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2014/2015  KAN-CCMVI2001U  Advanced international financial management and hedging

English Title
Advanced international financial management and hedging

Course information

Language English
Course ECTS 7.5 ECTS
Type Elective
Level Full Degree Master
Duration Summer
Course period Summer
Timetable Course schedule will be posted at calendar.cbs.dk
Study board
Study Board for MSc 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:
  • Understand how exchange rates affect MNEs and SMEs on different levels
  • Manage the different exposures using contractual, strategic or financial instruments
  • Implement and analyse FX risk management processes in SMEs and MNEs
  • Interpret outcomes of different hedging instruments including complex option strategies
  • Deal with managerial elements in corporate hedging (exchange rate forecasting, strategic management of different exposures, measurement of foreign exchange exposure, hedging ratio, hedging tenor etc.)
  • Read and understand scientific and practical state-of-the-art papers on corporate hedging
Course prerequisites
Students need high school-level mathematical skills, a good level of English, a basic understanding of derivatives and necessary scientific competence to understand peer-reviewed journal articles. Students should have completed an introductory course of corporate finance.
Prerequisites for registering for the exam
Number of mandatory activities: 1
Compulsory assignments (assessed approved/not approved)
Mandatory Mid-term Assignment: An in-class quiz based on the textbook. Topics include exchange rate behavior (Chapters 4; 6-8), types of foreign exchange exposure (Chapters 9-12) and hedging instruments (Chapter 5).
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 an advanced graduate course in International Financial Management with a distinctive focus on managerial corporate risk management. As a consequence, option valuation is not addressed in detail. The course is unique in that:

  • It covers both operational implementation of hedging instruments and managerial issues in corporate hedging that typically are not included in standard courses.
  • students read, present and interactively discuss hand-picked state-of-the-art journal articles with highly practical implications.

The first presence part of the course is lecture based and will bring students to an advanced international financial management level by the Mandatory Mid-Term Assignment. Topics include foreign exchange risk theory (accounting exposure, transaction exposure and economic exposure)(Chapters 9-12), exchange rate behavior (Chapters 4), knowledge of hedging instruments, the hedging process (net exposure assessment, forecasting and implementation of hedging strategy)(Chapter 5).
The second part of the course is interactive and problem-focused. Students receive 10 journal articles broadly related to five practical topics in FX Management (i.e. optimal hedging ratio, optimal hedging tenure, exchange rate forecasting, etc.). After a brief coaching session, students work in groups of four on one article. They present the articles in class and prepare a four-page discussion paper. Presentations are revied by a peer group and then discussed interactively. Finally managerial implications are derived and summarized. The Comprehensive Review will cover both textbook theory and journal articles’ discussions.
For the Preliminary Assignment students will be required to prepare for a short in-class quiz in Class 3 on FX market functioning and instruments using a textbook chapter from Hull (2012) on derivatives instruments, a 65-minute online web seminar on “Understanding FX Markets” offered by the Chicago Mercantile Exchange (CME) and the accompanying audio transcript and slides. 
Class Schedule

Class Advanced International Financial Management and Hedging
Class 1 Introduction into markets and instruments and the hedging process
Class 2 Types of exchange rate exposures and instruments
Class 3 Preliminary Assignment
Class 4 Organization of FOREX management
Class 5 Mandatory Mid-term Assignment
Class 6 Topic 1: Foreign exchange forecasting theory and models
Class 7 Topic 2: Economic exposure, measurement and management
Class 8 Topic 3: Translation exposure, accounting and management
Class 9 Topic 4: Organization of FOREX management case
Class 10 Topic 5: Efficiency of hedging strategies
Class 11 Comprehensive Review0
Teaching methods
The course starts with a home study assignment using an online webinar on “Understanding FX Markets” by the Chicago Mercantile Exchange (CME). The first presence part (Classes 1-4) will be in lecture format but topics are illustrated using practical cases from 10 year experience and there is plenty of room for interactive discussion.

The focus in the second part (Classes 6-10) will be on managerial problems in corporate treasury. Sessions will involve student presentations and peer-reviews interactive discussions. Students will read two journal articles prior to each session. 4 students will present one article in class and will prepare a 4 page discussion paper as basis for discussion.

