The objective of this course is to provide a framework for making corporate financial decisions in an international context. Managing an international business or one exposed to global competition requires an understanding of international financial instruments, markets, and institutions. This course seeks to provide a working knowledge of these issues. The stress will be on an understanding of the intuition behind the theories, not on mathematical proofs or on replicating empirical results from the literature. The course will not shy away from complex ideas but will try to make the ideas as accessible as possible. Solving mathematical financial problems is an important part of the course.
The course will address the following main topics: national income accounting and balance of payments; foreign exchange market and exchange rate determination; foreign currency derivative instruments; arbitrage and international parity conditions; risks in global finance (e.g., foreign exchange risk and country risk), the management of foreign exchange risk with forwards and options; basic characteristics of trade finance and investment instruments; international capital flows and markets; and globalization and its outlook.
There will be no single required textbook for the course. Recommended books include:
- International Finance: Theory and Policy by Paul R. Krugman, Maurice Obstfeld, and Marc Melitz, Pearson.
- International Financial Management by Cheol Eun and Bruce Resnick, McGraw-Hill- Irwin.
- International Finance: Theory into Practice by Piet Sercu, Princeton University Press.
- The Globalization Paradox, by Dani Rodrik, Norton & Co.
Prerequisites: ECO 2101 (Microeconomic Theory I), ECO 2201 (Macroeconomic Theory I), ECO 2400 (Econometrics)