FINA 5500: International Financial Management / Spring 2012 Instructor: Professor Niranjan Tripathy Room E105, Wakeland High School, Frisco, Monday, 6:30 pm ‐ 9:20 pm Telephone / Fax: 940‐565‐3045/4234, tripathy@unt.edu Office: Room 262 Business Leadership Building (UNT) & Room E105 (Wakeland HS, Frisco)
Course webpage: www.coba.unt.edu/firel/tripathy/f5500 Office Hours: 6:00 PM ‐ 6:30 PM Mon (Wakeland HS) & 1:30 PM ‐ 2:30 PM Wed (UNT, COB 175) & by appointments Course Description and Objectives Welcome to FINA 5500! In this course we will focus on a multinational corporation which makes its investment, financing and operating decision in an international setting. You will learn about the international financial and currency markets and monetary system in which domestic and multinational firms operate. You will also learn about risks and opportunities faced by a corporation as a result of operating in an international environment. We will cover a wide range of international finance topics, and by the end of this semester you should be able to achieve the following general learning objectives: 1. Identify the determinants of currency prices and explain how these prices change in the foreign exchange (FX) markets 2. Distinguish how various exchange rate systems affect currency prices in the FX market 3. Explain how a country’s balance of payments affect currency prices in the FX markets 4. Explain international parity conditions which link the prices of goods, interest rates, spot rates and forward rates throughout the world 5. Explain the nature and source of exchange rate exposure 6. Given a firm’s nature of business and operating environment, evaluate the level of exchange rate exposure that firm may have 7. Explain how exchange rate exposure may create risks and opportunities for domestic and multinational firms 8. Explain ways in which national international political and economic events impact exchange rate exposure for domestic and multinational corporations 9. Compare and contrast the basic characteristics of various financial instruments in the currency markets (eg. spot, forward futures options contracts, and swaps) and explain how these instruments may be used to earn speculative profits, or hedge against exchange rate exposure 10. Explain various strategies a firm may use to manage exchange rate exposure Learning Philosophy I want you to first master these objectives at the rote level. This level of learning accompanies your initial exposure to knowledge (active keywords: list, define, compute, solve, etc). However, rote learning is quickly forgotten and is difficult to retrieve with the passage of time. Therefore, more importantly, I also want you to master these objectives at the meaningful and integrative levels of learning. Meaningful learning involves the ability to translate across multiple language of perception: words (prose); pictures (graphs); and symbols (mathematics) (active keywords: explain in your own word, illustrate, interpret, etc). Integrative learning is the ability to interrelate concepts. This way, old information is refreshed by being linked to new information, increasing the retention rate (active keywords: compare and contrast, evaluate, extrapolate, etc). Most classroom presentations and in‐class exercises will be geared toward mastering the course and chapter objectives at the meaningful and integrative levels of learning. Background Skills / Knowledge According to the UNT catalog, the prerequisites for this course are: FINA 5170 or equivalent; ECON 1100 or 5000 or equivalent; ACCT 2030 or 5020 or equivalent; MATH 1190 or equivalent; or consent of department. In terms of background, you need to have following skills: Finance: Time value of money Opportunity costs of funds concept Valuation principles for stocks and bonds Economics: Supply and demand curve analysis Opportunity cost concept Accounting: Debits, credits and T‐account conventions Knowledge of the structure and content of balance sheets and income statements Text & Materials 1.
Cheol Eun and Bruce Resnick, International Financial Management, 5th Edition, Boston: McGraw‐ Hill Irwin, 2009 (ISBN‐13:978‐0‐07‐338234‐0 or ISBN‐10:0‐07‐338234‐5. Textbook website: http://www.mhhe.com/er5e 2.
Assigned articles 3.
