International Financial Management

2020/2021

Academic Year

ENG

Instruction in English

5

ECTS credits

Delivered at:

Department of Financial Management

Course type:

Compulsory course

When:

1 year, 3 module

Course Syllabus

Abstract

The commonly stated goal of a firm is to maximize its value and thereby maximize shareholder or owner wealth. This goal is applicable not only to firms that focus on domestic business, but also to firms that focus on international business. Developing business at an international level is an important mean of enhancing value for many firms. Since foreign markets can be distinctly different from local markets, they create opportunities for improving profits. Many barriers to entry into foreign markets have been reduced or removed recently, not least due to the internet, thereby encouraging firms to pursue international business. Consequently, many firms have evolved into multinational companies (MNCs). We start by an overview of the MNC and the environment in which it operates. Next, we focus on the critical factors that affect exchange rates and discuss the various functions involved in managing exposure to exchange rate risk. We finally cover how MNCs manage long-term assets and liabilities in a context where international investments face a much higher degree of political, economic, and regulatory risk than domestic investments. A quantitative attitude will often be required to comprehend material and complete many exercises and exam questions. Therefore, students should be comfortable with basic statistics concepts. Students should also be able to use Excel for basic statistical analyses.

Learning Objectives

• The goal of this course is to provide students with the big picture of international business, from the different methods MNCs use to enter foreign markets through the different types of financial risks that they face and how they manage them on international financial markets.

Expected Learning Outcomes

• Students will get to know: • Goal of the MNC and conflicts with the MNC goal • International business methods • Exposure to international risk • MNC’s cash flows, MNC valuation and host country MNC relationships • Globalization and the theory of comparative advantage
• Students will get to know: • Fundamentals of the balance of payment accounting • Accounts of the balance of payments • Trade balances and exchange rates • Capital mobility • Agencies that facilitate international flows
• Students will get to know: • Functions of a financial market • Motives for using international financial markets • Classification of international financial markets
• Students will get to know: • Measuring exchange rate movements • Factors that influence exchange rates • Currency forward and futures markets • Currency swap and options markets
• Students will get to know: • The international monetary system • International parity conditions • Foreign exchange rate determination and intervention
• Students will get to know: • Forecasting exchange rates • Measuring exposure to exchange rate fluctuations • Managing transaction exposure • Managing economic and translation exposure
• Students will get to know: • Foreign direct investment decisions and structural choices for foreign market entry • Political risk definition, classification, mitigation, and financial impacts

Course Contents

• Multinational Financial Management: Overview, Opportunities and Challenges
  • Goal of the MNC and conflicts with the MNC goal • International business methods • Exposure to international risk • MNC’s cash flows, MNC valuation and host country MNC relationships • Globalization and the theory of comparative advantage
• International Flow of Goods, Services, and Investments
  • Fundamentals of the balance of payment accounting • Accounts of the balance of payments • Trade balances and exchange rates • Capital mobility • Agencies that facilitate international flows
• International Financial Markets
  • Functions of a financial market • Motives for using international financial markets • Classification of international financial markets
• Exchange Rate Fluctuations and Foreign Currency Derivatives
  • Measuring exchange rate movements • Factors that influence exchange rates • Currency forward and futures markets • Currency swap and options markets
• Foreign Exchange Theory and Exchange Rate Behavior
  • The international monetary system • International parity conditions • Foreign exchange rate determination and intervention
• Foreign Exchange Exposure and Exchange Rate Risk Management
  • Forecasting exchange rates • Measuring exposure to exchange rate fluctuations • Managing transaction exposure • Managing economic and translation exposure
• Foreign Direct Investment and Political Risk
  • Foreign direct investment decisions and structural choices for foreign market entry • Political risk definition, classification, mitigation, and financial impacts

Assessment Elements

• cases and exercises, group works
• online quiz

Interim Assessment

• Interim assessment (3 module)
  0.7 * cases and exercises, group works + 0.3 * online quiz

Bibliography

Recommended Core Bibliography

• Jeff Madura, & Roland Fox. (2020). International Financial Management, Edition 5. Cengage Learning.

Recommended Additional Bibliography

• Moffett, M. H., Stonehill, A. I., & Eiteman, D. K. (2016). Fundamentals of Multinational Finance, Global Edition: Vol. Fifth edition, Global edition. Pearson.