University of Puget Sound
School of Business and Leadership
BUS 435 International Finance
Professor Alva Wright Butcher
Tues & Thurs 12:30-13:50
McIntyre 107
Spring Semester 2013
Office: McIntyre 111 I
Phone: 253-879-3349
FAX: 253-879-3156
Office Hours:
Tues and Thurs
Wed
And by appointment
2:00-3:00
9:30-10:30
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. If I do not respond to your email message, that
means I did not receive it. Please send it again.
Email: butcher@ups.edu
Required Course Materials
Text: Madura, International Financial Management, Abridged 10th Edition, South-Western, 2011
Book: Lewis Michael, Boomerang: Travels in the New Third World, Norton, 2011
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 Cases
https://cb.hbsp.harvard.edu/cbmp/access/17920074
The above is the URL for Harvard Business School so that you can obtain discounted student
pricing for the cases:
Group Ariel S.S.: Parity Conditions and Cross-Border Valuation (Note that there is no
need to purchase the audio version of this case.)
Pixonix Inc. Addressing Currency Exposure
Recommended:
1. Subscription to the Wall Street Journal. Several class sessions will utilize information from
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. Self-test problems and solutions at the end of each chapter. These provide excellent review
material.
2. Text web site.
http://madura.swcollege.com
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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.
3. 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
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.
From time to time throughout the semester we will pause to look at the “big picture” in financial markets.
The highlights of the financial crisis of 2008 are so extraordinary that they are stranger than fiction.
Rumors about the investment bank, Bear Stearns, hit the market on Monday, March 10th, 2008. At the
time the firm had cash reserves of $18 billion. The stock had been trading as high as $171 per share, but
had recently dropped to around $60 per share. Within a week, Bear Sterns had failed. J.P. Morgan Chase
not only purchased Bear’s stock for the princely price of $2 per share but was also awarded a $30 billion
government loan against Bear’s toxic securities. Fannie Mae and Freddie Mac, two of the most powerful
financial firms with five trillion dollars in mortgages lost sixty percent of their stock value within a two
week period. On September 6, 2008, these two firms were nationalized. One day later, the crisis spread to
Lehman Brothers. Within eight days, Lehman Brothers filed for bankruptcy. The failure of Lehman
Brothers sent huge ripples throughout world markets. Lehman was interconnected across national and
international financial markets. Markets crashed and the credit markets froze. Even the most credit
worthy could not get short term loans. The biggest insurance company in the country, AIG, was the next
victim. On Tuesday, September 16th, the U.S. government decided that AIG was too big to fail, lent AIG
$85 billion, and took an eighty percent ownership position in AIG. On September 18, 2008, Bernanke
and Paulson delivered a chilling message to Congress. Unless the government was prepared for a full
scale bailout of the nation’s financial system, the system would melt down in a matter of days. Their
proposal of less than four pages requested government funding of $700 billion. As the House and Senate
debated the bill, Washington Mutual was seized by federal regulators on September 25, 2008 and sold to
J.P. Morgan Chase for $1.9 billion. On September 29th, the emergency legislative bill failed in the house.
The reaction of the market was enormous. The market dropped about 700 points, the greatest point loss
in one day on history. The financial plan was finally approved on October 4, 2008.
The enormity of this financial crisis, all within less than a thirty day period, is incredible. Over nine
million in jobs were lost in the United States.
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The crisis was also global. It was part of a larger phenomenon that ultimately led to the credit crunch.
For example there was an increase in total worldwide debt from $84 trillion in 2002 to $195 trillion in
2011. It seemed inconceivable that a nation could go bankrupt, but in these strange times, the country of
Iceland was bankrupt. It is important that you have a basic understanding of this financial crisis. It will
be a dominant force in the markets and in government actions for years to come. Throughout the
semester we will utilize several audio visual sources to review the crisis. Each has a slightly different
twist on the financial crisis. We will also discuss the book, Boomerang, Travels in the New Third World.
A review of Boomerang in The New York Review of Books notes, “The thesis is that ‘the subprime
mortgage crisis was more symptom than cause. The deeper social and economic problems that gave rise
to it remained.’ It is these deeper problems that are dominating economic news at the moment.”1 The
process of reflecting upon and discussing the causes and implications of the financial crisis of 2008 will
enrich your understanding of current international financial market conditions.
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

Describe the principal means of payment in international trade.

Have a basic understanding of the financial crisis that rocked financial markets around the world
in 2008 and is still having implications in today’s international financial markets.
Case Analyses: Several case studies will be assigned during the term. These are designed to provide an
opportunity to practice effective communication techniques, both written and oral.
Some cases will be covered during class discussion. 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
Lanchester, John, “How we were all misled”, The New York Review of Books, December 8, 2011.
