Leonard N. Stern School of Business

International Financial Management
Corporate Finance in a Global Context


Prof. Ian Giddy
E-mail ian.giddy@.nyu.edu  Web: http://giddy.org
This course web page: www.stern.nyu.edu/~igiddy/ifm.html
The online quizzes: The Quiz Page


Goals

Students taking this elective course should expect to learn the nature and purposes of corporate financial management in the international context. They will gain skills in international investment and financing techniques and in exchange risk management, including accounting and taxation aspects. They will learn, through hands-on case studies and simulations, how to manage a global company's financing and investment decisions, including M&A and divestitures, and how to measure and manage the company's exposure to exchange rate and international interest rate risks. They will discover how companies use banks, markets such as the Eurobond and currency option markets, and techniques such as currency swaps, lease financing and specialized structured financing techniques.


Instructor

Ian Giddy has taught finance at NYU, Columbia, Wharton, Chicago and abroad for the past twenty-five years. He was Director of International Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The author of more than fifty articles on international finance, he has served at the International Monetary Fund and the U.S. Treasury and has been a consultant with numerous financial institutions and corporations in the U.S. and abroad. He is the author or co-author of The International Money Market, The Handbook of International Finance, Cases in International Finance, Global Financial Markets, Asset Securitization in Asia and The Hudson River Watertrail Guide.


Pedagogy

The course employs cases and problems as well as classroom lectures and discussions and a swap simulation management game. Written assignments will be due for many sessions; they may be prepared individually or in groups unless otherwise specified. Each student will be expected to participate actively in class discussion. There will be a midterm and a final exam.


The Course on the Internet

We will make use of the Internet--notably the World Wide Web--for resource material and communication. Indeed this course outline itself will change: the definitive version is the Web site at http://www.stern.nyu.edu/~igiddy/ifm.html. All students must have an email address and Web access. Your default address will be the one assigned by the Stern School Some lecture materials can be downloaded from the Web. Among other things, you will be able to take on-line quizzes on an internet site called The Quiz Page. To access it, use the ID and your 4-digit password given in class.

To keep up with the world of international finance try the following Web sites:

 Also, here's a glossary for international finance and one for investments.
 

Text and cases

Ian Giddy, Global Financial Markets (Houghton Mifflin). Some cases and assignments are in the book; most others will be made available on the Web.

Students should have read the assignments before coming to class. Material covered in the assigned textbook readings will generally not be repeated in class. Rather, class time will be devoted to lecture and case discussion, applying the material covered in the readings.


Grading



Topic 

GFM Ch. 

Other Readings 

Cases

Markets and Linkages in International Financial Management 

1, 2,3

Summary
Handout 1

Cry Argentina
Try GFM Ch 2, Prob 7,9,10,12, Ch 3, Prob 7
and solutions

Exchange Rate Systems and Policies 

Handout 2

Waiting for Godot

3

Using Forward Exchange Markets and Money Market Hedging 

Handout 3

Ivoire Rubber (hand-in)

4

Transactions Hedging: Forwards vs Futures vs Options 

Currency Risk 
Handout 4 

Paretti Textiles

5

Uses and Abuses of Currency Options

Currency Options
Handout 5 

Options Trip

6

Currency Risk: Accounting vs Economic Exposure 

 

FAS 52 and
FAS 133

Handout 7 

Austin Computer (hand-in)

7

Review of Currency Exposure and Hedging Tools

7,8

Currency Risk

 

8

Midterm Exam 1

 

 

 

Risk Management: New Approaches 

 

Value at Risk
Handout 8 

Farmco and farmco.xls

10 

Swaps

13 

Handout 9

Kiwi Magic (in GFM)
Solution

11 

Swap Financing

 

 

Grupo Zuliano
Solution

12

Yin & Yang: A Swap Negotiation Simulation (group hand-in)

13

Swap Financing: review

13 

Handout 9 (cont.)

Yin & Yang
Spreadsheet

14

Bank Financing and the Money Market 

Financial Markets
Handout 10 

Connexion (group roles)

15-16

International Bond Financing

12

Bonds
Handout 11
Westpac

Westpac Eurobond

17-18

International Equity Financing

14

Equities
Handout 12

Deutsche Telekom (group hand-in)

19

Midterm Exam 2 (April 8)

9,12-14

 

Topics 9-18

20

Capital Structure

16

Cost of Capital
Handout 13

IBM (illustration)

21

Capital Structure Optimization

 

Capital Structure

SAP (hand-in)

22

Hybrid Financing

17

Convertibles
convertible.xls

Handout 14

Banpu Convertible

23

Hybrid and Structured Financing

 

 

A Day in the Life (group roles)

24

Structured Financing with MTNs

 

Handout 15 

Bavaria

25

Integrated Financing Decisions 

16 

Handout 16 

Financing Ciba (in GFM Ch 16)

26

Multimarket Financing

 

Handout 17 

Nokia (group hand-in)

27

Review of the Course 

18 

 

 




Markets and Linkages in International Financial Management

Themes of This Course--The Tasks of the International Financial Manager--What Are the Global Financial Markets?--Dealing Room: Foreign Exchange and Eurocurrency--Dealing and Quotations--The Mechanics of the Eurodollar Market--Arbitrage Between the Foreign-Exchange and Eurocurrency Markets--Capital Controls and Divided Credit Markets--Competing Eurocurrency Markets: Interest-Rate Arbitrage and Currency Expectations--Forward-Exchange Rates, Relative Interest Rates, and Exchange-Rate Expectations.


