International Investments NCCU 2014

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Syllabus & Course Materials
Course Title
課程名稱
(E) International Investments (with Int’l Corporate
Finance)
(C) 國際投資(含國際公司理財)
Instructor
Fu Yeetien
授課教師
傅冶天
Credit(s)
Affiliation
學分數
Course Objectives
課程目標
Course Description
課程大綱
3
隸屬單位
International
Business and
Trade
This course examines important issues in the rapidly evolving area of international
financial markets and strategies, and global investments. It focuses on various
aspects of international portfolio management in an open-economy macroeconomic
setting, and is a natural extension to the theories and practical issues explored in
Investments and/or Finance. To be specific, the course addresses to the following
needs of a modern investor in a global environment: grappling with such concerns as
how to value global companies as well as when and how (1) monetary and fiscal
policies affect exchange rates; (2) foreign exchange risk affects companies and
investment portfolios; (3) global correlations collapse; (4) foreign exchange risk
should be hedged; and (5) multi-period performance attribution distinguishes skill
from luck.
We will also use real-life examples from market practices to emphasize the
engineering dimensions of financial contract design (financial engineering), that
market practitioners professionalize by blending theory with practice. Real
financial contract examples will be discussed along with the relevant sections of the
Levich and Solnik texts during the progress of this course. Recent practices and
incidences on international financial innovation and challenges (e.g., sub-prime
mortgage loans and collateralized debt obligations) will be studied in depth with
financial constructs detailed in Fabozzi’s “Bond Markets, Strategies, and
Analysis”.
This course is aimed at students wishing to acquire a sound understanding of the
main opportunities in international investments. For example, the relevance of
hedging in the management of currency risk will be studied in light of theoretical
results and empirical evidence. Foreign direct investment (FDI) and Free Trade
Agreements will also be introduced, since in general, the revenue streams generated
from FDI by U.S. firms is about three times as large as the revenue generated from
the exporting of U.S. goods by U.S. firms.
Due to the ever increasing importance of international corporate governance, there is
a corresponding need to decipher and use information in financial reports. At least
one class meeting and one case study will touch on some key issues in international
financial reporting and analysis, such as financial disclosure/transparency, incentives
for off-balance sheet liabilities, hedge accounting, lease accounting, footnote
disclosures, and inter-corporate equity investments, and international financial
reporting differences.
This course examines important issues in the rapidly evolving area of
international financial markets and strategies, and global investments. It
focuses on various aspects of international portfolio management in an
open-economy macroeconomic setting, and is a natural extension to the
theories and practical issues explored in Investments and/or Finance.
To be specific, the course addresses to the following needs of a modern
investor in a global environment: grappling with such concerns as how to
value global companies as well as when and how (1) monetary and fiscal
policies affect exchange rates; (2) foreign exchange risk affects
companies and investment portfolios; (3) global correlations collapse;
(4) foreign exchange risk should be hedged; and (5) multi-period
performance attribution distinguishes skill from luck.
1
Syllabus & Course Materials
We will also use real-life examples from market practices to emphasize
the engineering dimensions of financial contract design (financial
engineering), that market practitioners professionalize by blending
theory with practice. Real financial contract examples will be discussed
along with the relevant sections of the Levich and Solnik texts during the
progress of this course. Recent practices and incidences on international
financial innovation and challenges (e.g., sub-prime mortgage loans and
collateralized debt obligations) will be studied in depth with financial
constructs detailed in Fabozzi’s “Bond Markets, Strategies, and Analysis”.
This course is aimed at students wishing to acquire a sound
understanding of the main opportunities in international investments.
For example, the relevance of hedging in the management of currency
risk will be studied in light of theoretical results and empirical evidence.
Foreign direct investment (FDI) and Free Trade Agreements will also be
introduced, since in general, the revenue streams generated from FDI by
U.S. firms is about three times as large as the revenue generated from the
exporting of U.S. goods by U.S. firms.
Due to the ever increasing importance of international corporate
governance, there is a corresponding need to decipher and use
information in financial reports. At least one class meeting and one case
study will touch on some key issues in international financial reporting
and analysis, such as financial disclosure/transparency, incentives for
off-balance sheet liabilities, hedge accounting, lease accounting, footnote
disclosures, and inter-corporate equity investments, and international
financial reporting differences.
HW Due Dates: TBA.
