The Robert H. Smith School of Business

University of Maryland

International Financial Management

BUFN724 Section DC06 – Spring 2005

Every second Saturday 8:15 AM – 1:00 PM, Jan. 29-May 21

Instructor: Elinda Fishman Kiss

Office: VMH 4411 on College Park campus; in a faculty office in DC

Office Hours: immediately before and after class and by appointment

(Every Wednesday I am in VMH4411; on the weeks that we have a Saturday class, I will also be there on Thursday afternoons and Fridays)

Phone: office: 301-405-7538 cell: 215-962-9071

E-mail: EFKiss@aol.com or ekiss@rhsmith.umd.edu

Website: http://bb.rhsmith.umd.edu http://www.rhsmith.umd.edu/finance/elinda-kiss

Textbook and Class Resources

The course material comes from lectures, case studies, additional readings, and notes on Blackboard.

The text is intended as background reading and for assignments. The suggested chapter readings on page 5 and suggested problem assignments listed on page 6 are from the Madura text.

Recommended Text: International Financial Management, Seventh edition, by Madura,

Thompson Southwestern, 2003. http://madura.swcollege.com ISBN 0-324-16551-X

If you wish to look at another text, I recommend Fundamentals of Multinational Finance, by Michael Moffett, Arthur Stonehill and David Eiteman, Pearson Addison Wesley, 2003, http://www.aw-bc.com/catalog/academic/product/0,1144,0201844842,00.html ISBN 0-201-84484-2

You may find it useful to review concepts in the Corporate Finance textbook: Corporate Finance, 7^th Edition, by Ross, Westerfield, & Jaffe (ISBN 0-07-297123-1 or 0-07-282920-6) (www.mhhe.com/rwj)

It is not necessary for you to read or purchase either the Moffett or the Ross text.

Calculator: It is advisable that you purchase a financial calculator if you have not already done so. You will learn how to use your calculator on your own, using the manual. An excellent financial calculator is Texas Instruments BAII Plus or Hewlett Packard 17BII; also acceptable are HP10B & HP12C.

Wall Street Journal: If you do not have access to the Wall Street Journal, it is advisable that you purchase a student subscription, which includes access to the on-line edition. I have discount subscription forms. For two assignments, you will use the Wall Street Journal.

Internet: On my website, I have links to some financial web pages.

Instructor: Elinda Fishman Kiss (Ph.D. University of Rochester) has also taught at The Wharton School, Wellesley College, Rutgers University, Temple University, Drexel University, College of New Jersey, West Chester University and Penn State University. She has worked as Treasurer of a manufacturing firm (Custom Equipment), a commercial banker (First Pennsylvania Bank), investment banker (Citibank, PSFS), and federal government employee (Federal Reserve and RTC). Her research focuses on the European Central Bank.

Course Description: This course will cover the role of financial management in the multinational firm. We will examine such topics as currency fluctuations, measuring and hedging exchange rate risk, comparative capital structure, multinational investment, and international capital budgeting.

Prerequisite: BUSI640. In addition, you should have a good grasp of Algebra, and some working knowledge of Excel, Word, Accounting (BUSI610) and Statistics (BUSI630).

Course Objectives

The purpose of this course is to introduce you to financial management from the perspective of a multinational corporation. In response to globalization as well as advances in communications, many firms, both small and large, now operate in two or more countries. This situation exposes such firms to diversifiable exposures such as exchange rate risk and non-diversifiable exposures such as political risk. We will discuss the exposures that confront multinational firms, how such exposures impact business strategy and operations, and how they can be mitigated. Students should expect to develop an integrated analytical and decision making perspective that will enable them to extend financial concepts such as capital budgeting and risk management, and instruments such as forwards, swaps, fixed income analysis, arbitrage, etc. to their international analogs.

Grading

Midterm 40%

Final Exam or Paper 15%

Wall Street Journal Real World Application Write Ups 10%

Homework and Class Participation 10%

Case Presentation and WriteUps 25%

A: 92-100; A-:90-92; B+:89, B:82-88; B-:80-82; C+:79; C:72-78; C-:70-72; D:60-69

Exams

There will be two exams, an in-class, closed-book mid-term exam, on Saturday, March 26, 2005, and a final exam, which will also be closed book, on Saturday, May 21, 2005. Both the mid-term and final exams will include problem-oriented quantitative questions, and theoretical questions to ensure understanding of conceptual material discussed in class. Please note that your class notes will be the primary reference for exams. Your text is for background, and more extensive readings, as well as for homework problems. For all exams, you are allowed to bring in a financial calculator and an 8.5” x 11” sheet of paper on which you can write equations and definitions.

