Syllabus
Registration via LPIS
| Day | Date | Time | Room |
|---|---|---|---|
| Tuesday | 10/04/22 | 09:00 AM - 01:30 PM | TC.3.05 |
| Thursday | 10/06/22 | 02:00 PM - 05:30 PM | TC.3.21 |
| Tuesday | 10/11/22 | 09:00 AM - 12:30 PM | TC.3.05 |
| Thursday | 10/13/22 | 02:00 PM - 05:30 PM | TC.3.21 |
| Thursday | 11/03/22 | 03:30 PM - 07:00 PM | TC.3.05 |
| Tuesday | 11/08/22 | 09:00 AM - 12:30 PM | TC.3.05 |
| Thursday | 11/10/22 | 02:00 PM - 05:30 PM | TC.3.21 |
| Tuesday | 11/15/22 | 09:00 AM - 12:30 PM | TC.3.05 |
| Thursday | 11/17/22 | 02:00 PM - 05:30 PM | TC.3.21 |
| Tuesday | 11/29/22 | 09:00 AM - 12:30 PM | TC.3.05 |
| Thursday | 12/01/22 | 02:00 PM - 05:30 PM | TC.3.21 |
| Tuesday | 12/06/22 | 09:00 AM - 12:30 PM | TC.3.05 |
| Tuesday | 12/13/22 | 09:00 AM - 12:30 PM | TC.3.05 |
| Friday | 12/16/22 | 08:00 AM - 11:00 AM | D5.0.001 |
The course introduces students to the conceptual framework in which financial decision making of international firms takes place. Specifically, we will analyze the impact of volatile exchange rates and the measurement and management of corporate foreign exchange exposure. In addition to the theoretical underpinnings of international finance we will cover the practical side of international financial decision-making. The emphasis throughout the course will be on taking advantage of being a global firm. The course provides a basic understanding of international financial markets and institutions and aims particularly on international risk assessment and management.
The aim of this course is to introduce students to the international dimension of financial management. Global firms which typically operate beyond domestic borders encounter a broader set of opportunities but also face additional risks. Upon completion of this course, students will
- have an understanding of the financial risks and opportunities of a global firm
- be familiar with the mechanics of currency markets and its typical financial instruments
- be able to apply these instruments to measure and manage financial risks in a global context
- understand how to set the cost of capital and adjust standard capital budgeting for global firms
- utilize theoretical knowledge to analize and solve case studies dealing with decision problems of global firms
Students are expected to participate actively in class. Therefore, attendance of at least 75% of total class time is required to get a passing grade of the course. Assignments missed due to missed classes cannot be compensated. In case of illness/injury preventing a student from participating, a medical certificate is required as documentary evidence.
The course is taught using a combination of class meetings with lectures, exercises, case analysis and class discussions and attached individual pre- and post-course study phases. It will make use of a variety of teaching material (e.g. Power Point slides, textbooks, videos, articles from academic journals and the business press, cases, exercises).
Students are expected to stay current in their pre-course preparation and assignments and participate in class discussions. Two (not previously announced) multiple-choice quizzes will take place during these units. To participate in these quizzes you need a device (e.g. smartphone, tablet, laptop) that can be connected to the CANVAS platform.
Students will be assessed on:
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Their knowledge on the theoretical concepts introduced in the course to be demonstrated in quizzes and exams.
Their ability to understand, analyze and apply these concepts in the cases and other assignments.
The quality of the written reports and other assignments; by quality in this context we mean the clarity and persuasiveness of each bit of work.
Case reports & other assignments 40%
Quizzes 20%
Final Exam 35%
Class participation 5%
Grading scale
A total of 100 points can be reached:
>= 87,5 1 Exceptional performance (>= 87,5): normally achieved by a minority of students who are highly engaged in the subject matter. Demonstrates superior understanding of subject matter and its application to novel areas
75-87,5 2 Strong performance (75-87,5): demonstrates good grasp of the subject matter and its application to similar areas or excellent grasp in one or more areas balanced with a satisfactory grasp in other areas.
62,5-75 3 Good performance (62,5-75): demonstrates a satisfactory level of knowledge and understanding of subject matter and its applications
50-62,5 4 Adequate performance (50-62,5): shows limited and only superficial understanding of the course material and its applications
< 50 5 Unsatisfactory performance (<50), lacks basic understanding of the course material and it applications
Please log in with your WU account to use all functionalities of read!t. For off-campus access to our licensed electronic resources, remember to activate your VPN connection connection. In case you encounter any technical problems or have questions regarding read!t, please feel free to contact the library at readinglists@wu.ac.at.
