國際投資與國際公司理財課程大綱（2015）

Syllabus & Course Materials

Course Title

課程名稱

(E)International Investments (with Int’l Corporate Finance)

Instructor

授課教師

Fu Yeetien

傅冶天

Credit(s)

學分數

Affiliation

隸屬單位

International Business and Trade

Course Objectives

課程目標

This course examines important issues in the rapidly evolving area of international financial markets and strategies, and global investments. It focuses on various aspects of international portfolio management in an open-economy macroeconomic setting, and is a natural extension to the theories and practical issues explored in Investments and/or Finance. To be specific, the course addresses to the following needs of a modern investor in a global environment: grappling with such concerns as how to value global companies as well as when and how (1) monetary and fiscal policies affect exchange rates; (2) foreign exchange risk affects companies and investment portfolios; (3) global correlations collapse; (4) foreign exchange risk should be hedged; and (5) multi-period performance attribution distinguishes skill from luck.

We will also use real-life examples from market practices to emphasize the engineering dimensions of financial contract design (financial engineering), that market practitioners professionalize by blending theory with practice. Real financial contract examples will be discussed along with the relevant sections of the Levich and Solnik texts during the progress of this course. Recent practices and incidences on international financial innovation and challenges (e.g., sub-prime mortgage loans and collateralized debt obligations) will be studied in depth with financial constructs detailed in Fabozzi’s “Bond Markets, Strategies, and Analysis”.

This course is aimed at students wishing to acquire a sound understanding of the main opportunities in international investments. For example, the relevance of hedging in the management of currency risk will be studied in light of theoretical results and empirical evidence. Foreign direct investment (FDI) and Free Trade Agreements will also be introduced, since in general, the revenue streams generated from FDI by U.S. firms is about three times as large as the revenue generated from the exporting of U.S. goods by U.S. firms.

Due to the ever increasing importance of international corporate governance, there is a corresponding need to decipher and use information in financial reports. At least one class meeting and one case study will touch on some key issues in international financial reporting and analysis, such as financial disclosure/transparency, incentives for off-balance sheet liabilities, hedge accounting, lease accounting, footnote disclosures, and inter-corporate equity investments, and international financial reporting differences.

Course Description

課程大綱

This course examines important issues in the rapidly evolving area of international financial markets and strategies, and global investments. It focuses on various aspects of international portfolio management in an open-economy macroeconomic setting, and is a natural extension to the theories and practical issues explored in Investments and/or Finance. To be specific, the course addresses to the following needs of a modern investor in a global environment: grappling with such concerns as how to value global companies as well as when and how (1) monetary and fiscal policies affect exchange rates; (2) foreign exchange risk affects companies and investment portfolios; (3) global correlations collapse; (4) foreign exchange risk should be hedged; and (5) multi-period performance attribution distinguishes skill from luck.

We will also use real-life examples from market practices to emphasize the engineering dimensions of financial contract design (financial engineering), that market practitioners professionalize by blending theory with practice. Real financial contract examples will be discussed along with the relevant sections of the Levich and Solnik texts during the progress of this course. Recent practices and incidences on international financial innovation and challenges (e.g., sub-prime mortgage loans and collateralized debt obligations) will be studied in depth with financial constructs detailed in Fabozzi’s “Bond Markets, Strategies, and Analysis”.

This course is aimed at students wishing to acquire a sound understanding of the main opportunities in international investments. For example, the relevance of hedging in the management of currency risk will be studied in light of theoretical results and empirical evidence. Foreign direct investment (FDI) and Free Trade Agreements will also be introduced, since in general, the revenue streams generated from FDI by U.S. firms is about three times as large as the revenue generated from the exporting of U.S. goods by U.S. firms.

Due to the ever increasing importance of international corporate governance, there is a corresponding need to decipher and use information in financial reports. At least one class meeting and one case study will touch on some key issues in international financial reporting and analysis, such as financial disclosure/transparency, incentives for off-balance sheet liabilities, hedge accounting, lease accounting, footnote disclosures, and inter-corporate equity investments, and international financial reporting differences.

Weekly Course Schedule

上課進度

HW Due Dates: TBA. First Midterm Delivered on: 10/21 or 10/22; Due on 10/28 or 10/29; Second Midterm Delivered on 11/18 or 11/19; Due on 11/25 or 26. Quiz 1: In-Class on 10/28 or 10/29; Quiz 2: In-Class on 11/25 or 11/26.

