BA31203 INTERNATIONAL FINANCIAL SYSTEMS A.

COURSE SUMMARY Code BA31203 Title International Financial Systems/Sistem Kewangan Antarabangsa Session Semester 1 2011/2012 Facilitators Mr. Jaratin Bin Lily Tel: 088-320000 ext. 1592 Room: No.72, Level 4, SPE Time/Place Section 1, Friday, 8am-11am, BT12; Section 2, Friday, 2pm-5pm, BT12 This course examines the principles and theories of the international Synopsis

aspects of corporate finance, investing and operating multinational organizations in a global economy and environment. It intends to equip students with tools and methods to study and analyze international finance issues and problems. This course will cover foreign exchange and exchange rate determination, multinational financing and investment decisions, currency risk management, currency derivatives, principals of hedging and international capital markets and portfolio investment. Current and historical policy issues and how they relate to the financial markets are discussed throughout the course.

Learning Objectives At the end of the course, student is able to

Assessmen t

Be able to discuss and compare the framework of the international monetary system and point out their differences, similarities, and respective advantages and limitations Describe, explain and illustrate the various theories of exchange rate determination Identify and explain the various types of risks faced by firms and the financial instruments (forward/futures contracts, currency options, and swap) and strategies they use to manage such risks. Identify some of the sources of international finance and the attitudes of international investors Be able work as part of a group to organize and produce a project involving both descriptive and empirical material. Component Percentage a. d. e. Individual Article Assessment Midterm Exam Final Exam Total a. b. c. Group Case Study Report Presentation Total 10 15 40 65 10 15 10 35 100

Grand Total

References

Textbooks and references: Main Reference Eun, C.S & Resnick, B.G. (2011). International Financial management, 5th Edition, McGraw Hill International Eiteman, D K, Stonehill, A I, Moffett, M H (2010), Multinational Business Finance, 12th Edition, Pearson Addison Wesley Additional References Desai, M A (2007) International Finance: A Casebook, John Wiley & Sons Madura, J (2003) International Financial Management, South-Western, 7th Edition

BA31203 SYSTEMS

INTERNATIONAL FINANCIAL
Shapiro, A C (2003) Multinational Financial Management, John Wiley & Sons, 7th Edition

At the end of the semester, students may evaluate themselves how much knowledge they have gained from the course. Students are welcomed to give any comments and suggestion to improve the quality of teaching and course. B. Course Schedule:
Lec. 2 3 Subject Course introduction Globalisation and Multinational Firm The International Monetary System The Foreign Exchange Market Balance of Payments International Parity Conditions Exchange rate determinants Foreign Currency Derivatives: Forward, Futures, Market Hedge, Options Foreign Currency Derivatives :Options & Swaps Transaction exposure Discussion on group assignment: Introduction Operating exposure Translation Exposure Discussion on group assignment: LR Translation Exposure Foreign Direct Investment and Cross-Border Acquisitions Discussion on group assignment: Empirical testing Multinational Capital Structure and the cost of capital Discussion on group assignment: Conclusion and Discussion Multinational Capital Budgeting International Portfolio 6 13 3 9 Pre. (Gro.) Chap. 1,2 Prepared for class/Tutorial/ Self-Exercises Cases Question Problem

3,4

5,6

Governance Failure at Enron CQ:1,2,3 The Revaluation of the Chinese Yuan CQ:2,4

5 6

Letting Go of Lehman 2 7,8 Brothers CQ:1,2,3 Mid-semester examination (Lec 1-5 including the case studies) The Venezuelan Bolivar Black Market CQ:1,2,3 XJP (China) and the Euro CQ:1,2,3,4

10,11

11,12

10

Toyota's European Operating Exposure CQ:1,2,3,4

11 12

14 15

BA31203 SYSTEMS
13 Investment Multinational Cash Management International Trade Finance Group Project presentation Group Project presentation 16

INTERNATIONAL FINANCIAL

14

NOTE: While every attempt will be made to keep to the schedule listed above, unexpected circumstances may necessitate modifications throughout the semester.