A financial calculator (TI‐BAII Plus, HP‐10B, or equivalent) Performance Evaluation Your grade in this course will be determined on the basis of your performance in four components: (1) seven quizzes; (2) two mid terms exam; (3) a final comprehensive exam; and (4) statistical tests of PPP and IFE. Each component and their respective weights are as follows:. Components Points 6 Quizzes (Best 5 out of 6) 15 % Mid‐Term Exams ( 2 x 25%) 50 % Final Comprehensive Exam 30 % Statistical Tests of the PPP and IFE 5 % Total 100 % Quizzes Six short quizzes (about 10 minutes each) from selected chapters and assigned articles will be given before the mid‐class break. Each quiz will carry 10 points. You will receive a zero for every quiz you miss. No makeup quizzes will be given. Quizzes with the two lowest scores will be dropped, and your average on the quiz component will be based on your five best quiz scores. The quiz schedule is: Quiz Chap Date Quiz
Chap Date Quiz Chap Date 1 1 01/30 3 5 02/13 5 6 04/02 2 3 02/06 4 2 03/26 6 14 04/30 Mid‐Term and Final Exams The exams will test your understanding of the chapter objectives and assigned readings. There will be two mid‐terms and a comprehensive final exam. No makeup exams will be given. You may miss only one of the two mid‐term exams. If you miss a mid‐term exam, the weight on your final exam will increase to 550/1000. During the exam, you may only use the formula sheet(s) provided to you. I will have already distributed copies of these formulas sheets in class, and discussed its contents. You are required to be familiar with them prior to the exam. Neither me, nor my TA, will discuss or explain how to use these formulas during the exam. You are expected to memorize any material not included in the formula sheet. Please consult the Studying Assignment section for examination dates. The exams will consist of a combination of short problems, short conceptual questions and multiple choice questions. The mid‐term exams will be for the full duration of the class period. You will be handed the exam back during the class when it will be reviewed, but you must remember to turn it back to me before you leave the class. Please note that if you leave the class without returning the exam, you will automatically receive a zero in that exam. Statistical Tests of PPP and IFE You will receive a packet containing annual data on interest rates, inflation rates, and percentage change in exchange rates for 32 countries (including the US) for the period: 1988 ‐ 2000. This data may be accessed from the website: www.stls.frb.org/publications/index.html#data . Each one of you will be assigned two foreign countries. Based on calculations using the data for the assigned country and the US, you will need to answer the following questions for each assigned country: 1. During the sample period, which currency (US or foreign) appreciated in real terms? 2. What was the average uncovered rate of return over the sample period from the US and the foreign country’s point of view? 3. Assume that you could both borrow and invest at the prevailing interest rates in the foreign country and US. Given perfect hindsight about interest rates and exchange rates in these two countries during the sample period, in which country would you borrow and in which country would you invest? 4. Based on the above strategy, how much profit could you have made? The packet containing the data will also give you more specific requirements on how to complete the report. You can only answer these questions correctly after you have properly understood the material presented in Chapter 6. When we get to that section (around week 8‐10), I will discuss the necessary analytical methods in greater detail. The report is due by the end of the class period on Monday, April 23, 2012. Late submission will cost you 10 points of your grades on this report. Studying Assignment: Spring 2012 Date Jan 23 Jan 30 Feb 06 Feb 13 Feb 20 Feb 27 Mar 05 Mar 12 Mar 19 Mar 26 Apr 02 Apr 09 Apr 16 Apr 23 Apr 30 May 07 Ch Topic Quiz 1 Globalization and the Multinational Firm Article: “Offshoring: The Next Industrial Revolution” 3 Balance of Payments Quiz # 1: Chapter 1 Articles: “Chimerica” & “China’s $1.7 Trillion Bet” 5 Foreign Exchange Market Quiz # 2: Chapter 3 Article: “BIS FX Market Survey 2010 “ & “Dollarʹs Reign Ending” 5 Foreign Exchange Market (Contd.) Quiz # 3: Chapter 5 Exam 1 (Chapters 1, 3 and 5) 2 International Monetary Systems 2 International Monetary Systems (Contd.) 6 International Parity and Forecasting FX Rates Note: Frisco ISD (Wakeland High) is closed for spring break: Class does not meet Assigned Reading: “Beware of Greeks Bearing Bonds”, “When Irish Eyes Are Crying”, & “Wall Street on the Tundra” Spring Break 6 International Parity and Forecasting FX Rates (Contd.) Quiz # 4: Chapter 2 7 Futures and Options on FX 7 Futures and Options on FX (Contd.) Quiz # 5: Chapter 6 Exam 2 (Chapters 2, 6 and 7) 14 Interest Rate and Currency Swaps 14 Interest Rate and Currency Swaps (Contd.) 15 International Portfolio Investments Quiz # 6: Chapter 14
