FINE482 International Finance I

Instructor: David Abramson, McGill University

Winter 2018

INFORMATION AND REQUIREMENTS

Class Time: M,W 11:35-12:55(002), or 1:05-2:25(001)

Class Location and Section: SBB 002 (002), 179 (001)
Office Hours: By appointment
Office Location: PH-1, 1130 Sherbrooke Ouest
Phone Number: 514-558-1414
E-mail: davidabramson562@gmail.com

Materials:
1. Textbook: Multinational Business Finance, D.K. Eiteman, A.I. Stonehill and
M.H.Moffett, 14th edition, Prentice Hall, 2016 with MyFinanceLab.
2. STRICTLY OPTIONAL: Some challenging articles and textbooks designed for those
of you that want a deeper understanding of international finance. These include:
Chapter 18 (International Capital Flows), Global Economy@NYU Stern
(http://www.stern.nyu.edu/sites/default/files/assets/documents/The_Global_Economy_
Amazon_Digital.pdf), Multinational Financial Management, Alan C. Shapiro;
Making Sense of the Dollar: Exposing Dangerous Myths About Trade and Foreign
Exchange”, Marc Chandler; “Global Inequality”, by Branko Milanovic; International
Money and Finance, Michael Melvin; International Financial Management, Cheol
Eun and Bruce Resnick; International Economics: Theory and Policy, Paul Krugman
and Maurice Obstfeld; Options, Futures, and Other Derivatives, John C. Hull; and
International Investments, Bruno Solnik. And two excellent books specific to the
1920s/1930s: Hall of Mirrors, Barry Eichengreen; and Lords of Finance, Liaquat
Ahmed.

Course Description and Objectives:

This course gives a survey of international financial markets and a comprehensive introduction
to the foundations of global finance including but not limited to spot and forward
exchange markets, international monetary system, currency and interest rate risk
management, and international diversification. In short, in this class you will learn how firms
and individuals operate in a global environment and manage their capital flows, and you
will be able to recommend ways to make this system more profitable.

This course is centered around international financial institutions and markets and is the first
necessary step to understanding all problems related to international finance. A managerial
perspective of the problems faced by global corporations is taken on in International Corporate
Finance, FINE 492. Global Investments FINE 480 provides an analysis of portfolio investment
strategies at the global level.

Grading:

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 Participation 10%
Project and Presentation 20%
Midterm Exam 30% or 0%
Final Exam 40% or 70%
Guest Speakers “12%”

General Policy:

I assign a participation grade anywhere between 5/10 and 10/10. Active participation is
valued, especially during the four “guest speaker” lectures and mini-case discussions.
Comments should be constructive and raise the level of understanding in the class. To do
this, you need to do all required readings, and there are quite a few, as well as homework
exercises.

The midterm exam is closed book. However, you are allowed a one-page “cheat-sheet”.
Don’t forget to bring your calculators. A make-up option of the midterm is not available.
If your absence was unavoidable, the percentage of the final exam portion in your course
grade will increase to 70%.

The final exam is also closed book. It will cover the entire material presented in the
course. You are allowed to have a one-page “cheat-sheet”, but this time it can be double-
sided. Calculators will be necessary. A make-up option of the final exam is possible
ONLY if you provide strong evidence you cannot take the test on the scheduled day.

A re-grading will be considered if a written and signed petition is handed to me within a

week of receiving the exam/course grade. It will be a “symmetric” procedure; that is, the
new grade may be higher or lower than the old one, or remain the same.

In addition to the required readings and homework exercises, you should attempt to
understand and solve as many problems and questions on MyFinanceLab each assigned
chapters. I will not collect and grade your solutions but working on those problems will
definitely help you on exams.

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The midterm exam will consist of multiple choice and short essay questions. Working on the
problems will be the best preparation for the exams. The midterm exam will be on February 28
during class time (approximately 80 minutes). If, for any reason, you do not write the midterm,
the final exam will automatically weight 70%. Re-grade requests on the midterm must be
submitted in writing no later than two days after viewing the marked exam. Re-grade will be a
“symmetric” outcome, that is, the new grade might be higher, lower or unchanged.

The project will be prepared in groups. Each group will write a detailed analysis of a currency of
choice. The purpose of the project is to present to the audience the history of the currency and its
regime in the years after the collapse of the Bretton Woods system and provide some indications
of future trends. The report will highlight the fundamentals that might explain the currency
dynamics such as the country’s balance of payments, productivity changes, commodity prices,
terms of trade, real exchange rates (under/overvaluation), interest and inflation rates as they relate
to the country’s policies. The report should position the country and its currency in relation to
actual and potential trading partners, such as the US, Europe, China or bordering countries.
Events such as currency crises or exchange rate regime changes should be stressed, as well as the
country’s domestic policies (fiscal/monetary) and stock market trends. Finally, all projects should
contain a section devoted to the current value and future outlook for the currency.

Challenging but exciting alternative projects (1 group each, first come, first served):
 Teach a “difficult but insightful” currency analysis article provided by me, and apply it to
your currency of choice.
 Bitcoin: compare and contrast with the US dollar, gold and other cryptocurrencies.
Develop forecasting tools.
 Gold: compare and contrast with the US dollar and bitcoin. Develop forecasting tools.
 Teach Mini-case: Argentina and the Vulture Funds, Ch. 8.