First Midterm Delivered on: 10/21 or 10/22; Due on
10/28 or 10/29; Second Midterm Delivered on 11/18 or 11/19; Due on 11/25
or 26.
Quiz 1: In-Class on 10/28 or 10/29; Quiz 2: In-Class on 11/25 or
11/26.
Lecture 1
Introduction
Some samples of the topics to be covered in the
course, including foreign direct investment (FDI), the
law of one price, a macroeconomic theory of the
open economy, parity conditions, examples of
interest rate parity and covered interest arbitrage,
Weekly Course
Schedule
swaps
上課進度
&
linkages
across
international
capital
markets, CFA exam questions.
READING ASSIGNMENT: Wall Street Journal,
Financial Times, International Herald Tribune,
Business Week and Economist articles (at
course website)
OPTIONAL
ASSIGNMENT:
Levich
Chapter
2,
Exercises 1, 2, 3, 4. (no need to hand in)
Lecture 2
Market Structure and Institutions
TOPICS: Market participants; volume, composition,
and growth of trading, foreign exchange products
2
Syllabus & Course Materials
and activities, the relationship between spot and
forward contracts, synthetic contracts (the replicating
portfolio idea), trends toward automated trading,
controls over trading.
OPTIONAL
ASSIGNMENT:
Levich
Chapter
3,
Exercises 1, 2, 6, 7, 10.
Solnik Chapter 1, Problems 9, 12, 16, 18, 20. (no
need to hand in)
Lecture 3
Lecture 4
International Parity Conditions:
Purchasing Power Parity
TOPICS: International parity conditions in a perfect
capital market, why parity conditions are useful,
absolute and relative PPP, empirical evidence on
PPP, policy decisions and PPP.
OPTIONAL
ASSIGNMENT:
Levich
Chapter
4,
Exercises 5, 6, 7.
Lecture 5
Lecture 6
International Parity Conditions:
Interest Rate Parity and the Fisher
Parities
TOPICS: Interest rate parity and covered interest
arbitrage, the impact of transaction costs, taxes and
uncertainty on parity; uncovered interest rate parity
or the Fisher International Effect, financial strategies
based on deviations from parity, forward rate
unbiased condition.
OPTIONAL
ASSIGNMENT:
Levich
Chapter
5,
Exercises 1, 4, 5, 6.
Solnik Chapter 2, Problems 3, 14, 16. (no need to hand
in)
Lecture 7
Determination of Spot Exchange
Rates: Theory and Evidence
TOPICS: Exchanges rates and macroeconomic
Lecture 8
news announcements, asset models of the spot
exchange rate, the monetary model, the sticky-price
monetary model, the portfolio balance model;
Empirical evidence on exchange rate models,
empirical evidence on the role of news.
OPTIONAL
ASSIGNMENT:
Levich
Chapter
6,
Questions 3, 7, 10, 14.
Solnik Chapter 3, Problems 10, 13. (no need to hand
in)
3
Syllabus & Course Materials
Lecture 9
Foreign Exchange Market
Efficiency
TOPICS: Theory of exchange market efficiency,
interpreting
efficient
market
studies,
empirical
evidence on spot market efficiency, technical trading
models, empirical evidence on forward market
efficiency.
OPTIONAL
ASSIGNMENT:
Levich
Chapter
7,
Exercises 1, 2. (no need to hand in)
Lecture
Foreign Exchange Rate Forecasting
10
TOPICS: Forecasting under pegged rates versus
floating rates, short-run versus long-run forecasts,
forecast performance evaluation -- accurate versus
Lecture
11
useful forecasts; short-run forecast: trends versus
random walks, long-run forecasts: is there mean
reversion? composite forecasts.
OPTIONAL
ASSIGNMENT:
Levich
Chapter
8,
Exercises 1, 2, 3, 4.
Solnik Chapter 3, Problems 17, 18, 19. (no need to
hand in)
Lecture
The Eurocurrency Market
12
TOPICS: Origins of the market, market dimensions
and location, pricing Eurocurrency deposits and
loans, risks of Eurocurrency deposits, interest rate
risk in Eurocurrency loans, competitive responses to
offshore markets, approaches to regulating offshore
markets.
OPTIONAL
ASSIGNMENT:
Levich
Chapter
9,
Exercises 3, 4, 5.
