IBS Hyderabad

Academic Year: June-September 2017

Course Handout

Course Name: INTERNATIONAL FINANCE AND TRADE Semester: III

Faculty Name: Dr. Vighneswara Swamy, Professor

Room No: F109 Wing No: Finance

Consultation Hours: Available at all times except class/seminar/meeting hours

Mobile No: 9705096919 Email: vs.ibshyderabad@gmail.com

Course Objective:

The course will cover the principal theoretical models in international finance and establish their application to contemporary issues in the world
economy. It will look at the current policy issues in a financially integrated world as also examine issues of regional economic integration and
exchange rates. The major focus of the course is on the forex market and exchange rate issues that will help a manager appreciate the changes
happening globally and integrate these inputs into his decision-making process. The course intends to prepare a student to create an analytical
framework for evaluating cross-border financing and investment decisions and the role of exchange rate issues in this context.

Learning Outcomes:

The course will help students understand how external sector movements translate to changes in the domestic economy. It will help the manager of
an organization understand the global currency market movements and establish if any changes in these markets affect his organization. The course
will help students make sense of global macroeconomic events and exchange rate dynamics. It sets the framework for the detailed issues in
multinational financial management. The main focus of the course will be the financial implications of the rapid integration of national economies
worldwide through trade, financial flows, and technology spillovers upon the firms cross-border strategy. The course will assess the impact of
economic and financial liberalization as well as structural reforms in the foreign exchange and financial markets of both advanced and emerging
market economies.
Page | 1
Recommended Text Book:
International Finance by Rajiv Srivastav, Oxford

Suggested books:
International Finance, by Maurice Levi, 5th edition, Mc Graw Hill
International Financial Management by Jeff Madura; 2008, Cengage Learning
International Financial Management by Eun and Resnick, 4th edition, Tata McGraw Hill
International Economics by Carbaugh 11th Edition, Cengage Learning.
Paul R Krugman and Maurice Obstfeld, International Economics, 8th edition

Other Reading Requirements

The Business Line Edit articles, The Wall Street Journal, Financial Times
Euro finance, The Business World (Weekly magazine can also be read online)
Economic and Political Weekly, IMF Newsletter

Internet Resources

www.voxeu.org, www.rbi.org.in, www.imf.org, www.repec.org, www.bloomberg.com, www.bis.org

Course Outline

Date Session Topic / Area Covered Key Concepts Learning Outcome Case details Chapter
No. Reading
Current Issues in International Finance and Trade
1&2 Introduction to international Financial Markets Enable students to see a Chapter 1
finance and trade, globalization Integration broad picture of the p.2-
and integration of financial Foreign Direct global economy 13(Rajiv
markets: advantages and Investment (FDI) Enable students to Srivastv)
disadvantages etc Foreign Portfolio examine critically the
Trends in International Trade Investment (FPI) trends in global trade in p.2-
and Cross Border Financial MNC and MNC goods and services 16&22(Car
Page | 2
 flows Financial Management Enable students to baugh)
(Sessions 1-2) analyze International
Trade and Cross Border
Financial flows

Theories of International Trade

3&4 Absolute advantage Alternative exchange Enable students to apply the 1. Finland and Chapter
/Comparative advantage rate system international trade theories Nokia: 2& 3
/Heckscher-Ohlin/ Product life Free Trade based on various factors of Creating the Carbaugh
cycle theory of international Gains from production/factor World's P.28-85
International Trade endowments in a country Most Porters
Trade
Mercantilism theory context Competitive article on
Absolute Advantage Economy National
Theory [702427- Diamond
PDF-ENG] Chap.17,p.
Porters Theory of National Comparative
Advantage theory 495-501
Diamond concept of (Rajiv
sustainable competitive Region of Mutually
beneficial Trade Srivastav)
advantage
Factor Endowments
Theory

