Syllabus: Foreign Exchange Market Essay

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FALL 2013
Tue&Thu, 4:25PM- 5:40PM
Room: BA 351

Office Hours:

He Wang
5th Floor Ph.D. Cubicles
Tuesday & Thursday: 10:00AM- 11:30AM COURSE DESCRIPTION
This course aims at acquainting students with international aspects of corporate finance. The ultimate objective of the course is to develop your ability to understand and analyze major problems of financial management in an international context. Specifically, we will see, throughout this course, how the business of the multinational corporation (MNC) –compared to that of a purely domestic firm– is affected by the changes in the international financial environment and by the presence of new variables, in particular the exchange rate risk and the political risk. Therefore, the first part of the course will provide an overview of the multinational corporation and the international environment in which it operates and describe the functioning of the international financial markets with emphasis on the Foreign Exchange Market. We will also thoroughly examine the theories underlying exchange rate determination, as well as exchange rate risk and political risk measurement and management. Finally, we will analyze how exchange rate risk and country risk affect corporate decisions
(investing and financing decisions).

After completing this course, you will be able to:

Understand the international environment in which the MNC operates;

Understand the structure and functioning of international financial markets, including the foreign exchange market;

Understand exchange rate quotations, explain how exchange rate movements are measured, explain how exchange rates are determined, and describe the factors that cause exchange rate movements; 

Conduct international arbitrage in foreign exchange and international money markets;

Describe and evaluate the common techniques used for exchange rate forecasting;

Determine the various types of foreign exchange exposure, and apply different techniques to hedge exchange rate risk;

Evaluate the benefits of international diversification;

Implement capital budgeting decisions, and analyze the factors that affect multinational capital budgeting; 

Explain the factors (firm- and country-level) that affect an MNC’s cost of capital and capital structure decisions;

Understand an MNC’s short-term financing decisions, including the use of foreign financing.

Required Text:
MADURA, Jeff, International Financial Management, 11th Edition, Thomson South-Western, 2012. ISBN: 978-0538-48296-7
Supplementary Resources:
The students are also encouraged to frequently consult other sources such as The Economist, Financial Times, and the Wall Street Journal. Other material will be posted regularly on the course website. A financial calculator is highly recommended.

The course essentially consists of lectures, presentations, problem solving, and cases discussions. Each week you will be assigned selected problems, which will test and enhance your understanding of the theoretical concepts that we cover in class. Some of these problems will be done as part of the lecture. Several practice problems are also scheduled throughout the semester.

Although all course material is posted on the course webpage, students are required to attend each class regularly and punctually, and actively participate in class activities. Much of the in-class activities involve practice problems and hence require your presence. According to the University student attendance policy, absence from more than 10 percent of the scheduled class sessions, whether excused or unexcused, is excessive.
Excessive tardiness and absence will lower significantly your participation grade,