Exchange Rate Systems and Policies

Exchange-Rate Systems: The Choices--Multiple Exchange Rates, Black Markets and International Financial Management--The Adjustment Process and the Financing/hedging Decision--Repercussions of an Overvalued Currency--The European Monetary System


Using Forward Exchange Markets and Money Market Hedging

The Forward Contract--Link to the Money Market--Money Market Hedging--Nontransferability and Reversal of Forward Contracts--Forwards in Hedging--Forwards in Speculation--Forwards in Arbitrage--Long Dated Forwards


Transactions Hedging: Forwards vs Futures vs Options

Does Currency Risk Matter?--When Should Corporations Hedge?--Forward Hedging vs Money Market Hedging--Currency Futures, Margin and Marking to Market--Futures vs Forwards vs Options: A Roadmap


Corporate Uses and Corporate Abuses of Currency Derivatives

Abuses of Options and Other Derivatives--Currency Options--Who Needs Them?--Options Combinations--Put-Call Parity--Currency Option Pricing--Three Versions of Volatility in the Context of Corporate Hedging--Trading Volatility: Straddles and Strangles--Currency Collars--Diff Swaps--Exotic Options as Hedging Vehicles


Commodity-Linked Financing

Pricing Commodity Futures and Forwards--Hedging Commodity Risks--Commodity Swaps--Commodity-Linked Bonds


Currency Risk: Accounting vs Economic Exposure

Accounting or Translation Exposure--Cash Flow Effects: Economic Exposure--The Currency of Determination--Transactions Exposure--Methods of Translation for Balance Sheets


Risk Management: New Approaches

The Value-At-Risk Approach: an Overview--Why Performance Needs to Be Related to Risk--Measuring Positions in Tradeable Instruments Held by Financial Institutions and Relating Them to Key Market Variables Such as Changes in the Level and Shape of the Yield Curve, Exchange Rates and Equity Indices--Using Estimated Probability Distributions to Forecast the Overall Portfolio Risk of a Set of Positions--Application to Corporate Foreign Exchange Risk Management


International Taxation and Transfer Pricing

Comparative Tax Systems--Corp. Vs. Personal Tax--Tax Systems--U.S. Taxation of Foreign Income--Worldwide Principle--Deferral and Credit--Passive Income--Transfer Pricing


International Capital Budgeting

Strategic FDI Decision vs. Project Appraisal--NPV, IRR, NTV, TRR--Special Risks & Risk Analysis in ICB--Tax and Repatriation--Subsidies, Incl. Low-Cost Finance--Inflation and Exchange Rate Changes--Whose Cash Flow?--Blocked Funds


The Cost of Capital In the International Firm

Optimal Financing--Project Evaluation--Internal Performance Evaluation--Weighted-Average Cost of Capital vs Risk-Adjusted Required Rate of Return--Whose Cost: Parent vs. Sub--Intracompany Debt and Parent Guarantees--Subsidized Financing


Bank Financing and the Money Market

International Banking and Short-Term International Financing Techniques--Money Market Instruments


Swap Financing Techniques

The Economics of Swaps--Credit Market Imperfections--Bond Market Redundancy--How Swap Rates Are Determined--Basis Point Equivalents and the All-in Swapped Cost of Capital--Valuation and Termination of Swaps--Off-Market Swaps--Trading Swaps--Swaps Versus Long-Dated Forwards--The Credit Risk of Swaps--Swaptions, Caps and Floors


Long Term Financing with Eurobonds

Eurobonds, Domestic Bonds and Foreign Bonds--Factors Segmenting Domestic and Eurobond Markets--Private Placements and Rule 144A--Regulation and Taxation--New Issue Procedures--Equity-Linked Eurobonds--Asset-Backed Eurobonds


Long Term Financing with Eurobonds and Hybrid Instruments

Understanding Hybrid Instruments: The Building Block Approach--Hedging and Managing New Instruments: The Functional Method--Hybrids in Corporate Financing


Integrated Financing Decisions

From "How Much Debt?" to "What Kind of Debt?"--Fixed versus Floating Debt--Maturity and Availability--Financing and the Exchange Risk Factor--The Use of Swaps, Caps and Hybrids in Financing--A Roadmap for Financing Choices


Multimarket Financing

Corporate Financing Decisions in Theory and Practice


Review of the Course



Go to Giddy's Web Portal • Contact Ian Giddy at ian.giddy@nyu.edu