The Eurobond Market
TOPICS: Origins of the market, market dimensions
and
currency
composition,
regulatory
and
institutional features, primary market practices, the
gray market, onshore-offshore arbitrage, pricing
determinants of Eurobonds, competitive responses the Rule 144a market.
OPTIONAL ASSIGNMENT: Levich Chapter 10,
Exercises 1, 2.
4
Syllabus & Course Materials
Optional Alternative Investments (Solnik: Chapter
8)
TOPICS:
Investment
Companies,
Real
Estate,
Private Equity, Hedge Funds and Absolute Return
Strategies, Closely Held Companies and Inactively
Traded
Securities,
Distressed
Securities/Bankruptcies, Commodity Markets and
Commodity Derivatives
OPTIONAL ASSIGNMENT: Solnik Chap 8, Prob. 4,
6, 8, 10, 14, 16, 18. (no need to hand in)
Lecture
International Bond Portfolios
13
TOPICS: Dimensions of national bond markets,
calculating the hedged and unhedged returns on
international
bonds,
the
"free-lunch"
notion in
international bond funds, active versus passive
currency risk management, empirical evidence on
international bonds, Brady bonds, global asset
allocation.
OPTIONAL ASSIGNMENT: Levich Chapter 14,
Exercises 1, 2.
Collateralized Mortgage Obligations (Fabozzi:
Chapter 12)
OPTIONAL ASSIGNMENT: Fabozzi Chapter 12,
Exercises 1, 2. (no need to hand in)
Collateralized Debt Obligations (Fabozzi: Chapter
16)
OPTIONAL ASSIGNMENT: Fabozzi Chapter 16,
Question 20. (no need to hand in)
Lecture
Currency and Interest Rate Futures
14
TOPICS: Institutional differences between futures
and forwards, the marking-to-market convention,
payoff profiles of futures contracts, futures and
hedging, the term structure of forward prices,
currency risk premium in forwards, success and
failure of new futures contracts, do futures markets
effect cash market volatility?
OPTIONAL ASSIGNMENT: Levich Chapter 11,
Exercises 1, 2, 3, 4.
5
Syllabus & Course Materials
Fabozzi Chapter 27, Question 11, 15. (no need to hand
in)
Lecture
Currency and Interest Rate Options
15
TOPICS: Option terminology, contract specifications,
payoff profiles of options, options and hedging,
pricing spot currency options, the discrete time
binomial option pricing approach (another replicating
portfolio), the continuous time lognormal approach,
empirical
estimating
evidence
volatility,
on
option
pricing
models,
historical
versus
implied
volatility, managing the risks in option positions.
Lecture
16
Continue with Currency and
Interest Rate Options
OPTIONAL ASSIGNMENT: Levich
Chapter 12, Exercises 5, 6, 7, 8.
Derivatives: Risk Management with Speculation,
Hedging, and Risk Transfer (Solnik: Chapter 10)
OPTIONAL ASSIGNMENT: Solnik Chap 10, Prob. 1,
2, 7, 8, 9, 11, 12. (no need to hand in)
Lecture
Take-home Mid-term Examination Due on
17
10/28-29
Lecture
18
Pricing Options and other
Derivatives; Real Option
Applications
Analysis of Bonds with Embedded Options
(Fabozzi: Chapter 18)
OPTIONAL ASSIGNMENT: Fabozzi: Chap 18,
Exercise 13. (no need to hand in)
Interest-Rate Swaps, Caps, and Floors
(Fabozzi: Chapter 29)
OPTIONAL ASSIGNMENT: Fabozzi: Chap 29,
Exercise 22. (no need to hand in)
Lecture
Currency and Interest Rate Swaps
19
TOPICS: Origins of the swap market, measuring the
size of the market, gross versus net measures of the
market, basic cash flow requirements of currency
and interest rate swaps, the swap as a collection of
forward contracts (another replicating portfolio), risks
of swaps, Measuring the risks of swaps, amortization
6
Syllabus & Course Materials
and diffusion effects, price quoting conventions in
swaps, pricing interest rate and currency swaps,
sources of gains to the users of swaps, risk
exposure and capital requirements for swaps dealers
and counterparties, netting agreements, BIS capital
requirements.
OPTIONAL ASSIGNMENT: Levich Chapter 13,
Exercises 1, 2.
