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Approved by Faculty Senate University Studies Course Approval Department or Program: Finance Catalog Description: This course provides a comprehensive introduction to the world of financial management as it applies to multinational corporations and other firms that engage in international transactions. Topics include the nature of the international financial system, foreign exchange management, investment financing and risk management issues of concern to international businesses. This is an existing course previously approved by A2C2: Yes This is a new course proposal: No Department Contact Person: Gabriel Manrique, manrique@winona.edu University Studies Approval is requested in: Unity and Diversity: Global
Perspective Attachments: The syllabus explains what are typically covered in this course. It also points out in which parts of the course the three outcomes for global perspectives courses (a-c) are addressed. The syllabus is included in this application for purposes of illustration. Each faculty member is still responsible for his/her own course syllabus. Examples of projects assigned to students are also included in this application. They illustrate some of the learning activities that students undertake aside from exams and in-class work. As required by the approval process, the following address the three outcomes listed for Global Perspectives courses and documents course content and learning activities relevant to the course outcomes: Global Perspectives The purpose of the Global Perspectives requirement in University Studies is to improve students' understanding of the growing inter-relatedness of nations, people, and the environment, and to enhance students' ability to apply a comparative perspective to cross-cultural social, economic, political, spiritual and environmental experiences. Courses that fulfill the global perspectives requirement must address at least two of the following outcomes: These courses must include requirements and learning activities that promote students' abilities to:
One of the foci of the international finance course is an understanding of the interdependence among nations through the world of finance. The foreign exchange market, where an average of $2 Trillion each DAY is transacted, illustrates the extent and vastness of this interdependence. Through the financial markets, capital flows across borders making possible significant improvements in the standards of living of people. Without the opportunity for international capital flows, necessary development assistance, widespread industrial growth, and rapid technological improvements, are simply not possible. In this regard, students must master the basics of how foreign exchange and capital move across borders and how markets help in their efficient movement. Hence, as part of their learning activities, students must access and use data on foreign currencies, seek and analyze information on the investment activities of multinational corporations, and understand the opportunities for diversified investments across the world. Student projects include preparing and tracking a diversified portfolio made up of investments from various countries. However, students also learn that because of the strong global interdependence made possible by the international finance markets, all peoples and nations have a stake in ensuring the health of the financial system. It has been repeatedly demonstrated that events in one part of the world can immediately impact the rest of the world and such impact is usually relayed through the financial markets. One of the learning activities of students in this course is the study of at least one major financial crisis and tracing how the repercussions of such a crisis reach other areas of the globe. Students must also learn the role that governments and intergovernmental bodies play in stabilizing international finance markets. Thus, students learn about country central banks as well as the World Bank, the International Monetary Bank, the Bank of International Settlements, etc. This international finance course always starts with a study of the evolution of global financial markets and institutions. Students learn that many of institutions (such as the Bretton Woods institutions) were created as a response to the needs of countries that came together to solve glaring global problems - the instability of currencies, the threats from totalitarian governments, the inadequacy of investment flows to third world countries. Students go even further back to the study of the gold standard and of mercantilism and how countries eventually devised newer and better payments mechanisms among themselves in response to the needs of economic development. Through the study of the international balance of payments accounts of countries (particularly those of the third world), students have an opportunity to see the linkages among countries and among pressing global issues. For example, the magnitude of third world debt, the hardships that such debt imposes, the difficulties associated with solving the debt problem can be analyzed with some knowledge of the balance of payments. But students also learn that the solution to such problems cannot be divorced from religious, political and social issues as well as the baggage of historical colonial relationships. In international finance, students are given the opportunity to study global issues that have multiple ramifications. For example, when students study capital flows among nations, the tensions between the haves and the have nots are highlighted. This is made clear in the study of the phenomenon of 'capital flight' - when capital rapidly flows out of a developing country that is experiencing temporary problems. Ironically, the efficiency of international financial markets tend to exacerbate such developing country problems because of capital flight. Likewise, students learn about the fundamental concept of 'arbitrage' - that markets quickly react to correct price discrepancies even across borders. As part of their learning activities, students perform numerous exercises involving arbitrage. Upon mastering this area, students can then see how we can predict financial flows based on the potential changes in the economic, social or political situations of nations. As a finance course, students must master aspects of financial management for a multinational corporation. Hence topics include hedging, speculation, asset management, etc. However, students learn that the actions firms take with respect to the above areas are necessarily influenced by the different environments in which a global business operates.
