International Financial Markets
SEC430 International Financial Markets
School of Banking and Finance
International Undergraduate Programs
Professor Jiangze Bian
#708BoXue Building jiangzebian@uibe.edu.cn
International Financial Markets
Spring 2016
Table of Contents
Course Overview
This course is a challenging theoretical course intended for those majoring in economics or business. It is really helpful for the students to learn the subsequent courses such as Balance of Payments, International Portfolio Theory, foreign exchange market, etc.
Students will extend their experience with theories as they study the fundamental concepts of global financial market: International debt and equity, the basic components of Bop, International Monetary System which including the whole development of monetary system.
It covers foreign currency derivatives, swaps, and any other financial instruments with applications of foreign exchange market as well as the conditions of international parity and currency crises, with an emphasis on applications to problems from business and economics in global financial market.
On the other hand, it covers global cost capital and international debt and integration with balance of payment and currency crises in international monetary system.
Finally, it introduces some theory about international finance, including international equity and international portfolio theory and multinational capital budgeting with their applications in global financial market.
David. K. Eiteman, Arthur I. Stoneh, and Michael H. Moffett, , Multinational Business Finance (Pearson 2013).
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Office: |
#708BoXue Building |
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Phone: |
64492533 |
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Email: |
jiangzebian@uibe.edu.cn(I will typcially respond to email within 24 hours.) |
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Attendance Policy: Students are expected to attend every class. If a class is missed, the student is responsible for all material, assignments and announcements. Every student must put his/her SIGNATUREon theattendance record.
Homework Policy: Homework will be assigned at the end ofeach lecture. It is supposed to be completed by the next class meeting.It is ESSENTIAL to your success in the course that you do the homework regularly, and on time.No make-up homework will be given.
Mid Exam Policy: No make-up mid exam is permitted.
Final Exam Policy: No make-up final exam is permitted.
SCHEDULE
Week 1(Sep-9) The International Monetary System
Chapter 2 in ESM (Eiteman, Stonehill, & Moffett, 11th ed)
Define the International Monetary System
Define terms that are used in reference to exchange rates and currency regimes
Define the differences between “de(re-)valuation” and “de(ap)preciation”
Overview the history of exchange rate regimes
Classify modern exchange rate regimes
Analyze the characteristics of an ideal currency
Describe how the euro was created and its effects
Assignments & Exams: Chapter 2 in ESM
Questions: 2, 3, 4, 5, 6, 9, 12
Problems: 1, 2, 4, 5, 6
Week 1(Sep-11) The Balance of Payments
Chapter 3 in ESM
To understand concept of balance of payments
Assignments & Exams: Chapter 3 in ESM
Questions: 1, 3, 5, 6, 7, 8, 9, 10 , 11, 12, & 15
Problems: 1-4, & 22-28,
Weeks 2 (Sep-16) The Balance of Payments
Chapter 3 in ESM
To understand accounts of balance of payments
Assignments & Exams: Chapter 3 in ESM
Questions: 1, 3, 5, 6, 7, 8, 9, 10 , 11, 12, & 15
Problems: 1-4, & 22-28,
Weeks 2 (Sep-18) NO CLASS
Weeks 3 (Sep-23) International Parity Conditions
Chapter 4 in ESM