Interest-Rate Swaps and Agreements (Fabozzi:
Chapter 29)
OPTIONAL
ASSIGNMENT:
Fabozzi:
Chap
29,
Chap
30,
Exercises 14, 16, 17. (no need to hand in)
Credit Derivatives (Fabozzi: Chapter 30)
OPTIONAL
ASSIGNMENT:
Fabozzi:
Exercises 10, 13, 25. (no need to hand in)
Lecture
20
Measuring Exposure to
International Financial Risks
TOPICS: Macroeconomic risks and the value of the
firm,
direct
and
indirect
economic
exposures,
accounting measures of exposure (translation and
transaction
exposure
exposure),
(regression
economic
and
measures
scenario
of
analysis),
empirical evidence.
OPTIONAL ASSIGNMENT: Levich Chapter 16,
Exercise 3. (no need to hand in)
Take-home Second Midterm Questions Handed
Out on 11/18-19
Lecture
21
Managing Exposure to
International Financial Risks
TOPICS: Why should the firm hedge? Financial
strategies toward risk management, selecting a
suitable hedging instrument, picking the right hedge
ratio, the Value at Risk (VAR) approach, BIS
regulations and the use of in-house VAR measures.
OPTIONAL ASSIGNMENT: Levich Chapter 16,
Questions 4, 5. (no need to hand in)
Topics in International Financial Reporting and
Analysis
7
Syllabus & Course Materials
TOPICS:
Financial
disclosure/transparency,
incentives for off-balance sheet liabilities, hedge
accounting, lease accounting, footnote disclosures,
inter-corporate
equity
investments,
international
financial reporting differences and inflation.
Lecture
International Equity Portfolios
22
TOPICS: International portfolio diversification, size
and institutional features of global equity markets,
international investment vehicles (ADRs, closed-end
funds, CBs, WEBS), risk and return in international
equity markets,
factors leading
to over-
and
under-weighting of home country shares, barriers to
international investment, harmonization of issuing
and listing standards.
OPTIONAL ASSIGNMENT: Levich Chapter 15,
Exercises 3, 4, 5. (no need to hand in)
International Asset Pricing (Solnik Chapter 4)
TOPICS: Asset Pricing Theory, The Domestic
Capital Asset Pricing Model, Asset Returns and
Exchange Rate Movements, The Domestic CAPM
Extended to the International Contexts, International
CAPM, Market Imperfections and Segmentation,
Practical
Implications,
A
Global
Approach
to
Equilibrium Pricing, Estimating Currency Exposures,
Tests of the ICAPM.
OPTIONAL ASSIGNMENT: Solnik Chap 4, Problems
4, 7, 13, 17, 18. (no need to hand in)
Equity Analysis (in Solnik Chapter 6 Equity:
Concepts and Techniques, pages 232-45)
OPTIONAL ASSIGNMENT: Solnik Chap 6, Problems
8, 10, 12, 14, 16. (no need to hand in)
The Case of International Diversification (Solnik
Chapter 9)
TOPICS: The Traditional Case for International
Diversification,
Diversification,
The
The
Case
Against
Case
of
International
International
Diversification Revisited, The Case for Emerging
Markets.
8
Syllabus & Course Materials
OPTIONAL
ASSIGNMENT:
Solnik
Chapter
9,
Problems 3, 4, 6. (no need to hand in)
Take-home Second Midterm Examination Due
on 11/25-26
Lecture
22
Instructional Method
教學方式
Course
Requirements
Lecture
Attendance, Reading before class, Assignments, Exams.
課程要求
Problem Sets: 1 through 4, 30% (Due in Class one week after the
questions are assigned.
Mid-term 1 30% (Take-home, Hand Out on 10/21 or 10/22, Due
on
Evaluation
評量方式
10/28 or 10/29)
Mid-term 2
30% (Take-home, Hand Out on 11/18 or 10/19,
Due on 11/25 or 11/26)
Quiz 1: 10%, in-class, in the week when the first midterm is due
(on 10/28 or 10/29)
Quiz 2: 10%, in-class, in the week when the second midterm is
due (on 11/25 or 11/26)
Required Texts for 2014 (available from University Bookstore):
Eiteman,
David,
et.
al.,
Multinational
Business
Finance
Thirteenth Edition 2013 Pearson Education.
-orEun, et. al, International Finance, Seventh Edition, 2014,
McGraw-Hill.
The two books constitute a good set of learning materials.