The analysis should start with an introduction, where the group presents the currency, motivate its
choice and organize what will follow. A main section will provide the detailed history and evaluate
its current strength and weaknesses, and in a conclusion the group will provide specific future
trends and forecasts for the currency under investigation. I expect the reports to be 8 pages
maximum, excluding tables, charts and graphs. Numerical analysis through regressions or other
types of estimation is not required, however data manipulation and presentation is an important
part of the project, as it is needed to support your arguments. The exhibits should be referred to in
the text of the paper as they are needed (exhibits that are not needed should not be included and
all exhibits should be referenced in the paper). All sources should be clearly referenced in the
paper. You should remember that cheating and plagiarism undermines the integrity of our degrees.

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In this respect:
1. “McGill University values academic integrity. Therefore, all students must
understand the meaning and consequences of cheating, plagiarism and other
academic offenses under the Code of Student Conduct and Disciplinary
Procedures (see www.mcgill.ca/integrity for more information).”
2. Please refer to this policy which consolidates all rules and regulations relating to
student assessments. Please see http://www.mcgill.ca/secretariat/policies/students/

Written reports are due April 3rd by 5PM. Reports that are late will not be graded. The group will
present its findings to the audience in one of the 3 classes devoted to project presentations.
Group size will depend on class enrollment. At this time, it appears the groups will consist of six
people. Report group composition to me by Friday, January 26th. The currency for the analysis
will be assigned on a first-come first-serve basis. I reserve the right to assign a currency if the
group has not yet expressed his choice by Monday, February 12th.

Since in the "real world" individuals' performance evaluation rely also on the opinions of peers,
each member of the group will evaluate the others. Please note that at the end of the syllabus
there is a group participation form that I will collect at the end of the course. Each student's grade
will thus depend on group performance, individual presentation and other group members'
opinion.

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Course Schedule

Date Topic Readings

Jan. 8-10 Quick Introduction (Ch. 1 ESM) “Warmup article” US rates
International Monetary System bounce back, but $, hardly”
Ch. 2 ESM
Jan. 15-17 Balance of Payments Ch. 3
Fundamental global macro identities
Mini-case: Iceland
Jan. 22-24 The foreign exchange market: Ch. 5
spot and forward rates

Jan. 29-31 Parity conditions: PPP Ch. 6

Real exchange rates
Feb. 5-7 Parity conditions: CIP and UIP Ch. 6
Mini-case: Mrs. Watanabe and Yen
Feb. 12-14 Foreign exchange rate determination and Ch. 9
forecasting
Feb. 19-21 Monetary Union and the Euro Ch. 2
EMU and crises: Finmark mini-case (not
in text, to be provided)
Feb. 26-28 Currency crises Ch. 9
MIDTERM
March 12-14 Mini-case: Russian Ruble Roulette Ch. 9
Guest speaker: Harvinder Kalirai
March 19-21 Foreign currency derivatives: Ch. 7
Futures and options
Guest speaker: Yan Wang
March 26-28 Basics of risk management Ch. 10
Transaction exposure/money mkt hedge
Mini-case: China Noah Corporation
Guest speaker: Mathieu Savary
April 4 Guest Speaker: Jonathan Hausman (Written Reports due 5pm,
April 3)

April 9, 11, 16 PROJECT PRESENTATIONS

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FINE 482 IF-I/Winter 2018
Name:
PICTURE (OPTIONAL) Student ID#:

EMAIL
Major: Minor:

PROFESSIONAL AND RELEVANT ACADEMIC EXPERIENCE

OTHER INFORMATION (Interests, hobbies, etc.):

REASONS FOR TAKING INTERNATIONAL FINANCE I COURSE:

PARTICIPATION

Week 1:
Week 2:
Week 3:
Week 4:
Week 5:
Week 6:
Week 7:
Week 8:
Week 9:
Week 10:
Week 11:
Week 12:
Week 13:

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GROUP PROJECT AND PRESENTATION PARTICIPATION FORM
Your name:
Other group members:
1.
2.
3.
4.
5.

HOW WERE DUTIES ASSIGNED? EXPLAIN BRIEFLY

WERE DUTIES EVENLY DISTRIBUTED? EXPLAIN BRIEFLY

WHAT SPECIFIC DUTIES DID YOU PERFORM?

DID YOU PARTICIPATE FULLY IN REPORT PREPARATION? IF NOT, WHY NOT?

DID ALL MEMBERS PARTICIPATE FULLY? IF NOT, WHY NOT?

WHAT GRADE WOULD YOU GIVE EACH GROUP MEMBER FOR OVERALL CONTRIBUTION TO
THE GROUP? PLEASE GIVE TWO GRADES, LEFT-SIDE FOR WRITTEN REPORT, RIGHT-SIDE FOR
ORAL PRESENTATION. PLEASE TAKE INTO ACCOUNT THE VALUE OF BOTH PREPARATION AND
THE FINAL PRODUCT.
Yourself: ( / )
1. ( / )
2. ( / )
3. ( / )
4. ( / )
5. ( / )