International Finance

1. International Finance
and Financial
Derivatives
MBA 915-18

2. Syllabus
Unit I
 International Finance: An overview, importance, nature and scope, recent changes and challenges in IFM. International
flow of funds: Balance of Payments (BoP), Fundamentals of BOP, Accounting components of BOP, Factors affecting
international trade flows, Agencies that facilitate International flows. International Monetary System: Evolution, Gold
Standard, Bretton Woods system, the flexible exchange rate regime, the current exchange rate arrangements, the
Economic and Monetary Union (EMU), Foreign Exchange Market: Function and Structure of the Forex markets, Major
participants, Types of transactions and settlements dates, Foreign exchange quotations, Factors influencing foreign
exchange rates.
Unit II
 Parity Conditions in International Finance and Currency Forecasting: PPP, the Fisher effect, The International Fisher
Effect, Interest Rate parity Theory, The relationship between forward and future spot rate. International Sources of
Finance: Long Term- International Capital Markets (ADR’s, GDR’s), Foreign Bond Market, Foreign Banks, Euro
Markets, World Bank and IMF. Short Term: Banker’s Acceptance, Discounting, Factoring, Forfating, EXIM Bank of India

3. Unit III
 Derivatives: Meaning, Types, Importance, Principles and regulatory framework in India. Forward and
Futures Contracts: Meaning, Difference between forward and futures contracts, pricing of futures
contracts, determinants of value of futures contracts, Mark-to-Market, Payoffs of futures contracts.
Speculation, Hedging and Arbitrage by using futures contracts. Options Contracts: Meaning, type,
importance, Black-Scholes Model for pricing options contracts, factors determining option prices, Payoffs
of Call Option and Put Option contracts, Put-Call Parity. Option Trading Strategies: Covered call
writing, protective puts, Straddles, Strangles, Strips, Straps, Spreads including butterfly spreads,
calendar spreads etc.
Unit IV
 Swaps and Swaptions: Meaning, types, importance and pricing of swaps and Swaptions. Factors
determining price of swaps and Swaptions. Credit Derivatives: Meaning, Importance, pricing models
and strategies to hedge by using credit derivatives. Foreign Exchange Risk Management: Measuring
and managing Transaction exposure, Measuring and Managing Economic exposure, and Measuring and
Managing translation exposure, Country Risk Analysis, Foreign Exchange and Derivative Markets:
Currency Futures and option Markets, Swap and Interest rate derivatives.

4. Meaning of International Finance
Branch of Economics
Studies the dynamics of Exchange Rates, FDI,
International Trade
Also studies International Projects,
International Investments, Capital Flows, Etc.
Includes study of Futures, Options and
Currency Swaps

5. Nature of International Finance
Foreign
Exchange Risk
Political Risk
Expanded
Opportunity
Sets
Market
Imperfections

6. Scope of IF
 Foreign Exchange Market
 Currency Convertibility
 International Monetary System
 BOP
 International Financial System

7. Principles of International Finance
Risk-Return Trade-off
Market Imperfections
Diversifications
Comparative Advantage
Economies of Scale
Valuation

8. Recent Changes in
IFM
 Trade on Agricultural &
Manufactured Goods
 Developing Countries Trade
 Air Cargo
 Global Production Network
 Cross Border Financial Flows
 Global Financial Markets

9. Challenges in
IFM
Culture
Environmental Variables & Corporate Responses
To take in stride past Failures & Mistakes
To design specific solutions
Technology