VILLANOVA UNIVERSITY
College of Commerce and Finance
Master of Business Administration
International Financial Management
MBA 8438 001
Course Outline
Spring 2004
Professor:
Office:
Phone:
Home Page:
E-Mail:
Office Hours:
Dr. A. DeMaskey
2017 Bartley Hall
610-519-6108
www.homepage.villanova.edu/andrea.demaskey
andrea.demaskey@villanova.edu/
5:30-6:00 and after 8:45 R or by appointment
Course Description:
International Financial Management is a study of the financial operations of multinational
corporations and financial institutions. Topics covered include foreign exchange risk, working capital
management, investment analysis, and financial arrangements in the unique context of multinational
rather than single country activities.
Prerequisites:
The prerequisite for this course is MBA 8410 Applied Corporate Finance. It is the student’s
responsibility to be certain that the prerequisites have been successfully completed. If at any time during
the semester it is determined that a student has not completed the prerequisites, the student can be
administratively dropped from the course without credit or tuition refund.
Course Objectives:
This course is designed to give students an overview of the concepts and theories used in multinational
financial decision-making. Specific topics emphasized include the international financial markets,
exchange rate behavior, foreign exchange risk management, multinational working capital management,
and long-term asset and liability management. It also provides an overview of contemporary international
financial events as they occur and gives students the opportunity to apply the principles and concepts of
domestic corporate finance to the study of key international financial decisions.
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Learning Outcomes:
By the end of this course, you will have done, or be able to:
 Understand why firms and nations seek out and benefit from international business activities.
 Analyze and identify factors that cause exchange rates to change.
 Identify the linkages between international financial prices.
 Understand the costs and benefits of different monetary systems.
 Identify and measure political risk associated with a sovereign nation.
 Measure the impact of exchange rate movements on the cash flows of a firm.
 Understand the basic mechanics of currency forwards, futures and options.
 Identify and implement a variety of different strategies to manage exchange rate risk.
 Implement strategies to manage a multinational corporation’s ongoing global operations.
Course Requirements:
Texts. Alan Shapiro’s Multinational Financial Management, 7th Edition, published by John Wiley &
Sons, Inc. (2003) and Michael H. Moffett’s Cases in International Finance published by Addison Wesley
Longman, Inc. (2001). These texts will be supplemented by relevant readings from a variety of sources,
including the Wall Street Journal, Financial Times, and Business Week. In addition, PowerPoint
interactive lecture notes will be posted on my website.
Exams. Two exams – a take-home midterm and an in-class comprehensive final – will be given. The
specific format of the exams will be determined early in the semester.
Case Studies. Three case studies have been assigned, as noted in the class schedule. The purpose of
these case assignments is to give you the opportunity to apply the theories and concepts of international
financial management. You are asked to prepare a five-page, typed and single-spaced executive summary
for each of the cases. The executive summary should consist of your point of view about the problem(s),
a recommendation, and an analysis to back up both of them. You may append any calculations, graphical
illustrations, etc. to support your analysis. Be sure to address all the questions raised at the end of the
case. The specific due dates are noted in the class schedule. Failure to submit a case analysis by the due
date will result in a lower grade.
Currency Project. Each student is expected to complete a project with the objective of tracking and
analyzing a country’s currency during the course of the semester. Students will be required to collect
background information on the country, gather relevant data and perform a detailed economic analysis to
explain the exchange rate behavior observed. Instructions for the project will be handed out separately.
Failure to submit the project by the due date will result in a lower grade.
Class Participation. Class sessions will consist of discussions related to the assigned chapters, related
readings and questions, problems and Internet exercises. We will also discuss relevant current events and
work out selected end-of chapter problems. Thus, student participation in class discussions is extremely
important, which requires you to be fully prepared at all times.
Class Attendance. You are expected to attend each regularly scheduled class. Please note that exam
questions and problems are taken from lecture material, the text, relevant readings, and current events.
Thus, absences tend to reduce exam performance and, consequently, grades.
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Grading:
Grades will be based on relative performance and are determined as follows:
Take-Home Midterm Exam
Comprehensive Final Exam
Currency Project
Case Analyses
Total
20%
25%
25%
30%
100%
As a general rule, there will be no make-up exams. Please also note that your performance is based on
output, not input.