Homework

Homework in this class will take several forms:

1) Quantitative and conceptual problems: These will be assigned from the class text for the most part. These are to be done individually or with one other person. The text problems to solve are listed on page 6 of this syllabus. Changes in assigned problems will be announced in class and in the Announcement section of Blackboard. After you have turned in your solutions, I will post suggested answers in the Assignments section of Blackboard. THE SOLVING OF THESE TEXT PROBLEMS IS OPTIONAL – and can only help your grade and your understanding of the subject. There may be some other problems assigned later in the course (announced or distributed in class and in Announcement and/or Assignment section of Blackboard), which will be required to turn in.

You should work the problems applicable to that day’s class before the next class meeting so that you can ask questions before we move on to another topic. Grading consists of my checking that all assigned problems have been attempted and that random selections of problems are worked correctly.

2) Ongoing case study: There is an ongoing case centered on a firm called Blades, Inc. in the class text. When Blades is listed on the assignment sheet, we will discuss the Blades case for that chapter in class, if we have time. This discussion usually will be one class meeting BEFORE the problems are due. Be prepared for the discussion, especially chapters 4, 7, 8, 9, 11, 12.

3) Stand-alone Case Studies: Specific case studies to illustrate concepts will be discussed in class. Students must solve the case studies using techniques from basic finance, statistics, or the concepts introduced in this course. Students are encouraged to work in groups of up to 3 people. One student group will present their solution in class and help lead the discussion. Other groups should hand in written solutions in the form of a business report to management consisting of 3 typewritten pages (plus appendices). Written cases are due at the beginning of class on the day of discussion (see calendar on page 5). The cases are listed on page 4.

4) Real World Applications: THIS PROJECT MUST BE DONE INDIVIDUALLY. Students will create two different real world applications using articles from the Wall Street Journal. It is recommended that all students subscribe to the journal for the semester. This will be facilitated through the professor on the first day of classes. Write-ups should be two pages typed, double-spaced, 12 pt. font. THIS IS NOT A SUMMARY OF THE ARTICLE! An explicit link to class material must be expressly illustrated and the article must be attached to the write-up. The explicit link must indicate specific page references from the text or the date of class notes. The write-ups will be graded on the relevance of the article to class material, the analysis of the article, the link provided and language (grammar and spelling). Note: Articles must be timely (within a month of print) but the subject matter to which the article is linked may be anything we have discussed thus far. I would prefer that you use an actual article, NOT the daily “Currency Trading” column. The second article should be related to material covered after the midterm, if possible. Due dates: write-ups are due March 12 and May 7. Grades of WSJ write-ups will suffer if article is not attached or if explicit link to class material is not provided. Other periodicals may be used if nothing relevant to class material can be found in recent WSJ’s. Alternative periodicals must be approved by the professor BEFORE the assignment is due.

5) Final paper – instead of the Final exam, students may opt to write a 15-30 page research paper, on a topic that is pre-approved by the professor.

Grading of homework

Assignments will be collected before class on due date and graded according to the following scale:

0 - not acceptable (grossly incomplete)

1 - less than completely satisfactory (some missing problems)

2 - satisfactory (all problems attempted and mostly correct)

3 - excellent (all problems attempted and correct)

Course Materials

Course materials, which will include lecture notes in PowerPoint, the course outline, and other course-related information will be posted on the class website, which can be accessed at: http://bb.rhsmith.umd.edu . I recommend going through the lecture notes prior to coming to class. Reading suggested chapters from your text ahead of class would be a beneficial strategy in my estimation. Please check the class website regularly for updates. You are responsible for any announcements made in class or on the class website.

Academic Dishonesty

The University’s Code of Academic Integrity is designed to ensure that the principles of academic honesty and integrity are upheld. All students are expected to adhere to this code. All acts of academic dishonesty will be dealt with in accordance with the provisions of this code. For more information, please visit,

http://www.inform.umd.edu/campusinfo/departments/jpo/acinteg/code_acinteg2a.html .

On each exam or assignment you will be asked to write out and sign the following pledge. "I pledge on my honor that I have not given or received any unauthorized assistance on this exam/assignment."

Special Needs

Any student with special needs should bring this to the attention of the instructor as soon as possible, but not later than the second week of class.