Lecture 1

Introduction

Some samples of the topics to be covered in the course, including foreign direct investment (FDI), the law of one price, a macroeconomic theory of the open economy, parity conditions, examples of interest rate parity and covered interest arbitrage, swaps & linkages across international capital markets, CFA exam questions.

READING ASSIGNMENT: Wall Street Journal, Financial Times, International Herald Tribune, BusinessWeek and Economist articles (at course website)

OPTIONAL ASSIGNMENT: Levich Chapter 2, Exercises 1, 2, 3, 4. (no need to hand in)

Lecture 2

Market Structure and Institutions

TOPICS: Market participants; volume, composition, and growth of trading, foreign exchange products and activities, the relationship between spot and forward contracts, synthetic contracts (the replicating portfolio idea), trends toward automated trading, controls over trading.

OPTIONAL ASSIGNMENT: Levich Chapter 3, Exercises 1, 2, 6, 7, 10.

Solnik Chapter 1, Problems 9, 12, 16, 18, 20. (no need to hand in)

Lecture 3

Lecture 4

International Parity Conditions: Purchasing Power Parity

TOPICS: International parity conditions in a perfect capital market, why parity conditions are useful, absolute and relative PPP, empirical evidence on PPP, policy decisions and PPP.

OPTIONAL ASSIGNMENT: Levich Chapter 4, Exercises 5, 6, 7.

Lecture 5

Lecture 6

International Parity Conditions: Interest Rate Parity and the Fisher Parities

TOPICS: Interest rate parity and covered interest arbitrage, the impact of transaction costs, taxes and uncertainty on parity; uncovered interest rate parity or the Fisher International Effect, financial strategies based on deviations from parity, forward rate unbiased condition.

OPTIONAL ASSIGNMENT: Levich Chapter 5, Exercises 1, 4, 5, 6.

Solnik Chapter 2, Problems 3, 14, 16. (no need to hand in)

Lecture 7

Lecture 8

Determination of Spot Exchange Rates: Theory and Evidence

TOPICS: Exchanges rates and macroeconomic news announcements, asset models of the spot exchange rate, the monetary model, the sticky-price monetary model, the portfolio balance model; Empirical evidence on exchange rate models, empirical evidence on the role of news.

OPTIONAL ASSIGNMENT: Levich Chapter 6, Questions 3, 7, 10, 14.

Solnik Chapter 3, Problems 10, 13. (no need to hand in)

Lecture 9

Foreign Exchange Market Efficiency

TOPICS: Theory of exchange market efficiency, interpreting efficient market studies, empirical evidence on spot market efficiency, technical trading models, empirical evidence on forward market efficiency.

OPTIONAL ASSIGNMENT: Levich Chapter 7, Exercises 1, 2. (no need to hand in)

Lecture 10

Lecture 11

Foreign Exchange Rate Forecasting

TOPICS: Forecasting under pegged rates versus floating rates, short-run versus long-run forecasts, forecast performance evaluation -- accurate versus useful forecasts; short-run forecast: trends versus random walks, long-run forecasts: is there mean reversion? composite forecasts.

OPTIONAL ASSIGNMENT: Levich Chapter 8, Exercises 1, 2, 3, 4.

Solnik Chapter 3, Problems 17, 18, 19. (no need to hand in)

Lecture 12

The Eurocurrency Market

TOPICS: Origins of the market, market dimensions and location, pricing Eurocurrency deposits and loans, risks of Eurocurrency deposits, interest rate risk in Eurocurrency loans, competitive responses to offshore markets, approaches to regulating offshore markets.

OPTIONAL ASSIGNMENT: Levich Chapter 9, Exercises 3, 4, 5.

The Eurobond Market

TOPICS: Origins of the market, market dimensions and currency composition, regulatory and institutional features, primary market practices, the gray market, onshore-offshore arbitrage, pricing determinants of Eurobonds, competitive responses - the Rule 144a market.

OPTIONAL ASSIGNMENT: Levich Chapter 10, Exercises 1, 2.

Optional Alternative Investments (Solnik: Chapter 8)

TOPICS: Investment Companies, Real Estate, Private Equity, Hedge Funds and Absolute Return Strategies, Closely Held Companies and Inactively Traded Securities, Distressed Securities/Bankruptcies, Commodity Markets and Commodity Derivatives

OPTIONAL ASSIGNMENT:Solnik Chap 8, Prob. 4, 6, 8, 10, 14, 16, 18. (no need to hand in)

Lecture 13

International Bond Portfolios

TOPICS: Dimensions of national bond markets, calculating the hedged and unhedged returns on international bonds, the "free-lunch" notion in international bond funds, active versus passive currency risk management, empirical evidence on international bonds, Brady bonds, global asset allocation.