The Comprehensive Review will cover the both textbook chapters from part one and the journal articles from part 2.
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.

CME Group (2010). Understanding FX Markets. Webinar; Chicago. http:/​/​www.cmegroup.com/​education/​interactive/​webinars-archived/​understanding-fx-markets.html#.UzQnCjYcrIg.email
Note: If the link expires please create an account at the CME education site (http://www.cmegroup.com/) and search for the webinar ”Understanding FX markets”

CME Group (2010). Understanding FX Markets Webinar Transcript. Webinar; Chicago. (117 slides plus full audio transcript of webinar) Slides will be uploaded to LEARN. They are also accessible directly in the webinar by clicking “attachments” in the upper left corner of the webinar screen.

John C, Hull (2012). Options, futures, & other derivatives. 8th Edition. Prentice Hall; Upper Saddle River, NJ [u.a.]. Chapter 1 p. 1-21 (20 pages) Chapter will be uploaded to LEARN.

Primary textbook used for first part of the course:

Jeff Madura & Roland Fox (2011). International financial management. [European ed.], 3rd version ISBN: 9781408079812,  South-Western Cengage Learning; Andover [u.a.]. (Chapters 4,5,9-12 = 214 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.

Online Course Script provided and lecture slides provided by lecturer (approx. 100 slides) Slides will be uploaded to LEARN

Cases and journal articles used in second part of the course (could be subject to modification):

G. W. Brown (2001). Managing foreign exchange risk with derivatives. In: Journal of Financial Economics, 60 (2): p. 401-448 (47 pages). Permanent link: http:/​/​www.sciencedirect.com/​science/​article/​pii/​S0304405X01000496

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

M. Glaum (1990). Strategic management of exchange rate risks. In: Long Range Planning, 23 (4): p. 65-72. (7 pages). Permanent link:

R. M. Zeidan & B. Rodrigues (2012). The failure of risk management for nonfinancial companies in the context of the financial crisis: lessons from Aracruz Celulose and hedging with derivatives. In: Applied Financial Economics, 23 (3): p. 241-250. (9 pages). Permanent link: http:/​/​dx.doi.org/​10.1080/​09603107.2012.714070

P. Bofinger & R. Schmidt (2003). On the reliability of professional exchange rate forecasts an empirical analysis for the €/US-$ rate. In: Financial Markets and Portfolio Management, 17 (4): p. 437-449. (12 pages). Permanent link: http:/​/​dx.doi.org/​10.1007/​s11408-003-0403-z

A.D. Martin & L. J. Mauer (2003). Transaction versus economic exposure: which has greater cash flow consequences? In: International Review of Economics & Finance, 12 (4): p. 437 -450. (12 pages). Permanent link:

A..D. Martin & L. J. Mauer (2005). A note on common methods used to estimate foreign exchange exposure. In: Journal of International Financial Markets, Institutions and Money, 15 (2): p. 125-140. (15 pages). Permanent link: http:/​/​dx.doi.org/​10.1016/​j.intfin.2004.03.003

Culp, C. L., Miller, M. H., & Neves, A. M. P. 1998. Value at Risk: Uses and Abuses. Journal of Applied Corporate Finance, 10(4): 26-38. http:/​/​onlinelibrary.wiley.com/​doi/​10.1111/​j.1745-6622.1998.tb00307.x/​abstract

Mello, A. S. & Parsons, J. E. 1995. Maturity Structure of a Hedge Matters: Lessons from the Metallgesellschaft Debacle. Journal of Applied Corporate Finance, 8(1): 106-21. http:/​/​onlinelibrary.wiley.com/​doi/​10.1111/​j.1745-6622.1995.tb00278.x/​abstract

Mello, A. S. & Parsons, J. E. 1999. Strategic Hedging. Journal of Applied Corporate Finance, 12(3): 43-54. http:/​/​dx.doi.org/​10.1111/​j.1745-6622.1999.tb00029.x

Flood, E., Jr. & Lessard, D. R. 1986. On the Measurement of Operating Exposure to Exchange Rates: A Conceptual Approach. Financial Management, 15(1): 25-36. http:/​/​www.jstor.org/​stable/​3665275

Last updated on 20-05-2014