| 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.
|
| Examination |
|
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
|
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