International Flows of Goods and Funds

5, Balance of Payments Balance of Payments Enable students to 2. Thailand: An Chapter2
6, Accounting and related issues Balance of estimate/calculate a nations Imbalance of P.14-41
7, International balance of payment Payments
8 Trade deficits, Current Account Indebtedness accounts from data on HKU 804-
Deficits, and related concerns Devaluation and international transactions PDF-ENG
depreciation Enable students to identify 3. Malaysia:
J-Curve and Economic J-Curve the links between the Capital and
Implications of Capital Account & domestic and international Control
current account flows of goods, services and [702040-PDF-
strengthening/weakening of a
currency Double Entry capital and to describe how ENG]
Accounting these links are reflected in
Page | 3
 Capital movements and impact Official Reserve the various BoP accounts
on BOP Assets
Capital Account Convertibility
Forex Reserves and its
Implications

9 NCP 1

IMF and the current international monetary system

10, 11, Evolution of IMS (Int. History of Enable the students to 4. The Greek Chap 3
12 Monetary System), IMFs role International describe the evolution of Crisis:
in the present situation, Current Monetary System international monetary Tragedy or P.44-70
international financial system European Central systems
Opportunity?
Bank 711088-PDF- Chap.4,
and European Monetary System
European Currency Analyze the role of major ENG
Unit p.110-154
international 5. Exchange
European Monetary Rate Regimes
System organizations in
Current international financial [HBS 9-704-
The European managing international
system and European Monetary 038]
Monetary Union financial systems and
System
Bretton Woods system associated issues and
Exchange rate challenges,
Fixed, Flexible and
Alternative exchange rate Managed Floating Enable the students to
systems: Gold Standard, Bretton exchange rate system describe the origins
Woods System, Flexible and Exchange rate purposes and
determination consequences of
Fixed exchange rate system
Special Drawing European Monetary
Links between monetary systems Rights
system and journey of
Common Market
Page | 4
 and currency crises Conditionality Euro
Free Float
Students would
appreciate the linkage
between monetary
systems and currency
crisis in any given
situations

The Foreign Exchange Market

13 Function and Structure of Forex Exchange rate quotes Students develop an Chap.5
& Market, Forex Market Merchant Quotes analytical framework for
14 Participants Spot market and examining the basic P.110-154
forward market functions and structures of
Cross Exchange Rate the Forex market.
Broken date quotes
Spot & Forward Market Swap points
Payment and settlement systems Currency appreciation
and depreciation
Arbitrage Opportunity
Theories of Exchange Rate Determination & Exchange Rate Forecasting
15, Purchasing Power Parity, Purchasing Power The student would Chap 6
16 Interest rate parity Covered & Parity, Interest rate analyze the mechanism of P.157-189
& Uncovered, Fisher Effect, BOP parity Covered & exchange rate is
17 Uncovered, Fisher
and Monetary Approach and determined under
Effect, BOP and
Portfolio Balance Approach different exchange rate
Monetary Approach
and Portfolio Balance regimes
Forecasting Exchange Rates-
Approach
Efficient Market Hypothesis, Forecasting Exchange The student would
Rates-Efficient Market identify factors affecting
Fundamental Approach,
Hypothesis, Fundamental Exchange rates in a
Page | 5
 Technical Approach Approach, Technical floating exchange rate
Approach systems in different
country context

Enable students to
examine the motives, and
consequences of central
bank intervention in the
foreign exchange market

18 NCP 2

Forex Risk Management: tools & techniques

19, Currency Derivatives - Forward Analyzing country and Enable the students to 6. Grupo Sidek Chapters 8
20, Contracts, Futures, Options & currency risk examine how different (A) P.230-269,
21, Swaps Currency exposures forms of foreign exchange [297022-PDF- Chap.9,P.2
22 (Transaction, exposure affects the firms ENG] 74-282
Transaction, and Translation Translation and who are into foreign Chap.12,P.
Exposures Measurement & economic exposures business 362-391
Management and hedging). Enable the students to
Foreign Currency design a framework for Chap.13,
Options firms Forex Risk P.399-419
Economic exposures: measures
and management Futures Market management strategies and
Hedging manage optimally their
Interest Arbitrage currency transaction and
Option translation risks
Three Point arbitrage
Two Point arbitrage
Foreign Investment Analysis

Page | 6
23, National capital Students are cable enough Chap 16
24 1. International Diversification markets and to investigate the advantage
international financing and disadvantage of P.470-491.
Euro markets international investments, 7. The
2. International Foreign Foreign investment issues, and challenges Refinancing Chap.19,p.
Investment cost of capital of Shanghai 564-571
Analyzing Country General
Risk Motors (A) Chap-
Advantages & Risks of [204031-PDF- 17,P.501-
International Investments ENG] 516