Students who take this course should have taken an introductory finance course. Those who lack this background are encouraged to read an introductory textbook on their own before or during this class to become familiar with financial basics (see some references in the reading list). In order to support students with limited prior financial knowledge additional preparatory material is recommended and can be found in the syllabus.
Tel: 31336 4500 E-mail: edith.littich@wu.ac.at
Additionally, you can use the forum chat on CANVAS if you raise an issue that may be of interest to other participants, too. I will not be able to service the forum 24/7 but try to check on a daily basis.
The University’s general guidance for students on plagiarism and cheating can be found here
Any case of attempted or realized cheating or fraud during exams or other forms of assignments will be referred to the Vice-Rector for Academic Programs and Student Affairs and lead to the declaration of the work of all involved students to be invalid. This means that everyone involved in the misconduct will not be graded and banned from a subsequent registering for the course in question for a period of four months
Students are expected to carefully review the following points regarding academic integrity. Acts of academic dishonesty include, but are not limited to, the following:
· using words or graphs of a published or unpublished source without referencing the source.
· paraphrasing ideas of another person, whether written or verbal (e.g. personal communication, ideas from a verbal presentation) without referencing the source.
· copying the answers of another student in any individual assignments.
· providing answers to another student in any individual assignment.
· taking any unauthorized materials into an examination or quizz
· substituting another student or allowing another person to substitute oneself for the purpose of submitting academic work or writing any test or examination.
Students should be aware that WU reserves the right to use a plagiarism detection software program to detect plagiarism for essays, case reports and other assignments.
| Unit | Date | Contents | |
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| 1 | October 4 | Topic: Introduction into foreign currency markets
Learning objectives: After attending this class, you should be able to understand the setup and requirements of the course. You will have an overview of the material and methods used in this course and understand the context of global financial management. We will study the mechanics of currency spot markets, specifically how exchange rates are quoted and how exchange markets work.
Mandatory pre-course preparation: 1. Video (4 min): How global trade runs on USD 2. Video (5 min): The EUR/USD rate
Relevant book chapters: Sercu Ch 1.1, Ch. 1.2, 3.1, Ch 3.2
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| 2 | October 6 | Topic: Arbitrage and international parity conditions
Learning objectives: After this meeting, students will understand how disequilibria in currency markets can be exploited and apply an important mechanism – arbitrage. Moreover, they will learn how inflation affects exchange rates. In this class, concepts like commodity price parity, purchasing power parity, nominal and real exchange rates will be discussed and their effect for companies will be analyzed.
Mandatory pre-course preparation: 1. Video (10 min): Currencies, inflation, and interest rates 2. Dollar lifts buying power of Americans (Wall Street Journal, September 6, 2022) 3. Mini-case: Erdonomics and the Turkish Lira
Relevant book chapters: Sercu Ch 3.3, Ch 3.4
Other recommended material: 1. Video (9min): How to calculate NPV, https://www.youtube.com/watch?app=desktop&v=HFFkFMfotT0 2. Video (27 min): Inflation and investing: https://www.youtube.com/watch?app=desktop&v=p0vqmjgF3E4 3. Arbitrage and Financial Decision Making (Berk/De Marzo Chapter 3, p. 95-122) |
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| 3 | October 11 | Topic: Covered interest arbitrage
Learning objectives: In this class, we will study the characteristics of a forward contract and learn how forward rates are quoted. Furthermore, the links between spot and forward rates, and money markets will be analyzed. Based on these inputs, the concept and implications of covered interest parity will be presented. Students will learn to evaluate under which circumstances arbitrage opportunities exist and be enabled to compute under which conditions one can profit from covered interest arbitrage.
