International finance Course Module
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  • 1. COURSE MODULE Instructor: Ragini Khanna e mail ID- Khanna_ragini@yahoo.com Mb- 9988531999 Course: International Finance (MBA IB 302) Class: MBA IB Semester: III International Finance a must for MBA IB students!! International Finance deals with the financial decisions taken in the area of international business. The growth in international business is evident in the form of highly inflated size of international trade. The financial involvement of the trader’s exporters and importers and the quantum of the cross country transactions have surged significantly. All this requires proper management of international flow of funds for which the study of International Finance has become indispensable!! Course Objective: The course content has been designed in such a manner so as to equip the students with international financial practices being followed at the global level i.e. to look beyond the domestic boundaries- which is, indeed, the need of the hour. This course will give an insight into the architecture of foreign exchange markets-participants, Cross, Spot, Forward and Swap Rates, Inter-relationships between Foreign Exchange and Money Markets, Interest Parity and Covered Interest Arbitrage, Swap Transactions and positions etc., International Monetary system with its history, the types of foreign exchange operations and exposures along with the hedging techniques, Country Risk analysis, Eurobanking, International Financial Institutions, Structure of Balance of payment and finally trading at the International Stock Exchanges. 1
  • 2. Distribution of Marks: MSE’s 15 First hourly 5 Second hourly 5 Presentation 5 Assignments 10 Assignment 1 Analyze trend of Rupee VS Dollar, Rupee Vs Euro, Rupee Vs Ruble, Rupee Vs Yen and Rupee Vs Pound Sterling for the past 3 months and its impact on the economy. How do you Project the Future of Dollar in the near future. Purpose: Understanding of foreign exchange market requires the understanding of current trends in foreign exchange so with this purpose assignment is given to the students. Assignment 2 Perform a comparative study of FDI flow analysis of China VS India. What Similarities & differences can be accounted for FDI volumes between India and China? Purpose: FDI supports development in the host country. We need to know the reasons why China is able to attract more FDI than India because these are the 2 countries which are in direct competition in the international market. Assignment 3: Analyze the trend of FII since liberalization in India and the latest impact of FII on the Indian Stock Exchanges. Purpose: FII’s are practically driving Indian stock markets. So students need to know their roles and impact. Assignment 4 2
  • 3. Analyze the various “International” sources of financing followed by (atleast 5) Indian Companies/ Multinational Corporations operating in India. The entire issue/ offering has to be analyzed in detail. Purpose: With the help of this assignment the students will get an idea of the various modes of financing that have been actually been used by the companies in the past which will ultimately help in the better understanding of the topic discussed. Note: more assignments can be included as per the requirement of the course. Activity 1 Country and the currency The students will be asked to discuss about the currencies of various countries along with where that currency is trading w.r.t. rupee. Purpose: the activity will enhance the knowledge of students as they will come to know about the currencies of different countries (other than the few popular ones) by mutual effort. Activity 2 Let’s know the International Stock Exchanges Students will be asked to discuss about the various stock exchanges of the world – their method of operation, trading, settlement system, market cap, major indices etc. Lecture Lecture Content Assignments 1 Introduction to the subject: Meaning of international finance Reason for increasing importance of international finance. International finance and global economy. Role of international finance manager in multinational corporations 3
  • 4. 2 International financial environment: Assignment 1 Analyze trend of Rupee VS Dollar, Defining foreign exchange market The exchange rate Rupee Vs Euro, Rupee Vs Spot market. Ruble, Rupee Vs Yen and Rupee Vs Pound Sterling for the past 3 months and its impact on the economy. How do you Project the Future of Dollar in the near future? 3 International financial environment: Forward Market Quotation at the foreign exchange market- Direct quote indirect quote Two way quotes 4 International financial environment: Relationship between bid and ask prices of currencies, spread and cost of transaction. Cross Rate 5 Discussion : Depreciation Vs Appreciation Devaluation Vs Revaluation Of various currencies in the past. 4
  • 5. 6 Structure of Indian foreign exchange market: History, Developments & Current Status. 7 Exchange rate determination Factors Affecting exchange rate Expectations and asset model of exchange rate determination Central Bank Reputation Central Bank Independence 8 Case Study 1: The Mexico Peso problem Case Study 2: The Bank of England Gains Independence. 9 Theories of foreign exchange rate movement and international parity conditions Purchasing power parity Absolute purchasing power parity, 10 Theories of foreign exchange rate movement and international parity conditions Relative Purchasing Power Parity International Fisher Effect 11 Foreign Exchange Exposure: Meaning, Introduction Transaction Exposure Transaction Exposure Operating Exposure 5
