BUS330 S2 2017 UILG - Internal Students

BUS330
International Finance
Unit Information and Learning Guide (Internal Students)
Semester 2, 2017
This information should be read in conjunction with the online learning materials which can
be found on your MyUnits page.
Unit coordinator
Dr Kamrul Hassan
School of Management and Governance
E-mail: a.hoque@murdoch.edu.au
Phone: +618 9360 6503
Published by Murdoch University, Perth, Western Australia, July 2017.
This publication is copyright. Except as permitted by the Copyright Act no part of it may in
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2 Murdoch University
Contents
Unit information
Information about the unit 5
Contact details 7
How to study this unit 8
Resources for the unit 9
Study schedule 11
Assessment 12
Learning Guide 16
Murdoch University 3
Information about the unit
Welcome to:
BUS330
International Finance
Unit description
International finance studies the movements of exchange rates and international investment
across countries. These movements affect the operation of multinational enterprises as well
as trade among nations. A clear understanding of the value of currencies is crucial to
successful hedging for businesses and investors alike. A countrys policy makers are also
interested in fluctuations in the value of the countrys currency as these can have important
impact on the countrys social, political, and economic conditions. A number of hedging
techniques used in international finance will be introduced. These include money market
hedge, option hedge, forward hedge and hedging using future contracts and currency
swaps. In addition, in this course we also look at the methods for sourcing debt and equity
for multinational enterprises.
Prerequisites
The prerequisite/co-requisite for this unit is BUS244/BUS288 Treasury Management.
Aims of the unit
The broad aims of this unit are to:

Understand the global financial environment
Examine the foreign exchange theory
Describe multinational exchange rate exposure
Analyse financing the multinational firm
Investigate foreign investment decisions
Learning outcomes for the unit
On successful completion of the unit you should be able to:

Identify the current multinational finance and the history of monetary system
Explore the foreign exchange market
Investigate the international parity conditions
Exercise the currency derivatives
Justify the transaction exposure management
Evaluate the global cost of capital for financing the debt and equity
Analyse the international portfolio theory
Graduate attributes developed in the unit
This unit will contribute to the development of the following Graduate Attributes.
Communication
Critical and creative thinking
Independent and lifelong learning
Global perspective
In-depth knowledge of a field of study
This unit was originally written by Dr Ariful Hoque, July 2014 and subsequently updated by
Dr. Kamrul Hassan in July 2017.
Contact details
Unit Coordinators contact details
Name: Dr Kamrul Hassan

Email: K.Hassan@murdoch.edu.au
Room: Social Science 3.08
Phone: +61 8 9360 6503
Administrative contact details
School of Management and Governance office: +61 8 9360 2705.
How to study this unit
The unit is taught through two-hours weekly face-to-face teaching workshop session.
Students are expected to have completed the designated chapter readings and listening to
podcast recordings prior to each workshop, and prepared to actively participate in workshop
activities. Workshop questions are provided in the table of Study Schedule on Page11.
The LMS will become available to students one week prior to commencement of classes.
Please ensure you are able to access the LMS for BUS330 International Finance.
You may be used to taking courses where you can cram just before the examinations or
tests, memorise some equations and facts, then regurgitate them on the examination and do
fine. That doesnt work well in finance, as previous students in the subject will testify. You
obviously will need to learn some facts, but you must also learn how to set up and solve
relatively complex problems, and reason out difficult conceptual questions. This process
requires taking time and practise rather than a cramming technique.
Contact time
One two-hour workshop each week.
Time commitment
As this is a 3 credit point unit, we expect you to spend on average 12 hours per week for the
total 14 weeks of this teaching period (or 150 hours overall) working on this unit.
Attendance requirements
Although attendance is not required to pass the unit, it is strongly recommended that you do
attend each workshop. Active involvement in workshop is vital to developing your
understanding and ability to apply concepts covered in the unit. Ten per cent of the units
assessment relates to workshop preparation/participation (see Assessment for further
detail.)
Unit changes in response to student feedback
Student surveys are used to source feedback on the unit. Adjustments made to the unit in
response to previous student feedback include:
Where possible, real world examples are used to illustrate concepts. This increases
perceived relevance of the course and assists in understanding of concepts.
Resources for this unit
To undertake study in this unit, you will need:
Essential textbook:
Eiteman,D.K., Stonehill, A.I. and Moffett, M. H, 2013, Multinational Business Finance, 13th
edition, Global edition. ISBN-10: 0-273-76553-1; ISBN-13: 978-0-273-76553-0
Other references/recommended reading:
Madura, J. 2015. International Financial Management, 12th edition (ISBN: 987-1-133-94783-

7).
Bekaert, G. and R.J. Hodrick. 2009. International Financial Management. Pearson.
Buckley, A., 2004. Multinational Finance. 5th edition, Pearson Education, 2004.
Moosa, I.A. 2010. International Finance: An analytical approach. 3rd

edition. McGraw-Hill
Burler, K.C., Multinational Finance, 3rd edition, Thomson, South, 2004.

