FI 4040 Foundations in International Finance Spring 2008 RezaS

Document Sample
FI 4040 Foundations in International Finance Spring 2008 RezaS Powered By Docstoc
					              FI 4040: Foundations in International Finance
                                         Spring 2008
                                      Reza S. Mahani
           13374 - FI 4040 - 005 , Tue 1:00–3:30 , Aderhold Learning Center 404

1    Contact Information
Office: 1237 RCB                                           Office hours: by appointment
E-mail: mahani@gsu.edu (best way to reach me)
Frequently check WebCT (gsu.view.usg.edu) for announcements and information.


2    Textbook
Required: Alan C. Shapiro, Foundations of Multinational Financial Management, 5th ed. ,
(ISBN: 0-471-56337-4)


3    Prerequisites
    • Successful completion of FI 4000. (This requirement will be enforced by the department:
      If you do not meet it, you should expect to be automatically withdrawn.)

    • I will emphasize the quantitative aspects of international finance. You must be com-
      fortable with methods of quantitative analysis and graphical analysis.


4    Grading
Attendance: 5%
      Missing a class will cost you 2% of your final grade. You have to be present the whole
      duration of a class to be considered present (arriving late or leaving early may count
      as absence). If you have to miss a class for an important reason (e.g. a work-related
      conflict), you need to inform me before the class to avoid the 2% penalty. If you miss
      a class for an unexpected reason (e.g. a medical emergency) you will have one week
      to discuss it with me. After the one week, no adjustment will be allowed.
      Once you have three unexcused absences, you will be withdrawn from
      the course with a “WF” grade!

Quizzes: 25%
      There are at least five quizzes and they may be unannounced. Quizzes are all multiple-
      choice questions, close-book, and without a formula sheet. If you appropriately inform


                                              1
     me about missing a quiz (see the attendance policies), the grade for that quiz will be
     distributed among other components of your grades. Otherwise, you receive an “F”
     grade for the quiz. There will be no make-up quiz.

Midterm: 35% [Tue, Febuary 26, in class]
     The midterm exam is comprehensive, close-book, and without a formula sheet. It
     consists of short problems and multiple-choice questions. If you appropriately inform
     me about missing the midterm (see the attendance policies), the grade for the midterm
     will be distributed among other components of your grades. Otherwise, you receive an
     “F” grade for the midterm. There will be no make-up exam for midterm.

Final: 35% [Tue, April 29, 12:30 pm]
     The final exam is comprehensive, close-book, and without a formula sheet. It consists
     of short problems and multiple-choice questions.

The primary method of instruction will be lectures and class discussions. Participation in
class discussions is very important. I will call upon you randomly to answer questions or
solve problems on the board.


5    Course General Outline
Deviations from this outline may become necessary. “Appendix, Chapter, Section” are all
with reference to the textbook (Shapiro). We study fundamentals and applications of inter-
national business. We cover four areas with varying degrees of emphasis: economics, finance,
accounting, and institutions:

                   Economics      Finance         Accounting Institutions

 Fundamentals Part 1.1 →         Part 1.2 →       Part 1.3 →   Part 1.4 ↓
   (Part 1)
  Applications Part 2.3          ← Part 2.2                    ← Part 2.1
   (Part 2)

Part 1: Fundamentals

     Part 1.1: Economics of International Business
          Timing (approximate): 6 hours (two weeks)
          Coverage and Objectives:
                • International trade (Appendix 1.A): Define and recognize “comparative
                   advantage”; Describe “gain from trade”; Describe “specialization”; Define
                   and utilize “prices and exchange Rates”;