BUS 435 International Finance Spring 2013
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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.
Other cases will require a written report as well as a discussion in class. 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 will be
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 will be provided.
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.
Research Project:
Over the semester you will research a topic relevant to international finance. The syllabus includes a
number of deadlines for various aspects of this research project. At the end of the semester you will
present your results to your classmates. Additional details will be presented in class.
Summary of Deadlines for Research Project
1) Tuesday, February 5th
Outline two potential topics for your research paper. Prepare a two page printed outline for each
topic.
2) Tuesday, February 12th Make an appointment with me to discuss your potential topics by Tuesday, February 12th .
3) Thursday, February 28th .
Notes from one-to-one consultation with the liaison librarian are due to me.
4) Thursday, March 7th
Six to eight page typed outline and notes on your paper are due to me.
5) Thursday, March 14th
Make an appointment to discuss your outline with me by Thursday, March 14th
6) Thursday, March 28th
Submit the draft of your paper to your student editor.
7) Thursday, April 4th
Editorial comments are due to the author and to me.
8) Thursday, April 18th
Make an appointment with me to discuss editorial comments and the progress of your paper by
Thursday, April 18th
9) Tuesday- April 30th, Thursday – May 2nd, and Tuesday – May 7th
Written reports and oral presentations.
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.
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Moodle and Email Communication
Moodle
We will use Moodle as a vehicle for communication. The link is http://moodle.pugetsound.edu
You are automatically enrolled on the Moodle site for this course. Moodle will be used to post
assignment instructions, other course documents, articles, etc. for the relevant week. At times I may need
to modify assignments as listed on the syllabus in order to reflect the pace at which we are covering the
material. If so those changes will be posted on Moodle for the relevant weeks. Please check Moodle at
least two times per week.
You will be uploading Excel files to Moodle for several of your assignments. Sometimes students submit
an assignment and then wish to submit a revised assignment. This will be allowed on Moodle as long as
it is submitted before the deadline. After that, Moodle will not allow a submission.
Email
There may be times that I send mass emails to the entire class. These will be directed to your Cascade
email address. You are responsible for checking your Puget Sound email account at least once per
day.
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.
Additional homework questions related to current topics in international finance will be assigned
throughout the semester.
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.
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.
Late homework assignments will not be accepted.
Exams: There will be two midterm exams and a comprehensive final. Exams primarily will be problem
oriented, but may also include short essay questions. 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.
Academic Integrity
Please carefully read the University policy on academic honesty in The Logger. The following is a quote
from The Logger.
“The University of Puget Sound is a community of faculty, students, and staff
engaged in the exchange of ideas contributing to intellectual growth and
development. Essential to the mission of the academic community is a shared
commitment to scholarly values, intellectual integrity, and respect for the ideas and
work of others. At Puget Sound, we share an assumption of academic integrity at
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all levels. Violations of academic integrity are a serious matter because they
threaten the atmosphere of trust, fairness, and respect essential to learning and
the dissemination of knowledge.”
An interactive online tutorial on Academic Integrity@ Puget Sound is also available on
the Collins Library webpage. You are required to take that tutorial as a homework
assignment.
Classroom Emergency Response Guidance
Please review university emergency preparedness and response procedures posted at
www.pugetsound.edu/emergency/. There is a link on the university home page. Familiarize yourself
with hall exit doors and the designated gathering area for your class and laboratory buildings.
If building evacuation becomes necessary (e.g. earthquake), meet your instructor at the designated
gathering area so she/he can account for your presence. Then wait for further instructions. Do not return
to the building or classroom until advised by a university emergency response representative.
If confronted by an act of violence, be prepared to make quick decisions to protect your safety. Flee the
area by running away from the source of danger if you can safely do so. If this is not possible, shelter in
place by securing classroom or lab doors and windows, closing blinds, and turning off room lights. Stay
low, away from doors and windows, and as close to the interior hallway walls as possible. Wait for
further instructions.
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:
Two Midterm Exams
32%
Research Paper
30%
Written Case Analyses, Case Discussions and Class Participation
28%
Homework
Total
10%
100%
Unannounced Quizzes
BUS 435 International Finance Spring 2013
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.
1/22
Introduction to the Course
Chapter 1: Multinational Financial Management: An Overview
Video: An Introduction to the IMF
The video presents an explanation of how the International Monetary Fund (IMF) is
structured and how it sets its policy. It also contains archival footage on the IMF and the
World Bank.
Background information on the IMF is available at:
http://www.imf.org/external/np/exr/facts/glance.html.
Video: Foreign Exchange
Since 1971, when President Nixon separated the value of the U.S. dollar from the gold
standard, the global marketplace has grown at an incredible rate. This DVD examines the
global marketplace. It emphasizes the importance of adapting to the world’s financial
markets for all companies.