Clark, E. 2002. International Finance. 2nd edition. Thomson.
Eun, C.S. and B.G. Resnick. 2001. International Financial Management. 2nd edition, Irwin
McGraw-Hill.
Melvin, M. 2003. International Money and Finance. Pearson Addison-

Wesley.
Moffett, M.H. 2001. Cases in International Finance. Addison Wesley

Longman.
Rosenstreich, P. Forex Revolution: An Insiders Guide to the Real World of Foreign

Exchange Trading. Third Printing, July 2006. Financial Times Prentice Hall (in closed
reserve section).
Shapiro, A.C. and A. Sarin. 2009 Foundations of Multinational Financial

Management. 6th edition. Wiley.
Resources available from the BUS330 website (accessed via MyUnits page) include:
Unit information
Lecture slides
Lecture recordings
Brief solutions for tutorial questions
Online resources:
The Australian Stock Exchange (www.asx.com.au)

The Chicago Mercantile Exchange (www.cme.com)
Philadelphia Stock Exchange (www.phlx.com)
Australian Financial Review (www.afr.com)
NYSE (www.nyse.com)
Reserve Bank of Australia (www.rba.gov.au)
Wall Street Journal (www.wsj.com)
Yahoo finance (www.finance.yahoo.com
Study schedule
Weeks Lectures: Topics Textbook Workshops
Sessions Chapters
1
Week 1 Lecture 1 : Current Multinational Workshop 01 Problems:
Session 1 Financial Challenges Chapter 1 problems 1 to 10
3
Week 2 Lecture 2: The International Workshop 02 Problem:
Session 2 Monetary System Chapter 3 problems 1 to 13
6
Week 3 Lecture 3: Foreign Exchange Workshop 03 Problem:
Session 3 Market Chapter 6 problems 1 to 20
7
Week 4 Lecture 4: International Parity Workshop 04 Problems:
Session 4 conditions Chapter 7 problems 1 to 21
Week 5 TEACHING BREAK

8
Week 6 Lecture 5: Foreign Currency Workshop 05 Problems:
Session 5 Derivatives Chapter 8 problems 1 to 10
Week 7 One and Half hours OPEN BOOK Mid Term Test will be held based on chapters
Session 6 1, 3, 6 and 7.
8
Week 8 Lecture 6: Foreign Currency Workshop 06 Problems:
Session 7 Derivatives (cont.) Chapter 8 problems 11 to 20
Week 9 TEACHING BREAK

10
Week 10 Lecture 7: Transaction Exposure Workshop 07 Problems:
Session 8 Management Chapter 10 problems 1 to 16
13
Week 11 Lecture 8: The Global Cost of Workshop 08 Problems:
Session 9 Capital Chapter 13 problems 1 to 10
14
Week 12 Lecture 9: International Debt Workshop 09 Problems:
Session 10 and Equity Financing Chapter 14 problems 1 to 15
16
Week 13 Lecture 11: International Workshop 11 Problems:
Session 11 Portfolio Theory Chapter 16 problems 1 to 12
Week 14
Final exam review
Session 12 Chapters 8, 10, 13, 14 & 16
Week 15 STUDY BREAK
Week 14 Exam period commences. Two hours Closed Book Final Exam will be held
based on chapters 8, 10, 13, 14 and 16.
Assessment
Schedule of assessment items
You will be assessed on the basis of:
Assessments Value Description Due
Workshop preparation and 10% Numerical and short- Continuous

