International Finance Unit Plan.

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UNIT PLAN UKFF3243 International Finance

UNIVERSITI TUNKU ABDUL RAHMAN (UTAR)
FACULTY OF ENGINEERING AND SCIENCE(FES)

1.

Unit Code &
Unit Title:
Course of
Study:

UKFF3243 INTERNATIONAL FINANCE

Year of
Study:
Trimester
Year
Credit Hour:

Year Three, Trimester Two

2 hours lecture per week for the duration of 14 weeks
1.5 hours tutorial per week for the duration of 14 weeks

7.

Lecturing
hours and
Tutoring
hours
Lecturer:

8.

Tutor:

Miss Pok Wei Fong, [email protected] (FAM Sg. Long, K705)

9.

Moderator

Mr. Tee Peck Ling

2.
3.
4.
5.
6.

Bachelor of Science (Hons) Actuarial Science
Bachelor of Science (Hons) Financial Mathematics

January 2015
3 credit hours

Miss Pok Wei Fong, [email protected] (FAM Sg. Long, K705)

10. Mode of
delivery

Lectures and Tutorials

11. Objectives:

This unit offers the field of study that focuses on business activities that
cross national boundaries. It includes exports and imports as well as foreign
direct investment (FDI) and raising finance in foreign capital markets.
Besides that, this unit provides basic understanding on how multinational
enterprises (MNEs) use various hedging strategies to reduce exchange rate
risk and formulate global business strategies to deal with intensified
competition globally. The aim is to provide a panorama of the most
important activities in international business and to offer a framework of
working from managerial perspective.

12. Learning
Outcomes:

Upon completion of this unit, students will be able to:
1. Recognise the role of financial management in a multinational
enterprise.
2. Differentiate between various exchange rate systems and explain the
pros and cons of each system.
3. Explain how trade and capital flows affect a country’s Balance of
Payments, and analyse factors that caused changes in trade and capital
flows; explain how Balance of Payments changes and exchange rate
changes influence multinational enterprise’s decision making.
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UNIT PLAN UKFF3243 International Finance

4. Explain how foreign exchange market functions; differentiate between
bid and ask rates, spot and forward rates; compute cross rates, forward
premiums and discounts.
5. Explain the relationship between exchange rates, interest rates and
inflation rates; apply Interest Rate Parity and Purchasing Power Parity to
compute arbitrage profits; explain factors that influence the demand and
supply of a currency and how they affect exchange rates.
6. Explain how governments intervene in foreign exchange market and
affect exchange rates.
7. Differentiate between transaction, economic and translation exposures;
apply various techniques to hedge transaction and economic exposures.
8. Compute the payoffs from forward market hedge, money market hedge
and options hedge.
9. Recognise the features of foreign currency futures, options and swaps
and illustrate how these instruments could be used to hedge currency risks.
10. Identify alternative sources of financing for a multinational enterprise
and analyse how a multinational enterprise make capital structure decision.
11. Describe various methods to undertake foreign direct investment.
12. Appraise the profitability of potential foreign investment projects using
Adjusted Present Value Model, coupled with risk-adjustment and
sensitivity analysis.
13. Explain how multinational enterprise manages its cash in practice and
describe various methods of international trade financing.
13. Reading List: Main Text Books:
1.
Eun, C., Resnick, B. G. (2014). International finance (7th ed.).
Berkshire: McGraw-Hill.
2.
Moffett, M. H., Stonehill, A. I., & Eiteman, D. K. (2006).
Essentials of global finance (2nd ed.). Boston: Pearson Addison
Wesley.
3.
Madura, J. (2010). International corporate finance (10th ed.). Ohio:
Thomson South-Western.
Supplementary Reading:
4.
Crum, R. L., Brigham, E. F., & Houston, J. F. (2005).
Fundamentals of international finance. Florida: Thomson SouthWestern.
5.
Homaifar, G. A. (2004). Managing global financial and foreign
exchange rate risk. New Jersey: John Wiley & Sons.
6.
Melvin, M. (2004). International money and finance (7th ed.).
Boston: Pearson Addison Wesley.
7.
Moosa, I. A. (2004). International finance: An analytical approach
(2nd ed.). Sydney: McGraw-Hill Irwin.
8.
Shapiro, A. C. (2005). Foundations of multinational financial
management (5th ed.). New Jersey: John Wiley & Sons.

2

UNIT PLAN UKFF3243 International Finance

14. Method of
Assessment:

METHOD OF ASSESSMENT
Coursework (40% of Total Assessment)
Components of
Marks
Coursework
a. Mid-term Test I
40 marks
b. Mid-term Test II
40 marks
Total
80 marks

Weightage of Total
Assessment
20%
20%
40%

Component a: Mid-Term Test I
This test consists of 40 multiple choice questions. It will be held in WEEK
6 and will cover Topic 1 to Topic 4 (refer Teaching Plan below).
Component b: Mid-Term Test II
This test consists of 40 multiple choice questions. It will be held in WEEK
10 and will cover Topic 5 to Topic 8 (refer Teaching Plan below).
Final Examination (60% of Total Assessment)
The final examination for this unit will be based on a three (3) hours
closed-book written examination. In Section A (40 marks), students are
required to answer one compulsory question. In Section B (60 marks),
students are required to answer any 2 questions of 30 marks each out of 3
questions.
Aggregate Marks
Students must achieve at least 50 marks out of the aggregate marks for
coursework and final examination in order to Pass this unit with a grade C.
Failure to achieve this will result in repeat for this unit in future trimester.

