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Centre for Financial and Management Studies (CeFiMS)

Finance in the Global Market

Course Code:
C242|C342
Unit value:

Introduction

This course engages with one of the most prominent features of modern finance: its globalisation. Although international finance has a long history, financial markets today are international in ways that have not been seen before. Trading in equities, corporate bonds, government bonds and debt and securities of all kinds occurs across borders and on a global scale by business, all organised by global corporations.

The main objective of the course is to enable you to understand some of the main characteristics of that globalised financial world. Because of the centrality of foreign exchange markets to international finance, we regard understanding foreign exchange markets as the core of that objective.

Resources

Study Guide

You will receive a looseleaf binder containing eight 'course units'. The units are carefully structured to provide the main teaching, defining and exploring the main concepts and issues, locating these within current debate and introducing and linking the further assigned readings. The unit files are also available to download from the Online Study Centre.

Textbook

David Eiteman, Arthur Stonehill, Michael Moffett (2009) Multinational Business Finance, 12th Edition, Pearson Higher Education

Readings

You will be sent a compilation of further readings, consisting of recently published articles or seminal writings which augment and illustrate the main text.

Online Study Centre

You will have access to the OSC, which is a web-accessed learning environment. Via the OSC, you can communicate with your assigned academic tutor, administrators and other students on the course using discussion forums. The OSC also provides access to the course Study Guide and assignments, as well as a selection of electronic journals available on the University of London Online Library.

Objectives and learning outcomes of the course

When you have completed your study of this course you will be able to:

  • explain the nature of an exchange rate regime, and assess the future evolution of such regimes
  • identify and discuss drivers of the growth of the global foreign exchange market
  • explain the nature of exchange rate quotations
  • discuss the foreign exchange market microstructure
  • interpret balance of payments accounts
  • use purchasing power parity measures of gross domestic product (GDP)
  • explain the law of one price
  • assess the uses of absolute purchasing power parity and relative purchasing power parity
  • explain how firms can use currency derivatives to manage risks through hedging
  • discuss what determines whether firms do use currency derivatives for hedging
  • discuss models and empirical evidence on the difference between the beta coefficient of multinational enterprises as compared with domestic firms
  • outline evidence on the connection between agency costs and the capital structure of multinational enterprises
  • explain the main features of ‘third generation’ models of currency crises
  • discuss the effects of regulatory regimes on firms’ choice of stock exchange for their foreign listings
  • explain the differences and relative merits of project finance compared to corporate finance as methods of raising international finance
  • compare them with the main features of first and second generation models
    outline the main features of the East Asian economies preceding the Asian crisis of 1997–98
  • discuss the structural reasons for East Asian companies’ low use of non-bank debt finance and the policy implications.

Scope and syllabus

Course Content 
Unit 1: The International Context of Finance
  • 1.1 Exchange Rate Regimes
  • 1.2 Fixed and Floating Exchange Rates
  • 1.3 Exchange Rate Regimes – a Bipolar Future?
  • 1.4 Recent Examples of Hard Pegs and Intermediate Regimes
  • 1.5 A New Bretton Woods System?
  • 1.6 Summary
Unit 2: The Markets for Foreign Exchange
  • 2.1 A Global Twenty-Four-Hour Market
  • 2.2 Developments in Asian Foreign Exchange Markets
  • 2.3 The Mechanics of the Foreign Exchange Markets
  • 2.4 How the Foreign Exchange Market Works in the US
  • 2.5 Conclusion
Unit 3: Exchange Rates and Prices
  • 3.1 Introduction
  • 3.2 The Balance of Payments
  • 3.3 A Standard for Measuring Economies
  • 3.4 Purchasing Power Parity Theory
  • 3.5 The Big Mac Measure
  • 3.6 Empirical Evidence – Short-Run Deviations from Purchasing Power Parity
  • 3.7 Conclusions
Unit 4: Exchange Rates and Interest Rates
  • 4.1 Introduction to Unit 4
  • 4.2 Uncovered Interest Parity – Principles
  • 4.3 Uncovered Interest Parity – Evidence
  • 4.4 Interest Rates and Purchasing Power Parity
  • 4.5 Prices, Interest Rates and Exchange Rates in Equilibrium
  • 4.6 Conclusion
Unit 5: Managing Foreign Exchange Exposure
  • 5.1 Introduction to Unit 5
  • 5.2 Hedging Techniques
  • 5.3 Why Firms Hedge with Derivatives
  • 5.4 Hedging Currency Risk in East Asian Economies
  • 5.5 Managing Foreign Exchange Exposure – Some More Things for You to Think About
  • 5.6 Conclusion
Unit 6: International Corporate Finance and Project Finance
  • 6.1 Introduction to Unit 6
  • 6.2 Corporate Finance – Going International
  • 6.3 Corporate Finance – International Equity Markets
  • 6.4 International Bond Issues
  • 6.5 International Project Finance
  • 6.6 More Reading and a Conclusion
Unit 7: Capital Structure and Cost of Capital in International Financing
  • 7.1 Introduction
  • 7.2 How International Financing Affects Firms’ Costs
  • 7.3 Conclusion
Unit 8: Corporate Finance and Currency Crises
  • 8.1 Introduction
  • 8.2 What Causes Currency Crises – Third Generation Models
  • 8.3 Firms’ Strategies for Corporate Financing in the Context of Currency Crises
  • 8.4 Structural Factors and East Asian Corporate Finance
  • 8.5 Conclusion

Method of assessment

You will complete two assignments, which will be marked by your course tutor. Assignments are each worth 15% of your total mark. You will be expected to submit your first assignment by the Tuesday of Week 5, and the second assignment at the end of the course, on the Tuesday after Week 8. Assignments are submitted and feedback given online. In addition, queries and problems can be answered through the Online Study Centre. You will also sit a three-hour examination on a specified date in October, worth 70% of your total mark. An up-to-date timetable of examinations is published in April of each year.