Course Details

Course Information Package

Course Unit CodeAFIN411
Course Unit DetailsBA Business Administration (DL) (Business Electives) - BA Business Administration (Business Electives) - BA Accounting and Finance (Business Electives) -
Number of ECTS credits allocated5
Learning Outcomes of the course unitBy the end of the course, the students should be able to:
  1. Describe the risks and goals of the multinational firm and the fundamentals of the international financial system and national accounts
  2. Explain the valuation of currency forwards, futures and options and the connection between home and foreign interest rates and futures prices
  3. Explain the economic relationship between interest rates, inflation and exchange rate and the effect of fiscal and monetary policy in short run economic variables
  4. Explain the effect of currency risk in different industries and the use of forwards and futures to hedge this risk
  5. Use capital structure theory adjusted for the international firm for the calculation of the cost of capital of international projects, explain the issues involved in international investment and capital structure decisions
Mode of DeliveryFace-to-face
Recommended optional program componentsNONE
Course Contents

Introduction to International finance: multinational firm, exchange rate risk, political risk, interest rate risk, goals of international financial management and risk management, national income accounting and the balance of payments, effect of national debt and its effect on import/export industries, the link between balance of payments imbalances and exchange rates under fixed and floating exchange rate regimes, main historical developments of the international monetary environment, current monetary environment and the reasons for major international financial crises

Valuation of forwards, futures and options: No arbitrage conditions and rational prices for forward and future contracts, currency forwards contract pricing, forward, spot and expected currency prices and home and foreign interest rates, no-arbitrage theory and the valuation of simple currency options and Quantos

Exchange rate determination and the link with interest rates, prices and economic policy: The Law of One price and absolute and relative purchasing parity, international version of Fisher Effect connecting inflation, real and nominal interest rates of different countries, empirical evidence for purchasing power parity theory and explanations, interest rate parity, expected inflation differences and expected changes in the exchange rates, covered interest arbitrage, short run equilibrium in the product and asset markets and the effects of temporary and permanent shifts in monetary and fiscal policy

Managing foreign exchange rate and interest rate exposure: Risks involved in international operations in different industries, forward, futures and option contracts to hedge currency risk with examples in different industries, swaps and interest rate risk

Foreign investment decisions and the cost of capital of international operations: types of entity for foreign operations and possible barriers to entry to foreign direct investment, implications of political risk on the overseas investment decision, international cost of capital using international version of the CAPM, adjusted present value for international investment decisions, taxation in the international enviroment
Recommended and/or required reading:
  • D. Eiterman, A. Stonehill and M. Moffet, Multinational Business Finance , 11th Edition, 2006, Addison-Wesley
  • P. Krugman, M. Obstfeld, International Economics: Theory and Policy, 8th edition, Pearson Education Limited, 2008
  • J. Hull Options, Futures and Other Derivatives, Pearson-Prentice Hall, 2006
  • M. Crouhy, D. Galai, and R. Mark, Risk Management, McGraw-Hill, 2001
  • R. Brealey, S. Myers and F. Allen, Principles of Corporate Finance, McGraw-Hill, 2008.
  • Copeland, T., F. Weston , K. Shastri Financial Theory and Corporate Policy, Addison-Wesley, 2004
Planned learning activities and teaching methodsThe taught part course is delivered to the students by means of lecturers, conducted with the help of computer presentations and the use of the board. Lecture notes and other course material like spreadsheet examples are available to students through the web.
Assessment methods and criteria
Final Exam60%
Language of instructionEnglish
Work placement(s)NO

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