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2014/2015  BA-BHAAI1013U  Undergraduate international financial management and hedging

English Title
Undergraduate international financial management and hedging

Course information

Language English
Course ECTS 7.5 ECTS
Type Elective
Level Bachelor
Duration Summer
Course period Summer
Timetable Course schedule will be posted at calendar.cbs.dk
Study board
Study Board for BSc in Economics and Business Administration
Course coordinator
  • Course instructor - Dr. Jakob Müllner, Vienna University of Economics and Business
    Patricia Plackett - MPP
Main academic disciplines
  • Finance
  • Globalization, International Business, markets and studies
  • Management
  • Corporate and Business Strategy
Last updated on 20-05-2014
Learning objectives
At the end of the course the students are able to:
  • know about the history, functioning and use of FX markets
  • understand how exchange rates affect MNEs and SMEs on different levels
  • assess and measure the effect of different exposures and come up with appropriate risk management processes
  • manage the different exposures using contractual, strategic or financial instruments
  • combine different options to create synthetic positions
  • calculate outcomes of different hedging instruments in EXCEL using actual CME quotes
Course prerequisites
It is recommended that students have a very basic understanding of corporate finance instruments and financial markets, basic EXCEL skills and high school-level mathematics.
Prerequisites for registering for the exam
Number of mandatory activities: 1
Compulsory assignments (assessed approved/not approved)
Mandatory Mid-term Assignment: in-class quiz on the theoretical foundations of financial markets, the types of foreign exchange exposures and the foreign exchange management process (Chapters 3, 5, 7-12). Topics will all be covered in class lectures and in the textbook.
4 hours written exam:
Exam ECTS 7,5
Examination form Written sit-in exam
Individual or group exam Individual
Assignment type Written assignment
Duration 4 hours
Grading scale 7-step scale
Examiner(s) One internal examiner
Exam period Summer Term
Aids allowed to bring to the exam Limited aids, see the list below and the exam plan/guidelines for further information:
  • Allowed calculators
  • Allowed dictionaries
Make-up exam/re-exam
Same examination form as the ordinary exam
If the number of registered candidates for the make-up examination/re-take examination warrants that it may most appropriately be held as an oral examination, the programme office will inform the students that the make-up examination/re-take examination will be held as an oral examination instead.
Course content and structure

The course is designed as an undergraduate course of International Financial Management with a distinctive focus on operational corporate risk management. As a consequence, option valuation is not addressed in detail. The course is unique in that:

  • students use actual CME live quotes and contracts to calculate hedging strategies
  • students are gently acquainted with combined option strategies (i.e. ratio-forward, zylinder, zero cost vertical spread) which are not covered in standard undergraduate courses
  • strategies are calculated in class using EXCEL and intensively discussed to assure ease of understanding
  • students have access to an online Wiki based learning supplement tailored to the course

The first presence part of the course will examine the financial markets environment (Chapter 3). Students will be introduced to a broad set of instruments (internal and external) to manage currency risks (Chapter 5) and then move on to cover the basic theoretical concepts of foreign exchange rate exposure (accounting exposure, transaction exposure and economic exposure) and the hedging process in companies (Chapters 7-12). These chapters will cover the Mandatory Mid-term assignment.
The second part of the course is interactive and based on online material. Students analyze hedging instruments on an operational treasury level. Option strategies are taught using actual CME live quotes and contracts. Strategies are calculated and discussed extensively in class using EXCEL. The Comprehensive Review will cover both theoretical foundations and hedging strategies.
For the Preliminary Assignment students will prepare for a short in-class quiz by studying FX markets history and fundamentals. This involves listening to a BBC podcast featuring Milton Friedman, reading the seminal 1971 article by Milton Friedman on “The Need for Futures Markets in Currencies”, reading a white paper on financial derivatives markets by Deutsche Börse AG and reading an introductory "textbook" chapter (4) from Madura (2011) on exchange rate determination.
Class Schedule

