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FRL 353 – Multinational Financial Markets – Fall 2004
FRL 353 – Section 1
Multinational Financial Market
CRN # 72109
Tuesday & Thursday: 10:00-11:50 a.m.
Fall Quarter 2004
Building 6 – Room 107
P. Sarmas
www.csupomona.edu/~psarmas
Catalog Description:
Institutional overview of structure and application function of international financial markets and their applications. International financial systems, capital flows, foreign exchange risk measurement and management. Eurocurrency markets, Asian currency markets, international capital markets, international banking, international debt crisis, and export-import financing. 4 lecture/problem-solving. Prerequisite: FRL 307 or FRL 301.
Required Background or Experience:
Prerequisite: FRL 301
Prerequisite Justification: A number of issues and problems in the course will require the basic knowledge of financial management that is covered in FRL 301.
General Education Contributions: The student is expected to have the ability to express himself/herself both orally and in writing (ENG 104). The student also needs basic economic concepts for understanding the course (EC 201). Finally, the student is expected to use basic analytical skills to develop relevant relationships among variables.
Expected Outcomes:
Students are expected to acquire and demonstrate knowledge of the fundamental principles and
issues in the international financial markets. Students should be able to define basic terminology, to state theoretical relationships and to identify the key issues for international financial management. They should be able to (1) understand final markets and systems from a global perspective, (2) analyze relationships among exchange rates and macro variables, (3) to measure and manage foreign exchange risk, and (4) to identify country risk, political risk and financial risk.
Expanded Description of the Course:
This course extends the principles of finance covered in FRL 306/300 and FRL 307/301 to the international context. The course provides an overview of the global financial environment and an introduction to exchange rate behavior. Next, the course covers the relationships between inflation, interest rates, and exchange rates. Later, the focus shifts to measuring and managing risk exposures resulting from exchange rate fluctuations. The final part of the course covers financing from a global perspective and global strategic planning.
Academic Integrity:
The University is committed to maintaining academic integrity throughout the University community. Academic dishonesty is a serious offense that can diminish the quality of scholarship, the academic environment, the academic reputation, and the quality of a Cal Poly degree. Please read the University catalog to learn about academic dishonesty at Cal Poly and to the responsibility of students, faculty, and administrators relating to this subject.
Required Text:
Author: Jeff Madura
Title: International Financial Management
Publisher: South-Western College Publishing: Seventh Edition, 2003
Wall Street Journal Article – Interactive Wall Street Journal
Recommend Texts:
Alan C. Shapiro
Foundations of Multinational Financial Management
Prentice Hall: Third Edition, 1998
David K, Eiteman, Arthur I. Stonehill, and Michael H. Moffett
Multinational Business Finance
Addison-Wesley Publishing: Eighth Edition, 1998
Further References:
For Statistical data: IMF Financial Statistics, OECD Economic Outlook,
International Economic indicators, and OECD Main Economic Indicators.
For current international issues: The Economist, Euromoney, World Financial Markets, and IMF World Economic Outlook.
Course Requirements:
1. Class attendance and participation is required.
2. Reading the assigned chapter(s) and the Wall Street Journal articles prior to the meeting.
3. Completing the mid-term and final examinations.
4. Make sure that your phone is turned off during the lecture in the classroom. Playing with phone by any one in the classroom would result in 5 Points deduction applied to all students enrolled in the course.
5. Please note that there is NO make-up examination.
Examination
1. Please note that you will need to present your student ID at the time of examination.
2. You will be asked to sign the attendance sheet during the exam.
3. Turn-off your cell phones and pagers.
4. You cannot leave the classroom after examinations are distributed.
5. You will have to bring your own scantron and calculator (simple financial calculator).
6. Palm-held computer or programmable calculators are not permitted.
7. You will be provided with a formula sheet.
8. You will have to show all your calculations in the problem section for full credit.
9. Your writing should be legible in the essay section for full credit.
10. Each examination consists of multiple-choices, short-problem, and short-essay questions.
11. You may submit a self-addressed-stamped envelope, if you wish to receive your grade early. NO grades will be released via e-mail or telephone.
12. Check your final examination schedule. If you have more than two final examinations on the same day, make prior arrangements or drop this course.
13. ABSOLUTELY NO MAKEUP!
Course Assistance
Office Information
/Office Hours
Location: / Building 66, #219 / Wednesday / 9:00 a.m. – 12:00 noonTelephone: / (909) 869 2405 / Tuesday & Thursday / 9:00 a.m. – 10:00 a.m.
