University of Puget Sound
School of Business and Leadership
BUS 435 International Finance
Professor Alva Wright Butcher
Tues & Thurs 9:30-10:50
McIntyre 312
Spring Semester 2005
Office: McIntyre 111 I
Phone: 253-879-3349
FAX: 253-879-3156
Office Hours:
Tues, Wed, Thurs 11:00 - 12:00
Wed:
1:00 - 2:00
Tues, Thurs :
3:30 – 4:30
Note that I am always willing to schedule additional office hours by appointment. I check email
frequently, so that is also a good way to communicate. Do not hesitate to call me at home. If you cannot
reach me, please leave a number so that I can get back to you.
Email: butcher@ups.edu
Home: 206-285-3990 or 360-779-4706
Required Course Materials
Text: Madura, International Financial Management, 7th Edition, Thomson South-Western, 2003
Calculator: A calculator is required. A financial calculator would be preferable, as it would
have functions for bond valuation, net present valuation (NPV), internal rate of return (IRR),
present value (PV), and future value (FV). A suitable calculator, the HP10-B, is available in the
bookstore for about $30.
Harvard Business School Case Packet
 Foreign Exchange Markets and Transactions
 Tiffany & Co. – 1993
 MSDI – Alcala de Henares, Spain
Recommended:
1. Subscription to the Wall Street Journal. Several class sessions will require a copy of the
Wall Street Journal. See syllabus for the dates.
2. Subscription to or regular reading of the Financial Times. This is an excellent source of
information on international financial markets. Note that this is a rather expensive
publication, but issues are available in the library
References and Support Materials:
1. Student CD-ROM that accompanies the textbook. After you have downloaded this on your
computer, it provides Excel templates for selected chapters, PowerPoint slides, and access to
the text web site.
2. Self-test problems and solutions at the end of each chapter. These provide excellent review
material.
3. Text web site.
http://madura.swcollege.com
BUS 435 International Finance Spring 2005
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The site provides access to many sources of financial information as well as material specific to
each chapter in the text. This includes:
 Online multiple choice quizzes,
 Margin Notes (access to web links noted in the chapter),
 PowerPoint slides
 Glossary of terms
 Access to summaries of recent news stories that relate to international finance.
4. Other references.
 Multinational Business Finance, Eiteman, Stonehill, and Moffett,
 International Corporate Finance, Eaker, Fabozzi, and Grant.
 Foundations of Multinational Financial Management, Shapiro.
Course Objectives: The purpose of this course is to examine financial issues faced by managers of firms
that are engaged in international business and to provide a conceptual framework within which key
financial decisions can be analyzed. We will examine current issues in the international market and will
analyze real-life problems in decision oriented cases. We will actively utilize the websites of such
institutions as the International Monetary Fund, the European Union, the Federal Reserve Bank, the
World Trade Organization, etc. as real-time resources for class discussion and homework assignments.
Topics covered include:1) the international financial environment, 2) the foreign exchange market, 3) the
recently developed derivative markets for foreign exchange futures and options, 4) parity conditions in
international finance 5) the measurement and management of foreign exchange risk, 6) international
portfolio diversification, 7) multinational capital budgeting, 8) principal means of payment in
international trade, and 9) the increasing importance of the global integration of money and capital
markets.
After you have successfully completed this course you will be able to:
 Identify the basic factors affecting exchange rates in a floating exchange rate system

Describe the different forms and consequences of central bank intervention in the foreign
exchange market

Read and explain foreign currency quotations

Understand the basic equilibrium relationships, or parity conditions, among spot exchange rates,
forward rates, inflation rates and interest rates

Understand the various ways in which a firm is affected by exchange rate changes and assess the
effective management of that exposure

Identify the factors that have led to the globalization of financial markets

Explain why firms may choose to raise capital overseas, and describe offshore markets such as
the Eurocurrency and Eurobond markets