participation answer
Open Book Mid Semester Test 30% Numerical and short- Week 7 during
answer lecture time
Online Assessment 15% MCQs Continuous
Closed Book Final Examination 45% Numerical and short- Examination week
answer
Assessment details
Workshop Preparation & Participation (10%)
Marks will be allocated based on your preparation for and participation in workshops. You
are expected to prepare answers to allocated workshop questions before attending
workshop each week. All students are expected to actively participate in workshops.
Participation includes being involved in general discussions, asking questions, using
appropriate terminology of international finance and displaying appropriate self-confidence.
The functions of workshops are: to facilitate the exchange of information; to develop and
explore in more detail the concepts presented in lecture recordings; to explore the
application and significance of the tools used in international finance and to provide an
opportunity for you to consolidate information acquired through your own reading and study
of the workshop problems.
Online Assessment (15%)
Online assessment consists of Multiple Choice Questions (MCQs) quizzes. The objective of
this assessment is to make sure that students acquire in depth knowledge of the contents of
chapters covered in this unit. It is strongly recommended that before starting the quiz you
must read the chapter with serious attention.
There are nine quizzes based on nine chapters covered in this unit. Each quiz has 15
MCQs, one (1) mark each. You will be allowed three (3) attempts for each quiz and in each
attempt, you will get 45 minutes to finish the quiz. The highest point/mark of your three
attempts will be taken as your final score. Your scores in nine quizzes will be added and
divided by nine to arrive at your average quiz score, which will be your final score in this
component of assessment. If you do not attempt any quiz you will be awarded zero. You
must complete this online quiz within the time allocated for each quiz as shown in the table
below. No extension will be granted. This online quiz icon is located under Post-workshop
activities in each session as shown below:
The quiz opening and closing dates are as follows:
Quiz No. Chapter Quiz opens at Quiz closes at

5.30 PM on 11.59 PM on
1 Chapter 1: Current Multinational 04 August 2017 August 10 2017
Financial Challenges
2 Chapter 3: The International Monetary August 11, 2017 August 17, 2017
System
3 Chapter 6: Foreign Exchange Market August 18, 2017 August 24, 2017
4 Chapter 7: International Parity August 25, 2017 August 31, 2017
Conditions
TEACHING BREAK
5 Chapter 8: Foreign Currency September 08, September 28,
Derivatives 2017 2017
6 Chapter 10: Transaction Exposure October 06, 2017 October 12, 2017
TEACHING BREAK
7 Chapter 13: Global Cost of Capital October 13, 2017 October 19, 2017
8 Chapter 14: International Debt and October 20, 2017 October 26, 2017
Equity Financing
9 Chapter 16: International Portfolio October 27, 2017 November 02,
Theory 2017
Examinations
Mid Term Test (30%)
The mid-term test will be a one and half hours OPEN book exam. It will examine the
material covered in chapters 1, 3, 6 and 7 as detailed in the study schedule. The test will
consist of short answer/calculation type questions. You must bring your own calculator.
Copies of previous Mid Term Tests are not available.
Final Examination (45%)
Details of the final examination will be distributed in workshops towards the end of the
semester. The exam will include numerical calculation and short answer discussion type
questions. It will examine materials covered in chapters 8, 10, 13, 14 and 16. It will be a two-
hours closed book exam. Formulas will be provided, but you must bring your own
calculator. Copies of previous final exams are not available. The final exam will be
conducted in the scheduled examination period.
The University requires that all students sitting final examinations must show their Murdoch
University Student Card to facilitate photographic identification. No other form of
identification will be accepted.
Students may inspect their marked examination scripts and discuss the marking with the
Unit Coordinator within 14 days of the posting of results (Degree Regulation 43).
Determination of the final grade
See Section 11 in the current Assessment Policy regarding grades.
Notation Grade Percentage Range
HD High Distinction 80 100

D Distinction 70 79
C Credit 60 69
P Pass 50 59
N Fail Below 50
DNS Fail Did not participate in any assessments after HECS
census date
SX Supplementary 40 49*
Assessment
*
The award of the grade of SX shall be at the discretion of the Unit Coordinator.
To pass the unit you must achieve an overall pass (i.e. 50%). Your performance in all
components of the course is important in determining your final grade. Assessment items
are designed to both develop and assess generic skills; in particular data collection and
analysis, problem solving and communication skills, in addition to developing an in-depth
knowledge of International Finance.
"What you need to Know" http://our.murdoch.edu.au/Educational-technologies/What-you-

need-to-know/
Learning Guide
This Learning Guide contains information on how to study each chapter, including:
Introductory information
Learning activities/tasks
Resources required for the topic
Chapter 1: Current Multinational Financial Challenges
Introduction
The students are introduced to the concepts of globalization and risk, global financial
markets places and financial assets traded in global financial market places, such as, stock,
debt securities and currencies. The students are also introduced to the concept of the theory
of comparative advantage as a basis for international trade.
Learning outcome
After studying this chapter
1. The students will have an understanding of global financial market place and the
assets traded in the market
2. The students will be able to explain why trade takes place across borders.
3. The students will be able to differentiate between the financial management of
international and domestic firms.
Key concepts
Financial globalization,
Global financial market
Foreign exchange market
Comparative advantage
Resources for this topic:

