BF2207 International Finance

Academic Year

:

2015-16 Semester : 1

Course Coordinator

:

Instructor(s) : Dr. Siriwan Chutikamoltham for Seminars on Monday, Tuesday, Wednesday 2:30 -6:30 pm

Pre-requisites

:

AB0901 Principles of Economics: A Singapore Perspective

AB1201 Financial Management*

No. of Aus

:

4

* All students (especially students who were exempted from taking AB1201 Financial Management) should review the AB1201 Financial Management material before attending the BF2207 International Finance course.

Course Description and Scope

Many companies engage in cross-border business and they face important financial questions beyond those found in a purely domestic setting. This course aims to provide the basic understanding and tools to evaluate, finance, and manage international business. The issues and tools discuss are particularly relevant to highly open economies, such as Singapore, where companies will engage in international business.

In this course, we will describe the global financial markets that facilitate international business and explain the key economic linkages among them. In the context of international finance, understanding foreign exchange rates is crucial. We will therefore explain exchange rates and those factors that affect the rates. We will then examine the challenges for companies created by unexpected changes in exchange rates. We will also discuss how these firms should manage their exposure to currency fluctuations. Lastly, we will explore areas of international corporate finance like capital budgeting and financing from the perspective of multinational companies.

The recent financial crisis and other contemporary global financial issues will also be explored.

Course Learning Objectives

Students will learn how to analyse and make managerial decisions in the context of a multinational firm.

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Learning & Teaching Methods

This course commences in Week 1 and ends in Week 14. It offers weekly seminar of 4-hour duration, per the class schedule below.

Course Assessments

Components Marks Individual / Group

Coursework *

C1: Assignments 10 Individual

C2: Participations & Presentations 10 Individual / Group

C3: Projects 10 Individual / Group

C4: Quizzes 15 Individual

Final examination # 55 Individual

Total 100

* Details will be covered in the first day of class.

# The final examination is a restricted open book exam where students may bring into the exam hall one A4-size sheet of paper with information on mathematical formulas, computation steps, etc. The sheet may be written on both sides, but it has to be prepared by the student individually. No downloading, copying, shrinking, imaging from another source is allowed. The intent of the final examination is to determine how well you understand the basic principles and tools of International Finance, and if you are able to apply them to novel as well as routine situations.

Assessment Plan

Course Learning Objective Assessment Method

Knowledge AcquisitionStudents should demonstrate knowledge and application ability of core curriculum such as assessing, quantifying and managing exchange rate exposures of companies.

Case discussions.

Assignment discussions and project presentations.

Problem sets and quizzes that cover various topics in the core curriculum.

Written examination.

Teamwork & Interpersonal SkillsStudents should develop abilities to interact and cooperate effectively with others in the conduct of business.

Assignment discussions and project presentations.

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Reference

B Adrian BuckleyFinancial Crisis: Causes, Context and ConsequencesPearson Prentice Hall, 2011(ISBN: 027373511X / Call No.: XX(1107178.1) e-book)

http://catalogue.pearsoned.co.uk/educator/product/Financial-Crisis-Causes-Context-and-Consequences/9780273735113.page

M* Jeff MaduraInternational Financial Management, 12th EditionCengage Learninghttp://www.cengage.com/search/productOverview.do?Ntt=287383784139518751820925278281857137&N=16+4294922239&Ntk=P_EPI

(Note that you can purchase just the e-book or e-book plus a hard copy of the Technological version. The latter option is recommended because you will have a big portion of the full text book in hard copy for only $5 more.Furthermore the publisher offers a ‘Buddy Deal’ promotion for NTU students in the coming Semester 1. This promotion is valid at the campus bookshop – Booklink NTU only.

CTE International Financial Management with CB CourseSmart eBook 12th EditionJeff MaduraISBN-13: 9789814617758 | ISBN-10: 981461775X© 2015 | Published | 12th Edition | 480 PagesList price: $74.00 before GSTStudent price: $59.000 including GST (Buddy Deal Promotion – $10.00 off each book for the purchase of 2 same books)

* The primary textbook used for this course.

Course Instructor(s)

Instructor Office Phone E-mail

Siriwan Chutikamoltham S3-B1B-66 6790 5001 siriwan@ntu.edu.sg

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Proposed Weekly Schedule

Week(Week

beginning)Topic Learning Objectives

Readings to be done before class & Assignments

(due in the following class, unless specified

otherwise)

1

11 Aug*Introduction to International Finance

1. To identify management goal and organizational structure of a Multinational Corporation (MNC).

2. To describe the key theories that justify international business.

3. To explain the common methods used to conduct international business.

4. To describe a model for valuing a MNC.

M Chapter 1

217 Aug

The International Monetary System

1. To explain the key components of the balance of payments.

2. To explain how international trade flows are influenced by economic factors and other factors.

3. To explain how international capital flows are influenced by country characteristics.

4. To describe the agencies that facilitate the international flow of funds.

M Chapter 2

Assignment 1

Blades Case Ch.1(M page 28–29)Question 1 & 2.

Blades Case Ch.2(M page 59–60)Question 1, 2 & 3.

324 Aug

Foreign Exchange Markets

1. To describe the background and corporate use of the foreign exchange market, international money market, international credit market, international bond market & international stock markets.

M Chapter 3

Assignment 2

FX Markets & Transaction

Question 1 to 6.