Explain the benefits of an international portfolio for an individual investor

Evaluate the capital budgeting issues that are unique to foreign investment opportunities
BUS 435 International Finance Spring 2005
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
Describe the principal means of payment in international trade.
Projects and Case Analyses: Several case studies and projects will be assigned during the term. These
are designed to provide an opportunity to practice effective communication techniques, both written and
oral. These reports should be directed to an executive committee that is an informed, but not an expert
audience. That is, avoid the use of buzzwords. The written analysis should be comprehensive. Issues and
suggested questions are provided for each case. However, the report should not be presented as a series
of questions and answers. The report should flow as a logical argument with an introduction,
development of the analysis, and conclusions based on that analysis. The reader should be able to follow
your analysis without referring to the case. Reports must be typed. Grades will be based on your
financial analysis, and the clarity and effectiveness of your written and oral presentation of that analysis.
Additional details are included at the end of the syllabus.
In addition to the written case reports, we will be discussing the cases in class. Each student has the
responsibility of preparing a thorough analysis of the case at hand, and is expected to be able to
communicate that analysis to the class in a clear and logical manner. Your role may be to present and
define your analysis, or to examine and critique the analysis of a classmate.
Grades for both written reports and class discussion will be based on content, exposition, and clarity.
Late written reports will not be accepted. Reports are due at the beginning of the class period. Please
make an extra copy for your use during class discussion.
Class Preparation and Participation: You are expected to have read the assigned reading material
before class, and to be prepared to participate in the class discussion. If for some reason you are not
prepared to participate please notify me prior to class.
Your presence and contribution to class discussion are very important. There are three categories:
present, absent with leave, and AWOL.
Online Course Management Platform – Blackboard
We will be using an online course management platform this semester. The key benefit is that it provides
an excellent means of communication. You will be able to download the syllabus, homework
assignments, homework solutions, sample exam problems etc. from the internet at any time. It also
provides a platform for threaded discussion.
You can access this at blackboard.ups.edu. Click on “Course Catalogue.” Find the course, International
Finance, and click on “Enroll.” You will need a password in order to enroll. I will provide this in class.
If this is your first course on Blackboard, you will need to create an account and specify your user-id and
password. (Click on “Create Account.”) During this process, you will be asked for additional
information, such as your name, email address etc. Please begin both your first and last name with a
capital letter, and enter the other letters in lower case. If you have other courses on Blackboard, I would
suggest that you use the same user-id and password for all classes.
Once you have enrolled in Blackboard, subsequent contacts only require that you open
blackboard.ups.edu and click on “Login”. You will be asked for your id and password.
BUS 435 International Finance Spring 2005
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Homework: Homework assignments are listed on the syllabus and are due on the class date indicated on
the course outline. These assignments are designed to reinforce your familiarity with the material, to train
you in the use of your financial calculator, to identify areas in which you may be having difficulty, and to
serve as a basis for classroom discussion.
Two categories of homework assignments are noted in the course outline: discussion questions and
written questions. Discussion questions serve as a foundation for class discussion. Written homework
assignments will be collected at the beginning of class, and a subset will be selected on a random basis for
grading. Solutions to the homework assignments will be available after class on the online course
management platform. Check blackboard.ups.com under Assignments.
Throughout the semester we will also utilize online real-time resources to enrich the classroom
discussion. Your research will be presented to the class. Additional details will be presented in class and