Learning activities/tasks:
Self-assessment
Chapter reading and solving workshop problems/questions
Completing online quiz
Chapter 3: The International Monetary System
Introduction:
This chapter discusses the history of international monetary system, from Gold standard
(1876 1913) to the recent Emerging era (1997 present). It also discusses various
exchange rate regimes (i.e. fixed, floating, pegs etc.)
Learning outcome:
After studying this chapter, the students

Will have broader understanding of international monetary system
Will be able to distinguish various exchange rate arrangements, i.e. fixed, floating, peg,
hard peg, dollarization etc.
Be familiar with European currency, Euro.
Will also have a clear understanding of the choice of exchange rate regime for
emerging markets.
Key concepts:
Gold Standard
Bretton Woods
Exchange rate regime
The Euro

Self-assessment
Chapter 6: The Foreign Exchange Market
Introduction
This chapter introduces the students with the operations of foreign exchange (FX) market.
Geographical extent, functions and participants of foreign exchange markets are discussed.
Methods of quoting foreign exchange rate (i.e. direct and indirect), various transactions of
foreign exchange, i.e. spot, forward and swap, are also discussed. The chapter also
discusses intermarket arbitrage from the cross rates.
Learning outcome:
After studying this chapter, the students

Will have in-depth understanding of FX market operations
Will understand the functions of FX market
Will have clear understanding of different types of FX transactions, such as, spot,
forward, swap, etc.
Will be able identify direct and indirect quotation of currencies
Will be able to identify arbitrage opportunity from cross rates.
Key concepts
Geographical extent of FX markets
Participants of FX markets
Transactions in FX markets
FX quotations
Cross rates

Self-assessment
Chapter 7: International Parity Conditions
Introduction
This chapter discusses in detail the two important theories of international finance
Purchasing Power Parity (PPP) and Interest Rate Parity (IRP). In discussing these two
theories, the chapter covers other concepts that are inextricably related to these theories,
such as, Low of One Price (LOOP), relative PPP, International Fisher Effect, Covered
Interest Arbitrage (CIA), Uncovered Interest Arbitrage (UIA) etc. Finally the chapter
discusses the relationship between prices, interest rate and exchange rate.
Learning outcome:
After studying the chapter, the students will gain in-depth understanding of
the relationship between prices and exchange rate
the relationship between Interest rate and exchange rate
covered and uncovered interest arbitrage
the link among prices, exchange rate and interest rate
Key concepts:
Purchasing Power Parity (PPP)
Interest Rate Parity (IRP)
Low of One Price (LOOP)
Covered Interest Arbitrage (CIA)
Uncovered Interest Arbitrage (UIA)
Forward Rate

Self-assessment
Chapter 8: Currency Derivatives
Introduction:
This chapter introduces the students with derivatives on foreign currency. Derivatives that
are discussed are future and forward contracts on foreign currencies, specifications of these
contracts and the differences between forward and future contracts. Next the chapter
discusses options on foreign currencies. Different terms of put and call options and profit
calculations from put and call options are discussed.
Learning outcome:
After studying this chapter, the students will gain sound knowledge on foreign currency
derivative, in particular,
Foreign currency futures
Foreign currency forward
Call option on foreign currency
Put option on foreign currency
Key concepts:
Foreign currency future & forward
Put & call option on foreign currency
Profit from put & call options

Self-assessment
Chapter 10: Transaction Exposure Management
Introduction:
This chapter analyses how exchange rate change causes changes in profitability, cash flow
and market value of a firm. The chapter discusses how to protect adverse outcome caused
by exchange rate change by hedging foreign currency exposure, such as, forward market
hedge, money market h edge, option market hedge etc.
Learning outcome:
After studying this chapter the students will be able to
Understand the concept of transaction exposure
Calculate transaction exposure
To devise hedging alternatives for different exposure scenarios
To recommend hedging strategy for a given situation
Key concepts:
Transaction exposure
Translation exposure
Operating exposure
Hedging
Money market hedge
Forward market hedge
Option market hedge