OPTIONAL ASSIGNMENT: Levich Chapter 14, Exercises 1, 2.

Collateralized Mortgage Obligations (Fabozzi: Chapter 12)

OPTIONAL ASSIGNMENT: Fabozzi Chapter 12, Exercises 1, 2. (no need to hand in)

Collateralized Debt Obligations (Fabozzi: Chapter 16)

OPTIONAL ASSIGNMENT: Fabozzi Chapter 16, Question 20. (no need to hand in)

Lecture 14

Currency and Interest Rate Futures

TOPICS: Institutional differences between futures and forwards, the marking-to-market convention, payoff profiles of futures contracts, futures and hedging, the term structure of forward prices, currency risk premium in forwards, success and failure of new futures contracts, do futures markets effect cash market volatility?

OPTIONAL ASSIGNMENT: Levich Chapter 11, Exercises 1, 2, 3, 4.

Fabozzi Chapter 27, Question 11, 15. (no need to hand in)

Lecture 15

Currency and Interest Rate Options

TOPICS: Option terminology, contract specifications, payoff profiles of options, options and hedging, pricing spot currency options, the discrete time binomial option pricing approach (another replicating portfolio), the continuous time lognormal approach, empirical evidence on option pricing models, estimating volatility, historical versus implied volatility, managing the risks in option positions.

Lecture 16

Continue with Currency and Interest Rate Options

OPTIONAL ASSIGNMENT: Levich Chapter 12, Exercises 5, 6, 7, 8.

Derivatives: Risk Management with Speculation, Hedging, and Risk Transfer (Solnik: Chapter 10)

OPTIONAL ASSIGNMENT:Solnik Chap 10, Prob. 1, 2, 7, 8, 9, 11, 12. (no need to hand in)

Lecture 17

Take-home Mid-term Examination Dueon 10/28-29

Lecture 18

Pricing Options and other Derivatives; Real Option Applications

Analysis of Bonds with Embedded Options (Fabozzi: Chapter 18)

OPTIONAL ASSIGNMENT: Fabozzi: Chap 18, Exercise 13. (no need to hand in)

Interest-Rate Swaps, Caps, and Floors (Fabozzi: Chapter 29)

OPTIONAL ASSIGNMENT: Fabozzi: Chap 29, Exercise 22. (no need to hand in)

Lecture 19

Currency and Interest Rate Swaps

TOPICS: Origins of the swap market, measuring the size of the market, gross versus net measures of the market, basic cash flow requirements of currency and interest rate swaps, the swap as a collection of forward contracts (another replicating portfolio), risks of swaps, Measuring the risks of swaps, amortization and diffusion effects, price quoting conventions in swaps, pricing interest rate and currency swaps, sources of gains to the users of swaps, risk exposure and capital requirements for swaps dealers and counterparties, netting agreements, BIS capital requirements.

OPTIONAL ASSIGNMENT: Levich Chapter 13, Exercises 1, 2.

Interest-Rate Swaps and Agreements (Fabozzi: Chapter 29)

OPTIONAL ASSIGNMENT: Fabozzi: Chap 29, Exercises 14, 16, 17.(no need to hand in)

Credit Derivatives (Fabozzi: Chapter 30)

OPTIONAL ASSIGNMENT: Fabozzi: Chap 30, Exercises 10, 13, 25.(no need to hand in)

Lecture 20

Measuring Exposure to International Financial Risks

TOPICS: Macroeconomic risks and the value of the firm, direct and indirect economic exposures, accounting measures of exposure (translation and transaction exposure), economic measures of exposure (regression and scenario analysis), empirical evidence.

OPTIONAL ASSIGNMENT: Levich Chapter 16, Exercise 3.(no need to hand in)

Take-home Second Midterm Questions Handed Out on 11/18-19

Lecture 21

Managing Exposure to International Financial Risks

TOPICS: Why should the firm hedge? Financial strategies toward risk management, selecting a suitable hedging instrument, picking the right hedge ratio, the Value at Risk (VAR) approach, BIS regulations and the use of in-house VAR measures.

