first slidedeck

7/25/2019 First Slidedeck

1/70

FIN/IBUS463

InternationalFinance

ProfessorRobinLumsdaine

1 FIN/IBUS463: InternationalFinance

7/25/2019 First Slidedeck

2/70

Todays overview

Course Logistics

Introduction

FIN/IBUS463: InternationalFinance 2

7/25/2019 First Slidedeck

3/70

Course Logistics Description

Textbook and other useful references

Requirements and assessments

Teaching philosophy Schedule

FIN/IBUS463: InternationalFinance 3

7/25/2019 First Slidedeck

4/70

Course Description Introduction to global capital markets and

financial management Challenging but useful

Prerequisites:o FIN-365o Upper division standing

o Quantitative comfort and facility

Academic Integrity Code Bloomberg

FIN/IBUS463: InternationalFinance 4

7/25/2019 First Slidedeck

5/70

Textbook and other useful references Main textbook: Geert Bekaert and Robert J. Hodrick, International

Financial Management, Prentice Hall, (2011 2nd edition)

Background references:o Alan C. Shapiro, Multinational Financial Management, 9th ed., Wiley,

2008

Other books that might be of interest (but are neither required norsupported in this class):o Bruno Solnik and Dennis McLeavey, International Investments, 5th ed.,

Addison Wesley, 2004o Richard M. Levich, International Financial Markets: Prices and

Policies, 2nd

ed., McGraw-Hill Irwin, 2001o Piet Surcu , Theory into Practice, Princeton University Press, 2009

Course readings: please do the readings in advance!

FIN/IBUS463: InternationalFinance 5

7/25/2019 First Slidedeck

6/70

Requirements and Assessments Course grade

Weekly homework: 5% Currency project: 35%, comprised of

(a) Participation in class and on blackboard (10%),

(b) Risk management spreadsheet and Bloomberg use(10%)

(c) Group write-up, consisting of a group executivesummary (5%) and individual write-ups of eachcurrency (5%, for the part related to your currency),

(d) Group presentation and handout (5%)

Midterm (25%) and Final exam (35%)

Please use name cardsFIN/IBUS463: InternationalFinance 6

7/25/2019 First Slidedeck

7/70

Office hours and other appointments KSB T-43

Mondays 4:00-5:30pm Tuesdays 4:30-6:00pm By appointment

Bloomberg office hours (in Kogod mini-lab):Wednesdays, 8-9pm, January 20, 27, andFebruary 3, 10, and 17

Important note: No office hours on Monday,March 14

FIN/IBUS463: InternationalFinance 7

7/25/2019 First Slidedeck

8/70

Important dates Last day to drop course without penalty: Monday, January 25

Early warning deadline: Monday, February 15

Midterm: Wednesday, February 24, 8:55-11:35am

Last day to drop course at all: Friday, March 4

Last day to trade for the currency project: Friday, April 15 Currency write-ups and spreadsheets due: NO LATER THAN

8:55am, Wednesday, April 20

Currency project presentations: Wednesday, April 20

Final examination: Wednesday,April 27, 8:55-11:35am(locationto be confirmed)

FIN/IBUS463: InternationalFinance 8

7/25/2019 First Slidedeck

9/70

Currency Project Overview You are a manager in the corporate Treasury department of a dollar-

based multinational (i.e., you need to primarily focus on exchange raterelative to dollar).

You are responsible for actively managing the currency risk related toone of the firms subsidiaries in a foreign country.

The other members in your group are your colleagues, responsible forother currencies (other subsidiaries)

Your initial position is the equivalent of $100,000 cash in yourparticular foreign currency

Keep daily running profit/loss tally (your P&L)

Put into practice what we learn in class

Individual and group components

Minimum requirements: monitor daily, trade and post at least weekly

FIN/IBUS463: InternationalFinance 9

7/25/2019 First Slidedeck

10/70

Currency project instructions (1)Your group should keep a blog on Blackboard in which together you moni tor yourrespective currencies and trades and help each other, that includes (but is not limi ted to)the following:

1. Details of every trade you make, along with running profit/loss totals. What other tradeswere you considering and how would they have done if you had decided to implementthem instead?

