Leeds School of Business | University of Colorado Boulder



INBU 4200 -- INTERNATIONAL FINANCIAL MANAGEMENT

FALL SEMESTER 2012 – LEEDS SCHOOL OF BUSINESS

4200-001: MW 2:00 - 3:15 KOBL 302

4200-002: MW 4:00 - 5:15 KOBL 302

Professor Michael Palmer

Office: KOBL S419

Office Phone: (303) 492-4241

E-Mail: Michael.Palmer@Colorado.EDU

Home Page:

COURSE DESCRIPTION:

INBU 4200 (International Financial Management) will explore the financial issues confronting multinational firms and global investors. The course will focus on the unique “international” financial environments and associated opportunities and risks that confront global firms and global investors. Some of these factors include exposure to exchange rate moves, access to various financial markets, global and regional contagion effects, differences in market transparency and regulation, variations in regional and country by country growth patterns and economic/financial performance, variations in corporate governance, and country risk and political risk. The course will also explore appropriate strategies for dealing with these environments and risks. Students will be introduced to various web sites which will allow them to monitor news and updated conditions in international financial markets (e.g., foreign exchange rates, bond rates, money market rates, stock prices, central bank rates).

GENERAL COURSE TOPICS (Covered in Lectures and Text Book Chapters):

Valuation Models for Multinational Firms and Global Investors

• How does participation in international markets impact firms and investors?

o Anglo Saxon (shareholder maximization) valuation model for firms

o Rate of return valuation model for investors

• How can we model the uncertainty due to exposure to exchange rate risk, country risk, political risk and international/regional economic conditions on firms and investors?

The Globalization (and Regionalization) Process and Relationship to the International Finance Function

• What is the finance function for a firm (specifically in an international context)?

• The globalization of consumption, production and finance (including financial markets)

• The implications of financial market globalization (and regionalization) for global companies and global investors

• Traditional financial markets and offshore financial markets

• Corporate financial objectives and corporate governance in a global setting (including cultural impacts)

• Current issues in international markets (LIBOR scandal, European sovereign debt crisis – the PIIGS, uncertainty regarding the future of the euro, recession/slowing growth trends in major European countries – e.g., triple dip in the UK?, benchmark sovereign debt yields at historical lows, reoccurring flight to safety impacts, debate regarding austerity versus stimulus, central bank struggles)

Foreign Exchange Markets

• What are they, where are they and who are involved?

• Role of market marker banks

• Understanding foreign exchange quotes and contracts

o American terms and European terms

o Spot quotes and forward quotes (along with base and quote currencies)

o Determination of the forward rate (Interest rate parity model)

o Bid and ask prices

History of the International Monetary System (Focus on Exchange Rate Regimes)

• Gold Standard (pegged rates to gold) to Bretton Woods (fixed rates to the U.S. dollar) to Current Arrangement (floating and managed rates with a few pegged rates)

• Impact of different exchange rate regimes on exchange rates and potential impacts on multinational firms and global investors

Forecasting Foreign Exchange Rates (Focus on Floating Exchange Rate Regimes)

• Factors influencing exchange rates

o Demand and supply model

• Asset choice models (short term models)

o Relative in interest rates

o Balance of payments

o Safe haven effects

• Long term parity models

o Purchasing Power Parity (inflation differentials)

o International Fisher Model (long term nominal interest rate differentials)

• Government influence and intervention/management of exchange rates

• Case studies of recent moves in exchange rates

Foreign Exchange Exposure: Risk, Measurement and Management

• The three types of foreign exchange exposures facing multinational firms and resulting risk for these firms

o Transaction, economic and translation exposures

• Foreign exchange (exposure) risk management techniques

o Using financial market contracts to manage foreign exchange exposure

▪ forward contracts

▪ future contracts

▪ money market hedges, and

▪ options contracts

o Operational strategies for dealing with foreign exchange exposure

▪ Diversification of production and sales

▪ Invoicing decisions

▪ Leading and lagging payments

▪ Netting

International Financial Markets and Institutions

• International financial markets

o Debt markets: Banking (short term, money markets) and longer term bond markets (capital markets)

▪ Home markets and offshore markets for debt

o Equity markets (including cross listings)

▪ American depository receipts and global depository receipts

o Foreign exchange markets

o Derivative markets (including CDS as insurance against debt defaults)

