Just like large multinational corporations, SMEs venturing in international markets face liability of foreignness. Unlike MNEs, however, SMEs are less diversified, dispose of fewer resources and commonly have less knowledge about foreign markets. Hence, the liability of foreignness is exacerbated by, what could be referred to as “liability of smallness”.
To overcome these liabilities, internationalizing SMEs require a clear strategy and professional risk management. These country-related risks include, but are not limited to credit risk, political risk and socio-cultural risks. Most importantly, SMEs internationalizing into foreign markets face exchange rate risks. Despite disproportional exposure to exchange rate risks, “Many SMEs fail to grasp foreign exchange risk. (Bolshaw, 2013)”. In a study conducted by Giambona et al. (2018), 48% of non-financial firms rate foreign exchange risk as the most important or a material risk in international business.
The course covers SMEs’ risks in internationalization with particular focus on the financial and strategic management of exchange rate risks. This course is designed to teach students (a) the theoretical frameworks necessary to understand exchange rates' effects on firms (b) familiarize them with internal, contractual, external and strategic hedging instruments and (c) systematically reflect on the challenges of SMEs operating in multiple currency areas.In addition to these traditional treasury strategies, the course includes an extensive discussion of organizational issues in SME risk management and long-term strategic remedies for reducing the risks of internationalization.
After concluding the course students
- have a fundamental understanding of exchange rate determination and forecasting on a macro-economic level
- are familiar with exchange rate quotation customs
- have a detailed understanding of different exchange rate exposure concepts (book exposure, transaction exposure and economic exposure)
- can analyze the corporate hedging process in SMEs from a theoretical perspective
- can implement simple internal and contractual strategies to mitigate foreign exchange risks in SMEs
- can calculate and implemet more complex external hedging strategies (forwards, futures, options)
Attendence in all sessions is mandatory.
The course combines several learning components:
o Classic lecture.
o Online learning assignments after each class.
o Final exam
o Group assignment (Wiki Project)
- Online learning assignments 10% see schedule
- Wiki Project (group): 45% 01.12.2019
- Final exam (individual): 45 % 04.12.2019
- Bonus points: 10% throughout course
The course is supplemented by an online script in learn@wu. For the new IB course, the existing script must be translated into English by students. Students work in groups of two on different sections of the Wiki to translate and complement the content. Students should stick closely to course slides and include what we say in the classroom. The idea is to create a learning supplement to study for the exam. Therefore, the Wiki should not include irrelevant content. The main grading criteria are:
· 40 % Suitability as a learning supplement
· 40 % Completeness
· 20 % Formatting and graphs
Registration follows LPIS system and the "Wartelisten" System.
Preliminary understanding of financial markets is beneficial.
Open office hours:
Tuesday 10:00 - 11:00 (D1 5th floor) - please register via e-mail
Telephone: Tel: +43-1-31336-4374