Faculty
Albert Lee Chun

Course Coordinator
Albert Lee Chun

Students will benefit from having both International Finance and Capital Market Theory as some of the issues related to international investments decisions are dealt with in Capital Market Theory.

The aim of this course is to provide the student with a firm knowledge of the functioning of international financial markets. The course focuses on the theory and practice of managing various types of exposures to exchange rate risk in international markets using modern exchange rate instruments such as forwards, futures, swaps and options. The course concludes with a discussion of optimal portfolios and capital budgeting in an international context.

We begin with an overview of international finance and the basic theories of exchange rate determination. The first part of the course will focus on foreign exchange markets and the various exchange rate products available for arbitrage, hedging and speculation. We will study spot and forward exchange rates for currency, then move on to currency futures, currency swaps and currency options. Having described these cornerstones of the foreign currency markets, attention is directed toward understanding the determinants of foreign exchange rates, the international parity conditions and techniques for exchange rate forecasting. We then examine the issues a firm faces when measuring and hedging exchange rate risk exposures in international markets. In the final part of the course, we study the international capital asset pricing model (ICAPM) in assessing the risk-return trade-offs of a diversified international portfolio. We conclude by putting all the pieces together and studying capital budgeting and investment analysis in an international context.

After taking the course, the student should be able to:

4-hour closed book exam

Lectures