FIN 415 - INTERNATIONAL FINANCE - Instructor: Objectives:
Expectations:
University Studies: Global Perspective This course is designed to satisfy the three semester hour requirement for a global perspectives course in the university studies program. As such, it seeks to provide students taking this course the opportunity to achieve the following outcomes:
Make-up Test Policy: No student, for whatever reason, will be allowed to take a regularly scheduled test earlier or later than the above-mentioned times. Please do not even bother to ask for an exemption from this rule. Instead, a student who misses a test (with the exception of the final exam) may take a COMPREHENSIVE make-up test at the end of the semester. A student may make-up for only ONE test. The make-up test will be the same regardless of which periodic test you miss. The make-up test MAY NOT be used to replace a test in which a student did poorly. Moreover, a student's presence in class when a test is handed out will mean that the student shall be taking that test. The make-up test will be on May 12, 3:00 p.m. in Somsen 304.
Final Exam: May 17 - 8:00 a.m. There will be no early or late final exams given. The final exam is required and will be comprehensive. Regardless of the grade, your final exam will be included in the computation of your final grade.
Academic Honesty: Academic dishonesty will not be tolerated. In accordance with the university’s policy, anyone caught cheating on a test or an assignment will receive an automatic grade of "F" for the course. Plagiarism, claiming someone else's work as one's own, will also result in an automatic grade of "F" for the course. The university may add its own penalty.
Grading: 5 Periodic Tests - 70% A 90 - 100
E 00 - 69
Extra Credit Work: I turn down all requests to do extra credit work.
Outline: (Global perspectives learning outcomes are in parenthesis beside each chapter and assignment.) I. Introduction These chapters show the growing importance of the global economy and the vital role of international finance. A brief history of the evolution of the international monetary system from the gold standard to the current blend of managed exchange rates gives the student a useful starting point for the study of international finance.
Chapter 1 - Globalization and the Multinational Firm (a, b, c) Chapter 2 - The International Monetary System (a, b, c) II. The Balance of Payments Trade and finance in the world economy are closely linked. Knowledge of a country’s balance of payments helps a student understand the factors that influence global financial flows. This section should also prepare students to understand the determinants of foreign exchange rates. Chapter 3 - Balance of Payments (a) III. Foreign Exchange Markets Foreign exchange and foreign exchange rates are central to the movement of international financial assets. Thus, the study of international finance must include a mastery of the basics of foreign exchange markets. In this segment of the course, the student must learn the mechanics of computations using foreign exchange rates, the spot, forward, futures, and options markets for currencies, and arbitrage. Chapter 4 - The Market for Foreign Exchange (b,c) IV. International Parity Conditions A fundamental assumption made in finance and economics is that when we allow for the free flow of goods and resources, things will tend towards equilibrium. In international finance, the determination of equilibrium can be analyzed through purchasing power and interest rate parity. In this segment, the student will be expected to be able to analyze when parity does or does not exist in the international financial markets. Chapter 5 - International Parity Relationships and Forecasting Foreign Exchange Rates (a, b) V. Global Financial Markets and Institutions The global market for financial instruments is truly one of the dynamic markets today. The student should be prepared to learn the breadth and complexity of these markets and institutions. Chapter 6 - International Banking and Money Markets (c,) Chapter 7 - The International Bond Market (c,) Chapter 8 - International Equity Markets (c,)
