GRA 6552 International Finance
GRA 6552 International Finance
The first part of this course is identical to the course GRA 6553 International Finance and the Firm (3 ECTS), and therefore both courses cannot be chosen by the same student.
The overall goal of the course it to provide the participants with a sound understanding of foreign exchange markets and their role for the economy. The course is relevant for decision making by investors in the international arena, policy makers and multinational firms.
Economies and firms are increasingly becoming exposed to the international economy. This creates both opportunities and challenges for firms, investors and policy makers. A sound understanding of international markets is needed to deal with these opportunities and challenges.
The course can be split into two halfs. In the first half, the learning outcome covers the three parts in the 3 ECTS course GRA 6553 International Finance and the Firm. In the first part of the course, the students learn about the history and organization of international financial markets, with special emphasis on the foreign exchange market. In the second part, students learn different models for exchange rate determination, with special emphasis on macroecnomic determinants of exchange rates. The third part of the course will give students knowledge on issues in corporate finance, like capital budgeting, in an international setting.
The second half of the course, focus more on the currency risk premium in order to understand exchange rates. The first part of the second half of the course, the students will learn about the Market microstructure approach to exchange rates. The second part will go through different investment strategies involving exchange rates, and students will learn how to understand exchange rates through the lens of modern asset pricing.
During the acquisition of the above-mentioned knowledge, the students will acquire the following skills:
- Understand why FX-rates fluctuate.
- Produce and evaluate FX-rate forecasts.
- Calculating the value of multinational companies.
- Understand the importance of heterogeneity of market participants for determination of exchange rates.
- Create and evaluate investment strategies involving exchange rates.
- Be able to evaluate different sources of variation in currency risk premia and the implications for the macroeconomy.
The international economy provides opportunities and challenges to market participants. With increased globalization these markets have become more important, and more complex. No models are able to capture this complexity.
Multinational corporations operate in this complex environment need to critically assess different models and show their limitations with empirical tests. Similarly, policy makers and investors need to understand the environment where they operate.
Thus, an important learning outcome of this course is to understand the shortcomings of the models because as this will be important for the decision-making process.
- Background: International monetary system;
- Foreign Exchange Markets; International trade and capital flows. International markets for short-term debt instruments.
- Parity relations: Covered and Uncovered Interest rate Parity; Purchasing Power Parity; International Fisher effect.
- Testing parity conditions.
- Exchange Rate determinantion
- International capital budgeting; Capital structure and cost of capital
- Foreign exchange microstructure: Dealer behavior, liquidity and price formation.
- Exchange rates, macro, financial intermediation and order flow. Explaining exchange rate movements.
- Carry trading and currency momentum. Creating and evaluating international investment strategies.
- Currency risk premia. Sources and variation.
Lectures (class participation and problem solving is essential).
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 that is not included on the course homepage/itslearning or text book.
All parts of the assessment must be passed in order to get a grade in the course.
Honour Code
Academic honesty and trust are important to all of us as individuals, and represent values that are encouraged and promoted by the honour code system. This is a most significant university tradition. Students are responsible for familiarizing themselves with the ideals of the honour code system, to which the faculty are also deeply committed. The expected behaviour and honour code is outlined here.
Any violation of the honour code will be dealt with in accordance with BI’s procedures for cheating. These issues are a serious matter to everyone associated with the programs at BI and are at the heart of the honour code and academic integrity. If you have any questions about your responsibilities under the honour code, please ask.
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.
| Assessments |
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Exam category: Submission Form of assessment: Written submission Weight: 50 Grouping: Group (3 - 5) Duration: 2 Week(s) Exam code: GRA65521 Grading scale: ECTS Resit: Examination when next scheduled course |
Exam category: Submission Form of assessment: Written submission Invigilation Weight: 50 Grouping: Individual Support materials:
Duration: 2 Hour(s) Comment: Final written examination under supervision. Exam code: GRA65522 Grading scale: ECTS Resit: Examination when next scheduled course |
All exams must be passed to get a grade in this course.
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.