Final Comprehensive Exam Attendance Although, I will not take attendance, it is very important that you attend each class. You will be able to relate to the material much better if you come prepared to the class by going over the assigned chapters, reading materials, and the chapter‐end problems. Disability Accommodation The University of North Texas is on record as being committed to both the spirit and letter of federal equal opportunity legislation; reference Public Law 92‐112 – The Rehabilitation Act of 1973 as amended. With the passage of new federal legislation entitled Americans with Disabilities Act (ADA), pursuant to section 504 of the Rehabilitation Act, there is renewed focus on providing this population with the same opportunities enjoyed by all citizens. As a faculty member, I am required by law to provide ʺreasonable accommodationsʺ to students with disabilities, so as not to discriminate on the basis of that disability. Student responsibility primarily rests with informing faculty of their need for accommodation and in providing authorized documentation through designated administrative channels. Information regarding specific diagnostic criteria and policies for obtaining academic accommodations can be found at http://www.unt.edu/oda/apply/index.html. Also, you may visit the Office of Disability Accommodation in the University Union (room 321) or call them at (940) 565‐4323. If you need an accommodation, please contact me as soon as possible but at the latest by the second week of class. Academic Dishonesty Academic dishonesty is defined in the UNT Policy on Student Standards for Academic Integrity. Any suspected case of Academic Dishonestly will be handled in accordance with the University policy and procedures. Possible academic penalties include a grade of “F” in the course. You will find the policy and procedures at http://vpaa.unt.edu/academic‐integrity.htm If I suspect that you have engaged in academic dishonesty, I will deal with the situation as outlined in the University Policy shown above. You will be allowed to remain in the class during the entire time that the academic misconduct accusation is being investigated, adjudicated, and appealed. As noted above, the maximum academic penalty that can be assessed by an instructor is an F in the course. However, university officials use the academic misconduct information to decide if other misconduct sanctions are then to be applied, and the student has separate rights to appeal those decisions, remaining in the class until all appeals are exhausted. Student Evaluation of Teaching Effectiveness (SETE) The Student Evaluation of Teaching Effectiveness (SETE) is a requirement for all organized classes at UNT. This short survey will be made available to you at the end of the semester, providing you a chance to comment on how this class is taught. I am very interested in the feedback that I get from students, as I work to continually improve my teaching. I consider participation in the SETE to be an important part of your involvement in this class and in all of your classes so please participate in the SETE process. The administration of the SETE will begin a couple of weeks before the end of the semester and remain open through the week of finals to try to maximize student SETE participation. You can access the SETE instrument by going to http://www.my.unt.edu Eagle Connect Account All students should activate and regularly check their EagleConnect (e‐mail) account. EagleConnect is used for official communication from the University to students. Many important announcements for the University and College are sent to students via EagleConnect. For information about EagleConnect, including how to activate an account and how to have EagleConnect forwarded to another e‐mail address, visit https://eagleconnect.unt.edu/ Student Behavior in the Classroom Student behavior that interferes with an instructor’s ability to conduct a class or other studentsʹ opportunity to learn is unacceptable and disruptive and will not be tolerated in any instructional forum at UNT. Students engaging in unacceptable behavior will be directed to leave the classroom and the instructor may refer the student to the Center for Student Rights and Responsibilities to consider whether the studentʹs conduct violated the Code of Student Conduct. The universityʹs expectations for student conduct apply to all instructional forums, including university and electronic classroom, labs, discussion groups, field trips, etc. The Code of Student Conduct can be found at www.unt.edu/csrr