(Questions will be posted)

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Week(Week

beginning)Topic Learning Objectives

Readings to be done before class & Assignments

(due in the following class, unless specified

otherwise)

431 Aug

Determination of Exchange Rate

1. To explain how the equilibrium exchange rate is determined.

2. To describe factors that determine the equilibrium exchange rate.

3. To explain how financial institutions attempt to capitalize on anticipated exchange rate movements.

4. To describe the exchange rate system used by various governments.

5. To explain how governments can use direct intervention to influence exchange rates.

6. To explain how government intervention in the foreign exchange market can affect economic conditions.

M Chapter 4, 6, 7, 8

Assignment 3

Blades Case (M page 132–133)Question 1 to 6.

57 Sep

Determination of Exchange Rate (cont)

7. To explain the conditions that will result in various forms of international arbitrage and the realignments that will occur in response.

8. To explain the concept of interest rate parity.

9. To explain the variation in forward rate premiums across maturities and over time.

10. To explain the purchasing power parity (PPP) theory and its implications for exchange rate changes.

11. To explain the International Fisher effect (IFE) theory and its implications for exchange rate changes.

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Week(Week

beginning)Topic Learning Objectives

Readings to be done before class & Assignments

(due in the following class, unless specified

otherwise)

6.

14 Sep

Currency Derivatives**

1. To explain how forward contracts are used to hedge based on anticipated exchange rate movements.

2. To describe how currency futures contracts are used to speculate or hedge based on anticipated exchange rate movements.

3. Explain how currency option contracts are used to speculate or hedge based on anticipated exchange rate movements.

M Chapter 5

Assignment 4

End-of-Chapter Questions & Applications (M page 159–165)Question 4, 12,14, 18 & 25.

7.

21 Sep

Exposure Management

1. To explain how transaction exposure, economic exposure and translation exposure can be measured.

2. To explain the techniques commonly used to hedge payables and receivables.To describe limitations of hedging.

M Chapter 10–12Assignment 5

Blades Case (M page 385–386)Question 1 to 7, due in Week 8 after the Recess.

28 Sep Recess

8.5 Oct

Exposure Management (cont)

3. To explain how an MNC’s economic exposure can be hedged.

4. To explain how an MNC’s translation exposure can be hedged.

Study materials of Week 1 to 6 (Ch.1 to 8) for midterm quiz.

Miderm Quiz on Saturday 10 Oct. 10:30 am to 11:30 am., Lee Kong Chian Lecture Theatre, (Block SS3, SS3-B2-10).

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Week(Week

beginning)Topic Learning Objectives

Readings to be done before class & Assignments

(due in the following class, unless specified

otherwise)

9.12 Oct

International Capital Budgeting

1. To describe common motives for initiating foreign direct investment

2. To explain the benefits of international diversification.

3. To explain the capital budgeting analysis of an MNC’s subsidiary versus its parent.

4. To describe how multinational capital budgeting can be applied to determine whether an international project should be implemented.

5. To explain how multinational capital budgeting can be adapted to account for special situations such as alternative exchange rate scenarios or when subsidiary financing is considered.

6. To explain how the risk of international projects can be assessed.

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Week(Week

beginning)Topic Learning Objectives

Readings to be done before class & Assignments

(due in the following class, unless specified

otherwise)

10.19 Oct International

Financing

1. To explain how an MNC uses debt financing to minimize its exposure to exchange rate risk.

2. To explain how an MNC may assess potential benefits from financing with a low-interest rate currency that differs from its cash inflow currency.

3. To explain how an MNC may determine the optimal maturity when obtaining debt.

4. To explain how an MNC may decide between using fixed rate versus floating rate debt.

5. To explain how MNCs determine whether to use foreign financing.

6. To explain the possible benefits of financing with a portfolio of currencies.

M Chapter 13–14

Assignment 6

Blades Case (M page 460–462)Question 1 to 5.

11.

26 Oct

International Financing (cont)

M Chapter 18 & 20

Assignment 7 (due in Week 13)

End-of-Chapter Questions & Applications (M page 563–566)Question 8 & 20;(M page 608–610)Question 5 & 10

12.

2 Nov.

e-learningNo class meeting

13.9 Nov.

Financial Crisis Project Presentation

I will discuss with students in Seminar 3 for alternatives for 10 Nov (Deepavali Holiday)

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Week(Week

beginning)Topic Learning Objectives

Readings to be done before class & Assignments

(due in the following class, unless specified

otherwise)

14.

16 Nov. Review Period

*Students in Monday Seminar will not meet for the first class due to National Day Holiday but they can make up either by studying on their own the lecture material posted or attending class on Tuesday or Wednesday, Aug. 11 or 12, respectively. **Derivative pricing is excluded so ignore Appendix 5A and 5B. (Detailed derivative pricing is covered in the BF2209 Derivative Securities course).

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Academic Integrity Policy

NTU’s Student Academic Integrity Policy requires all members of the NTU community to uphold the values of academic integrity in all academic undertakings. The policy defines the following acts as academic dishonesty:

• plagiarism, • academic fraud and • facilitating academic dishonesty.

All students are expected to read and observe the policy guidelines detailed at this website: http://academicintegrity.ntu.edu.sg/for-everyone/policy/. The academic integrity website also highlights the penalties that will be imposed on students who are found to have violated the policy, and the processes that will be followed when we deal with cases of academic dishonesty.

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