Course Outline

International Finance

B.Com (Hons) 8th Semester

1.1Course Introduction

International finance deals with the financial decision taken in area of international business. The
growth in international business is evident in the form of highly inflated size of international
trade. The contemporary international economic environment has become increasingly
competitive and the international financial market is everlastingly volatile. Such economic
environment and financial market conditions constitute a great challenge to financial managers in
dealing with cross border corporate and investment activities.

International financial management is a dynamic process in which financial management

activities are framed in an international setting. The International Financial Management module,
thereby, explores a range of issues under different economic environment and market conditions,
which, in due course, provides the participants with broad knowledge, fundamental theories, and
in depth analytical skills.

1.2- Course objectives:

The purpose of this Course is to provide you with an in-depth understanding of specific issues in
international finance. The module will cover the following broad areas:

(i) The role of international financial markets

(ii) The financial problems faced by multinational firms when undertaking international
trade and investments
(iii) The financial strategies used by multinational firms to alleviate the problems posted by
Pricing and political risks.
Emphasis will be placed on the use of various financial instruments to manage risk. The relevance of
both theoretical and empirical works will be highlighted in as much as they enable you to understanding
the financial issues facing firms and investors when they operate in an international setting.

1.3- Course Outcomes:

On completion of this course, students should be able to:

 Critically analyze and evaluate different international investment strategies under various
assumptions and circumstances.
 Gain practical knowledge in the functioning of foreign exchange markets.
  Understand theoretically and assess empirically international parity conditions and their
relevance and implications to international financial management and the management of
multinational corporations.
 Comprehend international flow of funds and international economic linkages of nations.
 Gain analytical skills in foreign exchange risk management

3- Course Contents:

Key Topics included in this course are as follows:

1. Introduction and Scope of International Finance

2. International Financial Market
3. Exchange Rate Determination
4. Currency Derivatives
5. Government Influence on Exchange rates
6. Relationships among Inflation, Interest rates and Exchange Rates
7. Forecasting Exchange Rates
8. Country Risk Analysis
9. Long Term Financing
10. Financing International Trade
11. Documents of Foreign Trade
12. International Commercial Terms
Lecture Plan
Lecture Topics Objective
Plan

Session

Introduction and Scope of International Finance.

 Introduction and benefits of studying At the end of this session student

international finance. will be able to Understand what is
Week 1 International Finance and role of
 Scope and area of international finance
 Role of financial manager in financial manager in international
international finance finance.

Week 2 International Financial Market At the end of this session student

 Motives for Investing in IFM.
 Motives for providing credit in IFM.
 Motives of borrowing from IFM.
 Foreign Exchange Market
will be able to Understand what
different motives of using
international financial markets, Spot
Market, Direct Vs Indirect
  Spot and Forward Transaction
 Spot Market and Spot Rate
 Direct Vs Indirect Quotation
 Bid/ Ask Spread
 Cross Rates
Week 3 International Money Market
 European Money Market
 Asian Money Market
International Credit Market
International Bond Market
International Stock Market
Week 4 Exchange Rate Determination
 Measuring Exchange Movements
 Exchange Rate Equilibrium
 Factors that influence exchange rates
 Speculating an anticipated Exchange
rates
Week 5 Currency Derivatives
 Forward Contracts
 Currency Future Markets
 Currency options market
 Currency Call options
 Currency put options
Week 6 Government Influence on Exchange Rates
Exchange Rate System
 Fixed Exchange Rate System
 Free Floating Exchange Rate System
 Managed Float Exchange Rate System
 Pegged Exchange Rate System
Week 7 Government Influence on Exchange Rates
Government intervention to control exchange
rate system
Direct Intervention
Indirect Intervention
Quotations, how to calculate bid/
ask spread.
At the end of this session student
will be able to Understand
importance of International Money
Market, International Credit, Bond
and Stock Market.
At the end of this session student
will be able to Understand how
exchange rate movements are
measured, how the equilibrium
exchange rate is determined and
examine factors that affect the
equilibrium exchange rate
At the end of this session student
will be able to Understand how
forward contracts, currency futures,
and currency options are used to
speculate or hedge based on
anticipated exchange rate
movements.
At the end of this session student
will be able to understand different
exchange rate systems and
advantages or disadvantages of
each exchange rate system.
At the end of this session students
will be able to understand the
techniques used by Central bank to
control the exchange rate of a
  Interest Rate country.
 Inflation Rate
 Income Level
Week 8 Revision and Mid Term Exam

Week 9 Relationship among Inflation, Interest At the end of this session students
Rates and Exchange Rates will be able to explain the
Interest Rate Parity (IRP) purchasing power parity (PPP)
Purchasing Power Parity (PPP) theory and its implications for
International Fisher Effect (IFE) exchange rate changes, explain
Comparison of IRP, PPP and IFE theories the international Fisher effect
(IFE) theory and its implications
for exchange rate changes,
comparison of PPP theory, the
IFE theory of interest rate parity
(IRP).
Week 10 Forecasting Exchange Rates At the end of this session students
Why firms forecast exchange rates will be able to understand how
Forecasting Techniques firms can benefit from forecasting
Forecasting Services exchange rates, common
Forecasting error techniques used for forecasting,
Using Interval forecasts and also be able to explain how
forecasting performance can be
evaluated.
Week 11 Country Risk Analysis At the end of this session student
Why country risk analysis is important will be able to identify the common
Political Risk Factors factors used by MNCs to measure a
Financial Risk Factors country’s Political and financial risk.
Types of country risk assessments

Week 12 Country Risk Analysis At the end of this session students

Techniques to assess country risk
Measuring country risk
Comparing risk ratings among countries
Incorporating country risk in capital budgeting
Reducing Exposure to host governments
takeover
Week 13 Long Term Financing
 Long term financing decision
will be able to understand the
techniques used to measure country
risk, and how MNCs use the
assessment of country risk when
making financial decisions.
At the end of this session students
will be able to understand why
MNCs consider long-term
  Cost of debt financing financing in foreign currencies,
 Assessing the exchange rate risk of and how to assess the feasibility
debt financing of long-term financing in foreign
 Reducing exchange rate risk currencies. Students will also be
 Interest rate risk from debt financing able to explain how the
assessment of long-term
financing in foreign currencies is
adjusted for bonds with floating
interest rates.
Week 14 Financing International Trade At the end of this session students
will be able to understand and
 Payment methods for international describe methods of payment for
trade international trade.
 Trade Finance Methods Explain common trade finance
methods.
Describe the major agencies that
facilitate international trade with
export insurance and/ or loan
programs.
Week 15
Revision and Final Presentations

 International Financial Management by Jeff Madura

Text Books:  International Finance by D.Levi