Analyze how the spot and forward currency markets are aligned with inflation and interest rate differentials between countries
Demonstrate how price levels and price level changes (inflation) in countries determine the current and future exchange rates at which their currencies trade
Show how interest rates reflect inflationary forces within a country
Assignments & Exams: Chapter 4 in ESM
Questions: 1, 5, 8, & 9
Problems: 2, 3, 4, 7, 8, 9, 14, 15, 17, & 20
Weeks 3 (Sep-25) International Parity Conditions
Ch. 1.3, 1.4
Show how interest rate differentials between countries affect the relation between the current spot rate and the (expected) future spot rate of exchange
Show how interest rate differentials between countries determine the relation between the current spot rate and the forward rate of exchange
Discuss the extent to which forward exchange rates reflect expectations about the future spot rate
Assignments & Exams: Chapter 4 in ESM
Questions: 1, 5, 8, & 9
Problems: 2, 3, 4, 7, 8, 9, 14, 15, 17, & 20
Weeks 4 (Sep-30) Currency Crises & Contagion
Chapter 5, pp148-161 in ESM (Eiteman, Stonehill, & Moffett, 11th ed)
Define a currency crisis, a banking crisis, and a twin crisis
Discuss the challenges in promoting international capital flow and the benefits of international capital investment
Describe the role of increased capital mobility in currency crises
Assignments & Exams: Chapter 5 in ESM
Questions: 8, 9, 10, 11, 12, 13
Weeks 4 (Oct-2) NO CLASS
Weeks 5 (Oct-7) NO CLASS
Weeks 5 (Oct-9) Currency Crises & Contagion
Chapter 5, pp148-161 in ESM (Eiteman, Stonehill, & Moffett, 11th ed)
Explore the causes and dynamics of currency and banking crises including the East Asian and Russian currency crises
Overview the policy prescriptions to prevent crises
Explain the exchange-rate regime choices faced by emerging markets
Assignments & Exams: Chapter 5 in ESM
Questions: 8, 9, 10, 11, 12, 13
Weeks 6 (Oct-14) Test one
Cover Chapter 1
Weeks 6 (Oct-16) Foreign Currency Derivatives
Chapter 7 in ESM
Examine how foreign currency futures are quoted and used for speculation purposes
Illustrate how foreign currency futures differ from forward contracts
Assignments & Exams: Chapter 7 in ESM
Questions: 1, 3, 4, 5, 9, 10
Problems: 1, 2, 5, 6, 7
Weeks 7 (Oct-21) Foreign Currency Derivatives
Chapter 7 in ESM
Define interest rate risk and demonstrate how it can be managed
Describe interest rate swaps and show how they can be used to manage interest rate risk
Assignments & Exams: Chapter 7 in ESM
Questions: 1, 3, 4, 5, 9, 10
Problems: 1, 2, 5, 6, 7
Weeks 7 (Oct-23) Interest Rate Swaps, Currency Swaps, & Other Interest Rate Derivatives
Chapter 14 in MSE (Moffett, Stonehill, &Eiteman, 2nd ed)
Can use derivatives to find absolute maximum and minimum values, solve maximum-minimum problems in business and economics
Assignments & Exams: Chapter 14 in MSE
Questions: 2, 6, 7, 8, 9, 10, 11
Problems: 2, 4, 5, 6, 7, 8, 9
Weeks 8 (Oct-28) Interest Rate Swaps, Currency Swaps, & Other Interest Rate Derivatives
Chapter 14 in MSE (Moffett, Stonehill, &Eiteman, 2nd ed)
Analyze how foreign currency options are quoted, and used for speculation purposes
Consider the distinction between buying and writing options in terms of whether profits and losses are limited or unlimited
Explain how foreign currency options are valued
Assignments & Exams: Chapter 14 in MSE
Questions: 2, 6, 7, 8, 9, 10, 11
Problems: 2, 4 , 5, 6, 7, 8, 9
Weeks 8 (Oct-30) Foreign Exchange Market
Chapter 6 in ESM
Examine the structure of and functions performed by the foreign exchange (FOREX or FX) market: who are the participants? what is the size? what is the geography? and which currencies dominate?
