Course Syllabus FINA 5500: International Finance Summer II 2007

Tuesday & Thursday 6:00-9:50PM, Curry 210

Professor:
Dr. John Kensinger
CBA 168G
940-565-2511 (office)
940-566-4234 (fax)
email: kensinge@cobaf.coba.unt.edu
http://www.coba.unt.edu/firel/Kensinge
Office hours: 4:30-5:45 PM Tuesday & Thursday
Also available after class (tell me in the classroom if you want to visit after class)
Texts and Readings:
1. Alan C. Shapiro, Multinational Financial Management (8th Edition), John Wiley &
Sons, Inc. (2006) ISBN 978-0-471-73769-8.
2. Additional readings will be handed out in advance of class discussions.
Suggested Supplements:
These supplemental readings are offered as an aid for students seeking additional insight,
and are warmly recommended.
1. James C. Van Horne, Financial Market Rates & Flows (6th Edition), Prentice-Hall
(2001) ISBN 0-13-018044-0.
Disability Accommodation
The College of Business Administration complies with the Americans with
Disabilities Act in making reasonable accommodation for qualified students with
disability. If you have an established disability as defined in the Americans with
Disabilities Act and would like to request accommodation, please see me as soon as
possible, prior to September 18. My phone numbers and e-mail address are shown on
this syllabus.
Student Quorum
In order to offer some relief for students who may get caught in occasional traffic
delays, we will wait up to 15 minutes to begin covering new material if fewer than 80%
of the enrolled students are present. If we are delayed waiting for a quorum, we will
spend the time reviewing questions students may have about prior material or problem
sets. Regardless of the presence of a full quorum, however, we will not delay any longer
than 15 minutes. When enough students are present at the scheduled starting time, of
course, we will begin coverage of new material immediately.
Purpose of the Course
The overall purpose is to extend the principles of finance from a single-country
setting to a multinational setting. This includes capital allocation and tax management
within a multinational firm, foreign exchange (spot and future), swaps, synthetic
securities, and parity relationships. Regarding parity, we will examine the impact of
government intervention on interest rate and purchasing power parities, explore parity
relationships along the yield curve, and consider quality spreads arising from differences
Course Syllabus FINA 5500: International Finance Summer II 2007

in default risk. The role of the global financial markets in accomplishing an optimal
allocation of economic resources around the world is a central issue.
Grading
Course grades will be calculated using the following weights:

Course Grade
10% Class participation
40% Midterm Examination
50% Final Examination
In addition to the midterm and final examinations, participation in class discussions
of cases will be evaluated. All requirements, including class participation, must be met
satisfactorily in order to complete the course.
The examinations will have two sections. One will consist of objective questions
(such as short answer, true/false, or multiple choice), and the other will consist of essays.
The goal of the essays will be to apply the major concepts of finance to specific situations
and draw valid conclusions. The point is not to show everything you know, but to use
what is relevant for the case at hand. A very common error is to write things that don’t
bear on the case.
Makeup or re-scheduled exams will be allowed only with valid medical justification,
because of some other documented personal emergency, or by prior arrangement to
accommodate some other unavoidable conflict.
Calculators:
You will need a financial calculator. For overall value per dollar in the current
generation of calculators I suggest the Hewlett-Packard HP-17B. At the lower end of the
HP line, the HP-10B offers all necessary capabilities for this course at an affordable
price. At the high end of the price range, the HP-19B offers the most advanced
capabilities available in the calculator market. In addition, the HP-12C is still a good
value, although not as advanced as the HP-10B or HP-17B. (When ordering HP
calculators, be sure you are getting the business version and not the science/engineering
version). Palm-top PCs or digital assistants will not receive classroom support and will
not be allowed for use during examinations. Any of the HP calculators cost less than a
textbook.
Students with tight budgets can manage with an inexpensive calculator such as the
Texas Instruments (TI) BA-II Plus (which costs the same as the HP-10B).
A word of caution is in order: if you buy a used calculator be sure to get a complete
instruction manual, otherwise you’ll have a paperweight with great untapped potential.
Tips on Study Management
• Read all the appendices associated with assigned chapters.
• Familiarize yourself with assigned readings prior to the lectures. A good strategy
would be to skim for a general grasp of the issues before the lecture, and then do
your focused study afterwards. It is essential not to get behind, since the new topics
build on past material.