The following grading scale is used to determine your final course grade:
A 94%-100%
A- 90%-93%
B+ 87%-89%
B 83%-86%
B- 80%-82%
C+ 75%-79%
C 70%-74%
F < 70%
Student Responsibilities:
1. Be fully prepared for each class. The level and structure of this class makes your individual study
and preparation outside of class extremely important. The class discussions will focus on the
major points introduced in the text. If you read and have at least some familiarity with the
assigned chapter before you come to class, this will greatly assist you in understanding the chapter
material. You will also be able to actively participate in class discussions by asking questions and
sharing your experiences and point of views.
2. Take responsibility for your learning of the course material. Class discussions will focus on the
more complex topics of each chapter and the problems, which deal with the material. To learn the
course material, however, you need to practice it. Thus, after each class meeting, you should study
your notes, review the PowerPoint slides and chapter objectives, and then work the relevant
problems from the end of each chapter.
3. Submit all assigned cases and the currency project on the dates specified for each.
4. Check your email and the course homepage regularly for any updates, announcements or
instructions concerning the course.
5. Familiarize yourself with the policies and procedures for this course (e.g., exams, currency project,
case studies, grading) as well as those followed by the College and University, as found in this
syllabus.
Applicable Policies
Attendance Policy. Participation points can be earned in a number of different ways, including
attending class, in-class exercises and active participation in class discussions of assigned readings,
problems, case studies and current events. Any unexcused absence will lower your participation
score. Your absence is considered ‘excused’ if it is unavoidable and if I am notified at least 24 hours
in advance. If your absence is excused you will neither gain nor loose participation points.
Make-Up Exam Policy. As a general rule, there will be no make-up exam.
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Late Submission Policy. Any work submitted after the deadline will loose 10% of its full credit per
day.
Disability Fairness Policy. It is the policy of Villanova to make reasonable academic accommodations
for qualified individuals with disabilities. If you are a person with a disability, please contact me after
class or during office hours and make arrangements to register with the Learning Support Office by
contracting 610-519-5636 or nancy.mott@villanova.edu as soon as possible. Registration is needed in
order to receive accommodations.
Academic Integrity and Policy Code. The Code of Academic Integrity of Villanova University
addresses cheating, fabrication of submitted work, plagiarism, handing in work completed for another
course without the instructor’s approval, and other forms of dishonesty. For the first offense, a student
who violates the Code of Villanova University will receive 0 points for the assignment. The violation
will be reported by the instructor to the Dean’s Office and recorded in the student’s file. In addition,
the student will be expected to complete an education program. For the second offense, the student
will be dismissed from the University and the reason noted on the student’s official transcript.
Pager and Cell Phone Policy. Pagers and cell phones, which go off during class are extremely
disruptive and rude and thus will not be tolerated. If your device cannot be set to alarm you silently,
please turn it off, or better yet, leave it elsewhere.
Schedule of Topical Coverage:
Week 1
January 15, 2004
Topic: Course Introduction and Overview of Multinational Financial Management and the
Multinational Corporation
Description: As world economies become more integrated, the role of multinational
corporations is increasing. We will examine the risks of multinational business, the
reasons for the existence of the multinational corporation, the financial goals and corporate
governance.
Read: Chapter 1
Prepare: Internet Exercise 1 and 2
Week 2
January 22, 2004
Topic: The International Monetary Environment
Description: Since the early 1970s, exchange rates have become increasingly volatile. We
will review the current international monetary system, including the arguments of fixed
versus flexible exchange rates, the new European currency, the Euro, and the emerging
market crisis in Thailand, Russia, and Brazil.
Read: Chapter 3
Prepare: Internet Exercise 3 and 4
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Week 3
January 29, 2004
Topic: Foreign Exchange Rate Determination: Expectations and the Asset Market Model
Description: Fluctuations in economic activity is almost immediately reflected in
fluctuations in currency values. Multinational corporations are therefore continually
concerned about a possible devaluation or revaluation somewhere around the globe. We
will examine what an exchange rate is and why it might change. Such an understanding
provides the basis for dealing with currency risk.
Read: Chapter 2
Work: Problems 1-4
Week 4
February 5, 2004
Topic: Foreign Exchange Rate Determination: Balance of Payments Approach
Description: There are many potential determinants of exchange rates. One is the balance
of payments, which records those cash flows that affect and are affected by exchange rates.
We will review the accounts in the BOP and analyze the trends that have emerged.
