Financial Strategy in a Global Economy
The overall goal of the course it to provide the participants with a sound understanding of financial decision-making in the multinational firm. However, whilst the course is presented from a managerial perspective and thus applied in nature, decision-making is approached using firmly established theories in economics and finance. The aim of the course is threefold: i) to study the laws that play a crucial role in the international economy and global financial markets; ii) to understand how firms can hedge exchange rate risk related to both their operations and strategic decisions; and iii) to study issues in corporate finance such as capital budgeting and capital structure from a domestic perpective, learning how to extend theories and methodologies to multinational corporations operating in a globalized economy.
- Introduction: Globalization and the Multinational Firm
- The International Monetary System: FX-rate quotation, Foreign Exchange Market, Balance of payments, FX-rate regimes
- Parity Relationships: covered and uncovered interest parity, purchasing power parity, international Fisher effect, carry trading
- Currency Futures and Options for Hedging
- Transaction (contractual) Exposure: financial hedging with derivatives, special hedging problems, alternative hedging approaches
- Operating Exposure: reclassification of financial statements, measurement of linear vs non-linear exposure, financial hedging with derivatives, operational hedging.
- Domestic Capital Structure: Modigliani-Miller theorems I and II without taxes, and with taxes.
- International Capital Structure and the Cost of Capital: the role currency risk and debt financing from the perspective of a multinational corporation.
- Net Present Value (NPV): theoretical foundations, practical adjustment in presence of political risk in international investments.
- Domestic Capital Budgeting: Weighted Average Cost of Capital (WACC), Adjusted Present Value (APV), and Flow to Equity approach (FTE).
- International Capital Budgeting: the role of royalties, cross-border dividend payments, cannibalization of exports, and financial-side effects in an international environment.
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