Managing the Multinational Firm

• Different modes of foreign market entry (with focus on foreign direct investment -- FDI)

• Multinational capital budgeting

o Country differences in capital structures (i.e., the use of debt and equity)

• Managing country risk, political risk and financial risk

• Long term financing (in debt and equity markets)

• Short term financing (banking markets and money markets)

SPECIFIC LECTURES (I.E., STRUCTURED LECTURES WITH POWER POINT SLIDES):

Lecture 1: Valuation Models for Multinational Firms and Global Investors

Lecture 2: The International Monetary System: A Discussion of Foreign Exchange Regimes

Lecture 3: An Empirical Analysis of the Impact of Foreign Exchange Regimes on Exchange Rates

Lecture 4: The Structure of the Foreign Exchange Market

Lecture 5: Understanding Foreign Exchange Quotes

Lecture 6: Understanding Forward Exchange Quotes and the Use of the Forward Market

Lecture 7: Determining the Appropriate Forward Foreign Exchange Rate, the Interest Rate Parity Model

Lecture 8: Parity Models and Foreign Exchange Rates, the Purchasing Power Parity

Lecture 9: Parity Models and Foreign Exchange Rates, the International Fisher Effect

Lecture 10: Understanding Foreign Exchange Exposure

Lecture 11: Managing Foreign Exchange Exposure with Financial Contracts

Lecture 12: Managing Foreign Exchange Exposure with Operational Hedges

Lecture 13: The International Money Markets, The Eurocurrency Markets

Lecture 14: The International Bond Markets

Lecture 15; Part 1: The International Equity Markets, an Introduction

Lecture 15; Part 2: The International Equity Markets, Trends and Issues

REQUIRED TEXT:

International Financial Management, by Jeff Madura, 11th Edition, South Western

RECOMMENDED READINGS; THE FINANCIAL PRESS:

It is strongly recommended that you read the Wall Street Journal and or the FT and link to Bloomberg ( ) on a daily basis.

OFFICE INFORMATION:

Office: KOBL S419 (overlooking the Leeds parking lot) 

Phone:  303-492-4241 (please leave voice message if I’m not there)

E-Mail: michael.palmer@colorado.edu

Office hours: Monday, Wednesday 12:30 -1:45 and by appointment

WEEKLY TEXT BOOK ASSIGNMENTS, TEXT TOPICS AND EXAM DATES:

Weeks (M – W) Chapter Assignments, Topics and Exams

1-5 (Aug 27 – Sept 26) Text: Part 1; Chapters 1 – 4. The International Financial Environment

Text: Part 4; Chapter 13. Direct Foreign Investment.

Exam 1: Wednesday, September 26

6-10 (Oct 1 – Oct 29) Text: Part 2; Chapters 6 – 8; Part 3: Chapter 9.The

Foreign Exchange Determination/Forecasting

Text: Part 4; Chapters 13 – 18. Long Term Asset/liability Management

Exam 2: Monday, October 29

10-15 (Oct 31 – Dec 5) Text: Part 1; Chapter 5. Part 3; Chapters 10 - 12

Managing FX Exposure

Text: Part 5; 19 – 21

Short Term Asset/Liability Management

Exam 3: Monday, December 3

IMPORTANT DATES:

No classes on:

Monday, September 3 (Labor Day)

Monday, November 19 – Wednesday November 21 (Fall Break/Thanksgiving)

EXAM SCHEDULE AND EXAM INFORMATION:

Exam 1 Week 5: Wednesday, September 26, (lecture material since August 27, assigned text chapters for weeks 1 - 5, and assigned readings on my course website to September 24).

Exam 2 Week 10: Monday, October 29, (all lecture material since August 27, assigned text chapters for weeks 6 -10 and assigned readings on my course website since exam 1).

Exam 3 Week 15: Monday, December 3, (all lecture material since August 27, text chapters for weeks 10 - 15 and assigned articles on my course website since exam 2).

These three major exams will cover daily lectures (including power point slides), assigned text chapters, assigned readings postings on my course web site. Except for the lecture material, exams will not be cumulative. Exams are likely to include true/false, multiple choice, definitions, calculations, and short essay questions. Make up exams will not be offered. Please make every effort to meet this exam schedule (if you have a conflict with this schedule please see me as soon as possible). Exams are equally weighted.