BA31203 SYSTEMS C. INDIVIDUAL ASSIGNMENTS

INTERNATIONAL FINANCIAL

a. Article Analysis: Literature Review analysis Student is required to write literature review according to the group assignment titles. Refer the attachment in LMS/SMARTUMS about writing the literature review (also refer your research methodology course). Summarize your article based on Table one before writing the literature review. Each student must provide at least 10 articles.
Guidelines Font : 11 Tahoma Spacing : 1.5 Margin : Top, Bottom, Left, Right =1 inch Size : A4 Submission date: Week 10 D. GROUP ASSIGNMENT (5-6 members) 1. Case Study and Presentation Each group will be given a case study and required to present it to the participants in the class. During the presentation time, each group is expected to provide (i) Summary of the case study (ii) Lessons learned (iii) answer the case questions. Questions and Answers are expected during the presentation. The group needs to submit a written report on the case and a copy of its PPT presentation. The PPT of the presentation MUST BE SUBMITTED ONE DAY before the presentation to the instructor. The PPT will be uploaded to LMS/SMARTUMS to ensure all students may download it before the presentation. Guidelines Font : 11 Tahoma Spacing : 1.5 Margin : Top, Bottom, Left, Right =1 inch Pages (Report) : Maximum 5 pages not including charts and graphs Due date (Report) : During Presentation of the Group 2. Project Assignment Instructor will provide a list of titles. The writing guideline is as the following (REMEMBER YOUR RESEARCH METHODOLOGY COURSE): 1. Introduction a. Background of issues b. Statement of problems 2. Literature Reviews a. This section combine all the writing form individual article analysis report b. Previous research or articles regarding the issues c. Each member of the group must provide at least 10 articles from journal or recognized sources Refer UMS library website : Journals d. Citation guide: http://owl.english.purdue.edu/owl/resource/560/01/ 3. Empirical Results and Discussion a. Your group needs to collect and analyze data to support your argument on the issues. Students are required to have EVIEWS program for testing procedure. You may ask it from UMTP for installment.

BA31203 INTERNATIONAL FINANCIAL SYSTEMS 4. Conclusion and Recommendations a. Give conclusion and recommendations to the issues based on your literature reviews and empirical results Guidelines Font : 11 Tahoma Spacing : 1.5 Size : A4 Pages: Maximum 30 pages (excluding tables and figures) Powerpoint presentation pages: Maximum 15 slides Dateline: Week 12 Please attach the articles. All groups are required to present their report

BA31203 SYSTEMS

INTERNATIONAL FINANCIAL

BA31203 Example: Table 1

No. cth Citation (APA) Lily, J., Kogid, M., Abd. Karim, M.R., Asid, R. & Mulok, D. (2011). Empirical Testing on Uncovered Interest Rate parity in Malaysia. Journal of Applied Finance and Banking, 1(2). Summary of main points/Keywords Even though, no forward bias is present, in the long run UIRP for all cases were not supported. No support of interest rate volatility on UIRP deviation

INTERNATIONAL FINANCIAL SYSTEMS

Application/Critical comments Lack support for efficient market hypothesis Possibility of arbitrage opportunity between the studied markets Possible of time varying risk

Research Questions Is there any relationship between interest rate differential and exchange rate?

Researc h Type Time series

Analysis Method Unit root, ordinary Least Square (OLS), GARCH

Population MalaysiaUK, MalaysiaSingapore , MalaysiaJapan

Dataset and sample size 1971-2009 from central bank database (website) for respective countries

Dependent variables Exchange rate (Log Real value)

Independ ent Variables Interest rate differentia l (Log)

Control variables -

Further research -Using more high frequency data -Using more advanced analysis method to solve the nonstationary problem

John B. Taylor (2000). Low Inflation, Passthrough, And The Pricing Power Of Firms. European Economic Review 44, 1389 1408.