As companies and individuals have become more sophisticated about global markets, other financial instruments have been developed by the markets. It is to be expected that these instruments increase the efficiency of markets and the use of global financial resources. Chapter 9 - Futures and Options on Foreign Exchange (a, c) Chapter 10 - Currency and Interest Rate Swaps (a, c) Chapter 11 - International Portfolio Investments (a) VII. Foreign Exchange Exposure Price differentials across countries, changes in foreign exchange rates, and interest rate differentials are just some of the major factors that increase the exposure to risk of participants in the global economy. In this segment, the student will be expected to learn how to identify the sources of exposure (transaction, operating, translation, and interest rate) as well as how to measure such exposure in the global marketplace. Chapter 12 - Management of Economic Exposure (b, c) Chapter 13 - Management of Transaction Exposure (b, c) Chapter 14 - Management of Translation Exposure (b, c) VIII. The Multinational Corporation With the internationalization of finance, capital more easily and more efficiently migrates around the world. This poses new challenges and opportunities for businesses seeking to minimize the cost of capital and maximize their returns from the use of capital. In these chapters, the student should learn about the breadth of, the mechanisms for, and the advantages of utilizing international capital flows. Chapter 15 - Foreign Direct Investment (b, c) Chapter 16 - International Capital Structure and the Cost of Capital (c,) Chapter 17 - International Capital Budgeting (c,) Chapter 18 - Multinational Cash Budgeting (c,) IX. Import and Export Financing As trade in goods and services become even more important, the financing of such trade takes on even greater significance. In this chapter, the student learn about the various ways by which companies that engage in trade, finance their transactions. Chapter 19 - Exports and Imports (a, b, c)
Assignment: (a, b, c) In lieu of a term paper for this course, you will be asked to write a series of short essays dealing with current events or data in the areas of international finance and international economics. The instructor will assign articles from The Economist and The Wall Street Journal on which your essays will be based. There will be at least one essay due every test date and the essay will be included in the computation of the student’s test grades. For each essay, follow the directions below. An essay must be submitted prior to the start of the test for which it is assigned.
Assignment: (a, b, c) Prior to a test, the instructor may require written assignments or assignments requiring the gathering and analysis of data. The grade for these assignments will count towards your grade for that test. The written assignment must be submitted before a student takes the test. Late work will receive an automatic grade of zero. The instructions below will apply to written assignments. Read and follow them carefully. You will be asked questions based on a specific topic. You should then:
Assignment: (b and c) Grading - Your grade will depend on two things: The timely submission of each part of the assignment; and how well your portfolio does in terms of its total return. The greater your return from your portfolio at the end of the semester, the higher your grade. Assume that you have $100,000 to invest in a portfolio composed of stock markets around the world. Assume that you can invest in the indexes of these various stock markets. Your first assignment is to select up to ten (10) stock market indexes you want to include in your portfolio and to determine what percent (%) of your portfolio you wish to invest in each index. Your selections can be based on pure guesses or some knowledge about the potential of different countries. Remember that your grade will depend on the performance of your portfolio so a little bit of knowledge about various country markets might help you. On Friday, January 22, you must submit Table 1 filled in with complete information about your portfolio using values found in the January 21 issue of the WSJ. Remember to write down the foreign exchange rate for each country you include in your portfolio as found in the January 21 of the WSJ (use Wednesday's closing price). Write down also the value of the S&P 500 (USA). Midway through the semester, you will compute how your portfolio is doing and make adjustments to the composition of your portfolio. On Wednesday, March 22, you must complete and submit Tables 2 and 3 using for your calculations the beginning values (January 21, WSJ) and the midway values (March 21, WSJ). On May 12, you must complete and submit Table 4 using for your calculations the midway values (March 21, WSJ) and the ending values (May 11, WSJ). Assuming you do all the steps correctly, you should be able to simply add the values in the last column of Table 4 and determine by how much your $100,000 grew during the semester.
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