FIN 3524 International Financial Management
FIN 3524 International Financial Management
The globalization of world markets over the last couple of decades has greatly increased international trade and capital flows. Few modern industries have been left unaffected by these changes, and understanding the risks firms face when conducting business across international borders has become a key component of a modern business education. Managers responsible for operations in several countries must understand the impact on a firms cash flows from changes in exchange rates as well as from differences in interest rates and the prices of goods across these locations.
This course will discuss the economic forces behind exchange rate fluctuations, and the theoretical parity relationships that link exchange rates with interest rates and inflation rates in different countries. We will also discuss the extent to which these relationships hold in practice, and the financial instruments that are available to manage the risks involved in international operations. For both businesses and investors, access to international markets comes with opportunities in addition to risk, and the course will examine the benefits of increased diversification internationally. Finally, globalization has lead to increased integration in the world economy for developing countries. These countries tend to have less developed financial and political systems, and we end the course by considering the risks involved in operating and investing in such locations.
Students will acquire a good understanding of how to evaluate and manage the risks involved in conducting business in international markets. Specifically, the students will develop their understanding of the following topics:
- The management of exchange rate risk through the forward foreign exchange market.
- The balance of payments and the economic forces that cause exchange rates to fluctuate.
- The relationships between exchange rates and nominal interest rates.
- The link between exchange rates and the prices of goods across countries in theory and in practice.
- The risks and benefits of investing in international capital markets.
- Political and country risk and their influence on international capital budgeting.
During the acquisition of the above mentioned knowledge the students will acquire the following skills:
- Assessing the uncertainty about future exchange rate changes.
- Calculating parity-derived relationships between interest rates and exchange rates.
- Assessing the risk premium associated with investments in the forward market.
- Calculating baseline exchange rate forecasts based on purchasing power parity.
- Calculating required rates of return for international investments based on the world Capital Asset Pricing Model.
- Incorporating political and country risk in capital budgeting decisions.
Upon completion of the course students should appreciate the risks involved in conducting business and investing in international markets. The theoretical and practical knowledge provided should enable students to assess these risks and to understand the financial instruments that are available to manage them. Students should also appreciate the benefits of increased diversification that international markets provide.
- International Economics and Finance
- The Forward Foreign Exchange Market
- The Balance of Payments
- Interest Rate Parity
- Exchange Rate Risk and Exposure
- Real Exchange Rates
- Investing in International Capital Markets
- Political and Country Specific Risk
This course consists of 42 lecture hours. The course aims at giving the students in-depth understanding of foreign-exchange risk, risk-management tools to manage foreign-exchange risk, and consequences of foriegn-exchange risk for corporate decision processes. The learning process will therefore be a combination of conceptual understanding and quantitative exercises. Some quantitative exercises will be based on stylized examples. Others will be based on real-world data. For the latter kind of exercises, the students will be expected to collect data from Bloomberg and to perform analyses using Bloomberg’s built-in functionality and/or Excel spreadsheets.
Coursework requirements
There will be two mandatory home assignments published on Itslearning. Students must get both assignments approved by lecturer, in order to sit for final exam.
Re-sit examination
Students that have not gotten approved the coursework requirements, must re-take the exercises during the next scheduled course.
Students that have not passed the written examination or who wish to improve their grade may re-take the examination in connection with the next scheduled examination.
Coursework requirements is new as from the academic year 2018/2019. Coursework requirements does not apply for previous students who is taking re-sit exam spring 2019.
Higher Education Entrance Qualification.
BØK 3423 Finance and FIN 3521 Corporate Finance, or equivalent.
| Mandatory coursework | Courseworks given | Courseworks required | Comment coursework |
|---|---|---|---|
| Mandatory | 3 | 2 | There will be three mandatory home assignments. Two must be approved by lecturar, in order to sit for final exam. (Changed from 2 out of 2, to 2 out of 3 08.01.2019) |
| Assessments |
|---|
Exam category: Submission Form of assessment: Written submission Invigilation Weight: 100 Grouping: Individual Support materials:
Duration: 3 Hour(s) Exam code: FIN35241 Grading scale: ECTS Resit: Examination every semester |
| Activity | Duration | Comment |
|---|---|---|
Teaching | 42 Hour(s) | |
Student's own work with learning resources | 93 Hour(s) | Independent reading/preparation for class |
Submission(s) | 25 Hour(s) | Home assignments |
Examination | 40 Hour(s) | Exam incl. preparations |
A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 7,5 ECTS credit corresponds to a workload of at least 200 hours.