Mandatory pre-course preparation: 1. Video (7 min) Covered interest arbitrage 2. Video (4 min): The currency carry trade 2. Yield-hungry investors revive "carry trade" in emerging markets (Wall Street Journal online, 8.4.2019) 3. Global Finance in Practice: Mr. Watanabe and the yen-carry trade (Eiteman/Stonehill/Moffett)
Relevant book chapters: Sercu Ch 4.1-4.4
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| 4 | October 13 | Topic: Forward markets for foreign exchange Learning objectives We will revise international parity conditions on the basis of a case discussion. The Groupe Ariel case links parity theorems to an international capital budgeting decision and allows us to study the effects in a practical example. After having discussed the effects in an NPV evaluation we will review the mechanics of forward markets and learn about the importance of forward hedges in international finance. Mandatory pre-course preparation: 1. Groupe Ariel case 2. Examples
Relevant book chapters: Sercu Ch. 5.1-5.6
Other recommended material: 1. Fundamentals of Capital Budgeting (Berk/De Marzo Chapter 8, p. 273-309) 2. Video: Net Present Value (9 min) https://www.youtube.com/watch?v=HFFkFMfotT0&list=PLQIn22Ogkfvnw6Xe3vOCFngq8YE6V56CD&index=7 3. Video: Currency forward and future contracts (15 min): https://www.youtube.com/watch?v=C7boEMvtKH4&list=PLyMC4BXrorOl8_th1R2RkVnu0M8QgqnFQ&index=14
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| 5 | November 8 |
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| 6 | November 10 |
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| 7 | November 15 | Topic: International capital budgeting
Learning Objectives: This session will give you an understanding how corporate and country characteristics influence a firm’s cost of capital. You will learn how capital costs are linked to risk premia of international projects and how these should be integrated into a capital budgeting process. A guest lecture and and a detailed capital budgeting analysis on an international project will give students a practical view on the implementation of international capital budgeting. Guest lecturer Dr. Harald Hauer: Capital budgeting in international projects at Verbund AG Mandatory pre-course preparation: Country risk: https://www.youtube.com/watch?v=JVg7TOiXUfQ (18 min)
Relevant book chapters Sercu Ch. 21
Recommended additional material: Capital Budgeting and Valuation with Leverage (Berk/DeMarzo, Ch. 18.1-18.3, p. 678-690)
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| 8 | November 17 | Topic: Should a firm hedge its exchange risk? Learning objectives: In this course unit, we will discuss arguments for and against hedging currency risk. We will see that a major benefit of hedging lies in its potential to reduce the uncertainty of future cash flows. Hedging is also relevant because it lowers the costs of financial distress. Real-world examples will illustrate hedging strategies of international firms. Furthermore, we will learn the differentiate between a currency risk and a currency exposure and detail a strategic approach towards corporate hedging.
Mandatory pre-course preparation: Weakening of Foreign Currencies Opens Up Hedging Options (WallStreet Journal 28/5/2021) Germany's Merck Overhauls Currency Hedges (Wall Street Journal, 14/5/2019) Exposure to currency risk - definition and management (Adler, Dumas) Relevant book chapters Sercu Ch. 12
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| 9 | November 29 | Topic: Hedging contractual exposure Learning objectives: After this class students will be able to measure and manage currency exposures stemming from contractual activities. We will discuss the strengths and weaknesses of the most important financial hedging techniques from a corporate perspective – forward hedges, option hedges and money market hedges. Applying these hedging instruments in diverse settings will enable students to analyze the effects of each instrument in a given situation. Mandatory pre-course preparation:
Relevant book chapters Sercu Ch 13.1, Ch. 13.2 |
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| 10 | December 1 | Topic: Hedging operating exposure Learning objectives: After this class students will be able to understand how future exchange rates may impact a firm’s noncontractual future cash flows. We will observe the challenges of measuring and hedging such operating exposures with traditional instruments. In addition, students will identify operating exposures in real-world examples and learn about alternative ways to hedge against risks stemming from unexpected and adverse exchange rate movements. Mandatory pre-course preparation:
Relevant book chapters: Sercu Ch 13.3, Ch. 13.4 Recommended additional material: Firm-Level Competition and Exchange Rate Exposure: Evidence from a Global Survey of Firms (Bergbrant, Campbell and Hunter, Financial Management, 2014) |
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| 11 | December 6 | Topic: Diva Shoes Inc. case
Learning Objectives: In this unit we will revise currency hedging on the basis of an extensive case study. The case will create awareness on Diva’s currency exposures and the risk attached to each exposure. Based on the students’ preceding assignment we will discuss the links between hedging and other firm decisions. Students will test their knowledge about the functioning of relevant hedging instruments and their ability to evaluate these instruments under specific circumstances. |
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| 12 | December 13 | Recap lesson |
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