| 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).
|
| 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 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:
http://www.sciencedirect.com/science/article/pii/002463019090153U
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:
http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=11830539&site=ehost-live
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
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