Self-assessment
Chapter 13: The Global Cost of Capital
Introduction: This chapter discusses how multinational firms can exploit global capital market
to minimize their cost of capital and maximize availability of capital. In doing so it applies
international version of Capital Asset Pricing Model (ICAPM). Using hypothetical data the
chapters shows how to calculate cost of equity, equity risk premium and weighted average
cost of capital for multination firms.
Learning outcome:
After studying this chapters, the students will be able to
Calculate global cost of capital
Equity premium for multinational firms
Cost of equity for multinational firms
Comprehend the concept of ICAPM
Key concepts:
Weighted Average Cost of Capital (WACC)
International CAPM (ICAPM)
Global Beta
Equity Risk Premium

Self-assessment
Chapter 14: International Debt and Equity Financing
Introduction:
This chapter discusses how firms located in less liquid, segmented or emerging markets can
get access to liquid and unsegmented markets to exploit the global cost and availability of
capital. It analyses the optimal financial structure of a multinational firm that minimises its
cost of capital. Various methods of raising equity and debt capital from international markets
are discussed in detail.
Learning outcome:
After studying this chapter, the students will be able to
Design strategy to raise equity capital from global market
Explain different alternative sources of equity
Explain the link between capital availability and optimal capital structure of
multinational firms
Explain American Depository Receipt
Explain different international debt market .
Key concepts:
Optimal financial structure
Initial Public Offering (IPO)
Euro equity
Depository receipts
Private placement
Bank loan & syndicated credit
Euro note market
International bond market

Self-assessment
Chapter 16: International Portfolio Theory
Introduction:
This chapter analyses how application of portfolio theory can reduce the risks of asset
portfolio of multinational firms. It does so by extending the portfolio theory applicable for
domestic firms to international business environment. The chapter also discusses two
indicators to measure market performance, namely, Sharp measure and Treynor measure.
Learning outcome:
After studying this chapters, the students will
Understand how international portfolio theory works
Gain sound knowledge on different risks associated with international portfolio
diversification
Be able to calculate risk and return of international portfolio
Be able form optimal international portfolio
Be able to measure market performance of multinational firms.
Key concepts:
International diversification
Foreign exchange risk
Optimal domestic & international portfolio
Sharpe measure
Treynor measure

Self-assessment

BUS330 S2 2017 UILG - Internal Students

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BUS330

Unit Information and Learning Guide (Internal Students)

The prerequisite/co-requisite for this unit is BUS244/BUS288 Treasury Management.

Aims of the unit

The broad aims of this unit are to:

Learning outcomes for the unit

On successful completion of the unit you should be able to:

Unit Coordinators contact details

Name: Dr Kamrul Hassan

Administrative contact details

School of Management and Governance office: +61 8 9360 2705.

One two-hour workshop each week.

Unit changes in response to student feedback

To undertake study in this unit, you will need:

Other references/recommended reading:

Madura, J. 2015. International Financial Management, 12th edition (ISBN: 987-1-133-94783-

Bekaert, G. and R.J. Hodrick. 2009. International Financial Management. Pearson.

Moosa, I.A. 2010. International Finance: An analytical approach. 3rd

Burler, K.C., Multinational Finance, 3rd edition, Thomson, South, 2004.

Melvin, M. 2003. International Money and Finance. Pearson Addison-

Moffett, M.H. 2001. Cases in International Finance. Addison Wesley

Rosenstreich, P. Forex Revolution: An Insiders Guide to the Real World of Foreign

Shapiro, A.C. and A. Sarin. 2009 Foundations of Multinational Financial

The Australian Stock Exchange (www.asx.com.au)

Week 5 TEACHING BREAK

Week 9 TEACHING BREAK

Schedule of assessment items

You will be assessed on the basis of:

Assessments Value Description Due

Workshop preparation and 10% Numerical and short- Continuous

Online Assessment 15% MCQs Continuous

Workshop Preparation & Participation (10%)

Online Assessment (15%)

The quiz opening and closing dates are as follows:

Quiz No. Chapter Quiz opens at Quiz closes at

Mid Term Test (30%)

Final Examination (45%)

Determination of the final grade

See Section 11 in the current Assessment Policy regarding grades.

Notation Grade Percentage Range

HD High Distinction 80 100

"What you need to Know" http://our.murdoch.edu.au/Educational-technologies/What-you-

Resources for this topic:

After studying this chapter, the students

Resources for this topic:

After studying this chapter, the students

Resources for this topic:

Resources for this topic:

Resources for this topic:

Resources for this topic:

Resources for this topic:

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