Cases for you to present:

Dozier Industries (A) – spot and forward rates (Darden: UVA-F-0745)

Tiffany & Co. – 1993 – options (HBS: 9-295-047)

Novo Industri A/S - 1981 – international equity, eurobond, ADRs, cost of capital, pre-emptive rights offerings (HBS: 9-286-084)

Grand Metropolitan PLC– cost of capital (Darden: UVA-F-1019)

Globalizing the Cost of Capital and Capital Budgeting at AES – capital budgeting (HBS: 9-204-109)

MSDI-Alcala de Henares, Spain – capital budgeting, International Fisher effect (HBS: 9-289-029)

The Walt Disney Company’s Yen Financing – currency swaps (HBS: 9-287-058)

RJ Reynolds International Financing – dual currency bond; currency swap (HBS: 9-287-057)

Petrolera Zuata, Petrozuata C.A. – project finance (HBS: 9-299-012)

These cases are available from www.xanedu.com

CoursePack Title: BUFN 724 International Financial Management Section DC06

CoursePack ID: 229077

CoursePack Delivery:
Format: Digital access with desktop printing
Purchase Location: Ecommerce
Distribution Location: Online
CoursePack Price: $ 36.50
(Students will have the option to order a printed copy from XanEdu. Digital plus Print package: $ 46.25) (price does not include shipping)

To access your CoursePack, students will need to do the following:

1. Open the XanEdu "Login/Register" page at: http://www.xanedu.com/login?PackId=229077

2. If you have previously registered at XanEdu, log in.
If you are new to XanEdu, click the "Student Registration" button under "New Users Register Here". Complete and submit the registration form.
3. Confirm your CoursePack Selection, and complete the purchase form.

Choose one of these options for your CoursePack delivery:
Option 1: Digital access plus packaged print copy Price: $ 46.25 (price does not include shipping)
You will have immediate access to your Digital CoursePack; Your personal print copy will be shipped to you within five business days from purchase of your CoursePack. Shipping of a print copy is for valid U.S. addresses only. If you are outside the U.S., choose Option 2 below.
Option 2: Digital access with desktop printing Price: $ 36.50
You will have immediate access to your Digital CoursePack. You will not receive a printed copy of the CoursePack. You can print your CoursePack yourself, if your system hardware and connectivity supports downloading and printing very large files from the Internet. If you are not sure if your system supports this, XanEdu recommends that you select option #1 above.

4. After completing the purchase, you will be taken directly to "My XanEdu" where you can access your digital CoursePack.

Questions? Please contact XanEdu Customer Service at 1-800-218-5971.

Case presentations: Students must solve the case studies using techniques from basic finance, statistics, or the concepts introduced in this course. Students are encouraged to work in groups of up to 3 people. One student group will present their solution in class and help lead the discussion. Other groups should hand in written solutions in the form of a business report to management consisting of 3 typewritten pages (plus appendices). Written cases are due at the beginning of class on the day of discussion (see calendar on page 5). On February 12 or 26, you will select cases to present. I will present the first case (Proctor & Gamble: Mexico 1991). I will prepare suggested questions for each case and will put them in Blackboard in the Course Documents section.

Class Schedule

Tentative Date** Topic Suggested Chapter Readings

SECTION I : The International Financial Environment & Hedging Tools

Jan. 29 MNCs: An Overview 1

The International Monetary Environment 2, 3

Foreign Exchange Rate Markets and Determination 3,4, 6

Feb. 12 Arbitrage, International Fisher Effect, PPP, IRP 7 & 8

Currency Derivatives 5

Feb. 26 Case: Proctor & Gamble: Mexico 1991 – exchange rate risk in financing (Darden: UVA-F-1060) -- discussion led by Professor; students prepare written report

SECTION II: Exchange Rate Risk Management

Feb. 26 Determining exposure to currency fluctuations 9 & 10

March 12 Case: Dozier Industries (A) – spot and forward rates (Darden: UVA-F-0745)

Case: Tiffany & Co. – 1993 – options (HBS: 9-295-047)

Hedging as a risk management strategy 11

Managing Transaction, Operating, & Translation Exposure 11 & 12

March 12 First Real World Project due

March 26 MIDTERM EXAM

After the midterm exam, we will cover chapter 17 in Madura text

SECTION III : MNCs’ Investment, Financing Cash Flows & Cost of Capital

March 26 Global Cost of Capital and Financial Structure 17

Review of Modigliani Miller Capital Structure –RossWesterfieldJaffe Ch. 15

April 9 Foreign Direct Investment 13 & 16

Multinational Capital Budgeting 14

Review of Issuing Securities, Rights Offerings –Ross Westerfield Jaffe Ch. 19

Case: Novo Industri A/S - 1981 – international equity, eurobond, ADRs, cost of capital, pre-emptive rights offerings (HBS: 9-286-084)