  • 6. 12 Foreign Exchange Exposure: Meaning, Introduction Transaction Exposure Hedging and Management of Transaction Exposure 13 Case Study 1: Computing Transaction exposure for Boeing. 14 Foreign Exchange Exposure: Meaning, Introduction Hedging and Management of Translation Exposure and Operating Exposure. 15 International Trade and flow of funds: Introduction Balance of Trade Balance of Payment 16 International Trade and flow of funds: Measuring impact of exchange rate movement on the balance of payment India’s Balance of Trade and Payment A detailed discussion on foreign exchange reserves of India 17 International Monetary System The Gold Standard, 1876-1913 Decline of Gold Standard The inter-war years, 1914-1944 The Bretton Woods System, 1945-1972 The Smithsonian agreement 6
  • 7. The Flexible Exchange Rate Regime, 1973- Present Alternative Exchange Rate System Evaluation of Floating Rate 18 Country Risk Analysis: Nature of Country Risk Assessment Economic Risk Indicators 19 Country Risk Analysis: Techniques to Assess Country Risk Parameters of Country Risk Rates of Country Risk Case Study 4: BP BILLITON CASE STUDY ON INTERNATIONAL FINANCE 20 Foreign Direct Investment Assignment 2 Perform a comparative Why do firms invest abroad study Of FDI flow analysis The Indian Perspective of China VS India. What Similarities & differences Case Study 5: Case Study on Foreign Direct can be accounted for FDI Investment. volumes between India and China? 21 Foreign Institutional investment: Assignment 3: Analyze the trend of FII since Meaning, Needs importance liberalization in India and The Indian perspective the latest impact of FII on the Indian Stock Exchanges. 7
  • 8. 22 International Financial Institution/ Development Banks World Bank : History , Functions, Group Members, Member Countries World bank aid’s to India 23 International Financial Institution/ Development Banks IMF: History , Role, Functions, Member Countries Help to India 24 International Financial Institution/ Development Banks ADB: History , Role, Functions, Member Countries Help to India 25 Export & import financing: role of commercial banks. Basic instruments, private non-bank sources of finance 26 Financial operations of multinational corporations: Multinational project evaluation Reasons for changes in cash flows, (Subsidiary Vs Parent perspective) 27 Cost of Capital and Capital Structure of the Multinational Firm Cost of Capital for MNC’s Vs Domestic Firms Determinates of Affiliates/ Subsidiaries Capital Structure 28 Cost of Capital and Capital Structure of the Multinational Firm The Optimal Capital Structure and Cost of Capital 8
  • 9. Cost of Capital across countries Practical Framework of the Corporate Financing Decisions 29 Capital Budgeting Techniques for Multinationals NPV &APV method 30 Multinational Cash Management: Introduction to multinational Cash Management Objective Centralized Perspective of Cash Flow Analysis 31 Multinational Cash Management: Techniques to Optimize Cash Flow Netting Investing Excess Cash 32 Financing Of Multinational Corporations: Assignment4:-Analyze the various “International” International equity Market sources of financing ECBs followed by (atleast 5) International Bond Market Indian Companies/ Euro Market: Euro Commercial Paper, Euro Medium term Notes etc. Multinational Corporations operating in India. The entire issue/ offering has to be analyzed in detail. 33 International Trade financing: Introduction and problems faced by developing countries for promoting trade Management of credit risk Documents required such as letter of credit, Bill of lading etc. 34 9
  • 10. International Trade financing: International Trade financing In India Role of EXIM bank 35 International Equity Market: The ADR &GDR Issues Mechanics, Benefits and role of depositary Guidelines of Level 1 36 International Equity Market: The ADR and GDR issue Guidelines of Level 2 37 Derivative Contracts Futures & Forward contracts: Meaning and Basics Margin Systems Trading & Settlement Rules Marking to Market 38 SWAP Introduction & Conceptual Framework Evolution Terminology 39. SWAP Interest Rate SWAP 40. Case Study 6- Dow Chemical swaps Fixed-for-Fixed with Michelin. 10
  • 11. 41 SWAP Currency Swaps & their Pricing, Working, Rationale 42 Case Study 7- Dow Chemical swaps Fixed-for-Floating with Michelin. 43 ECBs: External Commercial Borrowings and its guideline & Current Scenario. Specific guidelines issued by FIPB. 44 FEMA & FERA: Foreign exchange management Act, History, Developments and Present regulation 45 International Stock Exchanges: New York, London, Luxemburg, third world and Asian stock exchanges Working and their influences. 46 Case Study 8:The Walt Disney Company’s Yen Financing- Case Study Of Harvard Business School Recommended Books:- Multinational Financial Management by Alan C. Shapiro International Financial Management by PG Apte International Finance by Maurice D. Levi International Financial Management by B. Resnick 11
  • 12. PRESENTATION: 1. The students will be divided into groups of 4. 2. The presentations will start at 9 a.m. 3. The duration of each presentation will be 15 to 20 minutes. 4. The preceding group will ask questions to the succeeding group and will get marks, depending upon the validity of the question being asked. 5. The students are supposed to submit the synopsis of the material beforehand. 6. The evaluation criteria for presentation is as follows:- Formals: 5 Presentation skills: 10 Query handling: 3 Questions: 2 Content: 10 Topics For presentation: Role of Banks in Commodity Market EURO: Analysis & Implications Resource Mobilization by Indian Mutual Fund Industry. Role of Foreign Institutional Investment in Indian Derivatives Market International Stock Exchanges Impact of Globalization on the Insurance Industry of India FDI in Indian Retailing Global Banking Option and Futures trading in India Will rebranding the Rupee would help brand India raise its currency? Availability and Utilization of Foreign Exchange Reserves of India The Yuan Revaluation- Impact on India. Micro Finance- is it making the real impact? International Financial investment strategies and regulations for Indian Companies. The Blackberry Saga 12
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