1

COURSE MODULE

Instructor: Ragini Khanna e mail ID- Khanna_ragini@yahoo.com Mb- 9988531999

Course: International Finance (MBA IB 302)

Class: MBA IB Semester: III

International Finance a must for MBA IB students!!

International Finance deals with the financial decisions taken in the area of international

business. The growth in international business is evident in the form of highly inflated size of

international trade. The financial involvement of the trader’s exporters and importers and the

quantum of the cross country transactions have surged significantly. All this requires proper

management of international flow of funds for which the study of International Finance has

become indispensable!!

Course Objective: The course content has been designed in such a manner so as to equip the

students with international financial practices being followed at the global level i.e. to look

beyond the domestic boundaries- which is, indeed, the need of the hour. This course will give an

insight into the architecture of foreign exchange markets-participants, Cross, Spot, Forward and

Swap Rates, Inter-relationships between Foreign Exchange and Money Markets, Interest Parity

and Covered Interest Arbitrage, Swap Transactions and positions etc., International Monetary

system with its history, the types of foreign exchange operations and exposures along with the

hedging techniques, Country Risk analysis, Eurobanking, International Financial Institutions,

Structure of Balance of payment and finally trading at the International Stock Exchanges.

2

Distribution of Marks:

MSE’s 15

First hourly 5

Second hourly 5

Presentation 5

Assignments 10

Assignment 1

Analyze trend of Rupee VS Dollar, Rupee Vs Euro, Rupee Vs Ruble, Rupee Vs Yen and

Rupee Vs Pound Sterling for the past 3 months and its impact on the economy. How do you

Project the Future of Dollar in the near future.

Purpose: Understanding of foreign exchange market requires the understanding of current trends

in foreign exchange so with this purpose assignment is given to the students.

Assignment 2

Perform a comparative study of FDI flow analysis of China VS India. What Similarities &

differences can be accounted for FDI volumes between India and China?

Purpose: FDI supports development in the host country. We need to know the reasons why China

is able to attract more FDI than India because these are the 2 countries which are in direct

competition in the international market.

Assignment 3:

Analyze the trend of FII since liberalization in India and the latest impact of FII on the Indian

Stock Exchanges.

Purpose: FII’s are practically driving Indian stock markets. So students need to know their roles

and impact.

Assignment 4

3

Analyze the various “International” sources of financing followed by (atleast 5) Indian

Companies/ Multinational Corporations operating in India. The entire issue/ offering has to be

analyzed in detail.

Purpose: With the help of this assignment the students will get an idea of the various modes of

financing that have been actually been used by the companies in the past which will ultimately

help in the better understanding of the topic discussed.

Note: more assignments can be included as per the requirement of the course.

Activity 1

Country and the currency

The students will be asked to discuss about the currencies of various countries along with where

that currency is trading w.r.t. rupee.

Purpose: the activity will enhance the knowledge of students as they will come to know about

the currencies of different countries (other than the few popular ones) by mutual effort.

Activity 2

Let’s know the International Stock Exchanges

Students will be asked to discuss about the various stock exchanges of the world – their method

of operation, trading, settlement system, market cap, major indices etc.

Lecture Lecture Content Assignments

1 Introduction to the subject:

Meaning of international finance

Reason for increasing importance of international

finance.

International finance and global economy.

Role of international finance manager in

multinational corporations

4

2 International financial environment:

Defining foreign exchange market

The exchange rate

Spot market.

Assignment 1 Analyze

trend of Rupee VS Dollar,

Rupee Vs Euro, Rupee Vs

Ruble, Rupee Vs Yen and

Rupee Vs Pound Sterling

for the past 3 months and its

impact on the economy.

How do you Project the

Future of Dollar in the near

future?

3 International financial environment:

Forward Market

Quotation at the foreign exchange market-

Direct quote

indirect quote

Two way quotes

4 International financial environment:

Relationship between bid and ask prices of currencies,

spread and cost of transaction.

Cross Rate

5 Discussion :

Depreciation Vs Appreciation

Devaluation Vs Revaluation

Of various currencies in the past.

5

6 Structure of Indian foreign exchange market:

History, Developments & Current Status.

7 Exchange rate determination

Factors Affecting exchange rate

Expectations and asset model of exchange rate

determination

Central Bank Reputation

Central Bank Independence

8 Case Study 1: The Mexico Peso problem

Case Study 2: The Bank of England Gains

Independence.

9 Theories of foreign exchange rate movement and

international parity conditions

Purchasing power parity

Absolute purchasing power parity,

10 Theories of foreign exchange rate movement and

international parity conditions

Relative Purchasing Power Parity

International Fisher Effect

11 Foreign Exchange Exposure: Meaning, Introduction

Transaction Exposure

Transaction Exposure

Operating Exposure

6

12 Foreign Exchange Exposure: Meaning, Introduction

Transaction Exposure

Hedging and Management of Transaction

Exposure

13 Case Study 1: Computing Transaction exposure for

Boeing.

14 Foreign Exchange Exposure: Meaning, Introduction

Hedging and Management of Translation

Exposure and Operating Exposure.