Significant decline in the degree to which firms & pass through' changes in costs to prices, a decline that is frequently characterized as a reduction in the & pricing power' of firms. The decline appears to be associated with the decline in inflation in many countries. Examine growth option sensitivity to inflation induced changes in interest rates using a binomial model.

Soklan kiter

Time Series

Microeco mic model of price setting

US, UK, France, Japan, Germany, Belgium, Netherlan ds, Sweden, Switzerlan d

Kathleen T. Hevert, Robyn M. Mclaughlin & Robert A. Taggart (1998). Interest Rate, Inflation And The Value Growth Options. The Quarterly Review of Economics and Finance, Vol. 38, pages 599-613. James Vickery (2008). How and why do small firms manage interest rate risk? Journal of Financial Economics 87, 446470. Arman Mansoorian & Mohammed Mohsin (2006). On The Employment, Investment And Current Account Effects Of Inflation. Journal Of International Economics 70, 296 313. Juthathip Jongwanich & Donghyun Park (2009). Inflation in developing Asia. Journal of Asian Economics 20, 507 518.

Soklan kiter

Time series

Binomial method, Standard NPV

studies fixed-rate and adjustablerate loans to see how small firms manage their exposure to interest rate risk

Soklan kiter

Crosssection

US

Federal Reserve Boards Survey of Small Business Finance (SBF), Germany firms

The effects of inflation targets are examined for a small open economy with cash in advance constraints. An increase in the inflation rate, by increasing the price of consumption relative to leisure, reduces consumption and labor supply. Inflation emerged as the single biggest macroeconomic challenge confronting developing Asia during 20072008, although inflationary pressures have abated since the second half of 2008 due to the global crisis. This paper empirically examines the

Soklan kiter

Real Business Cycle literature

Soklan kiter

Time series and crosssection

vector autoregre ssion (VAR) model and recursive Cholesky

Peoples Republic of China (PRC), India, Indonesia, Republic

BA31203
relative importance of different sources of inflation in developing Asia.

INTERNATIONAL FINANCIAL SYSTEMS

orthogona lization of Korea (hencefort h Korea), Malaysia, Philippine s, Singapore , Thailand and Viet Nam.

Jae Ha Lee & Duane R. Stock (2000). Embedded options and interest rate risk for insurance companies, banks and other financial institutions. The Quarterly Review of Economics and Finance 40, 169187 R.W. Faff & P.F. Howard (1999). Interest rate risk of Australian financial sector companies in a period of regulatory change. Pacific-Basin Finance Journal 7, 83 101. MARY ELIZABETH SWEENEY (1998). Interest Rate Hedging and Equity Duration: Australian Evidence. International Review of Financial Analysis, Vol. 7, No. 3, pp. 277-298. Antonios Antoniou, Huainan Zhao & Bilei Zhou (2009). Corporate debt issues and interest rate risk management: Hedging or market timing? Journal of Financial Markets 12, 500520

how embedded options in assets and liabilities of financial institutions impact interest rate risk, which is measured by equity value change with interest rate movements

Soklan kiter

Evidence of sensitivity to longterm interest rates, instability of interest rate sensitivity across sub periods, and interest rate sensitivity of large banks and finance companies.

Soklan kiter

Time series

Australia

Share market data & returns on debt securities.

The objective of shareholder wealth maximization means that interest rate risk management will focus on the sensitivity of the market value of equity to interest rate movements. A firm can hedge its interest rate exposure by issuing debt, the value of which moves in an opposite direction from the value of its assets as interest rate varies. We examine whether firms in the UK market make full use of debt issuances for hedging purposes or if they have other considerations.

Soklan kiter

Asset approach es & Equity approach es Time series

Australia

Soklan kiter

UK

BA31203 SYSTEMS

INTERNATIONAL FINANCIAL