International Finance

Double Degree in General Management.

Instructor: Prof. Pierpaolo Benigno

Visiting Professor: Prof. William Ziemba

Class Schedule:

Monday 14.15-16.00, Room A303
Tuesday 11.45-14.00, Room Axxxx

Teaching Assistant:

Dott. Guido Traficante, LUISS Guido Carli.

Objectives of the course

The aim of this course is to provide an integrated view of international financial markets and the management of multinational firms. The focus will be on the markets for spot exchange, currency forwards, options, swaps, international bonds, and international equities. For each of these markets, students will study the valuation of instruments traded in these markets and, through cases, the application of these instruments to the following corporate decisions: (i) managing exposure to exchange rates and country risk, (ii) financing in international capital markets, and (iii) international capital budgeting in the presence of multiple currencies, international tax regulations, and sovereign risk.

Web Page

There is a course’s web page available at http://docenti.luiss.it/benigno/ which contains updated information on the syllabus and course’s materials.

A Blog is also active for class discussion on the contents of the course and organizational issues.

Books

Bekaert, Geert and Robert Hodrick (2008), International Financial Management, Pearson Prentice Hall. (BH)

Sercu, Piet (2008) International Finance: Theory into Practice, Princeton University Press. (S)

Exam

There will be an exam at the end of Prof. Ziemba’s mini course.

Final Exam is scheduled on (to be determined).

The midterm counts for 25% of the final grade. The final counts for the remaining 75%. Both are written exams.

Program

Currency Markets:

The Spot Market

(BH): Chapter 2

(S): Chapter 3

·Bank for International Settlements (2007), Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity.

·Galati, G. and M. Melvin (2004), “Why has FX trading surged? Explaining the 2004 triennial survey” BIS Quarterly Review, December 2004.

The Forward Market

Law of one Price, Covered Interest Rate Parity

(BH): Chapter 3, 6

(S): Chapter 4

Arbitrage, Hedging and Speculation

(BH): Chapter 6

(S): Chapter 5

·Galati, G., Heath, A., McGuire, P. (2007), “Evidence of Carry Trade,” BIS Quarterly Review, September 2007.

Mini-course (Prof. Ziemba)

International Equities and Bonds under the Current Economic Situation

Syllabus

 
Currency Futures

Futures versus Forward contracts. Hedging

(BH): Chapter 20

(S): Chapter 6

 
Currency Swaps

(BH): Chapter 21

(S): Chapter 7

 
Currency Options

Arbitrage, Hedging and Speculation

(S): Chapter 8.

Hedging and Valuation

(S): Chapter 9.

 

Exchange Rate Risk, Exposure and Risk Management

Measuring Exposure to Exchange Rates

(S): Chapter 12.

 
Value-at-Risk

(BH): Chapter 17.

(S): Chapter 13.