MSc. In International Banking and Finance
Course Title
Course Code
No. of Credits/Semester
Mode of Tuition
Teaching Hours
Category in Prog.
Pre-requisite
Jimmy Ran
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International Money and Finance
IBF501
3
Lectures
36
Required
None
Fall 2008
Brief Course Description:
This course covers the exchange rate market, the balance of trade and payment, the evolution of the
international monetary systems, foreign exchange risk and methods to tackle such risk, currency
crisis and speculative attacks, international investment and capital flows, the international money
market.
Aims:
The aim of this course is to equip students with the general knowledge on exchange rate, balance of
payment, international monetary system and money market, international investment and capital
flows. Upon completion of this course, students are expected to understand the operation of
exchange rate markets, the causes and effects of foreign exchange rate movements, currency crisis
and methods to deal with crisis, the operation of the international monetary system, and the
determinants of international investment and capital flows.
Learning Outcomes:
Today’s financial markets are truly global in nature. No student of economics or finance can fully
understand current developments without some background in international finance. This course
attempts to cover the practical issues of international finance and summarizes the current literature
with only elementary math as a prerequisite. The practical questions include, but not limit to, where
to borrow and invest internationally, what different types of international bonds and stocks can be
used to raise capital, how exchange rates affect cash flows, what can be done to avoid foreign
exchange exposure and risk, and the general financial management problems of doing business in
the global environment. After completion of this course students are supposed to be equipped with
adequate theories and be able to apply them to the real world issues.
Indicative Contents:
The following indicative content is tentative and I may cover some seminal papers in
International Money and Finance. I may delete, add, and change the sequence, pending on
your background.
PART I THE INTERNATIONAL FINANCIAL ENVIRONMENT
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MSc. In International Banking and Finance
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Multinational Financial Management:
International Flow of Funds
International Financial Markets
Exchange Rate Determination
PART II
EXCHANGE RATE BEHAVIOR
Chapter 6
Chapter 7
Government Influence on Exchange Rates
International Arbitrage and Interest Rate Parity
Chapter 8
Relationships between Inflation, Interest Rates, and Exchange Rates
PART III
EXCHANGE RATE RISK MANAGEMENT
Chapter 5
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Currency Derivatives
Forecasting Exchange Rates
Measuring Exposure to Exchange Rate Fluctuations
Managing Transaction Exposure
Managing Economic Exposure and Translation Exposure
PART IV
LONG-TERM ASSET AND LIABILITY MANAGEMENT
Chapter 13
Chapter 14
Chapter 15
Chapter 16
Chapter 17
Chapter 18
Direct Foreign Investment
Multinational Capital Budgeting
Multinational Restructuring
Country Risk Analysis
Multinational Cost of Capital and Capital Structure
Long-Term Financing
PART V
SHORT-TERM ASSET AND LIABILITY
Chapter 19
Chapter 20
Chapter 21
Financing International Trade
Short-Term Financing
International Cash Management
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An Overview
MSc. In International Banking and Finance
Some Essential Papers on International Money and Finance
(There are some other important papers, but we first try the following due to time constraint. But the
following list does not preclude you from using other papers, particularly when you look for counter
arguments.)
1) Rogoff K. (1996). “The Purchasing Power Parity Puzzle”, Journal of Economic Literature,
XXXIV, 647-68
2) Flood R.P. and Garber P.M. (1984). “Collapsing Exchange Rate Regimes: Some Linear
Example”, Journal of International Economics, 17 (August), 1-13
3) Obstfeld, M. and K. Rogoff (1995), “The Mirage of Fixed Exchange Rates,” Journal of
Economic Perspectives, 9(4), 73-96.
4) Chou, W. L. and Shih, Y.C. (1998), “The Equilibrium Exchange Rate of the Chinese Renminbi”,
Journal of Comparative Economics, 26, 165-74.
5) Krugman, Paul. 1987. Pricing to Market When the Exchange Rate Changes. In Real Financial
Linkages among Open Economies, edited by Sven W. Arndt. and J. David Richardson. The MIT
Press, 48-70.
6) Jimmy Ran and Ronald Balvers (2000), “Exchange Rate Shocks and the Speed of Trade Price
Adjustment”, Southern Economic Journal, 67(1), 200-211.
Requirement Details
Each individual student must accomplish the flowing requirements. You are responsible for
anything I have talked about in class but the required textbooks have not, or anything the textbooks
have talked about but I have not in class. Your course grade depends on your performance in those
requirements. In accordance with the University policy, we give a grade of "I" (incomplete) only
under very unusual circumstances. Poor performance is not justification for an "I". Details for each
of the requirements are given below.
A. Individual Efforts
1. Homework Questions
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MSc. In International Banking and Finance
Homework will be assigned on a regular basis. (To start next week or the week after?) The
assignments are mandatory and designed to help you prepare for the final exam, whose format is
similar to homework questions. We discuss the homework problems and their solutions in classes.