will also be available on the online course platform. Check blackboard.ups.com under Assignments.
Late homework assignments will not be accepted.
Exams: There will be three midterm exams and a comprehensive final. Exams will be primarily problem
oriented, but may also include short essay questions, and multiple-choice problems. Exams are closed
book, but you may use one side of an 8 by 11 paper for notes and formulae.
As a general policy, makeup exams will not be given.
Extra Credit Quizzes: During the term, there will be unannounced pop quizzes. These will consist of a
few multiple choice or true false questions, and will cover material presented in the prior one or two class
sessions. As with homework problems, these are designed to reinforce the material, and to identify
problem areas. By keeping current with the material, these quizzes also provide a means of earning extra
credit points.
Grades: Grades will be based on the following weights:
Three Midterm Exams
42%
Comprehensive Final Exam
16%
Projects and Case Analyses:
Hedging Case
International Capital Budgeting Case
7%
7%
Research Project
18%
Homework and Class Participation:
Total
10%
100%
Unannounced Quizzes
BUS 435 International Finance Spring 2005
5% (extra credit)
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Course Outline
Date
Tues.
Topic and Homework
Reading assignments and homework assignments are listed for each class session.
Throughout the semester, I will also assign additional articles that will be used as a basis
for class discussion.
1/18
Chapter 1: Multinational Financial Management: An Overview
Homework
1) Discussion: 1.4, 1.9, 1.20
2) Discussion: 1.23 Internet Application: Assessing Direct Foreign Investment Trends
3) Discussion: Blades, Inc. Case: Decision to Expand Internationally, page 31-32
Questions 1, 2, 4
Thurs. 1/20
Chapter 3: International Financial Markets
Homework
1) Discussion: 3.9, 3.11, 3.14, 3.18
Tues.
1/25
Appendix 3: Investing in International Financial Markets
Working with the Wall Street Journal
Please bring a copy of the Monday edition, 1/24/05, or today’s edition
Video: Money Never Sleeps
Homework
1) Discussion: 3.24 Internet Application
2) Written: 3.2, 3.7, 3.17
Thurs. 1/27
Chapter 4: Exchange Rate Determination
Harvard Business School Case: Foreign Exchange Markets and Transactions, pp. 1-11
Homework
1) Discussion: 4.13, 4.17
2) Discussion: Small Business Dilemma: Assessment by the Sports Exports Company
of Factors that Affect the British Pound’s Value, page 128
3) Discussion: Exercise 1, 2, 3, and 4 pp 23-24
Harvard Business School Case: Foreign Exchange Markets and Transactions
4) Written 4.23 Internet Application
Tues.
2/1
Video: Billion Dollar Day
Foreign Exchange Simulation
Homework
1) Written: 4.1, 4.12
BUS 435 International Finance Spring 2005
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Thurs. 2/3
Chapter 5: Currency Derivatives
Homework
1) Discussion: 5.1, 5.6, 5.7
2) Discussion: Briefly recap the foreign exchange simulation.
3) Written: Exercises 5, 6, 7 pp. 25-26
Harvard Business School Case: Foreign Exchange Markets and Transactions
Tues.
2/8
Chapter 5: continued
Working with the Wall Street Journal
Please bring a copy of the Monday edition, 2/7/05, or today’s edition
Homework:
1) Written: 5.4, 5.12, 5.13
Thurs. 2/10
Chapter 5: continued
Homework
1) Discussion: 5.14, 5.15, 5.18, 5.19
2) Discussion Work with the Excel template for Chapter 5 to calculate profits for the
buyer and seller of foreign currency options.
3) Written
Futures Contract Example: Demonstrate how it is marked to the market
daily and note any margin requirements. Additional details will be
provided in class.
Tues.
2/15
Chapter 6:
Government Influence on Exchange Rates
Homework
1) Written Report: Hedging Case
Harvard Business School Case: Tiffany & Co. – 1993
Additional details will be presented in class.
2) Discussion: 6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 6.13, 6.17, 6.22
Thurs. 2/17
Appendix 6: Government Intervention during the Asian Crisis
As you watch the videos, think about the following discussion questions. We will be
discussing these on Tuesday, 2/22.
Video: Trillion Dollar Bet
Discussion Questions
 What impacts the price of an option?
 Did the success of Long-Term Capital Management depend on absolute
secrecy?
 What was the impact of the Asian financial crisis on Long-Term Capital
Management?
 What does a debt to equity ratio of 30 mean to Long-Term Capital
Management?
BUS 435 International Finance Spring 2005
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Video: Commanding Heights
Discussion Questions
 Why do you think the Indonesian rupiah was more exposed to an abrupt
decline in value than the Japanese yen during the Asian crisis (even if their
economies experienced the same degree of weakness)?

