Financial Strategy in a Global Economy

Introduction

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 perspective. The course will give an introduction on how to deal in a systematic way with the link between sustainability and cash flows and sustainability and discount rates.

Course content

1. Introduction: Globalization and the Multinational Firm
2. The International Monetary System: FX-rate quotation, Foreign Exchange Market, Balance of payments, FX-rate regimes
3. Parity Relationships: covered and uncovered interest parity, purchasing power parity, international Fisher effect, carry trading
4. Currency Futures and Options for Hedging
5. Transaction (contractual) Exposure: financial hedging with derivatives, special hedging problems, alternative hedging approaches
6. Operating Exposure: reclassification of financial statements, measurement of linear vs non-linear exposure, financial hedging with derivatives, operational hedging.
7. Domestic Capital Structure: Modigliani-Miller theorems I and II without taxes, and with taxes.
8. International Capital Structure and the Cost of Capital: the role currency risk and debt financing from the perspective of a multinational corporation.
9. Net Present Value (NPV): theoretical foundations, practical adjustment in presence of political risk in international investments.
10. Domestic Capital Budgeting: Weighted Average Cost of Capital (WACC), Adjusted Present Value (APV), and Flow to Equity approach (FTE).
11. International Capital Budgeting: the role of royalties, cross-border dividend payments, cannibalization of exports, and financial-side effects in an international environment.