                                              2
         • Demand and Supply (Chapter 2, Sections 1, 2): Explain “currency de-
            mand and supply”, and “equilibrium exchange rate”; Recognize and dis-
            tinguish “factors that affect demand” and “factors that affect supply”;
            Describe “role of expectations in equilibrium exchange rate”; Define, com-
            pute, and analyze “exchange rate appreciation and depreciation”;
         • Exchange Rate Systems (Chapter 3, Section 1): Define “free float” and
            “managed float”;
    Quiz 1 Focuses on your understanding of the concept of “exchange rate” as the
        relative price of a currency (second item above).
Part 1.2: Parity Conditions
    Timing (approximate): 9 hours (three weeks)
    Coverage and Objectives: We cover Chapter 4 in complete details.
         • Describe “law of one price” and apply it to link currency prices in inter-
            national markets;
         • Describe, and distinguish between,“real and nominal exchange rate”; De-
            scribe “purchasing power parity” and apply it to “forecast exchange rates”
            and understand its “empirical relevance”;
         • Describe, and distinguish between,“real and nominal interest rate”; De-
            scribe “fisher effect” and “international fisher effect” and apply it to “fore-
            cast exchange rates” and understand its “empirical relevance”;
         • Describe “forward rate” and explain “covered interest arbitrage” and ap-
            ply it to derive “interest rate parity” and understand its empirical rele-
            vance;
         • Understand the relation between “forward rate” and “future spot rate”;
    Quiz 2 It is absolutely essential that you understand these parities in order to
        proceed to the second part of the course (applications). Therefore, the focus
        is on solving problems which involve these parities.
Part 1.3: Balance of Payments and International Flows
    Timing (approximate): 3 hours (one week)
    Coverage and Objectives: We cover Chapter 5, with emphasis on Section 2.
         • Explain “current account”, “capital account”, and “official reserves ac-
            count”;
         • Define “balance of payment” and compute it from data on international
            transactions; Understand the international flows and its link to domestic
            economic behavior;



                                       3
    Midterm: Tue 2/26/2008 (in class) Comprehensive (covers all materials dis-
       cussed to this point); Focus is testing your understanding of important fun-
       damentals that will be applied in the second part of the course.
    Part 1.4: Exchange Rate Systems and Central Banks
        Timing (approximate): 6 hours (two weeks)
        Coverage and Objectives:
             • Central Bank (Chapter 2 Section 3): Describe different forms of “central
                 bank intervention” in foreign exchange market;
             • International Monetary Systems (Chapter 3 Section 2): Describe different
                 “monetary systems”; Explain “equilibrium under gold standard”;
             • Foreign Exchange Markets (Partial coverage of Chapters 7 and 8 with
                 focus on institutional aspects): Describe the “organization of foreign ex-
                 change market” and distinguish “spot and forward exchange rates”; De-
                 scribe “currency futures and options”;
        Quiz 3

Part 2: Applications

    Part 2.1: Currency Derivatives (Forwards, Futures, and Options)
        Timing (approximate): 6 hours (two weeks)
        Coverage and Objectives:
             • Spot and Forward Exchange Rates (Chapter 7): Describe, and distin-
                 guish, different methods of foreign exchange quotation and convert one to
                 another; Describe, and identify, profitable currency arbitrage opportuni-
                 ties; Describe role of forward contracts in reducing currency risk; Calculate
                 forward premium and discount;
             • Futures and Options (Chapter 8): Explain the similarities and differences
                 between currency forward and futures contracts; Describe how currency
                 futures and options can be used in reducing currency risk and to speculate
                 on currency movements; Explain the main factors that determine price of
                 currency options
        Quiz 4 You should be able to use graphical and numerical methods to solve prob-
            lems involving currency risk hedging with derivatives.
    Part 2.2: Transaction-Risk Management
        Timing (approximate): 6 hours (two weeks)
        Coverage and Objectives: We cover Chapter 10, Sections 1, 4, 5, 7; all discus-
            sions related to transaction exposure, but not translation exposure (except for
            its definition).

                                            4
         • Define, and distinguish, “translation and transaction exposure”;
         • Describe hedging strategies used to manage transaction risk;
         • Describe and implement forward market hedge, money market hedge, and
             currency options hedge;
         • Identify costs associated with different hedging strategies, and relate them
             to different hedging objectives;
    Quiz 5
Part 2.3: Economic Risk Management
    Timing (approximate): 9 hours (three weeks)
    Coverage and Objectives: We cover Chapter 11 as far as time permits.
         • Define “economic exposure” and “operating exposure” and identify their
             relation to “exchange risk” and “transaction exposure”;
         • Identify the factors that determine “economic exposure” and “operating
             exposure” and characterize them under different scenarios;
         • Describe the methods of coping with economic and operating exposure;
FINAL: Tuesday, April 29, 2008, 12:30 p.m. Comprehensive with more em-
   phasis on the second part (after midterm).




                                       5

				
DOCUMENT INFO
Shared By:
Stats:
views:31
posted:7/11/2010
language:Finnish
pages:5