Textbooks &
Suggested Materials
Past (2013) Texts (available from Commerce Library):
教材及參考書目
1. Richard M. Levich, International Financial Markets: Prices
and Policies, 2nd Ed., McGraw-Hill/Irwin, 2001, ISBN:
0-07-233865-2. [Covered materials prior to year 2000]
2. Bekaert, Geert, et al., International Financial
Management, Second Edition, Prentice-Hall, 2011,
ISBN: 0-13-216276-8. Part III International Capital
Markets and Part IV International Corporate Finance are
particularly useful. [Covers material prior to October
2011, most up-to-date text]
9
Syllabus & Course Materials
Highly Recommended Texts (Great for Chartered Financial Analyst
(CFA) Exams):
3. Bruno Solnik, et. al., Global Investments, 6th Ed., Pearson,
2009, ISBN: 0-321-52770-4.
4. David G. Luenberger, Investment Science, Oxford University
Press, 1997, ISBN: 0-19-510809-4. (the definitive rigorous
introduction to Investments.)
5. Krugman and Obstfeld, International Economics, Ninth
Edition, Prentice-Hall, 2012. (Part III of the text is the
definitive guide on International Finance.)
6. Fabozzi, Frank J., Bond Markets, Analysis, and Strategies,
7th Ed., Pearson, 2010, ISBN: 0-13-607897-4 (work well with
Levich and Solnik texts, covers all aspects of fixed income
securities: analytics and derivatives; illustrates metaphors
in finance and financial services industry.)
7. Cheol S. Eun and Bruce G. Resnick, International
Financial Management, Sixth Edition, McGraw-Hill,
2012, ISBN: 0-07-803465-5. (Great source for updated
examples.)
Recommended Reading:
1. (eText) Int’l Investments (Pre-requisite on
Investments), McGraw-Hill Primis,
2010, ISBN: 0-39-015042-8.
2.
(eText)
Int’l Investments (International Finance and Global Investing), McGraw-Hill
Primis, 2010, ISBN: 0-39-016860-2.
3. (eText) Int’l Investments (Theory in Practice), McGraw-Hill
Primis, 2010, ISBN: 0-39-016894-7.
4. (eText) Int’l Investments (Co-requisite: Financial Statement Analysis), McGraw-Hill
Primis, 2010, ISBN: 0-39-016550-6.
5.
(eText) Readings on Essentials of Investments for Int’l Investments, McGraw-Hill
Create, 2011, ISBN: 1121155235.
6.
(eText)
Readings on International Financial Management for Int’l Investments,
McGraw-Hill Create, 2011, ISBN: 1121238467.
8. Philippe Jorion, Value at Risk, Irwin/McGraw-Hill, 2007,
ISBN: 0-07-1464956.
9. R. Feenstra and A. M. Taylor, International Economics,
Second Edition, Worth Publishers, 2012, ISBN:
1-4292-3118-1. (Great source for updated information.)
10. Levich, et. al., International Investments, 1st Ed.,
McGraw-Hill, 2006, ISBN: 0-390-71195-0.
11. Chacko, et al., Financial Instruments & Markets: A Case
book, Wiley, 2006, ISBN: 0-471-73767-4.
12. Desai, Mihir A., International Finance: A Case book,
Wiley, 2006, ISBN: 0-471-73768-2.
13. Neftci, Salih N., Principles of Financial Engineering,
Academic Press, 2004, ISBN: 0-12-515394-5.
14. Shapiro, Alan C., Multinational Financial Management, 9th
Ed., Wiley, 2009, ISBN: 0-470-41501-0.
10
Syllabus & Course Materials
15. McDonald, Robert L., Derivatives Markets, 2nd Ed.,
Addison-Wesley, 2006, ISBN: 0-321-28030-X.
16. Mankiw, N. Gregory, Macroeconomics, 6th Ed., Worth
Publishers, 2007, ISBN: 0-7167-6213-7.
17. Marthinsen, John, Risk Takers 2nd Ed, Addison-Wesley,
2008, ISBN: 0-321-54256-8.
18. Bekaert,
Geert,
et
al.,
International Financial
Management, Prentice-Hall, 2009, ISBN: 0-13-116360-4.
Part III International Capital Markets and Part IV
International Corporate Finance are particularly useful.
19. Montiel, Peter J., International Macroeconomics,
Wiley-Blackwell, 2009, ISBN: 1405183861.
Course Website
相關連結網址
Remarks
備註
None
Features a good coverage in International Corporate Finance
11
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