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IIF-P10
PGDM 2010-12: Term-IV

Introduction to International Finance

Dr. Sushanta Mallick
http://webspace.qmul.ac.uk/skmallick/


OFFICE: Visiting faculty room [Tel. Ext. # ]
Office Hours: Open Door Policy – Walk in whenever my office door is open;
Scientific-workplace presentation slides will be uploaded after every lecture.

Aim of the module:

The aim of this module is to develop an understanding of topics in international finance, viewed primarily from the perspective of managers doing business overseas, namely the management of foreign exchange exposure, multinational investment decisions with regard to fixed interest securities, interest rates and exchange rates, international currency risk. It also involves the understanding of the macroeconomic environment governing international business.

Learning Outcomes:

On completion of this course, students should have gained understanding of the following topics: the international financial systems, the opportunities in international FX investments, the relevance of hedging in the management of currency risk, and international currency risk diversification. Students should be able to learn the importance of international financial theories to finance practitioners; write well constructed essays using balanced economic arguments; critically evaluate relevant information from a variety of sources; acquire numerical and problem-solving skills required by managers in the context of globalization and the growing integration of the international economy.

Module Outline:

Topic 1: The Internationalization of Business and Finance
Features of international finance, Globalization and the Multinational Corporation, The Balance of Payments and International Economic Linkages, Introduction to the foreign exchange market and currency risk management, The determination of Exchange Rates, Setting the Equilibrium; Spot and forward exchange rates

Topic 2: The International Monetary System: Exchange rate regimes – Fixed or Floating
A Brief History of the International Monetary System; The European Monetary System and Monetary Union, Alternative Exchange Rate Systems and the choice of exchange rate regime, Exchange Rate Policy and Government Influence on Exchange Rates, The Fundamentals of Central Bank Intervention: Intervention as a Policy Tool

Topic 3: Parity Conditions in International Finance
Exchange rates, Interest rates, and Interest Rate Parity Theory, Foreign Exchange Exposure, Hedging foreign exchange risk, The Relationship between the Forward Rate and the Future Spot Rate, The Fisher Effect; The International Fisher Effect: Relationship between Inflation, Interest Rates, and Exchange Rates.

Topic 4: Currency Valuation – Prices and Exchange Rates
International Parity Conditions – Arbitrage and the Law of One Price; Purchasing Power Parity (PPP) and the Real exchange rate; Empirical validity of PPP; NEER and REER, PPP puzzle – Balassa-Samuelson hypothesis.

Topic 5: Monetary Approach to Exchange Rate Determination – Flexible-price and Sticky-price models
The general equilibrium approach to exchange rates; The monetary approach to exchange rates, Expectations and the Asset market model of exchange rates, The sticky price model – Exchange rate overshooting.

Topic 6: FX market microstructure and Forecasting exchange rates
Micro-based exchange rate models, Currency Forecasting; Forecast Techniques: Efficient Markets Approach, Fundamental Approach, and Technical Approach; Forecasting in Practice

Topic 7: Foreign Exchange Exposure: Risk, Measurement and Management; Country Risk Analysis
Risk in the International Environment: Hedging Currency risk – Transaction Exposure, Economic Exposure, Translation Exposure; Multinational Capital budgeting and International Investment Decisions; Currency and interest rate derivatives; Political Risk Assessment via country Risk Analysis in International Banking.

Assessment:

The overall grade will be based on a group project (40%) and an end-term test (50%), with class participation having a weight of 10%. The end-term test will take the form of short-answer type and essay type questions including numerical questions.

Note: As the course progresses, I reserve the right to make necessary changes in the module outline.

READING LIST

Required Books:
1. Lucio Sarno and Mark Taylor (2002), The Economics of Exchange Rates, CUP: Cambridge.
2. Eun, Cheol S. and Bruce G. Resnick (2009), International Financial Management, 5th edition, McGraw-Hill/Irwin.
3. Shapiro, A.C. (2009), Multinational Financial Management, International Student Version, 9th Edition, August 2009.
4. Connolly, Michael (2007), International Business Finance, Routledge.

Supplementary Text Books:
5. Bekaert, G., and R. Hodrick (2008), International Financial Management, Prentice Hall.
6. Copeland, L. (2008), Exchange Rates and International Finance, 5th Edition, FT Press.
7. Eiteman, D.K., A.I. Stonehill & M.H. Moffett (2009) Multinational Business Finance, 12th Edition, Prentice Hall.
8. Madura, J. (2009), International Financial Management, 9th Edition, South-Western / Cengage.
9. Pilbeam, K. (2006), International Finance, 3rd edition, Palgrave/Macmillian.

Additional Reading:

Baldwin, R., and C. Wyplosz (2009), The Economics of European Integration, 3rd edition, McGraw-Hill

de Grauwe, Paul (2009), The Economics of Monetary Union, 8th Edition, OUP.

Further reading materials will be assigned during the course. In addition to lecture notes and the assigned texts, students are encouraged to consult other related materials, including journal articles, in international finance.

Relevant Journal Articles

Rogoff, K. (1996), The purchasing power parity puzzle, Journal of Economic Literature, 34 (2): 647–68.

Sarno, L., and M.P. Taylor (2002), Purchasing power parity and the real exchange rate, IMF Staff Papers, 49 (1): 65–105.

Mallick, S. K. and Marques, H. (2008) Exchange rate transmission into industry level export prices: A tale of two policy regimes in India, IMF Staff Papers, 55 (1): 83-108. [Download from my website: http://webspace.qmul.ac.uk/skmallick/ ]
Created By: Debasis Mohanty on 05/06/2011 at 02:18 PM
Category: PGDM-II Doctype: Document

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