GRA 6284 Financial and Political Risk in International Trade

GRA 6284 Financial and Political Risk in International Trade

Course code: 
GRA 6284
Department: 
Finance
Credits: 
6
Program of study: 
Master of Science in Law and Business
Course coordinator: 
Dagfinn Rime
Marit Sjøvaag
Product category: 
Master
Portfolio: 
MSc in Law and Business
Semester: 
2020 Spring
Active status: 
Active
Teaching language: 
English
Course type: 
One semester
Introduction

During the last 75 years the world has gradually become more and more integrated. International trade and capital flows have increased steadily. Few industries have been left unaffected by these trends. Understanding the risks organisations face when conducting business across international borders and in different currencies has become a key component of a modern business education.

This course covers questions of risk and risk management in an international setting, both from a financial and a political economy perspective. It will teach the students

  1. the rationale for regulation and the status of the current legislative and institutional regime (the ‘why’ and ‘how’ of market regulation)
  2. the effect of existing regulation, including the failure or success of implementation, and distributional consequences (the ‘uncertainties’)
  3. how these uncertainties constitute risk for individual firms, and how to manage them in a company/organizational setting

Rather than treating these broad themes solely at a general level, the course will apply them to three sets of challenges that are particularly pertinent to business in today’s global economy. These challenges are:

  • International trade and the key international regulatory institutions
  • Exchange rates and currency fluctuations
  • Sustainability

These challenges represent risks to all companies engaging in cross-border activities, and are therefore a useful starting point for anyone tasked with writing and implementing a risk management strategy. Moreover, they give us the opportunity to expose students to some of the contemporary debates not covered by other courses in this program.

 

 

 

Learning outcomes - Knowledge

After completed course the student will:

  • acquire tools for understanding the complex political economy of today’s globalised economy.
  • understand the difficulties inherent in international cooperation and collective action
  • be able to analyse and react to regulatory developments with ramifications for international trade.
  • understand the risk connected with major operational (e.g., currency fluctuations) and societal (e.g., the need for decarbonisation) factors.
Learning outcomes - Skills

After completed course the student will:

  • be able to develop risk management strategies for companies with international economic activities in light of existing market and legal structures, institutional development, political trends, and economic viability.
General Competence

This course allows the students to think critically and constructively around how to meet companies’ need for profitability and global need for sustainability, given the existing uncertainty.

Course content

International trade and institutions:

The course gives an introduction to comparative advantages, scale economies and market power as sources of international trade. It also gives an advanced but no-formal introduction to international trade.

Several international institutions regulate and monitor international trade. We study the role and history of these institutions, as foundation for a discussion on how they will respond to the new challenges arising from technological advances (in communication as well as production). In particular, we give an introduction to the EU institutions, international law on trade, and the WTO.

Currency markets:

When writing contracts for operations in several countries, decision makers must understand the consequences on firms’ cash flows from changes in exchange rates as well as from differences in interest rates and the prices of goods across these locations. The financial part of this course has two main parts supporting this.

In the first part, we document that nominal exchange rates, which are the ones we observe, are volatile and unpredictable. We then introduce to concept of real exchange rates, which are the ones that business and policy makers fundamentally care about. We hypothesize that nominal-exchange-rate changes are reflections of changes in price and cost levels. Rejection of this hypothesis leads us to conclude that real exchange rates are almost as volatile and unpredictable as nominal exchange rates. We then hypothesize that nominal-exchange-rate changes are reflections of cross-country differences in interest rates. Rejection of this last hypothesis leads us to conclude that exchange rates are highly risky.

In the second part we study the tools that business have to hedge exchange-rate risk and how to evaluate these financial instruments. In particular, we will cover forwards/futures, and to a lesser extent options, and swaps. Finally, after having documented that exchange rates are risky and that economic decision makers have the tools to hedge this risk, we ask under what circumstances these hedging tools should be used.

Sutstainability:

The sustainability challenge will define future economic activity. In this part of the course we will investigate the rationale for the UN Sustainable Development Goals, and look at how they constitute both opportunities and threats. We will discuss how the natural environment impacts both the social and the economic spheres, and that the SDGs encourage seeing these different spheres as interconnected. Then we will look at how the quest for sustainable solutions are operationalised in different sectors (e.g., with initiatives for ‘green banking’ and ‘emission free constructions’) and implemented both at national and regional (EU) levels. The final theme in this part will cover the challenges faced by firms when they shall implement sustainable strategies. Relevant questions here will be ‘How much is enough?’ and ‘How can we encourage sustainability progress whilst discouraging “greenwashing”?’

Our approach to sustainable solutions requires us to include ethical considerations. We shall discuss both inter-national and inter-generational justice.

Teaching and learning activities

The students will meet a mixture of individual and collective work forms. There will be group assignments with class presentations, where the students have the possibility of developing their arguments.

Software tools
No specified computer-based tools are required.
Additional information

Please note that while attendance is not compulsory in all courses, it is the student’s own responsibility to obtain any information provided in class.

Qualifications

All courses in the Masters programme will assume that students have fulfilled the admission requirements for the programme. In addition, courses in second, third and/or fourth semester can have specific prerequisites and will assume that students have followed normal study progression. For double degree and exchange students, please note that equivalent courses are accepted.

Exam categoryWeightInvigilationDurationGroupingComment exam
Exam category:
Submission
Form of assessment:
Written submission
Exam code:
GRA 62841
Grading scale:
ECTS
Grading rules:
Internal and external examiner
Resit:
Examination when next scheduled course
100No4 Week(s)Group (2 - 4)The term paper consists of three parts corresponding to the three major themes in the course.
Exams:
Exam category:Submission
Form of assessment:Written submission
Weight:100
Invigilation:No
Grouping (size):Group (2-4)
Duration:4 Week(s)
Comment:The term paper consists of three parts corresponding to the three major themes in the course.
Exam code: GRA 62841
Grading scale:ECTS
Resit:Examination when next scheduled course
Type of Assessment: 
Ordinary examination
Total weight: 
100
Student workload
ActivityDurationComment
Student's own work with learning resources
85 Hour(s)
Teaching on Campus
36 Hour(s)
Group work / Assignments
9 Hour(s)
Preparation for class presentation.
Submission(s)
30 Hour(s)
Term paper (group).
Sum workload: 
160

A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 6 ECTS credits corresponds to a workload of at least 160 hours.