Sitting idle without any input or output will not be given attendance credits. If you don’t try hard to
do the homework, we have to warn you that you are in bad shape for the exam.
Each student in a group (to be defined below) will answer 1 or 2 questions to all your
classmates. (Discuss who gets what questions. I prefer random selections by me. Is that OK?) Your
answers should be presented in 5 minutes. (What we do if we have over-runs. Stop him or her right
away or give last minute warning?) If your verbal answer is not clear, you have to submit your
answers in writing. (Submit to the whole class that day or to me the day before? On Fridays or on
Thursdays the week before?) The grading policy is to give no credits to wrong or no answers or
absentees, partial credits to partial answers or long but redundant answers, and only full credits to
the correct, direct, and coherent answers.
B. Team Efforts
The class will be divided into 6 groups, each of which consists of 10 students, pending on class
size. We will form groups for you according to alphabetic order of your last names. We will finalize
the grouping by the first week.
2. Case presentation
There is a case study at the end of each chapter in Madura’s textbook. I plan to choose 6 cases,
which will be taken up in the following manner:
case number
chapter
pages
presented by group
1
4
115
1
2
6
198-199
2
3
7
234-235
3
4
8
262-263
4
5
9
296-298
5
6
10
324-325
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Each group decides who presents which part of the questions in the case. (Can you do it by
yourselves?) To save time in class, each presentation group needs to prepare everything such as
handouts, spreadsheet calculation results, overhead projector transparencies, or even PowerPoint
slideshows before class. (You know how to do it?) Each question in the case should be dealt with
within 5 minutes. (What if we have over-runs?)
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MSc. In International Banking and Finance
In case of dispute over the working load, the assessment of the original individual contribution input
is required to be submitted when I ask that your group submits the collective output. We need your
help to evaluate the contribution percentage of yourself and each of your group members to avoid
the possible disputes, in which case we give each one of you an evaluation form to fill out. The
purpose is to enhance the maximum coordination and collaboration in your teamwork.
3. Point presentation of essential papers
Since you are going to be the masters of International Banking and Finance, you have to read some
cornerstone papers in this field. We must go beyond the traditional textbooks. We know this could
be a big challenge to you. But the enormous reward will be the analytical power you gain from your
learning experience with us, which will benefit the rest of your life if you choose to be in this field.
Each student in the presentation group must present a point from a paper. He or she has to have
something in writing in your own words to be submitted to me and to be circulated to all students in
class. Such writings would normally help you sort out your ideas and possibly facilitate your
revision of the final exam. Each point has to be different. Repetition of the same point gets no credit.
In order to make sure that your point is really different from those of other fellow students in the
same group, you have to talk or even discuss with other students. A presentation should be no more
than 5 minutes. If the presentation is not clear or the presenter makes no point, he or she gets partial
or no credit. I might ask the commenting group to give their marks to the presentation if necessary.
4. Counter-point presentation of essential papers
Each student in the counter-point presentation group must make a counter-point against the point
made by a student in the first group. I will choose anyone at random. Your reply is also 5 minutes. If
your counter-point is not clear, you get partial or no credit. I might ask the commenting group to
give their marks to you if necessary.
5. Comment by another group
Each student in the third group is going to comment on the points and counter-points raised by the
other two students. Each student in the third group must be involved in the argument as well by
asking at least one valuable and informative question to the point making student and at least
another equally good question to the counter-point student. The two questions you ask or two
comments you make should be less than 5 minutes. Marks are given according to the quality of the
questions asked.
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MSc. In International Banking and Finance
Specifically, suppose that we have 6 groups to discuss 6 papers, then the point making groups, the
counter-point making groups, and commenting groups are indicated in a table below:
Point-making
groups
1
2
3
4
5
6
Counter-point
making groups
2
3
4
5
6
1
Commenting
groups
3
4
5
6
1
2
Measurement of Learning Outcomes:
Final
Problem Sets
Cases
Point Presentation
Counter-Point Presentation
Comment
(50%) by University schedule
(5%) to be assigned regularly
(15%) to be presented in the first table
(10%) commencing on September 17
(10%) commencing on September 17
(10%) commencing on September 17
Required Readings:
Madura, Jeff (2006), International Financial Management, 8thed, South-Western Publishing
Company.
Copeland, L. S., Exchange Rates and International Finance, 3rded, Prentice Hall, 2000.
Supplement Readings:
Hallwood, C. P and MacDonald, R, International Money and Finance, 4thed, Blackwell, 2007.
Melvin, Michael, International Money and Finance, 7thed, Addison-Wesley, 2004.
Levi, Maurice, International Finance, 3rded, McGraw Hill, 1996.
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