15. Remarks

INDEPENDENT LEARNING
As a third year university student, you are expected to undertake
independent learning and reading up on each topic in addition to attending
lectures and tutorials each week. To assist you to do this, a schedule of
recommended reading has been prepared. International finance is a
dynamic subject and you are also expected to keep up-to-date with current
events by reading the financial pages of the newspapers and financial
magazines, such as www.imf.org, www.adb.org, www.ft.com
www.bnm.gov.my, biz.thestar.com.my, www.nst.com.my, , www.awsj.com,
www.theedgedaily.com, etc.
ACADEMIC REGULATIONS
Plagiarism
Plagiarism is defined as the submission or presentation of work, in any
form, which is not one's own, without acknowledgment of the sources. If a
student obtains information or ideas from an outside source, that source
must be acknowledged. Another rule to follow is that any direct quotation
must be placed in quotation marks and the source immediately cited.
Plagiarism is also defined as copy of all or part of the work of another
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UNIT PLAN UKFF3243 International Finance

student(s) of current or previous batch of this University or another higher
learning institution.
The University's degree and other academic awards are given in
recognition of the candidate's personal achievement. Plagiarism is therefore
considered as an act of academic fraudulence and as an offence against
University discipline.
Intellectual Property
Copyright must be seriously protected. The University takes a strong stand
against any illegal photocopying of textbooks and any other materials by
students. Students are forewarned of the consequences and the penalty that
may be meted out if they are "caught in the act".
Mode of Referencing
Students are advised to incorporate proper academic modes of referencing.
The normally acceptable mode of academic referencing is the American
Psychological Association (APA) system.

4

UNIT PLAN UKFF3243 International Finance

TEACHING PLAN - WEEKLY SCHEDULE
Week
Week 1

Week 2

Lecture Topic
Topic 1: Multinational
Financial Goals

Multinational
Financial Management

Globalisation:
Transitions from
Domestic Phase to
International Phase to
Multinational Phase

Shareholder Wealth
and Corporate Wealth
Maximization

Tutorial Topic
Tutorial 1
Description of
Assignment.

Topic 2: The Balance of
Payments

Typical BOP
Transactions

Fundamentals of
BOP Accounting

BOP Flow
Statement

Current Account
and Capital Account

Direct Investment
and Portfolio
Investment

BOP in Total:
Surplus and Deficit

Capital Mobility

Factors affecting
the BOP position

Correcting a
Balance of trade
deficit

Tutorial 2
(Topic 1)
Minimum 4
questions to be
answered and
will be discussed
in tutorial class.

Clarify what are
required from
students for this
unit.

Assignment/Test

Reference
Eun and Resnick
(Chapter 1)
Moffett
(Chapter 1)
Madura
(Chapter 1)

Eun and Resnick
(Chapter 3)
Moffett
(Chapter 3)
Shapiro
(Chapter 5)
Madura
(Chapter 2)

5

UNIT PLAN UKFF3243 International Finance
Week 3

Topic 3: International
Monetary System

History of the
International Monetary
System

Exchange Rate
Systems

Fixed exchange
rate, Freely and
Managed Floating
exchange rate, Pegged
exchange rate

Currency Boards

Dollarization

The Birth of Euro
Currency

Sterilized and Nonsterilized Interventions

Government
Intervention on
Exchange Rate

Tutorial 3
(Topic2)
Minimum 4
questions to be
answered and
will be discussed
in tutorial class.

Eun and Resnick
(Chapter 2)
Moffett
(Chapter 2)
Madura
(Chapter 6)

Week 4

Topic 4: The Foreign
Exchange Market

Foreign Exchange
Market

Market Participants

Interbank and
Client Markets

Foreign Exchange
Rate & Quotations

Bid and Ask Rates

Cross Rates

Intermarket
Arbitrage

Spot and Forward
Rates, Premiums and
Discounts

Tutorial 4
(Topic 3)
Minimum 4
questions to be
answered and
will be discussed
in tutorial class.

Eun and Resnick
(Chapter 5)
Moffett
(Chapter 6)
Madura
(Chapter 3)

6

UNIT PLAN UKFF3243 International Finance
Week 5
and week
6

Topic 5 and 6:
International Parity
Conditions

Prices and
exchange rates

Purchasing Power
Parity (PPP)

Fisher Effect

International Fisher
Effect

Interest Rate Parity
(IRP)

Covered and
Uncovered Interest
Arbitrage

Locational
Arbitrage


Tutorial 5
(Topic 4)
Minimum 4
questions to be
answered and
will be discussed
in tutorial class.

