SFB12614 International Finance (Spring 2015)

The course is connected to the following study programs

Compulsory for students on

• the International Business Programme.
• the Business Administration Programme, specializing in International Business or Economic Analysis

Prerequisites

Microeconomics, Macroeconomics or equivalent.

Lecture Semester

6th semester (spring).

The student's learning outcomes after completing the course

This subject will enable the student to achieve the following learning outcomes.

Knowledge
The student will have gained knowledge of the functioning of the system of international finance both from the perspective of the international macro economy and from the perspective of a firm operating in international markets. This includes a wide spectrum of concepts, such as the idealized concept of 'purchasing power parity', the benefits and costs of hedging and speculating with derivatives and the effects portfolio diversification. The student will have gained an understanding that risk cannot be eliminated - it can only be re-distributed to others.

Skills
The student will have learned to analyze and interpret key markets, institutions, processes and instruments of the global financial economy. This includes theoretical concepts, based on mathematical models, graphical representation and text- and data analysis. In particular the student will have learned to evaluate the benefits, costs and risks of globalization.

General competence
The student will have built a frame of reference for understanding and evaluating the functioning of the global financial markets, its opportunities, challenges and risks. The student will be ready to use the above mentioned methods of analysis to arrive at answers to specific questions under the uncertainties presented by global financial conditions - be it in the pursuit of more advanced academic degrees, or be it in the student's future role as economist, entrepreneur, administrator, policy-maker or educator.

Content

This course is built around three central questions: 'How does the system of international finance function?' ' What are the specific instruments that, for better or for worse, are used by the participants in international financial markets for the purpose of hedging against risk, and for the purpose of embracing risk through speculation?', and 'How could things go so wrong to produce a financial crisis that has led to world recession?'

Topics are:

• The "Great Financial Crisis" and the Myth of the Rational Market
• Foreign Exchange Markets
• Derivatives
• Hedging
• Speculation
• Interest Rate Exposure: Interest Rate and Currency Swaps
• International Portfolio Theory and Diversification
• Adverse Selection
• Moral Hazard
• Credit Rationing
• Selected Topics in International Finance

Forms of teaching and learning

Students will participate in the following learning activities:

Lectures; seminars; group work to solve analytical tasks and practice team approach to problem solving; discussion groups on theoretical modeling; discussion groups on data analysis; one-on-one coaching.

Coursework requirements - conditions for taking the exam

Three analytical group written assignments will be assessed on a 'pass'/'fail' basis.

A 'pass' on all assignments is necessary to obtain permission to take the final exam.

Examination

Four hours written examination
Aids allowed: calculator, mother tongue - English - mother tongue dictionary.
Grades: A - F.

The students have the right to complain on the grades given on the written examination.

If a student gets F, the re-sit exam might be arranged in June, in case three students sign up for the re-sit. If less than three apply for re-sit, the next exam will be a regular exam next Autumn. Students must be aware of that content, requirements and textbook may have changed, and it is a student's responsibility to check it and get updated. Students have to sign up for the exam within the deadline.

Course evaluation

To improve the course, we need the evaluations from the students. The course is evaluated by the students in the middle and in the end of the semester.

The evaluations from the students are treated by the staff and the comitee for programme quality and internationalization.

Literature

The readinglist was last updated 29 October 2014.

Mandatory literature Main Textbook: Eiteman, David K., Arthur I. Stonehill and Michael H. Moffett (2013). Multinational Business Finance, 13th ed. (Global Edition) Boston: Pearson/Prentice Hall. 656p.

Handouts: There will be additional hand-outs related to current events in the international financial markets. They will be listed in the lecture schedule made available at the beginning of lectures.

Additional reading

• Fox, Justin (2009). The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. Harper Collins Publishers.
• Bellamy Foster, John and Fred Magdoff (2009). The Great Financial Crisis: Causes and Consequences. Monthly Review Press.
• Howells, Peter and Keith Bain (2007) Financial Markets and Institutions, Prentice Hall.
• Moffet, Michael H., Arthur I. Stonehill, and David K. Eiteman (2014), Fundamentals of Multinational Finance, Pearson International Edition, Prentice Hall.
• Berk, Jonathan and Peter DeMarzo (2013), Corporate Finance,Pearson International Edition, Addison Wesley.
• Bodie Zvi, Robert C. Merton, and David L. Cleeton (2012), Financial Economics, Pearson International Edition, Prentice Hall.
• Thomas Piketty (2014), "Capital in the Twenty-First Centtury", (translated into English by Arthur Goldhammer), Belknap Press.
• Levinson, Marc (2014). The Economist Guide to Financial Markets: Why they exist and how they work. 1st edition. Publisher: The Economist. Series: Economist Books.
• Arnold, Glen (2012). Financial Times guide to the Financial Markets. 1st edition. Publisher: FT Press
• Madura, Jeff (2014). International Financial Management. 12th edition. Publisher: Cengage Learning.
• Madura, Jeff (2014). Financial Markets and Institutions. 11th edition. Publisher: Cengage Learning.
• James, Jessica; Marsh, Ian; Sarno, Lucio (eds.) (2012). Handbook of Exchange Rates. 1st edition. Publisher: Wiley.
• Hull, John (2015). Risk Management and Financial Institutions. 4th edition. Publisher: Wiley.
• Augen, Jeff (2013). Trading Options at Expiration: Strategies and Models for Winning the Endgame. Publisher: FT Press.