International Project Appraisal & Capital Budgeting

25, 1. Corporate Strategy and FDI International Enable students to 8. Globalizing Chap 20
26, 2. International Portfolio portofolio investments the Cost of
develop a plan for
27, Corporate strategy and Capital and p.577-580,
28, Investments international investing Capital
FDI
3. International Capital Structure Adjusted Present which help investors to Budgeting at Chap.21,P.
and Cost of Capital Value achieve a better risk and AES 611-629
Overseas private return trade-off than [204109-PDF-
4. International CAPM
Investment investing solely in the ENG]
5. International capital budgeting Corporation (OPIC) domestic market.
Systematic Risk vs.
Unsystematic risk Students would be
Weighted Average capable enough to
Cost of Capital calculate the currency
Issues in Foreign risk associated with
Investment Analysis
investing in securities
Techniques used in
international project issued in different
appraisal such as APV markets and denominated
in various currencies

Page | 7
 International Financial Markets & Instruments
29 Types of Markets and Short-term financing Students develop a broad 9.Noble Group- Chapter
& Instruments: Short term & Long Trade barriers framework for HBS Case- 22,
30 term Financing Cash Trade financing-pre international business 210021-PDF-
Management in MNCs shipment and post financing and appreciate ENG P.643-665
shipment
the reasons for raising
Convertible Bonds
capital overseas
Equity Linked Bonds
Equity Warrants Students gather practical
World Bank experience on
multinational cash
management in case of a
low margin and high
volatile market situations

31 NCP 3
WTO, Trade Blocks and Foreign Trade Policies
32 & 33 WTO rules, functions, Trade Trade blocks(NAFTA, The significance of P.182-
Agreements; Trade Policies, SAFTA) WTO and its genesis 10.World Trade 200,264-
Trade Blocks Terms of Trade Bilateral vs. The functions and the Organization- 280,285-
and India Multilateral trade structure of WTO HBS-703015- 299
General Agreement on An overview of WTO PDF-ENG (Carbaugh)
Trade and Tariffs agreements
(GATT) WTO and its impact
World Trade on Indian economy
Organization(WTO)
WTO vs. GATT

Page | 8
Expectations from Students
a. Students must report to the respective sessions well before the announced time. Latecomers will not be permitted to join the class after the
scheduled time. If late, the attendance for that session will be marked as absent.
b. Read the Case Study/material well prior to the class discussion. He/she is also expected to read the chapter indicated in the course plan as
the faculty directs.
c. In the class, discussion student is expected to participate actively and contribute to individual and group learning. Evaluation is based on
active participation.
d. Evaluation is a continuous process at IBS. Every student needs to be aware of the timelines given in the section below. Absence from these
evaluations will mean non-awarding of marks in that particular component
e. Wherever applicable, group assignments require each student to contribute to the group effort. This enhances group effectiveness and leads
to greater appreciation of working in groups.
f. Formal dressing is suggested for all students. Do not roam in the academic area/ attend classes in chappals/shorts / informal t-shirts
g. Students are expected to show high regard and appreciation for in-class discipline and desist from using mobile phones. This disturbs the
class ambiance and unnecessarily diverts the attention of other students as well as the faculty member.
h. Each faculty has been given a scheduled consultation hour. Utilize this time to meet the faculty and clarify doubts if any, seek explanations
and get mentored if needed.
i. Attendance is compulsory for all sessions. However, refer to guidelines in your academic handbook for exceptions.
Evaluation Timelines
Keeping in line with continuous evaluation at IBS the following schedules have been drawn. Students are expected to go through the
dates/sessions mentioned and prepare accordingly.
Component
Component Expected slot / due date Marks declaration by Weightage
Number
Class Participation 1 Session 11th Session 11 10
Class Participation 2 Session 22nd Session 22 10
rd
Class Participation 3 Session 33 Session 33 10
Test -1 1 Session 9th Real time 10
Test -2
2 Session 18th Real time 10
Test -3 3 Session 31 Session 33 10
End Exam At the end of the semester 40
Total 100

Page | 9