Mid-Term Test I
Topic 1 to 4
40 multiple choice
questions

Eun and Resnick
(Chapter 6)
Moffett
(Chapter 4)
Madura
(Chapter 7 & 8)

Tutorial 6
(Topic 5)
Minimum 4
questions to be
answered and
will be discussed
in tutorial class.

Forecasting

Week 7

Topic 7: Foreign
Currency Derivatives

Foreign Currency
Futures

Foreign Currency
Options

Net Payoff for
Options Buyer or Seller

Pure Spot Market
Speculation

Forward Market
Speculation

Options Market
Speculation

Tutorial 7
(Topic 6)
Minimum 4
questions to be
answered and
will be discussed
in tutorial class.

Week 8

Topic 8: Measuring
Foreign Exchange
Exposure
 Types of Exposure:
Transaction, Economic
and Translation
 Why Hedge?
 Techniques to eliminate
Transaction Exposure:
Futures Hedge, Forward
Hedge, Money Market
Hedge, Option Hedge,
Leading and Lagging,
Cross-Hedging,
Exposure Netting
 Comparison
of
Hedging Techniques
 Limitations of Hedging

Tutorial 8
(Topic 7)
Minimum 4
questions to be
answered and
will be discussed
in tutorial class.

Eun and Resnick
(Chapter 7)
Moffett
(Chapter 7)

Mid-Term Test
Topic 1 to 6
30 multiple choice
questions

Eun and Resnick
(Chapter 8)
Moffett
(Chapter 8, 9 & 10)
Madura
(Chapter 10 & 11)

7

UNIT PLAN UKFF3243 International Finance
Week 9

Topic 9: Managing
Foreign Exchange
Exposure
 Techniques to reduce
Economic Exposure:
Selecting Low Cost
Production
Site,
Diversification
of
Markets,
Flexible
Sourcing Policy

Tutorial 9
(Topic 8)
Minimum 4
questions to be
answered and
will be discussed
in tutorial class.

Week 10

Topic 10: Currency and
Interest Rate Swap
 Management of Interest
Rate Risk
 Interest Rate Swap
 Currency Swap
 Unwinding Currency
Swap
 Cross-Currency Interest
Rate Swap

Tutorial 10
(Topic 9)
Minimum 4
questions to be
answered and
will be discussed
in tutorial class.

Eun and Resnick
(Chapter 9 & 10)
Moffett
(Chapter 8, 9 & 10)
Madura
(Chapter 12)

Mid-Term Test II
Topic 5 to 8
40 multiple choice
questions

Eun and Resnick
(Chapter 14)
Moffett
(Chapter 14)

8

UNIT PLAN UKFF3243 International Finance
Week 11

Topic 11: Multinational
Cost of Capital and
Capital Structure

Weighted Average
Cost of Capital

Country differences
in cost of debt and
equity

Capital Asset
Pricing Model under
cross-listing

Using the cost of
capital to assess
foreign projects

MNE's Capital
Structure Decision

Interaction between
subsidiary and parent
financing decisions

Target capital
structure: local versus
global

Sources of shortterm financing

Effective Financing
Rate

Tutorial 11
(Topic 10)
Minimum 4
questions to be
answered and
will be discussed
in tutorial class.

Eun and Resnick
(Chapter 17)
Madura
(Chapter 17 & 18)

Week 12

Topic 12: Foreign Direct
Investment

Motives for FDI

Comparing
Benefits of FDI
Among Countries

International
Diversification
Benefits

Government
Incentives and Barriers

How to invest
abroad?

Tutorial 12
(Topic 11)
Minimum 4
questions to be
answered and
will be discussed
in tutorial class.

Eun and Resnick
(Chapter 16)
Madura
(Chapter 13)
Moffett
(Chapter 16)

9

UNIT PLAN UKFF3243 International Finance

Week
Week 13

Topic
Topic 13: Financing
International Trade

Financing
International Trade

Payment Method:
Prepayment, Letter of
Credit, Bills of
Exchange,
Consignments, Open
Accounts

Trade Finance
Method: Accounts
Receivable, Factoring,
Letter of Credit,
Banker's Acceptance,
Working Capital
Financing, Forfaiting,
Contertrade

Week 14

Revision

Tutorial 13
(Topic 12)
Minimum 4
questions to be
answered and
will be discussed
in tutorial class.

Reference
Eun and Resnick
(Chapter 20)
Madura
(Chapter 19)

Tutorial 14
(Topic 13)
Minimum 4
questions to be
answered and
will be discussed
in tutorial class.

This Unit Plan is
Prepared by:

Moderated by

Approved by:

Lecturer in charge
Miss Pok Wei Fong

Moderator
Mr. Tee Peck Ling

Date

Date

Head of Department
Commerce and Accountancy
Mr. Mahendra Kumar a/l
Chelliah
Date

10

UNIT PLAN UKFF3243 International Finance
Note: The information provided in this Unit Plan is subject to change by the Lecturer. Students shall
be notified in advance of any changes.

11

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