BUS 5840 Financial Management Policy

Lecture: Introduction

Lecture: The Global Financial Environment

Lecture: Theory of Comparative Advantage

Outcomes

• Explain what is different about global financial management
• Discuss the characteristics of the shareholder and stakeholder models
• Explain the agency problem and methods to reduce it
• Work problems illustrating comparative advantage
• Identify and explain the different financial instruments involved in the 2008 financial crisis

Lecture: Currency Basics and Currency Crises

Lecture: Exchange Rate Regimes

Lecture: Foreign Exchange Market (Note: Due to recent updates to scene 11, please review the online version of this lecture and not the CD version).

Outcomes

• Explain basic currency terms and calculations
• Identify and discuss the major currency crises of the past two decades
• Discuss the main historical monetary system agreements
• Complete arbitrage problems using gold
• Examine the major exchange rate regimes
• Compare and contrast fixed versus floating rate regimes
• Discuss the advantages and disadvantages for countries that adopt the euro
• Identify the main functions, participants and types of transactions in the foreign exchange market
• Explain how exchange rates are quoted and be able to figure the quantity changes
• Define direct, indirect, and forward quotes
• Calculate forward premiums and discounts for direct and indirect quotes
• Discuss cross rates and be able to do triangular arbitrage problems
• Explore how to measure changes in spot rates using both direct and indirect quotations

Lecture: International Parity Conditions—Part 1

Lecture: International Parity Conditions—Part 2

Outcomes

• Define how exchange rates are determined
• Explore the recommended forecast measures by period/regime
• Explain overshooting
• Analyze the Law of One Price, absolute and relative purchasing power parity
• Work the “Big Mac” problem
• Define the Fisher Effect
• Discuss interest rate parity and how it links foreign exchange markets and the international money markets
• Work covered interest and uncovered interest arbitrage problems
• Define what “real effective exchange rates" are and when a currency is over- or undervalued
• Explain the relationships between the parity conditions when in equilibrium

Lecture: Foreign Direct Investment (Note: this chapter and its topics are critical in your country risk assessment project.)

Outcomes

• Explain why firms become multinationals
• Examine how firms maintain their competitive advantage
• Define the OLI paradigm
• Explore the modes, advantages, and disadvantages of foreign involvement
• Define the types of political risk and how they can be assessed
• Discuss how firms can reduce the risk of foreign investment for firm specific and country specific
• Analyze the issues that are relevant in emerging market FDI
• Explore the driving forces behind cross-border mergers and acquisitions

Lecture: Futures

Lecture: Options

Lecture: Swaps

Outcomes

• Identify the types and benefits of derivatives
• Explain the contract specifications for futures contracts
• Compare and contrast forwards and futures; understand the long and short positions and their payoffs
• List the types of currency options
• Explain the payoff and profit graphs for buying and selling both calls and puts
• Examine the six basic sensitivities and how they affect currency option prices
• Define interest rate risk and how firms can manage this risk
• Define an interest rate swap and the specified components.
• Set up a swap and show that both parties benefit
• Define a currency swap and why it may be beneficial
• Explain counterparty risk

Lecture: Transaction Exposure

Lecture: Economic and Translation Exposure

Outcomes

• List the three types of foreign exchange exposure
• Explain the reasons to hedge and not to hedge
• Define the causes of transaction exposure
• Compute and compare the unhedged position, forward market hedge, money market hedge, and options market hedge
• Define the types of hedges to use for accounts receivables and accounts payable
• Explain the operating and financing cash flows and how they are measured
• Examine the methods that firms may use to manage operating exposure
• Discuss how a subsidiary’s characterization affects translation risk
• List the two basic methods for handling translation risk
• Explain the special provision for hyperinflation countries
• Discuss how translation exposure can be managed

Lecture: Global Cost of Capital

Lecture: Global Capital Budgeting

Outcomes

• Use Beta and the WACC from the Financial Management course
• Calculate the international CAPM and international WACC
• Define the factors and their impact on the international WACC
• Compare the COC of multi-national entities with domestic firms
• Identify the basic steps for capital budgeting
• Discuss the complexities that arise with a foreign project
• Identify the issues that arose in the Cemex case and how they were resolved
• Determine the NPV and IRR of international projects for both the individual project and the parent firm

Lecture: International Trade Finance

Outcomes

• List the three possible relationships of importers to exporters and what requirements are necessary for each
• Discuss the trade dilemma and how it may be resolved
• Identify the key documents used in international trade finance as well as their advantages and disadvantages
• Explain forfaiting and how it is used
• Discuss countertrade