LAL BAHADUR SHASTRI INSTITUTE OF MANAGEMENT,DELHI Two Year Full time Post Graduate Diploma in Management Trimester VI

Course code: 226120 Academic Session: 2011-12 COURSE OBJECTIVE: This course aims at providing a conceptual framework within which key financial decisions of the multinational firm can be analyzed. It aims at providing an insight into operations and functioning of foreign exchange markets. The course exposes the students to various strategies of hedging foreign exchange exposure. It also exposes students to dealing room concepts and intricacies connected with forex trading. The course provides the toolkit for understanding how firms can create, measure, and sustain value across borders. Upon completion of the module, the students would have acquired an understanding of how investment and financing decisions of the MNC are taken. The students would be able to take quantified foreign currency management decisions considering: 1. Key issues in International Financial Management 2. Hedging in .Foreign currency markets and the determination of spot and Forward exchange rates. Exchange rate Mechanism can be grasped 3. Relationship between exchange rates, price levels and interest rates 4. Forms of foreign currency exposure ( Economic, Transaction , Translation) 5. Internal and External hedging techniques 6. Introduction to Forex Derivatives 7. Capital Investment Decision making in the multinational firm Course : International Financial Management Instructor: Dr. Deepak Tandon

COURSE CONTENTS Module No . 1 Session No./s 1 Topic & Readings Financial Management in a Global Perspective-Trends in the International Trade . Objective of the Firm and the impact of risk, Nature of risk exposure and its measurement.Creating value in a MNE .Globalisation Process .Theory of Comparative advantage FEMA and its philosophy . Readings: Eitman David K, Stonehill Arthur ,Moffett Michael H (2011) ,Global Financial Management Part I Chp 1,2,
Madura Jeff, International Financial Management (2008),Cengage Learning Ch 2

2-3

Exchange Rate Mechanism and its Working : Contemporary Currency Regimes,FEDAI and its rules , Forex Exchange Arithematic. Forecasting Exchange rates Readings : EitmanDavid K, Stonehill Arthur ,Moffett Michael H (2011) Chp. 3 Tandon D .(2006) Forex Management & Business Strategy Ch 4 pp 44-51 Foreign Exchange Markets :Extent, Participants, Functions, Size, Characteristics of Global Foreign Exchange Markets, Spot and Forward Market, Relationship between Spot and Forward Rates Mechanics of Forward vs Future Markets .Activities in the Forex Markets, Market Participants, Correspondent Banking. Indian Forex Market & its Structure, RBI and A.D Functions Numericals Readings : Eitman David K, Stonehill Arthur ,Moffett Michael H (2011) Part II CH 6
Madura Jeff, International Financial Management (2008),Cengage Learning Shapiro, Alan C, (2006)Multinational Financial Management Ch 7

II

International Monetary System, Balance of Payments and International Economic Linkages, The Bretton Woods System & later developments, Alternate Exchange Rate Systems, Current and Capital Accounts, Common Currency Areas: The emergence of Euro, The emerging Indian BOP scenario, Capital Account Convertibility Parity Conditions in International Finance & Currency Forecasting, Long Run & Short Run Theories of Exchange Rate 2

Determination Readings : EitmanDavid K, Stonehill Arthur ,Moffett Michael H (2011) Part I Ch 3,4 6-7 International Arbitrage : Locational, Triangular, Covered Interest Arbitrage Numericals. International parity Conditions Interest / Price rates in equilibrium *Case -Currency pass through at Porsche Readings: EitmanDavid K, Stonehill Arthur ,Moffett Michael H (2011) Part II Chp 7
Madura Jeff, International Financial Management (2008),Cengage Learning

Foreign Exhange Exposures Transaction,Operating and Translation Exposure ,Numericals Readings : EitmanDavid K, Stonehill Arthur ,Moffett Michael H (2011) Part IIICh 11,12,13 pp 261-344
Madura Jeff, International Financial Management (2008),Cengage Learning