Homework
1) Discussion: 1.6, 1.17
2) Discussion: Blades , Inc. Case: Decision to Expand Internationally, page 23
Thurs. 1/24
Chapter 3: International Financial Markets
Homework
1) Discussion: 3.8, 3.15, 3.17, 3.25
2) Written Signed statement that you have taken the online tutorial:
Academic Integrity @ Puget Sound that is on the Collins Library webpage.
Tues.
Appendix 3: Investing in International Financial Markets
I will provide a copy of the Appendix.
1/29
Working with the Wall Street Journal
I will distribute copies of current financial information.
Homework
1) Discussion:
 Internet Exercise, page 83 1(a, b, c, d, e, h, j)
2) Written: 3.6, 3.10, 3.11
Thurs. 1/31
Chapter 4: Exchange Rate Determination
Homework
1) Discussion: 4.18, 4.19
2) Discussion: Small Business Dilemma: Assessment by the Sports Exports Company
of Factors that Affect the British Pound’s Value, pages 115-116
3) Discussion Currency Forecasts
I will provide a handout from Wells Fargo, Foreign Exchange Division
BUS 435 International Finance Spring 2013
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Tues.
2/5
Research Paper Milestone #1
Briefly outline two potential topics for your research paper. What are the issues?
Prepare a two page printed outline or notes on each topic. Please make an appointment
with me to discuss your potential topics by Tuesday, Feb. 12th .
Chapter 5: Currency Derivatives
Homework
1) Written: 4.1, 4.20
2) Discussion: 5.1, 5.6, 5.7
3) Discussion Futures Contract Example on Moodle
We will demonstrate how it is marked to the market daily and note any margin
requirements.
Thurs. 2/7
Chapter 5: Currency Derivatives
Simulation: Foreign Exchange Markets
Tues.
Chapter 5: continued
Appendix 5B: Currency Option Combinations (I will provide a copy of the Appendix)
2/12
Working with the Wall Street Journal
We will spend some time interpreting how currency derivative contracts are reported.
I will provide copies of the appropriate information.
Homework:
1) Written: 5.4, 5.10, 5.11
2) Discussion: Briefly recap the foreign exchange simulation
3) Discussion: 5.12, 5.13, 5.16, 5.17, 5.25, 5.26
4) Make an appointment for a one-on-one consultation with Ben Tucker, the liaison
librarian for Business, Economics, and Social Sciences.
Prepare a typed set of notes from the consultation. These notes are due to me on
Thursday, Feb 28th.
Thurs. 2/14
Hedging Case – This is available at the Harvard Business School url.
Pixonix Inc. – Addressing Currency Exposure Ivey 908N13
Additional details will be presented in class.
BUS 435 International Finance Spring 2013
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Tues. 2/19
Chapter 6:
Homework
Discussion:
Government Influence on Exchange Rates
6.1, 6.2, 6.3, 6.4, 6.5, 6.9, 6.10, 6.14, 6.17
Video European Union (25 minutes)
Tracing the history of the European Union, this program explores significant treaties,
outlines the functions of the Commission, the Parliament, the Court, and the Council. It
covers such topics as the Euro and the EU’s relationship with Eastern Europe.
Bring an article to class that is relevant to current issues in the European Union.
Be prepared to share the key points of your article with your colleagues in class. Your
article must be turned in at the end of the class period.
Thurs. 2/21
Corporate Control Case
Volkswagen and Porsche
One Family, Two Car Companies, & a Battle for Corporate Control
This case is available on Moodle. Additional details will be presented in class.
Video: Fast Bucks: How Porsche Made Billions (29 minutes)
German automaker Porsche desired to takeover Volkswagen, a company rich in research
and production capabilities. This program shows how Porsche obtained majority
shareholder status in Volkswagen by entering the financial market and employing
controversial trading methods. It illustrates Porsche’s use of cash settled options and
shows how Porsche built secret holdings in Volkswagen over a period of years. The
program also explains how Germany’s VW Law, which has historically protected
Volkswagen from complete takeovers, stymied Porsche’s attempt.
Integration and Review
Homework
Turn in a typed page with two questions for the guest speaker from Wells Fargo
International Group.
Tues.
2/26
Exam 1: Chapters 3, 4, 5, 6
Thurs. 2/28
Chapter 7: International Arbitrage and Interest Rate Parity
Homework
1) Discussion: 7.1, 7.2, 7.3, 7.5
2)Written: Notes from your consultation with the research librarian.
Tues.
Guest Speaker
Gregory Dalzell, Senior Vice President, Corporate Foreign Exchange
Wells Fargo International Group
3/5
BUS 435 International Finance Spring 2013
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Thurs. 3/7
Research Paper Milestone #2
Prepare a six to eight page typed outline and notes on your paper. Prepare a printed list
of sources of information for your research. Please make an appointment to discuss
this with me by Thursday, March 14th .