Final Exam: Section 001 Monday, December 17th, 4:30pm to 7:00pm

Final Exam: Section 002 Wednesday, December 19th, 7:30am to 10:00am

Note: The Final Exam is worth twice a scheduled semester exam.

ASSIGNED READINGS ON COURSE WEB SITE:

Throughout the semester, articles and readings will be posted on my University of Colorado home page under this course (INBU4200). I will email my CU class distribution list just after posting so please be looking for these announcements. Please refer to:



POWER POINT LECTURES:

In addition to assigned readings (see above), my power point lecture slides will also be available on my CU home page at. Again, please refer to:



Link to “Current Courses,” and then to Power Point Lecture Slides under INBU4200. Slides will normally be posted the weekend before the actual lecture. It is ok to bring your lap tops to class but only for the purpose of following along with my posted slides or web sites we might visit during my lectures.

ATTENDANCE EXPECTATION FOR THIS CLASS:

While I do not take attendance in this class, I do require that you do not leave the classroom once the class has begun. Please prepare yourself for this expectation. I also ask that you refrain from engaging in activities which may prove disruptive to your fellow students or to me.

COURSE LEARNING OBJECTIVES:

1. To develop an understanding and appreciation of the critical financial issues facing managers of international firms and global investors in today’s increasingly globalized world.

2. To develop a practical framework for the analysis of exchange rates and foreign exchange exposures including an understanding of forces affecting exchange rates, possible models and approaches for forecasting exchange rates, and techniques for managing various types of foreign exchange exposures.

3. To develop students’ understanding of current issues and use of relevant data in the area of international finance through regular readings and discussions of articles in the financial press and through the use of appropriate on-line web sites.

THE 2013 LEEDS LONDON SEMINAR IN INTERNATIONAL FINANCE AND BUSINESS:

2013 will mark the 27th consecutive summer for the Leeds London Seminar in International Finance and Business. Those of you interested in the summer 2013 Leeds London should refer to the London Seminar site on my home page () under “Current Courses.” From this site you can also view the 2012 program schedule (the 2013 schedule will be very similar).

The 2013 program will start on Monday, July 8th and end on Friday, August 9th.

The London seminar is designed to cover a wide range of international and Europe based financial, economic, business, and political issues. The 5 week seminar is taught by a variety of guest speakers, primarily from industry, and includes various site visits to companies and financial institutions and markets. Approximately 4 ½ weeks will be spent in London and 4 days in Paris. During the five weeks, students will be housed in apartments in London and in a hotel while in Paris.

The seminar is limited to 24 students and results in 6 hours of finance credit (students should check with their advisors to see how this course will work into their degree program). The course also counts towards the International Certificate Program. Applications are accepted on a rolling basis and the program will close once 24 students have been accepted and have committed to the program.

The prerequisite for this course is BCOR 2200 (Introduction to Finance). Scholarship funds are available for accepted students to attend this seminar from both the Study Abroad Office and the Leeds School of Business. For more information about this course, please see me or visit my home page. Applications are available in the CU Study Abroad Office (Please see Nate Frank in the Study Abroad Office for applications).

USEFUL WEB SITES:

1. Real Time Financial/Business News and Financial Data from Bloomberg (a daily must read site)



2. Market Calendar (Economic and financial data to be released during the most recent week along with the market’s consensus expectation; Bloomberg site also provides a good description of the data and its importance)





3. Links to Business News





4. Foreign News (including business news)

Japan:

China:

Europe:

5. On Line Business/Finance Commentary



6. Links to all the Central Banks (including up to date financial and economic information and statements of Central Bank officials)



7. Links to Major Central Banks

United States:

United Kingdom:

European Central Bank:

Japan:

China:

8. Central Bank Benchmark Interest Rates (current and previous short term interest rate targets of many of the world’s central banks)



9. Real Time Foreign Exchange Quotes (spot exchange rates; data and charts)



10. Historical Foreign Exchange Rates

Data and Charts:

Daily and Weekly Rates:

Monthly and Annual Rates:

11. Report on US Intervention in Foreign Exchange Markets



12. Bank for International Settlements Triennial Foreign Exchange Market Surveys



13. IMF Global Finance Reports (comprehensive site for financial market information)



14. Bank for International Settlements (Including BIS data links)



15. US Historical Financial Data (including most recent data)





16. United States and Foreign Stock Markets





17. Charts of US Stock Market Indexes (e.g., DJIA)





18. American Depository Receipts (foreign stocks trading in the United States)







19. Interest Rate Charts



20. US Treasury Interest Rate Auction Results



21. Federal Funds Interest Rate and Federal Reserve Discount Rate (Historical Table back to 1971, with explanations for changes)



