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2017/2018  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
Start time of the course Summer
Timetable Course schedule will be posted at calendar.cbs.dk
Max. participants 120
Study board
Study Board for BSc in Economics and Business Administration
Course coordinator
  • Course instructor - Associate Prof. Dr. Jakob Müllner, Vienna University of Economics and Business, jmu.acc@cbs.dk
    Sven Bislev - Department of Management, Society and Communication (MSC)
In case of any academic questions related to the course, please contact the course instructor or the academic director, Sven Bislev at sb.msc@cbs.dk.
Main academic disciplines
  • Finance
  • Management
  • Strategy
Last updated on 25/04/2018

Relevant links
Learning objectives
To achieve the grade 12, students should meet the following learning objectives with no or only minor mistakes or errors:
  • Know about the history, functioning and use of FX markets
  • Understand how exchange rates affect MNEs on different levels
  • Be able to assess and measure the effect of different exposures and come up with appropriate risk management processes
  • Be able to manage the different exposures using contractual, strategic or financial instruments
  • Be able to combine different options to create synthetic positions
  • Be able to calculate outcomes of different hedging instruments in EXCEL using actual CME quotes
  • Estimate foreign exchange risks of MNEs
  • Design strategic and financial strategies for risk management
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.
Examination
Undergraduate International Financial Management and Hedging:
Exam ECTS 7.5
Examination form Written sit-in exam on CBS' computers
Individual or group exam Individual exam
Assignment type Written assignment
Duration 4 hours
Grading scale 7-step scale
Examiner(s) One internal examiner
Exam period Summer, Ordinary exam: 31 July - 3 August 2018

Retake exam: September - October 2018

3rd attempt (2nd retake) exam: November - December 2018

Exam schedule is available on https:/​/​www.cbs.dk/​uddannelse/​international-summer-university-programme-isup/​courses-and-exams.
Aids Limited aids, see the list below:
The student is allowed to bring
  • Any calculator
  • Language dictionaries in paper format
The student will have access to
  • Advanced IT application package
At all written sit-in exams the student has access to the basic IT application package (Microsoft Office (minus Excel), digital pen and paper, 7-zip file manager, Adobe Acrobat, Texlive, VLC player, Windows Media Player). PLEASE NOTE: Students are not allowed to communicate with others during the exam : Read more about exam aids and IT application packages here
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.
4 hour written sit-in exam, new exam question
Exam form for 3rd attempt (2nd retake): home project assignment, max. 15 pages.
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 quotes and contracts to calculate hedging strategies. Students are gently acquainted with combined option hedges (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.

Classes 1-6 examine the financial markets environment (Chapters 1-4). Students are introduced to a broad set of instruments (internal and external) to manage currency risks (Chapter 5-6) 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).

Classes 7-11 are interactive and based on the Online Script provided by the lecturer. Students analyze and calculate hedging instruments on an operational treasury level. Option strategies are taught using actual CME quotes and contracts. Strategies are calculated and discussed extensively in class using EXCEL. 

 

For the Preliminary Assignment in Class 1 students are required to complete three online courses 

-> Introduction to FX
-> Introduction to Futures 
-> Introduction to Options
https://institute.cmegroup.com/learn/course-catalog 

and read textbook chapter 1 from Jeff Madura & Roland Fox (2011) and an article by Milton Friedman Leo Melamed (2010). These materials will form the basis of a 30 minute in class, pen and paper exercise.

 

Class 1: Preliminary assignment and introduction to financial markets
Class 2: Determinants of exchange rates
Class 3: Types of foreign exchange exposure I
Class 4: Types of foreign exchange exposure II
Class 5: Hedging process and Organization
Class 6: Hedging Instruments

Feedback activity: Students complete an online exercise at home covering the content of the first 6 classes. The answers are discussed in the following class in detail to provide feedback.

Class 7: Feedback discussion and symmetrical instruments of hedging (FRA, NDF, Money Market hedging)
Class 8: Hedging with options
Class 9: Combined option strategies I
Class 10: Combined option strategies II
Class 11: Comprehensive Review of class

 
Teaching methods
The first part of the course is lecture based to convey the necessary knowledge of financial management to students. The second part of the course is designed to calculate different types of hedging strategies in EXCEL.
Feedback during the teaching period
Students complete an online exercise at home covering the content of the first 6 classes. The answers are discussed in the following class in detail to provide feedback.
Student workload
Preliminary assignment 20 hours
Classroom attendance 33 hours
Preparation 126 hours
Feedback activity 7 hours
Examination 20 hours
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 1 in order to 'jump-start' the learning process.

 

Course timetable is available on https://www.cbs.dk/uddannelse/international-summer-university-programme-isup/courses-and-exams.

 

We reserve the right to cancel the course if we do not get enough applications. This will be communicated on https://www.cbs.dk/uddannelse/international-summer-university-programme-isup/courses-and-exams end February 2018 at the latest.
Expected literature

Mandatory readings:

 

Jeff Madura & Roland Fox (2011). International financial management. [European ed.], 2nd Edition, South-Western Cengage Learning; Andover [u.a.]. (Chapters 1-12) Students can acquire the relevant chapters or the full book on Cenage Brain. http:/​/​www.cengagebrain.co.uk/​shop/​isbn/​9781844803606 (More recent editions of the book are available and can be used)

 

Additional relevant readings:

 

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 

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 
Last updated on 25/04/2018