Read: Chapter 5
Prepare: Internet Exercise 1-4
Week 5
February 12, 2004
Topic: The Foreign Exchange Market
Description: The volume of currency trading and financial institutions’ involvement in
currency markets has grown rapidly. We will explore the foreign exchange market,
including the spot and forward market, how it functions as well as how intermarket
arbitrage occurs. The discussion also provides a detailed description of how exchange
rates are quoted and cross rates are determined.
Read: Chapters 7
Work: Problems 1-10
Week 6
February 19, 2004
Topic: International Parity Conditions
Description: Relative inflation rates have many implications for multinational financial
decisions. We will examine the linkages among inflation rates, interest rates, and exchange
rates in what is traditionally known as the parity conditions in international finance. They
are sometimes useful in explaining and forecasting the long-run trend in an exchange rate.
Read: Chapter 4 (pp. 116-153)
Work: Problems 1-15
Week 7
February 26, 2004
Topic: Foreign Currency Derivatives
Description: The definition of the foreign exchange market can be broadened to include
foreign currency futures and options. This new breed of financial instruments can be used
by financial managers to manage foreign exchange risk or take speculative positions on
currency movements.
Read: Chapter 8
Work: Problems 1-6
Prepare: Internet Exercise 1 and 3
MIDTERM EXAM
(handed out and due on March 11)
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Week 8
March 11, 2004
Topic: Measuring and Managing Translation and Transaction Exposure
Description: A traditional area of concern that is receiving even more attention today is
foreign exchange risk management. We will discuss the likely impact that exchange rate
changes will have on a firm from both an accounting and economic perspective and then
analyze the costs and benefits of alternative hedging strategies.
Read: Chapter 10
Work: Problems 1-4, 7-9
Prepare: Internet Exercise 2
Week 9
March 18, 2004
Topic: Measuring and Managing Foreign Exchange Exposure continued
Description: A traditional area of concern that is receiving even more attention today is
foreign exchange risk management. We will discuss the likely impact that exchange rate
changes will have on a firm from both an accounting and economic perspective and then
analyze the costs and benefits of alternative hedging strategies.
Read: Chapter 10
Work: Problems 1-4, 7-9
Prepare: Internet Exercise 2
Case 10: ZAPA Chemical and BuBa
(assigned and due on March 25th)
Week 10
March 25, 2004
Topic: Global Cost of Capital and Financial Structure
Description: Multinational corporations can utilize the global capital markets to minimize
their cost of capital and maximize funds availability. We will examine the issues central to
determining the cost of capital for a multinational corporation and how to establish and
manage a consolidated worldwide capital structure.
Read: Chapters 14 and 19 (pp. 669-671)
Work: Problems 9-10
Week 11
April 1, 2004
Topic: Foreign Direct Investment and Country Risk
Description: Increasing global competition forces firms to not only think but also act
globally. We will analyze the decision whether, where, and how to undertake foreign
direct investment as well as examine the strategies for political risk management.
Read: Chapters 6 (pp. 198-221) and 16
Prepare: Internet Exercises 6.2 and 16.2
Case 16: P.T. Semen Gresik
(assigned and due on April 15th)
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Week 12
April 15, 2004
Topic: Capital Budgeting for the Multinational Corporation
Description: Foreign investment opportunities available to firms need to be evaluated in
terms of whether they will increase the value of the firm. We will analyze the foreign
investment decision-making process, which includes techniques for evaluating foreign
investment proposals and how to adjust cash flows for the various economic and political
risks encountered abroad.
Read: Chapter 17
Currency Project Due on April 15th
Week 13
April 22, 2004
Topic: Financing Foreign Trade and Working Capital
Description: Managing multinational operations are a critical part to running a global
business as efficiently as possible. We will begin with a review of the documents involved
in trade financing and then discuss the various sources available to finance working capital.
Read: Chapters 18 and 19 (pages 662-669)
Work: Problems 19.7-8
Case 23: Northwestern Paper Company
(assigned and due on April 29th)
Week 14
April 29, 2004
Topic: Managing Multinational Operations
Description: Management of working capital requires both flow and stock decisions. We
will focus on how the MNC handles cash and review the techniques to reposition funds
across borders while overcoming political, foreign exchange, tax, and transaction cost
constraints.
Read: Chapters 19 (pages 642-658) and 20
Work: Problems 1abc, 2, 4, 5
Week 15
May 6, 2004
FINAL EXAM
(7:00 p.m.)
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