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Course Syllabus FINA 5500: International Finance Summer II 2007

• Problem sets are designed to stimulate class discussion and provide exercise in
preparation for the examinations. They will not be graded in and of themselves.
Give the problem sets your best shot before we discuss them in class, even though
they will not be collected or graded. By all means, don’t look at the solutions until
you have given the problems your best shot.
Class Schedule
July 10: Overview: The finance function in a multinational setting
Required Reading: Supplemental Readings:
Shapiro: Chapters 1, 7
Topic 1: Finance and global competition
Required Reading: Supplemental Readings:
Shapiro: Chapter 15, 16 Van Horne: Chapter 1, “The
Function of Financial
handouts: Markets” and Chapter 2,
Michael Porter, “Competitive Advantage of “The Flow-of-Funds
Nations,” Harvard Business Review System”
July 12: Topic 2: Interest rates and foreign exchange: spot market
Required Reading: Supplemental Readings:
Shapiro: Chapters 2,3,5,6 Van Horne: Chapter 3, “Foundations
for Interest Rates” and Chapter 5,
“Inflation and Returns”
July 17: Topic 3: Interest rates and foreign exchange: futures and options markets
Required Reading: Supplemental Readings:
Shapiro: Chapters 4,8 Van Horne: Chapter 9, “Derivative
Securities: Interest Rate Futures
handouts: and Forward Contracts” and
“Currency Swaps: Overview Note” Chapter 14, “Controlling Currency
Eric Briys and Michel Crouhy, Risk”
“Creating and Pricing Hybrid
Foreign Currency Options”
July 19: Problem Set 1: Parity relationships

Case 1: “The Walt Disney Company’s Yen Financing: FX Swaps and Risk
Management” (handout)

Topic 4: Derivative securities in global financial markets

Required Reading: Supplemental Readings:
Shapiro: Chapter 9 Van Horne: Chapter 10,
“Derivative Securities:
handouts: Options” and Chapter 12,
Smith, Smithson, and Wakeman, “The “Embedded Options and

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Course Syllabus FINA 5500: International Finance Summer II 2007

Evolving Market for Swaps” Option-Adjusted Spreads”

July 24: Problem Set 2: Derivatives in global financial markets

Topic 5: Term structure of interest rates and international arbitrage

Case 2: “The B.F. Goodrich-Rabobank Interest Rate Swap” (handout)

Required Reading: Supplemental Readings:
Shapiro: Chapters 12, 13 Van Horne: Chapter 6, “The Term
Structure of Interest Rates” and
Chapter 8, “Default and Liquidity
Risk”
July 26 Problem Set 3: Term structure in a multinational setting

Case 3: “Goldman, Sachs & Company: Nikkei Put Warrants” (handout)

July 26: MIDTERM EXAMINATION (2nd Session, starting 8:00PM)

July 31: Case 4: “State of Connecticut Municipal Swap: Yield Curve Arbitrage and
Risk Management” (handout)

Topic 6: International portfolio and risk management

Required Reading: Supplemental Readings:
Shapiro: Chapters 10 & 11 Van Horne: Chapter 7, “Price
Volatility, Coupon Rate, and
Maturity” and Chapter 11,
“Derivative Securities: Interest
Rate & Credit Swaps”
Aug 2: Topic 7: International investment and financing decisions
Required Reading: Supplemental Readings:
Shapiro: Chapters 14 & 17

handouts:
“Project Financing: Raising Money
the Old-Fashioned Way”
Case 5: “Southport Minerals, Inc.” (handout)

Topic 8: Taxes, regulation, and government intervention

Required Reading: Supplemental Readings:
Shapiro: Chapter 18 Van Horne: Chapter 15, “The
Influence of Taxes” and Chapter
16, “The Social Allocation of
Capital”

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Course Syllabus FINA 5500: International Finance Summer II 2007

Aug 7: Case 6: “Citicorp: Innovation in the Eurodollar Bond Market” (handout)

Topic 9: International performance measurement

Required Reading: Supplemental Readings:
Shapiro: Chapter 19, 20

Aug 9: CUMULATIVE FINAL EXAMINATION