Excerpt from course description

International Financial Management


The globalization of world markets over the last couple of decades has greatly increased international trade and capital flows. Few modern industries have been left unaffected by these changes, and understanding the risks firms face when conducting business across international borders has become a key component of a modern business education. Managers responsible for operations in several countries must understand the impact on a firm's cash flows from changes in exchange rates as well as from differences in interest rates and the prices of goods across these locations.

This course will describe exchange rate fluctuations. We will use the empirical failure of the parity relationships to get a deeper understanding of exchange-rate risk facing both businesses and individuals. We will then cover financial instruments that are available to manage the risks involved in international operations and how hedging may be value creation. For businesses, access to international markets comes with opportunities in addition to risk, and the course will examine how increased diversification internationally also may be value added. Finally, globalization has lead to increased integration in the world economy. During the course we will also cover so-called "political risk" and emphasize that it is not only a concern in emerging economies.

Course content

  1. International financial management
    1. Nominal exchange rates and absence of triangular arbitrage
    2. Test of hypothesis: nominal-exchange-rate changes are reflections of changes in price levels across countries
    3. Test of hypthesis: exchange-rate-changes (both nominal and real) are reflections of interest-rate differentials across countries
  2. Tools to manage exchange-rate risk:
    1. Futures and forwards
    2. Options
    3. Swaps
  3. How and when should these tools be used
    1. When is hedging value added?  MM applied to fx hedging
    2. International capital budgeting
    3. Value added from international diversification


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