Course Outline

Topic Summaries

The Quiz Page

Global Financial Markets

Giddy's Resource Page

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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

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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

Ian Giddy has taught finance at NYU, Columbia, Wharton, Chicago and in more than 30 countries abroad for the past two decades. He was Director of International Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The author of more than fifty articles on international finance, he has served at the International Monetary Fund and the U.S. Treasury and has been a consultant with numerous corporations and financial institutions in the U.S. and abroad. He is the author or co-author of The International Money Market, The Handbook of International Finance, Cases in International Finance, Global Financial Markets and The Hudson River Watertrail Guide.

Pedagogy

The course employs cases and problems as well as classroom lectures and discussions and two negotiation games. We will make use of international as well as domestic examples. Written assignments will be due for most sessions. Some will be prepared individually and some in groups. Each student will be expected to participate actively in class discussion. There will be a final exam.

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.html. 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

Ian Giddy, Global Financial Markets (Houghton Mifflin, 1994); A course packet contains all other required readings 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%.

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Course Outline

Topic Summaries

Reading List

The Quiz Page

Global Financial Markets

Giddy's Resource Page

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Course Topic Contents

Markets and Linkages in International Financial Management

Themes of This Course--The Tasks of the International Financial Manager--What Are the Global Financial Markets?--Dealing Room: Foreign Exchange and Eurocurrency--Dealing and Quotations--The Mechanics of the Eurodollar Market--Arbitrage Between the Foreign-Exchange and Eurocurrency Markets--Capital Controls and Divided Credit Markets--Competing Eurocurrency Markets: Interest-Rate Arbitrage and Currency Expectations--Forward-Exchange Rates, Relative Interest Rates, and Exchange-Rate Expectations.

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

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Course Outline

Topic Summaries

Reading List

The Quiz Page

Global Financial Markets

Giddy's Resource Page

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More about The Stern School of Business  The Instructor  Prof Giddy's Corporate Finance course  Prof Giddy's Debt Instruments and Markets course  Prof Giddy's short courses and seminars What life will be like if you don't study

Advice on risk management Advice on derivatives Advice

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Go to Giddy's Web Portal • Contact Ian Giddy at ian.giddy@nyu.edu