Class Undergraduate international financial management and hedging
Class 1 Financial markets environment
Class 2 Determinants of exchange rates
Class 3 Preliminary Assignment
Class 4 Types of foreign exchange exposure
Class 5 Mandatory Mid-term Assignment
Class 6 Organization of FOREX management
Class 7 Symmetrical instruments of hedging (FRA, NDF, Money Market hedging)
Class 8 Hedging with options
Class 9 Combined option strategies
Class 10 Combined option strategies II
Class 11 Comprehensive Review
Teaching methods
The course involves a home study assignment to cover FX markets and their history. Classes 1 to 5 will be lecture based but there will be frequent references to cases and plenty of room for interactive discussion.
The second part of the course is focused on the corporate implementation of hedging strategies. They will be calculated interactively in class using pen and paper as well as EXCEL. Strategies will be discussed in great detail and variations will be considered and analyzed.
The Comprehensive Review will cover the both textbook chapters from part one and options calculations from part two of the course.
Further Information
Preliminary Assignment: To help students get maximum value from ISUP courses, instructors provide a reading or a small number of readings or video clips to be read or viewed before the start of classes with a related task scheduled for class 3 in order to 'jump-start' the learning process.
Expected literature

Preparation Material Pre-Assignment:

A compendium will be uploaded to LEARN including all materials except the primary textbook. The relevant chapters of the textbook can be acquired online.

Milton Friedman (1971). The need for futures markets in currencies. In: Cato Journal, 31 (3): 635 – 641 (6 pages). Permanent link: http:/​/​object.cato.org/​sites/​cato.org/​files/​serials/​files/​cato-journal/​2011/​9/​cj31n3-15.pdf

Milton Friedman & Leo Melamed (2010). Confidence to act - A brief history of FX Futures. Chicago Mercantile Exchange; Chicago. (30 minute podcast) http:/​/​accordent.powerstream.net/​008/​00102/​podcast/​fx/​070731podfx.mp3

Deutsche Börse Group (2008). The Global Derivatives Market: An introduction. White Paper; Frankfurt am Main. P. 1-44 (44 pages) http:/​/​www.math.nyu.edu/​faculty/​avellane/​global_derivatives_market.pdf

Jeff Madura & Roland Fox (2011). International financial management. [European ed.], 2nd Edition, South-Western Cengage Learning; Andover [u.a.]. (Chapters 4; p. 113-133; 20 pages) Students can acquire the relevant chapters or the full book on Cenage Brain. http:/​/​www.cengagebrain.co.uk/​shop/​isbn/​9781844803606Note: the course will only cover the Chapters mentioned.

Primary textbook for foundations:

We have changed the book from the 2nd edition to: Jeff Madura & Roland Fox. International financial management. [European ed.], 3rd version ISBN: 9781408079812, South-Western Cengage Learning; Andover [u.a.].. (Chapters 5-12; p.134-440; 306 pages) Students can acquire the relevant chapters or the full book on Cenage Brain. http:/​/​www.cengagebrain.co.uk/​shop/​isbn/​9781844803606Note: the course will only cover the Chapters mentioned.

Additional reference material for option calculations:

Gordon Bodnar. Techniques for managing exchange rate exposure. Classnote; University of Pensylvania. (p.1-14; 14 pages) Permanent link: http:/​/​finance.wharton.upenn.edu/​~bodnarg/​courses/​readings/​hedging.pdf
Online Course Script provided and lecture slides provided by lecturer (approx. 100 slides) Slides will be uploaded to LEARN

Additional cases used:

S. L..Srinivasulu (1981). Strategic Response to Foreign Exchange Risks. In: Columbia Journal of World Business, 16 (1): 13-24. (11 pages) Permanent link: http:/​/​search.ebscohost.com/​login.aspx?direct=true&db=buh&AN=5546516&site=ehost-live

Kathryn Tully (2004). Car companies face currency quandary. Market Monitor; Euromoney Institutional Investor; London. pp.1-4. (4 pages) Permanent link: http:/​/​search.proquest.com/​docview/​198882035?accountid=29104

Last updated on 20-05-2014