2. How are your forecasts and trades doing (e.g., are you on target to reach your forecastsor have you already reached them, have the currencies moved against you, what do you

need to monitor). Are you happy with your trades and do you want to change them (and ifso, how). Provide justification for either choice

3. As we progress in class, you will learn about more complex ways to express your view(i.e., trades you can do to capitalize on whether you think your currency is going toappreciate or depreciate, and ways to hedge to protect your exposure if you are wrong)

4. What has happened in your country or the world that may have affected your currency(e.g,. Economic or political news, large changes in interest rates

5. Remember to keep track of sources and Bloomberg screen shots this will help you withthe end-of-semester write-up.

FIN/IBUS463: InternationalFinance 10

7/25/2019 First Slidedeck

11/70

Currency project instructions (2)1. Currency assignment: Assume you have $100,000 worth of your foreign

currency (exact assignments and levels will be posted on Blackboard aftertodays class). This is a 100% long position.

2. Forecast: Your starting day is Wednesday, January 13 (today) -- write down thestarting level of your currency (this will also be posted on Blackboard). Next,provide (via email to me, due no later than 5pm Friday, January 15)) an exactnumerical level that you expect your currency to be at on Friday, April 15, andindicate whether your forecast is an appreciation or depreciation relative to yourstarting point, as well as the percentage change that forecast represents (e.g.,EUR will depreciate from 1.33$/ to1.28 $/, a 3.9% depreciation). Note: DONOT choose stay the same.

3. Initial trade direction: if your forecast suggests your currency will appreciate, youwant to have more of your currency than the dollar; otherwise, you will want tohave less. This should form the basis for your first trade. Given your firms

business needs, it is unlikely you will want to be 100% long or 100% short at anytime.

4. Describe in your blog what (e.g., specific economic or political events) you planto monitor to assess your currency and how you will evaluate your trade (e.g.,when will you decide to take a profit or cut your losses?).

FIN/IBUS463: InternationalFinance 11

7/25/2019 First Slidedeck

12/70

Additional Currency Project Information Group Responsibilities

o Get started now!o

Bounce ideas off of colleagues/help each othero Plan strategies to try a variety of things and maximize learningo Set up a group spreadsheet to monitor your portfolio (that is, the aggregate of your

currencies and trades)o Participate in discussion on blackboardo Contribute to and log trades in group blogo Work together but make individual trade decisions

Individual Responsibilitieso Get started now!o Set up your individual spreadsheeto Form forecasts and trading rules for your currencyo

Monitor and manage your specific currencyo Understand risks, key events affecting your currencyo Periodically update class on your activities

FIN/IBUS463: InternationalFinance 12

7/25/2019 First Slidedeck

13/70

Things to consider about your currency

How volatile is it?

How might historical performance informyour views? How might things be different

now? What are some of the macro events thatcould affect your currency?

What are some of the global currency(e.g., dollar) considerations

FIN/IBUS463: InternationalFinance 13

7/25/2019 First Slidedeck

14/70

Risk management basics Taking risk is not badfailure to manage risk

is Common pitfalls:

Poor decision-making, not enough thought

upfront Overconfidence

Lack of appropriate controls/governance

Failure to balance upside/downside Excessive reliance on past performance/failure torecognize and react to changing environment

FIN/IBUS463: InternationalFinance 14

7/25/2019 First Slidedeck

15/70

Questions?

FIN/IBUS463: InternationalFinance 15

7/25/2019 First Slidedeck

16/70

Getting acquainted about me

FIN/IBUS463: InternationalFinance 16

Mathematics Economics

Econometrics

Time Series Econometrics

Volatility Modeling Retirement Modeling

Economics of Aging

FinanceForecastingBanking

My sabbatical:

7/25/2019 First Slidedeck

17/70

My research

FIN/IBUS463: InternationalFinance 17

and

7/25/2019 First Slidedeck

18/70

Introductionto

Foreign

Exchange

MarketsandRisks

ProfessorRobinLumsdaine

18 FIN/IBUS463: InternationalFinance

7/25/2019 First Slidedeck

19/70

Introduction to International Finance

1. Globalization

Connectivity Integration

2. Multinational Corporations

Growth of international trade Efforts to promote free trade

Cross-border production, labor mobility (e.g.,outsourcing, offshoring)

Financial markets3. Privatization

FIN/IBUS463: InternationalFinance