22. Yield Curves: US (Illustrations of current and past yield curves):









23. Nominal and Real Yield Curves (U.S.)





24. Nominal and Real Yield Curves (Euro-Zone)



25. Country Background Notes and Country Corruption Measures





26. European Union Information



27. Interactive Map of the European Union (with country data)



28. National Currency Notes (Pictures of foreign currency notes)



29. TED Spread (3-month dollar LIBOR minus 3 month T-Bills rate); a measure of credit risk over default free rate in U.S credit market. Over the period 1990-2007 this spread has averaged about 40 basis points.



30. LIBOR OIS Spread (3-month dollar LIBOR minus overnight interbank index fixed/floating interest swap rate where the floating rate is the effective federal funds rate). Overnight indexed swaps are derivatives in which one institution agrees to pay a fixed rate in exchange for receiving the average of a floating central bank rate over the life of the swap. The LIBOR OIS Spread is a measure of interbank credit risk and lending activity in global credit market. Higher spreads suggest greater risk and market uncertainty. Typically, LIBOR is higher than the overnight index swap rate. When the LIBOR-OIS Spread is increasing, it tells us that banks believe the other banks they are lending to have a higher risk of defaulting on the loans so they are charging a higher interest rate to offset this risk. The spread has averaged about 11 basis points over the period 1997 – 2007.



STATEMENTS REQUIRED/RECOMMENDED BY THE OFFICE OF UNDERGRADUATE EDUCATION:

(1)   If you qualify for accommodations because of a disability, please submit to me a letter from Disability Services in a timely manner so that your needs may be addressed.  Disability Services determines accommodations based on documented disabilities.  Contact: 303-492-8671, Willard 322, and Colorado.EDU/disabilityservices. Disability Services' letters for students with disabilities indicate legally mandated reasonable accommodations.  The syllabus statements and answers to Frequently Asked Questions can be found at colorado.edu/disabilityservices.

(2) Campus policy regarding religious observances requires that faculty make every effort to reasonably and fairly deal with all students who, because of religious obligations, have conflicts with scheduled exams, assignments or required attendance.  Please call to my attention any religious observances which will conflict with assigned work, including, but not limited to, scheduled exams.

(3)  Students and faculty each have responsibility for maintaining an appropriate learning environment. Students who fail to adhere to such behavioral standards may be subject to discipline. Faculty has the professional responsibility to treat all students with understanding, dignity and respect, to guide classroom discussion and to set reasonable limits on the manner in which they and their students express opinions.  Professional courtesy and sensitivity are

especially important with respect to individuals and topics dealing with differences of race, culture, religion, politics, sexual orientation, gender variance, and nationalities.  Class rosters are provided to the instructor with the student's legal name. I will gladly honor your request to address you by an alternate name or gender pronoun. Please advise me of this preference early in the semester so that I may make appropriate changes to my records.  See polices

at:   and at



Campus "Classroom Behavior" policy describes examples of unacceptable classroom behavior. Please see  

(4)   The University of Colorado at Boulder policy on Discrimination and Harassment

(, the University of Colorado policy on Sexual Harassment and the University of Colorado policy on Amorous Relationships applies to all students, staff and faculty.  Any student, staff or faculty member who believes s/he has been the subject of discrimination or harassment based upon race, color, national origin, sex, age,

disability, religion, sexual orientation, or veteran status should contact the Office of Discrimination and Harassment (ODH) at 303-492-2127 or the Office of Judicial Affairs at 303-492-5550.  Information about the ODH and the campus resources available to assist individuals regarding discrimination or harassment can be obtained at  

(5)   All students of the University of Colorado at Boulder are responsible for knowing and adhering to the academic integrity policy of this institution. Violations of this policy may include: cheating, plagiarism, aid of academic dishonesty, fabrication, lying, bribery, and threatening behavior.  All incidents of academic misconduct shall be reported to the Honor Code Council

(honor@colorado.edu; 303-725-2273). Students who are found to be in violation of the academic integrity policy will be subject to both academic sanctions from the faculty member and non-academic sanctions (including but not limited to university probation, suspension, or expulsion). Other information on the Honor Code can be found at  and at

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