of the International Capital Market", Journal of Economic Theory, 1974, 8, pp. 500-524

Reading list      

D. Eiteman, A. Stonehill, M. Moffet, Multinational Business Finance, 8th ed., Addison-Wesley, New York 1998 C. P. Hallwood, R. MacDonald, International Money and Finance, 3th ed., Blackwell Publishers Ltd, Oxford 2000 J. C. Hull, Options, Futures and Other Derivatives, 3rd ed., Prentice_Hall Inc., Upper Saddle River 1997 P. Krugman, M. Obstfeld, International Economics. Theory and Policy, 2nd ed., Harper Collins, New York 1991 P. R. Krugman, Currences and Crises, MIT Press, Cambridge Mass., 1995. A.C. Shapiro, Multinational Financial Management, 5th ed., Prentice-Hall Inc., London 1996

Grading: written examination