Distinguish among spot, forward, and swap foreign exchange transactions/instruments
Assignments & Exams: Chapter 6 in ESM
Questions: 2 ,3, 4, 6, 7, 8, 9, 10
Problems: 2, 4, 6, 7, 10, 13, & 17
Weeks 9 (Nov-4) Foreign Exchange Market
Chapter 6 in ESM
Identify the forms of currency quotations used by currency dealers, financial institutions, and agents
Analyze the interaction among cross exchange rates, opportunities arising from inter-market arbitrage, and changing currency values
Assignments & Exams: Chapter 6 in ESM
Questions: 2 ,3, 4, 6, 7, 8, 9, 10
Problems: 2, 4, 6, 7, 10, 13, & 17
Weeks 9 (Nov-6) Global Cost of Capital
Chapter 11 in MSE
Show how a firm—headquartered in a country with an illiquid and segmented capital market—achieves a lower global cost and greater availability of capital
Evaluate the effect of market liquidity on the cost of capital
Assignments & Exams: Chapter 11 in MSE
Questions: 2, 3, 4, 7, 8, 9, 10, 11, 12, 13, 14
Problems: 1, 4, 8-10
Weeks 10 (Nov-11) Global Cost of Capital
Chapter 11 in MSE
Evaluate the effect of market segmentation on the cost of capital
Compare the weighted average cost of capital for an MNE with its domestic counterpart
Assignments & Exams: Chapter 11 in MSE
Questions: 2, 3, 4, 7, 8, 9, 10, 11, 12, 13, 14
Problems: 1, 4, 8-10
Weeks 10 (Nov-13) Mid exam
Cover Chaps 1~3
Weeks 11 (Nov-18&Nov-20) Instruments of the International Debt Markets
Chapter 13 in ESM
Identify the relevant characteristics of different international debt instruments in financing both the MNE itself, and its various foreign subsidiaries
Assignments & Exams: Chapter 13 in ESM
Questions: 2, 4, 7, 9, 10, 12, 13,
Problems: 7, 8, 9
Weeks 12 (Nov-25) Sourcing International Equity
Chapter 12 in ESM
Discuss the motivations and benefits for firms that cross-list or issue new equity on foreign equity markets
Identify the various financial market instruments and non-market means that can be used to source equity in the global markets
Assignments & Exams: Chapter 12 in ESM
Questions: 1-12
Weeks 12 (Nov-27) Test Two
Cover Chap 4
Weeks 13 (Dec-2) Sourcing International Equity
Chapter 12 in ESM
Recognize the barriers to effectively penetrate foreign equity markets through cross-listing and selling equity abroad
Devise strategies for firms to cross-list/issue new equity on foreign equity markets
Assignments & Exams: Chapter 12 in ESM
Questions: 1-12
Weeks 13 (Dec-4) International Portfolio Theory
Chapter 15 in MSE (Eiteman, Moffett &Stonehill, 2nd ed)
Explore how foreign exchange risk impacts the individual investor investing internationally
Separate total risk of a portfolio into two components, diversifiable and non-diversifiable
Demonstrate how non-diversifiable risks of an investor’s portfolio may be reduced through international diversification
Show better risk-return investment opportunities are available through an international portfolio
Assignments & Exams: Chapter 15 in MSE
Questions: 1-10, 12, 13
Problems: 1-6, 8
Weeks 14 (Dec-9) International Portfolio Theory
Chapter 15 in MSE (Eiteman, Moffett &Stonehill, 2nd ed)
Review the recent history of equity market performance globally, including the degree to which the markets are more or less correlated in their movements
Examine the question of whether markets appear to be more or less integrated over time
Explore how international portfolio theory may be extended to the estimation of an internationally-held firm’s cost of equity using the international CAPM
Assignments & Exams: Chapter 15 in MSE
Questions: 1-10, 12, 13
Problems: 1-6, 8
Weeks 14 (Dec-11) Multinational Capital Budgeting
Chapter 18 in ESM
Extend the domestic capital budgeting analysis to evaluate a Greenfield foreign project
Assignments & Exams: Chapter 18 in ESM
Questions: 2, 3, 6, 7, 10, 11
Problems: 1, 3, 4, 5
Weeks 15 (Dec-16) Multinational Capital Budgeting
Chapter 18 in ESM
Distinguish between the project viewpoint & the parent viewpoint when analyzing a potential foreign investment
Adjust the capital budgeting analysis of a foreign project for risk
Assignments & Exams: Chapter 18 in ESM
Questions: 2, 3, 6, 7, 10, 11
Problems: 1, 3, 4, 5
Weeks 16 (Dec 17th--19th) Final exam week
Cover Chaps 5~6