Case: Grand Metropolitan PLC– cost of capital (Darden: UVA-F-1019)

April 23 Financing: Short & Long Term; Swaps 18 & 20

Additional reading: Note on Foreign Currency Swaps – (HBS: 9-292-043) (in XanEdu pack)

And Professor Kiss notes on Swaps in ppt and word on Blackboard

Case: Globalizing the Cost of Capital and Capital Budgeting at AES – capital budgeting (HBS: 9-204-109)

OR MSDI-Alcala de Henares, Spain – capital budgeting, International Fisher Effect (HBS: 9-289-029)

May 5 Second Real World Project due

May 5 Case: Walt Disney Company’s Yen Financing – currency swaps (HBS: 9-287-058)

Case: RJ Reynolds International Financing – dual currency bond; currency swap (HBS: 9-287-057)

Case: Petrolera Zuata, Petrozuata C.A. – project finance (HBS: 9-299-012)

International Banking and/or Euro Professor Kiss notes

Baring Brothers & Co. Note on Rogue Trader Nicolas Leeson – (Thunderbird: A06-99-0021)

May 21 Final Exam -- if you write final paper instead of the final exam, I must receive it BEFORE May 21 – either email it or mail it or fax it or hand it to me

** Please note that this class schedule and reading list is tentative and is subject to change at any point in time as deemed necessary by the professor. Changes will be announced in class and on Blackboard. The Ross Westerfield Jaffe readings are not necessary for this course, but may serve as a helpful review of the material from BUSI640.

Suggested Problems to do from the text – these are Optional for BUFN724

Chapter	Questions and Applications
2	9, 12, 16, 17, 19, Blades – due Feb. 12
3	3, 6, 7, 14, 17, 22, 23 – due Feb. 12
4	1, 4, 5, 11, 12, 19, 22, 23, Blades – due Feb. 12
5	12, 15, 21, 24, 27 Blades – due Feb. 26
6	2, 7, 21, 24 – due Feb. 12
7	2, 5, 8, 10, 25, Blades – due Feb. 26
8	14, 18, 23, 25, 35, Blades – due Feb. 26
9	11, 13, 16, 25, Blades – due March 12
10	2, 10, 19, 27, 29, Blades – due March 12
11	1, 9, 16, 26, Blades – due March 26
12	2, 12, Blades – due March 26
13	3, 5, 8 – due April 23
14	8, 11 – due April 23
16	1, 5, 13 – due April 23
17	1, 6, 17 – due April 12
18	6, 11, 13 – due May 7
20	11, 18

Assignments subject to change

We may discuss Blades for other chapters; it will be announced in class.

It may become necessary for changes to be made in the syllabus throughout the semester. I will make these changes both verbally and in writing on the course website. It is your responsibility to both attend class and check the website for any changes.

Changes in due dates for assignments will be announced in class and on Blackboard in either the Assignment or Announcement section or both.

Case presentations:

Students must solve the case studies using techniques from basic finance, statistics, or the concepts introduced in this course. Students are encouraged to work in groups of up to 3 people. One student group will present their solution in class and help lead the discussion. Other groups should hand in written solutions in the form of a business report to management; this report will consist of 3 typewritten pages (plus appendices). Written cases are due at the beginning of class on the day of discussion (see calendar on page 5). On February 12 or 26, each group will select which cases they will present. I will lead the discussion of the first case (Proctor & Gamble: Mexico 1991). All student groups will hand in written solutions for this case.

I will prepare suggested questions for each case and will put them in Blackboard in the Course Documents section.

Class participation is essential in the case discussions, and attendance is important. If you cannot attend a class on a case presentation day, please email or call me ahead of time.

Please put the following information on the index card:

• Course name or number and Course section number (BUFN724, section DC06)

• Your name

• phone number (Home) (Office) (cell)

• e-mail address (in CAPS) - very important - may send you class announcements in email - you may include as many email addresses as you wish (home, work, school, etc.)

• have you taken BUSI640 (or equivalent)? Accounting? Statistics?

• employment - what do you do? where? (or past internships or positions) -- optional

• student number

• Are you registered? Yes or no

WEB SITES FOR FINANCIAL INFORMATION

Dr. Kiss home page http://bb.rhsmith.umd.edu

http://www.rhsmith.umd.edu/finance/elinda-kiss

Dr. Kiss Rutgers home page www.elinda-kiss.rutgers.edu

Wall Street Journal interactive edition http://interactive.wsj.com/pages/money.htm

http://finanance.swcollege.com website for text publisher

www.oanda.com exchange rate history

http://www.xe.com