III

Hedging in Forex Case- Hedging Currency Risks at AIFS ( American Institute for Foreign Study) Prof. Mihir A. Desai ED HBS Europe Research Centre Vincent Dessain -2004 Harvard Business School Publishing Boston, MA 02163 Reading: EitmanDavid K, Stonehill Arthur ,Moffett Michael H - 2011) Chp 8,9,10

10-13

Foreign Currency Derivatives : An Introduction to Currency Derivatives{CDS,FRA,Exotic Options}, Interest Rate & Currency Swaps, Currency Futures and Options *Case- Currency Risk Management - Prof. Michael J. Schill. (University of Virginia Darden School Foundation , Charlottesville VA (2005) Warren Buffets Love Hate relationship with Derivatives Readings : EitmanDavid K, Stonehill Arthur ,Moffett Michael H - (2011) Chp 8 pp197-221

IV

14

Multinational Capital Budgeting *Case Globalising the Cost of Capital and Capital Budgeting at AES Corporation (Applied Energy Services ) 2004 Havard College Capital Budgeting of Foreign Projects Evaluation 3

15

16-18

Readings: EitmanDavid K, Stonehill Arthur ,Moffett Michael H (2011) Chp 18 Foreign Investment Decisions -Sourcing Debt & Equity -Globally Medium & Long Term International Financing-Eurocurrency Markets, Development Banks and Multilateral Lending Agencies,ECB/ FCCBs/ ADRs/ GDRs/ FIIs Project Finance Instruments, Loan SyndicationGuarantees Readings : EitmanDavid K, Stonehill Arthur ,Moffett Michael H - 2011 Chp 19 pp 487-503 International Trade Financing :Short term Financing and Current Assets Management, Payment Methods and Short Term Credit, Documentary Collections, Documentary Credits. Standby Lcs , Types of DCs and UCP 600 , Short Term Export/ Import Financing Options Available to Indian Corporates Overview Of URDG Readings: EitmanDavid K, Stonehill Arthur ,Moffett Michael H -(2011) Chapter 1
Madura Jeff, International Financial Management (2008),Cengage Learning

VI

19

Corporate Strategy and FDI-Theory of MNE, FDI in India, Opportunities for Indian Corporate to Expand Overseas, OLI Paradigm and Internationalization ,FDI and developing Countries Readings: EitmanDavid K, Stonehill Arthur ,Moffett Michael H - (2011) Chapter 18
Madura Jeff, International Financial Management (2008),Cengage Learning

VII

20

Live Project Presentations in Groups

PEDAGOGY: In-depth analysis of real-world case studies exposes students to a broad range of financial decisions covering numerous industries. All cases have been competed within the last two years. Students will be forced to make decisions that CFOs of multinational firms, country managers, portfolio investors, and entrepreneurs face when confronted with cross-border financial decisions.Judicious mix of lectures , Case analysis & discussions will be done

EVALUATION PARAMETERS END TERM EXAMINATION Internal Assessment - 40 % - 60 %

Live project Unannounced Test/Quiz Individual Assignment/Article Review On spot cases GROUP PROJECT GUIDELINES 10

10 10 10

On the instructions of the instructor ,identify 5-6 Enterprises/Banks and Conduct a primary study to understand the concepts of Corporate Risk Management . Analyse , evaluate and suggest remedial measures for Forex Risk Management

Text & Readings: Eiteman, Stonehill, Moffet (2011), Multinational Business Finance , 12th global edition Dorling Kindersley India Pvt Ltd under licence ofPearson education Siddaiah T (2010),International Financial Management Dorling Kindersley India Pvt Ltd under licence of Pearson education Madura Jeff, International Financial Management (2008),Cengage Learning Shapiro, Alan C, (2006)Multinational Financial Management,Wiley India Pvt .Ltd,New Delhi Tandon D (2006) --Forex and Risk Management Skylark Publications New Delhi Hull John C, Basu Sankarshan Basu ( 2010) Derivatives 7/e Pearson Education New Delhi Options, Futures and Other

 Eun/Resnick(2003): International Financial Management, Tata Mcgraw-Hill Rajwade, A.V(2003).: Foreign Exchange International Finance & Risk Management, Academy of Business Studies _______________________________________________________________________ _