Fridays and Saturdays, as listed in the schedule.
Prof. Ian Giddy
Office: Stern 9-197. Tel 212-998-0332; Fax 212-995-4233
Web site http://giddy.org • E-mail ian.giddy@nyu.edu

Goals

Students taking this elective course should expect to learn the nature and purposes of financial management in the international context. They will gain skills in international investment and financing techniques and in exchange risk management, including accounting and taxation aspects. They will learn, through hands-on case studies and simulations, how to judge the riskiness of a currency from a firm's perspective, and how to measure and manage the company's exposure to exchange rate and international interest rate risks. They will discover how companies use banks, markets such as the Eurobond and currency option markets, and techniques such as currency swaps and hybrid bond structures. In the end, the goal is to apply state-of-the-art techniques to the international firm's investment, financing and risk management decisions.

Instructor

Pedagogy

The Course on the Internet

We will make use of the Internet--notably the World Wide Web--for resource material and communication. Indeed this course outline itself will change: the definitive version is the Web site at http://www.stern.nyu.edu/~igiddy/ifmx.htm. All students must have an email address and Web access. Your default address will be the one assigned by the Stern School. Lecture materials, as available, can be downloaded from the Web. (In some cases you will need the Adobe Acrobat reader, Version 3 or higher, available free from Adobe's World Wide Web Site http://www.adobe.com.) Among other things, you will be able to take on-line quizzes on an internet site called The Quiz Page. To access it, use initial+lastname (eg jsmith) as ID, and your 4-digit password (ask me) to get in.

To keep up with the world of international finance try the following Web sites:

• CNN Finance • The Financial Times • The Economist • Bloomberg • Reuters • The Fed
• and much more at Giddy's Finance Resources on the Web

Text and cases

Students should have read the assignments before coming to class. Material covered in the assigned textbook readings will generally not be repeated in class. Rather, class time will be devoted to lecture and case discussion, applying the material covered in the readings.

Grading

• Class participation 10%
• Swap simulation 5%
• Cases/problems 25%
• On-line quizzes 20% (self-test)
• Final examination 40%.

Exchange Rate Systems and Policies
Exchange-Rate Systems: The Choices--Multiple Exchange Rates, Black Markets and International Financial Management--The Adjustment Process and the Financing/hedging Decision--Repercussions of an Overvalued Currency--The European Monetary System

Currency Forecasting: The Corporate Viewpoint
Should Corporations Forecast?--Theories of Exchange Rate Determination--Fundamental Models in Forecasting--Forecasting in a Fixed-Rate System--Technical Models--Evaluating the Performance of the Forecasters--Efficient Markets--Risk Premium and Hedging--Tests of Market Efficiency

Using Forward Exchange Markets and Money Market Hedging
The Forward Contract--Link to the Money Market--Money Market Hedging--Nontransferability and Reversal of Forward Contracts--Forwards in Hedging--Forwards in Speculation--Forwards in Arbitrage--Long Dated Forwards

Transactions Hedging: Forwards vs Futures vs Options
Does Currency Risk Matter?--When Should Corporations Hedge?--Forward Hedging vs Money Market Hedging--Currency Futures, Margin and Marking to Market--Futures vs Forwards vs Options: A Roadmap

Corporate Uses and Corporate Abuses of Currency Derivatives
Abuses of Options and Other Derivatives--Currency Options--Who Needs Them?--Options Combinations--Put-Call Parity--Currency Option Pricing--Three Versions of Volatility in the Context of Corporate Hedging--Trading Volatility: Straddles and Strangles--Currency Collars--Diff Swaps--Exotic Options as Hedging Vehicles

Currency Risk: Accounting vs Economic Exposure
Accounting or Translation Exposure--Cash Flow Effects: Economic Exposure--The Currency of Determination--Transactions Exposure--Methods of Translation for Balance Sheets

Risk Management: New Approaches
The Value-At-Risk Approach: an Overview--Why Performance Needs to Be Related to Risk--Measuring Positions in Tradeable Instruments Held by Financial Institutions and Relating Them to Key Market Variables Such as Changes in the Level and Shape of the Yield Curve, Exchange Rates and Equity Indices--Using Estimated Probability Distributions to Forecast the Overall Portfolio Risk of a Set of Positions--Application to Corporate Foreign Exchange Risk Management

International Taxation and Transfer Pricing
Comparative Tax Systems--Corp. Vs. Personal Tax--Tax Systems--U.S. Taxation of Foreign Income--Worldwide Principle--Deferral and Credit--Passive Income--Transfer Pricing

International Capital Budgeting
Strategic FDI Decision vs. Project Appraisal--NPV, IRR, NTV, TRR--Special Risks & Risk Analysis in ICB--Tax and Repatriation--Subsidies, Incl. Low-Cost Finance--Inflation and Exchange Rate Changes--Whose Cash Flow?--Blocked Funds

Swap Financing Techniques
The Economics of Swaps--Credit Market Imperfections--Bond Market Redundancy--How Swap Rates Are Determined--Basis Point Equivalents and the All-in Swapped Cost of Capital--Valuation and Termination of Swaps--Off-Market Swaps--Trading Swaps--Swaps Versus Long-Dated Forwards--The Credit Risk of Swaps--Swaptions, Caps and Floors

The International Bond Market
Eurobonds, Domestic Bonds and Foreign Bonds--Factors Segmenting Domestic and Eurobond Markets--Private Placements and Rule 144A--Regulation and Taxation--New Issue Procedures--Equity-Linked Eurobonds--Asset-Backed Eurobonds

Long Term Financing with Eurobonds and Hybrid Instruments
Understanding Hybrid Instruments: The Building Block Approach--Hedging and Managing New Instruments: The Functional Method--Hybrids in Corporate Financing

Integrated Financing Decisions
From "How Much Debt?" to "What Kind of Debt?"--Fixed versus Floating Debt--Maturity and Availability--Financing and the Exchange Risk Factor--The Use of Swaps, Caps and Hybrids in Financing--A Roadmap for Financing Choices