Chapter 7: continued
Chapter8: Relationships among Inflation, Interest Rates, and Exchange Rates
Simulation: Triangular Arbitrage
Homework
1) Discussion 7.9, 7.17
2) Written
7.4
3) Discussion: 8.1, 8.3, 8.6, 8.7
Tues.
3/12
Thurs. 3/14
Chapter8: Relationships among Inflation, Interest Rates, and Exchange Rates
Homework
1) Discussion 8.8, 8.20
2) Written:
7.19
Chapter8: continued
Boomerang: Travels in the New Third World, Chapters I and II
Homework
1) Discussion questions for Boomerang are posted on Moodle
2) Bring an article on the current situation in Greece and be prepared to share the key
points with your colleagues in class. Your article must be turned in at the end of the
class period.
3) Written
8.14, 8.18, 8.19
Spring Recess
Tues. 3/26
Video: China in the Rise (77 minutes)
This DVD traces the rise of China as a global economic power. It covers such topics as
Chinese consumers, the idealism of the early years of Mao’s reign and its influence on
China’s emerging free market economy, the Chinese government’s investment practices,
the Shanghai Stock Exchange, economic relations with the U.S., and piracy of foreign
intellectual properties.
Homework
Bring an article to class that is relevant to China and its role in the international economy.
Some potential topics are: the rise of China as an economic power, China’s stock
markets, economic relations with the U.S., revaluation of the Yuan, piracy of foreign
intellectual property rights in China, potential for continued economic growth without
major political reform. Be prepared to share the key points of your article with your
colleagues in class. Your article must be turned in at the end of the class period.
Thurs 3/28
Research Paper Milestone #3
Each student will edit the paper of a fellow classmate. Submit the first draft of your
paper to your editor.
Editorial comments may be hand written on the paper. Each editor must also prepare a
two to three page typed editorial report. This should summarize the key strengths of the
BUS 435 International Finance Spring 2013
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paper, note any weaknesses, provide suggestions for expansion or deletions, provide
suggestions on how to improve logical flow and/or clarity, etc.
Please make a copy of the paper with your editorial comments and your editorial report.
On Thursday, April 4th , provide the originals to the author and the copies to me.
Chapter 10: Measuring Exposure to Exchange Rate Fluctuation
Homework
1) Discussion: 10.1, 10.2, 10.5, 10.10
Tues 4/2
Chapter 11: Managing Transaction Exposure
Homework
1) Discussion 11.2, 11.5, 11.6, 11.9, 11.11
2) Written:
10.22
Thurs 4/4
Research Paper Milestone #4
Editorial comments are due to the author and to me.
Research Paper Milestone #5
Please make an appointment with me to discuss the editorial comments and the progress
of your paper by Thursday, April 18th .
Chapter 11: continued
Homework
1) Discussion 11.32 (a)
2) Written
11.3, 11.12
Tues 4/9
Boomerang, Chapters III and IV
Discussion questions for Boomerang are posted on Moodle
Bring an article on the current situation in Ireland or Germany and be prepared to share
the key points with your colleagues in class. Your article must be turned in at the end of
the class period.
Thurs 4/11
Boomerang, Chapter V
Discussion questions for Boomerang are posted on Moodle
Bring an article on the current situation in the United States and be prepared to share the
key points with your colleagues in class. Your article must be turned in at the end of the
class period.
Catch up and review
Tues 4/16
Exam 2:
Chapters 7, 8, 10, 11
Thurs 4/18
Chapter 14: Multinational Capital Budgeting
Homework
1) Discussion: 14.1, 14.5, 14.12 , 14.27( a, d)
2) Written: turn in a typed sheet with two questions for our guest speaker from the Port of
Tacoma.
BUS 435 International Finance Spring 2013
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Tues 4/23
Harvard Business School Case on International Capital Budgeting
Groupe Ariel S.A: Parity Conditions and Cross –Border Valuation
This case can be purchased at the Harvard Business School URL.
Additional details will be provided in class.
Chapter 18: Hedging with Interest Rate Swaps
I will provide a copy of this material.
Simulation: Interest Rate Swaps
Homework
1) Discussion: 18.14
Thurs 4/25
Guest Speaker
Erin Galeno, Chief Financial Officer, Port of Tacoma
Read Chapter 19: Financing International Trade as background material.
Tues 4/30, Thurs 5/2, and Tues 5/7
Research Project
Written Reports and Oral Presentations
Each student will have nine minutes to present his or her research and two minutes for
questions and discussion with your classmates. Carefully prepare your presentation so
that you effectively utilize the full nine minute slot.
Written reports are due on the day of the presentation.
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