Fax: / (909) 869 2124
E-Mail: / / Others: / By appointment
Course Grade
Grades are determined in the following format:
Mid-Term Exam I ...... 30 percent
Mid-Term Exam II ...... 30 percent
Final Examination ...... 40 percent
If necessary the course grade will be curved to meet a course-average GPA of 2.0 of “C”. The course grade is based on the following scale:
Score
/Grade
/Score
/Grade
/Score
/Grade
/Score
/Grade
/Score
/Grade
93 / A / 86 / B+ / 76 / C+ / 66 / D+ / 0 / F90 / A- / 83 / B / 73 / C / 63 / D
80 / B- / 70 / C- / 60 / D-
Important Dates
Dates
/Events
September 29 / Last day to withdraw without “W”September 30 / Last day to ADD
October 13 / Last day to withdraw without a petition
October 14 / Mid-term examination 1
November 12 / Withdrawal from class only for emergency.
November 16 / Mid-term examination 2
December 9, 2004 /
Final Examination – (9:10-11:10 a.m.)
LECTURE SCHEDULE
Thursday: September 23
Class List Check
Course Introduction
Chapter One: Multinational Financial Management: An Overview
Goals of the MNC
Theories of International Business
International Business Methods
Tuesday: September 28
Chapter One: Multinational Financial Management: An Overview
Increased Globalization
International Opportunities and Risk
Chapter Two: International Flow of Funds
Balance of Payments
International Trade Flows
Factors Affecting the Current Account
Correcting a Balance of Trade Deficit
Thursday: September 30
Chapter Two: International Flow of Funds
Factors Affecting the Capital Accounts
International Capital Flow
Agencies that Promote International Flow
Chapter Three: The International Financial Markets
Motives of Using International Financial Markets
Foreign Exchange Market
Eurocurrency Market
Eurocredit Market
Tuesday: October 5
Chapter Three: The International Financial Markets
Eurobond Market
Comparing Interest Rates among Currencies
International Stock Market
Use of International Financial Markets
Chapter Four: Exchange Rate Determination
Measuring Exchange Rate Movement
Exchange Rate Equilibrium
Thursday: October 7
Chapter Four: Exchange Rate Determination
Factors that Influence Exchange Rates
Relative Inflation Rates
Government Controls
Interaction of Factors
Tuesday: October 12
Chapter Four: Exchange Rate Determination
How Factors Have Influenced Exchange Rates
Speculating on Anticipated Exchange Rate
Relative Interest Rates
Relative Income Levels
Thursday: October 14
Mid-term Exam 1: Chapters 1-3 & Wall Street Journal articles
Chapter Five: Currency Futures and Options
Forward Market
Currency Futures Market
Currency Options Market
Tuesday: October 19
Review of Mid-term Examination
Chapter Five: Currency Futures and Options
Currency Call Options
Currency Put Options
Conditional Currency Options
European Currency Options
Thursday: October 21
Chapter Six: Government Influence of Exchange Rates
Exchange Rate Systems
Exchange Rate Mechanism
A Single European Currency
Tuesday: October 26
Chapter Six: Government Influence of Exchange Rates
Government Intervention
Exchange Rate Target Zone
Intervention as a Policy Tool
Thursday: October 28
Chapter Seven: International Arbitrage and Interest Rate Parity
International Arbitrage
Interest Rate Parity
Correlation Between Spot and Forward Rates
Tuesday: November 2
Chapter Eight: Relationships Between Inflation, Interest Rates, & Exchange Rates
Purchasing Power Parity
International Fisher Effect
Comparison of IRP, PPP, and IFE Theories
Thursday: November 4
Chapter Nine: Forecasting Exchange Rates
Why Firms Forecast Exchange Rates
Forecasting Techniques
Tuesday: November 9
Chapter Nine: Forecasting Exchange Rates
Evaluation of Forecasting Performance
Forecasting Exchange Rate Volatility
Tuesday: November 11 - Holiday
Tuesday: November 16
Mid-term Exam 2: Chapters 4-7 & Wall Street Journal articles
Chapter Ten: Measuring Exposure to Exchange Rate Fluctuations
Is Exchange Rate Risk Relevant?
Thursday: November 18
Review of Mid-term Examination
Chapter Ten: Measuring Exposure to Exchange Rate Fluctuations
Transaction Exposure
Economic Exposure
Tuesday: November 23
Chapter Eleven: Managing Transaction Exposure
Transaction Exposure
Techniques to Eliminate Transaction Exposure
Hedging Long-Term Transaction Exposure
Thursday: November 25 - Holiday
Tuesday: November 30
Chapter Twelve: Managing Economic Exposure and Translation Exposure
Economic Exposure
Managing Translation Exposure
Thursday: December 2
Chapter Sixteen: Country Risk Analysis
Why Country Risk Analysis is Important
Types of Country Risk
Political Risk Factors
Financial Risk Factors