International Finance

(FBE 464)
Department of Finance
Spring 2008 Marshall School of Business
Professor University of Southern California
Jesus Sierra
email:

Jesus.Sierra.2008@marshall.usc.edu HOH-403
Office Hours: MW 9:00 – 10:00am
TTH 9:00 – 10:00am
or by appointment

This course will focus on decision making in an international context. It covers major topics in international
financial markets. These topics are necessary materials to be learnt by anyone who is interested in pursuing
a career in international investment, international banking, international trade or multinational corporations.
In this course, we will discuss the foreign exchange markets. In particular, we will cover the spot exchange
rate, forward exchange rate, currency futures and options. We will discuss the roles of these different
instruments in risk management. Balance of payments and international monetary system are also topics to
be discussed. We will discuss the purchasing power parity and interest rate parity, the two parity conditions
that are the foundations for international finance.

COURSE REQUIREMENTS:

Alan Shapiro, Multinational Financial Management, 8th edition, John Wiley & Sons, 2006

Wall Street Journal is required: I encourage you to bring to classes any relevant issues in the Wall Street
Journal or other magazines for discussion. This will enrich our knowledge and experience. It also helps to
bridge the gap between the theories and real world issues.

Lecture notes will be posted in the BLACKBOARD system under the course number for downloading.
You should be able to access the BLACKBOARD by typing your userid and password of your UNIX
account. For more information of the BLACKBOARD, please contact the Keck Center.

COURSE EVALUATION:

Requirements for the course include two examinations (65%), seven homework assignments (total 25%)
and class participation (10%). Class participation may alter your grade by as much as one level. The final
grade is based on a “curve.” I adhere roughly to the school guidelines: An average grade of 3.3 out of 4.00
for undergraduate elective courses. This translates loosely into something like 30-35% A, 45-50% B, 15-
20% C, and 0-10% D&E. I do not assign letter grades to individual exams and homework assignments.
However, I will give you complete distributions for each grade and you can apply the scale indicated
above.

Midterm Exam 30%

Final Exam 35%
Homework (7) 25%
Class Participation 10%
Examinations will consist of multiple choice questions, numerical problems, and in some cases short
essays. All exams are closed-book, closed-notes. Each exam will cover the required readings from the text
and all the material covered in class. Each student has an option to drop the midterm examination score,
and shift the entire midterm weight to the final examination.

Homework: Each student is responsible for turning in her or his homework at the beginning of class on the
due dates. You get full credit for an honest effort in doing the homework and turning it in on time; you will
not be graded on the accuracy of your answers. I will hand out answers when I return the homework. I
encourage you to work on the homework problems with your classmates or your team. However, each
student must submit his or her own homework!

Violations of academic integrity standards will be treated seriously. "The use of unauthorized materials,
communication with fellow students during an examination, attempting to benefit from the work of another
student, and similar behavior that defeats the intent of an examination or other class work is unacceptable
to the University. It is often difficult to distinguish between a culpable act and inadvertent behavior
resulting from the nervous tensions that accompany examinations. Where a clear violation has occurred,
however, the instructor may disqualify the student's work as unacceptable and assign a failing mark on the
paper."

Make-up Exams: Current department policy to which I adhere is “No makeup midterm and final exams
will be allowed.” If you have an extenuating circumstance that prevents you from taking the exams,
discuss your reasons with me BEFORE the time of the exam. Current department policy is that a student
may not be given a make-up exam unless he or she has obtained written permission from the course
instructor in advance. In addition, you must be able to document your extenuating circumstance.

Any student requesting academic accommodations based on a disability is required to register with
Disability Services and Programs (DSP) each semester. A letter of verification for approved
accommodations can be obtained from DSP. Please be sure the letter is delivered to me (or my TA) as
early in the semester as possible. DSP is located in STU 301 and is open 8:30 a.m. - 5:00 p.m. Monday
through Friday. The phone number for DSP is (213) 740-0776

Disclaimer

This syllabus is an invitation to you to engage in an exciting and interactive study international finance. It is
my goal to provide a collaborative and supportive learning environment where students will learn from one
another both inside and outside of the classroom. To that end, modifications to this syllabus may be
warranted as I assess the learning needs of this particular class.

Important Dates
Week 3 – January 31
Week 5 – February 14
Week 7 – February 28
Week 9 – March 11
Week 11 – April 3
Week 13 – April 17
Week 15 – May 1
– Homework # 1 Due
– Homework # 2 Due
– Homework # 3 Due
– Homework # 4 Due and MIDTERM Exam.
– Homework # 5 Due
– Homework # 6 Due
– Homework # 7 Due. Last Class.

Topics to be Covered
PART I: ENVIRONMENT OF INTERNATIONAL FINANCIAL MANAGEMENT.

Chapter 2: The Determination of Exchange Rates.

Chapter 3: The International Monetary System.
Chapter 4: Parity Conditions in International Finance and Currency Forecasting.
Chapter 5: The Balance of Payments and International Economic Linkages.

PART II: FOREIGN EXCHANGE AND DERIVATIVES MARKETS.

Chapter 7: The Foreign Exchange Market.

Chapter 8: Currency Futures and Options Markets.
Chapter 9: Swap and Interest Rate Derivatives.

PART III: FOREIGN EXCHANGE RISK MANAGEMENT.

Chapter 11: Measuring and Managing Economic Exposure.

PART IV: FINANCING THE MULTINATIONAL CORPORATION.

Chapter 13: The Euromarkets.

PART V: FOREIGN INVESTMENT ANALYSIS.

Chapter 15: International Portfolio Investment.

IF TIME PERMITS:
Chapter 6: Country Risk Analysis.