Inbuss Highlights

"My stint at Infinity has brought out various facets of my personality that were previously unknown to me. So, appears that I'm ripe for Citius, Altius, Fortius!!” - Suruchi Berry, Batch of 2007

International Finance

Contact Hours : 30 hrs
Credit : 1 Credit
Prerequisite : None
Instructor : Abhijit Roy

 

Course Background

International finance provides a conceptual framework within which the key financial decisions of the multinational firm can be analyzed. In this course, various traditional areas of international finance including foreign exchange markets, underlying reasons for exchange rate movements and international corporate finance are explored from the perspective of a domestic firm dealing with the international environment as well as the multinational enterprise (MNE).

 

Course Objective

Students taking this course should expect to learn the nature and purposes of financial management in an international setting.

 

The objective of the course is to study how the exposure and access to different currency and market environments can affect the financial and investment decisions of any firm. It therefore extends the closed economy domestic corporate financial management to the international market environment. Upon completion, you should have an understanding of

  • how exchange rates and other economic variables are related ,
  • the working of the International Monetary System,
  • how the risk exposure of the firm can be managed, and
  • how firms can finance their global operations.

 

The course will emphasize the linkage between theory and applications. Changes in India’s foreign exchange environment will also be covered.  I shall assume that you already have basic knowledge of financial management.

 

Evaluation

Grading will be based on

Case Discussion Class Participation:    10%
Quizzes:                    25%            
Final examination:            40%
Team project:                25%

 

For the team project as well as regular class room work, including case preparations, I suggest that you form teams (around 4/5 members) on voluntary basis.  Examinations will mainly be of short answer type questions to test your understanding of the concepts and solving of a few simple numerical problems to evaluate your ability to apply them.

 

Class attendance is crucial as class discussions will deviate significantly from the textbook.  You are liable to be tested on the material in the text book, class notes as well as what is covered in the class discussions.

 

For the team project report, may I request that extensive downloading from the net without editing or understanding is not resorted to. A word limit could be discussed in class. In addition, each team would be asked to make an oral presentation in class not exceeding twenty minutes including 5 minutes for Q & A.  Grading will be based on presentation and writing as well as substance of analysis. Providing bibliography is essential. We shall discuss this issue in class in greater detail.

 

Course Materials

Required Text:

Multinational Financial Management, Alan C. Shapiro, Wiley Student Education, 7th edition

 

Supplementary texts:

International Financial Management, P.G.Apte, Tata McGraw Hill, 4th edition
International Corporate Finance, Jeff Madura, Thomson South Western Publishing, Thomson Learning, 8th edition

 

Tentative Course Plan

The following is a tentative session wise course coverage plan. Please do understand that the sequence or depth of coverage is subject to alteration depending upon progress in class as well time constraints.

 

Please note that a part of the course deals with both economic and financial issues in international finance. There are some topics  which may have already been covered in detail in the Economics and Finance papers and we shall simply take  a cursory glance at those concepts rather than going into an in - depth analysis. We shall concern ourselves solely with their extensions to deal with international complexities.

 

This course will not cover the pricing aspect of derivatives. We shall simply examine the various scenarios where derivatives are useful as risk hedging instruments assuming that they are fairly  priced.

 

COURSE OUTLINE

Session

Topic

Principal Issues

Reference

1,2,3

Foreign Exchange Market

  • Characteristics of Global Foreign Exchange Markets
  • Spot and Forward Market
  • Relationship between Spot and Forward Rates
  • Activities in the Forex Markets
  • Market Participants
  • Correspondent Banking

Chapter 7

4,5

Determination of Exchange Rates

  • Indian Forex Market & its Structure
  • Central Bank Intervention
  • An Introduction to Exchange Arithmetic

Chapter 2

6,7,8

International Monetary System;

Balance of Payments and International Economic Linkages

  • The Bretton Woods System & later developments
  • Alternate Exchange Rate Systems
  • Current and Capital Accounts
  • The emerging Indian BOP scenario
  • Capital Account Convertibility

Chapters 3, 5

 

 

9,10

Parity Conditions in International Finance & Currency Forecasting

  • Long Run & Short Run Theories of Exchange Rate Determination

Chapter 4

Case: The Value of the Indian Rupee

11

Foreign Exchange Risk Management

  • Transaction Exposure
  • Economic Exposure
  • Translation Exposure

Chapters 10,11

 

Cases from text book

12,13

An Introduction to Currency Derivatives

  • Interest Rate  & Currency Swaps
  • Currency Futures and Options

Chapters 8,9

 

14,15,16,17

Short term Financing and Current Assets Management

  • Payment Methods and Short Term Credit
  • Documentary Collections
  • Documentary Credits
  • Short Term Export/ Import Financing Options Available to Indian Corporates

Chapters 18,19

 

Case: Magnum Overseas

 

 

18,19

Corporate Strategy and FDI

  • Theory of MNE
  • FDI in India
  • Opportunities for Indian Corporates to Expand Overseas

Chapter 16

 

20,21,22

Medium & Long Term International Financing

  • Eurocurrency Markets
  • Development Banks and Multilateral Lending Agencies
  • FCCBs/ ADRs/ GDRs/ FIIs
  • Project Finance Instruments
  • Loan Syndication
  • Guarantees

Chapters 13, 15

 

Case: Export Import Bank of India

23,24

Project Presentations, Case Discussions

 

 

 
image