During the Asian crisis, direct intervention did not prevent depreciation of
currencies. Offer your explanations for why the interventions did not
work.

The Asian crisis showed that a currency crisis could affect interest rates.
Why did the crisis put upward pressure on interest rates in Asian
countries? Why did it put downward pressure on U.S. interest rates?

On August 26, 1998, the day that Russia decided to let the ruble float
freely, the ruble declined by about 50%. On the following day, called
“Bloody Thursday,” stock markets around the world, (including the
United States), declined by more that 4 percent. Why do you think the
decline in the ruble had such a global impact on stock prices? Was the
market’s reaction rational? Would the effect have been different if the
ruble’s plunge had occurred in an earlier time period, such as four years
earlier? Why?

Normally, a weak local currency is expected to stimulate the local
economy. Yet, it appeared that the weak currencies of Asia adversely
affected their economies. Why didn’t their economies initially improve
because of the weakening of the currencies during the Asian crisis?

Why did the depreciation of the Asian currencies adversely affect the U.S.
firms? What were the types of exposures to exchange rate risk for some
U.S. firms?
Tues. 2/22
Discussion of the Asian Financial Crisis
Integration and Review
Thurs. 2/24
Exam 1: Chapters 1, 3, 4, 5, 6
Tues.
Chapter 7: International Arbitrage and Interest Rate Parity
3/1
Homework
1) Discussion: 7.1, 7.2, 7.3, 7.4, 7.7,
2) Discussion: 7.28 Internet Application
BUS 435 International Finance Spring 2005
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Thurs. 3/3
Chapter 7: continued
Chapter8: Relationships among Inflation, Interest Rates, and Exchange Rates
Homework
1) Discussion
7.11, 7.12,
Work with the Excel template for Chapter 7 to calculate the forward rate
based on Interest Rate Parity
2) Written
7.5
3) Discussion: 8.1, 8.3, 8.7, 8.8, 8.9
Tues.
3/8
Chapter8: Relationships among Inflation, Interest Rates, and Exchange Rates
Homework
1) Discussion
2) Written:
Thurs. 3/10
8.10, 8.25
Work with the Excel template for Chapter 8 to estimate changes in
exchange rates using PPP and IFE
7.20, 7.25
Chapter8: continued
Homework
1) Discussion Exercise 8, page 26
Harvard Business School Case: Foreign Exchange Markets and Transactions
2) Written
8.18, 8.23, 8.24,
Spring Recess
Tues.
3/22
Chapter 10: Measuring Exposure to Exchange Rate Fluctuation
Homework
1) Discussion: 10.2, 10.6, 10.7, 10.16
2) Discussion: 10.31(a) Internet Application
3) Written:
Research Report- First Draft
Additional details will be provided in class
Thurs. 3/24
Chapter 11: Managing Transaction Exposure
Homework
1) Discussion
2) Written:
Tues.
3/29
11.2, 11.5, 11.6, 11.7, 11.14, 11.16
10.19
Chapter 11: continued
Harvard Business School Case: Foreign Exchange Markets and Transactions, pp12-22
Homework
1) Discussion 11.26 (a)
2) Discussion Exercise 8 (It should state Exercise 9), pp27-28
Harvard Business School Case: Foreign Exchange Markets and Transactions
3) Written
11.3, 11.17
BUS 435 International Finance Spring 2005
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Thurs. 3/31
Guest Speaker
Andreas Udbye
Executive director, World Trade Center Tacoma
Homework
1) Written:
Tues.
4/5
Blades, Inc. Case, Management of Transaction Exposure
Question #2, page 366
Chapter 14: Multinational Capital Budgeting
Homework
1) Discussion: 14.1, 14.2, 14.4, 14.8
2) Written:
Prepare a one-page typed paper that summarizes at least two points that
you found to be of interest in our guest speaker’s presentation. Explain
why they intrigued you and note issues that you might like to explore
further.
Thurs. 4/7
Exam 2:
Tues.
Chapter 14: continued
4/12
Chapters 7, 8, 10, 11
Homework
1) Discussion: 14.11 (a and d), 14.16, 14.17,
Work with the Excel templates for Chapter 14 to estimate the impact of
exchange rates and blocked funds on an international capital budgeting
project. Note that there is an error in line 22b of the template “Capital
Budgeting Analysis Problem 11a”
2) Written
Research Report – Second Draft
Thurs. 4/14
Chapter 13: Direct Foreign Investment
Chapter 16: Country Risk Analysis
Homework
1) Discussion: Choose two countries. Use the following website to obtain information
on the political environment including factors that affect political risk of
each country. How would these factors influence your decision to set up
a subsidiary in that country?
http://biz/yahoo.com/ifc/
Tues.
4/19
Written Report: International Capital Budgeting and Basic Parity Conditions Case
Harvard Business School Case: MSDI-Alcala de Henares, Spain
Additional details will be provided in class.
BUS 435 International Finance Spring 2005
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Thurs. 4/21
Chapter 18: Long Term Financing
Homework
1). Discussion: 18.4, 18.11
2) Discussion Online Application: Access the site http://www.bloomberg.com. where
long-term interest rates are provided for a number of major currencies. Click on Market
Data and then click Rates and Bonds. The term to maturity is shown in the first column
and the yield to maturity is included in column four. Pick two countries and obtain a yield
curve for each country. Do your results indicate that there is much variance in long-term
interest rates for different currencies at a given point in time?
Be prepared to share your yield curves in class.
Tues.
4/26
Chapter 19: Financing International Trade
Guest Speaker
Homework
Discussion
19.1, 19.5, 19.15
Thurs. 4/28
Written Report: and Oral Presentation
Research Project
Additional details will be presented in class.
Tues.
Exam 3: chapters 13, 14, 16, 18, 19
5/3
BUS 435 International Finance Spring 2005
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