15 International Trade and flow of funds:

Introduction

Balance of Trade

Balance of Payment

16 International Trade and flow of funds:

Measuring impact of exchange rate movement on

the balance of payment

India’s Balance of Trade and Payment

A detailed discussion on foreign exchange reserves of

India

17 International Monetary System

The Gold Standard, 1876-1913

Decline of Gold Standard

The inter-war years, 1914-1944

The Bretton Woods System, 1945-1972

The Smithsonian agreement

7

The Flexible Exchange Rate Regime, 1973-

Present

Alternative Exchange Rate System

Evaluation of Floating Rate

18 Country Risk Analysis:

Nature of Country Risk Assessment

Economic Risk Indicators

19 Country Risk Analysis:

Techniques to Assess Country Risk

Parameters of Country Risk

Rates of Country Risk

Case Study 4: BP BILLITON CASE STUDY ON

INTERNATIONAL FINANCE

20 Foreign Direct Investment

Why do firms invest abroad

The Indian Perspective

Case Study 5: Case Study on Foreign Direct

Investment.

Assignment 2

Perform a comparative

study Of FDI flow analysis

of China VS India. What

Similarities & differences

can be accounted for FDI

volumes between India and

China?

21 Foreign Institutional investment:

Meaning, Needs importance

The Indian perspective

Assignment 3: Analyze

the trend of FII since

liberalization in India and

the latest impact of FII on

the Indian Stock

Exchanges.

8

22 International Financial Institution/ Development

Banks

World Bank : History , Functions, Group

Members, Member Countries

World bank aid’s to India

23 International Financial Institution/ Development

Banks

IMF: History , Role, Functions, Member

Countries

Help to India

24 International Financial Institution/ Development

Banks

ADB: History , Role, Functions, Member

Countries

Help to India

25 Export & import financing: role of commercial banks.

Basic instruments, private non-bank sources of finance

26 Financial operations of multinational corporations:

Multinational project evaluation

Reasons for changes in cash flows, (Subsidiary

Vs Parent perspective)

27 Cost of Capital and Capital Structure of the

Multinational Firm

Cost of Capital for MNC’s Vs Domestic Firms

Determinates of Affiliates/ Subsidiaries Capital

Structure

28 Cost of Capital and Capital Structure of the

Multinational Firm

The Optimal Capital Structure and Cost of Capital

9

Cost of Capital across countries

Practical Framework of the Corporate Financing

Decisions

29 Capital Budgeting Techniques for Multinationals

NPV &APV method

30 Multinational Cash Management:

Introduction to multinational Cash Management

Objective

Centralized Perspective of Cash Flow Analysis

31 Multinational Cash Management:

Techniques to Optimize Cash Flow

Netting

Investing Excess Cash

32 Financing Of Multinational Corporations:

International equity Market

ECBs

International Bond Market

Euro Market: Euro Commercial Paper, Euro

Medium term Notes etc.

Assignment4:-Analyze the

various “International”

sources of financing

followed by (atleast 5)

Indian Companies/

Multinational Corporations

operating in India. The

entire issue/ offering has to

be analyzed in detail.

33 International Trade financing:

Introduction and problems faced by developing

countries for promoting trade

Management of credit risk

Documents required such as letter of credit, Bill

of lading etc.

34

10

International Trade financing:

International Trade financing In India

Role of EXIM bank

35 International Equity Market:

The ADR &GDR Issues

Mechanics, Benefits and role of depositary

Guidelines of Level 1

36 International Equity Market:

The ADR and GDR issue

Guidelines of Level 2

37 Derivative Contracts

Futures & Forward contracts:

Meaning and Basics

Margin Systems

Trading & Settlement Rules

Marking to Market

38 SWAP

Introduction & Conceptual Framework

Evolution

Terminology

39. SWAP

Interest Rate SWAP

40. Case Study 6- Dow Chemical swaps Fixed-for-Fixed

with Michelin.

11

41

SWAP

Currency Swaps & their

Pricing, Working, Rationale

42 Case Study 7- Dow Chemical swaps Fixed-for-Floating

with Michelin.

43 ECBs: External Commercial Borrowings and its

guideline & Current Scenario.

Specific guidelines issued by FIPB.

44 FEMA & FERA: Foreign exchange management Act,

History, Developments and Present regulation

45 International Stock Exchanges:

New York,

London,

Luxemburg,

third world and

Asian stock exchanges

Working and their influences.

46 Case Study 8:The Walt Disney Company’s Yen

Financing- Case Study Of Harvard Business

School

Recommended Books:-

Multinational Financial Management by Alan C. Shapiro

International Financial Management by PG Apte

International Finance by Maurice D. Levi

International Financial Management by B. Resnick

12

PRESENTATION:

1. The students will be divided into groups of 4.

2. The presentations will start at 9 a.m.

3. The duration of each presentation will be 15 to 20 minutes.

4. The preceding group will ask questions to the succeeding group and will get marks,

depending upon the validity of the question being asked.

5. The students are supposed to submit the synopsis of the material beforehand.

6. The evaluation criteria for presentation is as follows:-

Formals: 5 Presentation skills: 10

Query handling: 3 Questions: 2

Content: 10

Topics For presentation:

Role of Banks in Commodity Market

EURO: Analysis & Implications

Resource Mobilization by Indian Mutual Fund Industry.

Role of Foreign Institutional Investment in Indian Derivatives Market

International Stock Exchanges

Impact of Globalization on the Insurance Industry of India

FDI in Indian Retailing

Global Banking

Option and Futures trading in India

Will rebranding the Rupee would help brand India raise its currency?

Availability and Utilization of Foreign Exchange Reserves of India

The Yuan Revaluation- Impact on India.

Micro Finance- is it making the real impact?

International Financial investment strategies and regulations for Indian Companies.

The Blackberry Saga

13