International Business Finance

Description

The course helps to provide the practical tools expected from an international finance manager, i.e. (a) financing in the narrow sense (funding, financial investments), (b) risk management, esp. hedging (that is, risk reduction), and (c) help in decision making, by offering valuation of commercial or investment proposals. These tasks have to be viewed in a context where the extra complications include exchange risk and exposure. Upon completion of this course, the student: - is aware of the extra issues that complicate a CFO’s life when the context is international; - is able to master the vital institutional concepts like how money is created and transfered, how the balance of payments works, and what the pros and cons are of various currency regimes, in light of post-war monetary history; - has a good insight into the workings of spot currency markets, including triangular one- and two-way arb and the use of PPP rates and real rates - has become familiar with the interlinkages between spot, forward and money markets and the potential for arb, including the implications of these linkages these for relative prices in perfect and imperfect markets; - sees the logic and uses of the market value of a forward contract, including the crucial interpretation of the forward rate as a certainty equivalent; - understands the uses for forward contracts (hedging, speculation on spot and swap rates, spot-forward swapping, other stuctured-finance applications); - grasps the point in modern swaps, including ways to quantify the gains or losses and the uses this technique can be put to when comparing loan or bond offers that differ in terms of denominations and fee structures; - has a good insight into the gains and costs a firm can face when cross-listing its shares, either in the traditional MM/CAPM finance framework or from the newer agency-cost/governance point of view; - sees the fundamental sense, limitations and uses of traditional and international CAPMs as ways to set the cost of international capital; - understands the basic logic and the potentially hilarious implications of the basic ways to limit double/triple taxation when the residence and source principles disagree – capital import neutrality and the exclusion privilege versus capital import neutrality and the credit system, as applied to Permanent Estabishments versus subsidiaries; - has a fundamental understanding of the various ways to apply capital budgeting (investment analysis), including the issues around MM and the WACC and its alternative (two-stage adjusted NPV); - masters the next issues that arise when capital budgeting is applied internationally, including the issue of fiscal considerations and the 3-stage Adjusted Net Present Value approach to that, the issue of the currency of evaluation (linked to the issue of segmentation/integration of financial markets), the cost of capital, issues of political risk, and so on; - understands why/when cooperation forms (licensing, management contracts, joint vantures) may make sense next to solo strategies like exports and wholly-owned-subsidiary strategies, why in reality these strategies are often mixed together, and how a one-step combination of contract design and NPV can be implemented. The approach is fully based on modern finance and delivers a coherent view of financial markets and their interlinkages.