OPTIONAL ASSIGNMENT: Levich Chapter 16, Questions 4, 5.(no need to hand in)

Topics in International Financial Reporting and Analysis

TOPICS: Financial disclosure/transparency, incentives for off-balance sheet liabilities, hedge accounting, lease accounting, footnote disclosures, inter-corporate equity investments, international financial reporting differences and inflation.

Lecture 22

International Equity Portfolios

TOPICS: International portfolio diversification, size and institutional features of global equity markets, international investment vehicles (ADRs, closed-end funds, CBs, WEBS), risk and return in international equity markets, factors leading to over- and under-weighting of home country shares, barriers to international investment, harmonization of issuing and listing standards.

OPTIONAL ASSIGNMENT: Levich Chapter 15, Exercises3, 4, 5.(no need to hand in)

International Asset Pricing (Solnik Chapter 4)

TOPICS: Asset Pricing Theory, The Domestic Capital Asset Pricing Model, Asset Returns and Exchange Rate Movements, The Domestic CAPM Extended to the International Contexts, International CAPM, Market Imperfections and Segmentation, Practical Implications, A Global Approach to Equilibrium Pricing, Estimating Currency Exposures, Tests of the ICAPM.

OPTIONAL ASSIGNMENT: Solnik Chap 4, Problems 4, 7, 13, 17, 18. (no need to hand in)

Equity Analysis (in Solnik Chapter 6 Equity: Concepts and Techniques, pages 232-45)

OPTIONAL ASSIGNMENT: Solnik Chap 6, Problems 8, 10, 12, 14, 16. (no need to hand in)

The Case of International Diversification (Solnik Chapter 9)

TOPICS: The Traditional Case for International Diversification, The Case Against International Diversification, The Case of International Diversification Revisited, The Case for Emerging Markets.

OPTIONAL ASSIGNMENT: Solnik Chapter 9, Problems 3, 4, 6.(no need to hand in)

Lecture 22

Take-home Second Midterm Examination Due on 11/25-26

Instructional Method

教學方式

Lecture

Course Requirements

課程要求

Attendance, Reading before class, Assignments, Exams.

Evaluation

評量方式

Problem Sets: 1 through 4, 30% (Due in Class one week after the questions are assigned.

Mid-term 1 30% (Take-home, Hand Out on 10/21 or 10/22, Due on 10/28 or 10/29)

Mid-term 2 30% (Take-home, Hand Out on 11/18 or 10/19, Due on 11/25 or 11/26)

Quiz 1: 10%, in-class, in the week when the first midterm is due (on 10/28 or 10/29)

Quiz 2: 10%, in-class, in the week when the second midterm is due (on 11/25 or 11/26)

Textbooks & Suggested Materials

教材及參考書目

Required Texts for 2014 (available from University Bookstore):

Eiteman, David, et. al., Multinational Business Finance Thirteenth Edition 2013 Pearson Education.

-or-

Eun, et. al, International Finance, Seventh Edition, 2014, McGraw-Hill.

The two books constitute a good set of learning materials.

Past (2013) Texts(available from Commerce Library):

Richard M. Levich, International Financial Markets: Prices and Policies, 2^nd Ed., McGraw-Hill/Irwin, 2001, ISBN: 0-07-233865-2. [Covered materials prior to year 2000]
Bekaert, Geert, et al., International Financial Management, Second Edition, Prentice-Hall, 2011, ISBN: 0-13-216276-8. Part III International Capital Markets and Part IV International Corporate Finance are particularly useful. [Covers material prior to October 2011, most up-to-date text]

Highly Recommended Texts (Great for Chartered Financial Analyst (CFA) Exams):

Bruno Solnik, et. al., Global Investments, 6^th Ed., Pearson, 2009, ISBN: 0-321-52770-4.
David G. Luenberger, Investment Science, Oxford University Press, 1997, ISBN: 0-19-510809-4. (the definitive rigorous introduction to Investments.)
Krugman and Obstfeld, International Economics, Ninth Edition, Prentice-Hall, 2012. (Part III of the text is the definitive guide on International Finance.)
Fabozzi, Frank J., Bond Markets, Analysis, and Strategies, 7^th Ed., Pearson, 2010, ISBN: 0-13-607897-4 (work well with Levich and Solnik texts, covers all aspects of fixed income securities: analytics and derivatives; illustrates metaphors in finance and financial services industry.)
Cheol S. Eun and Bruce G. Resnick, International Financial Management, Sixth Edition, McGraw-Hill, 2012, ISBN: 0-07-803465-5. (Great source for updated examples.)