This course defines and explores those aspects of corporate financial management that are unique to an international or global environment. It considers the development of financial strategy in such an environment with special emphasis on the measurement and management of foreign exchange risk. The course also addresses the means by which investment returns can be enhanced and financing cost reduced through the use of financial and risk management instruments. The course will also incorporate China’s unique financing and operating environments for international firms operating in China.
The course builds upon the foundation Finance course. It aims to provide students with a conceptual and theoretical framework for understanding international corporate finance.
Prerequisites:
Business Finance at 300 level
It is assumed that students have a conceptual understanding of basic economics at macro-level and the basics of national accounts.
Students should understand essential principles of portfolio theory, domestic capital budgeting and financing, including cost of capital estimation, the basic arguments surrounding the optimal capital structure debate.
Additional student cost:
None
Learning outcomes:
Through the study of the course, students are expected to be able to develop an understanding of the practical aspects of international corporate finance. In particular, students should develop an understanding of:
The international economic and political environment within which international firms operate. Particular emphasis will be placed on exchange rate determination and on the major financial instruments available for controlling exchange rate risk.
The mechanisms and processes whereby foreign exchange exposure is measured and managed and the impact this can have on the future profitability, cash flow and market value of the firm.
The techniques available to the international firm for minimizing its cost of capital and for improving its access to sources of capital.
Foreign direct investment by international firm.
Method of presentation:
Lectures combined with class discussions and group/individual presentations devoted to specific topics.
Required work and form of assessment:
Class discussion and response paper: 20%. Questions will be raised during class and students should actively participate in the class discussion. They may be also asked to write and turn in discussion papers.
Group/individual presentation: 20%. There will be a few group and individual presentations, all related to issues presented in the class. Topics for presentations will be given at least one week prior to the actual presentation.
Mid-term: 20%. Students will be asked to complete assigned questions from the textbook.
Open-book final exam: 40%. Students are required to answer questions in printed format and should bring a laptop with them to the exam room. The exam will last for two and half hours.
content:
International finance and international corporations
This lecture provides an overview of international corporate finance. It intends to lay some economic and institutional foundation for specific topics of the following lectures. Special attention will be paid to risks faced by international firms; different corporate goals in the world; etc.
Reading:
Eun, Cheol S. and B. G. Resnick, International Financial Management, chapters 1 and 4. McGraw-Hill，5th ed. 2009.
Foreign exchange market and currency derivatives
The lecture introduces the organization and operation of the spot and forward foreign exchange market, and how forex is quoted and traded. It also provides an introduction of currency futures and options contracts.
Reading:
Eun, Cheol S. and B. G. Resnick, International Financial Management, chapters 5 and 7. McGraw-Hill，5th ed. 2009.
International parity conditions
In this lecture, the fundamental international parity relationships among exchange rates, interest rates, and inflation rates are presented. An understanding of these relationships is essential for managing international corporate financing.
Reading:
Eun, Cheol S. and B. G. Resnick, International Financial Management, chapter 6. McGraw-Hill，5th ed. 2009.
The Economist, “The Big Mac Index”, July 23 2010.
Foreign exchange exposures and their management
This lecture is designed to introduce to students various types of currency exposures an international firm may face in their global operations. We will first define the nature of transaction, economic and accounting exposures, and then will employ instruments that were presented in Lecture 2 by which these exposures may be managed, including, for instance, forward contract and option contract, etc.
Reading:
Eun, Cheol S. and B. G. Resnick, International Financial Management, chapters 8, 9 and 10. McGraw-Hill，5th ed. 2008.
FDI and Cross-border mergers and acquisitions
This lecture discusses why firms invest abroad. Since cross-border M & A has increasingly becoming a major mode of FDI entry, it also provides a discussion of motivations for those merger activities, and presents an assessment of effects of cross-border M & A on related parties.
Class discussion/presentation: Do China’s “go global” initiatives pose any challenge to the international business community?
Reading:
Eun, Cheol S. and B. G. Resnick, International Financial Management, chapter 16. McGraw-Hill，5th ed. 2009.
McKinsey Surveys: “Competition from China”, The McKinsey Quarterly, April 2008.
Thomas Luedi, “China’s track record in M & A”, The McKinsey Quarterly, No. 3 2008.
Marc Goedhart, Tim Koller and David Wessels, “The Five Types of Successful Acquisitions”, McKinsey on Finance, no. 36, Summer 2010.
David Cogman and Jacquellne Tan, “A Lighter Touch for Post-merger Integration”, McKinsey on Finance, no 34, 2010.
International capital structure and the cost of capital
This lecture deals with the fixing of equity capital; measurement of the cost of debt, and factors that affect debt and equity capital, as well as factors that influence capital structures of international companies.
Reading:
Eun, Cheol S. and B. G. Resnick, International Financial Management, chapter 17. McGraw-Hill，5th ed. 2009.
International capital budgeting and international cash management
A review of the basic NPV model, complications for international capital budgeting, capital budgeting from both parent’s perspective and subsidiary’s perspective are presented. Management of cash within an international corporation is also dealt with in this lecture.
Reading:
Eun, Cheol S. and B. G. Resnick, International Financial Management, chapters 18 and 19. McGraw-Hill，5th ed. 2009.
International financing and international financial markets
International firms may raise funds in international bond and/or equity markets. Major types of international bonds and various methods of share trading in the secondary markets are discussed. The lecture will also provide a discussion of advantages to firms of cross-listing shares.
Class discussion:The possibility and implications of stock listing for international firms operating in China: is the Chinese capital market ready for an international board?
Reading:
Eun, Cheol S. and B. G. Resnick, International Financial Management, chapters 11, 12 and 13. McGraw-Hill，5th ed. 2009.
McKinsey on Finance “A quiet revolution in China’s capital markets”, No. 24, summer 2007.
Jianwei Liu & Chunjiao Liu “Value Relevance of Accounting Information in Different Stock Market Segments, The Case of Chinese A_, B_, & H Shares”, Journal of International Accounting Research Vol. 6 No. 2 2007 pp55-81.
Richard Dobbs and Marc Goedhart, “Why Cross-listing Shares doesn’t Create Value”, McKinsey on Finance, no 29, autumn 2008.
Huang, A. G., Hung-Gay Fung, “Floating the Non-floatables in China’s Stock Markets” Emerging Markets Finance & Trade, Vol. 41, No. 5, Sept-Oct 2005, pp 6-26.
International portfolio investments
This lecture discusses potential benefits from international diversification. It deals with issues like why investors diversify their portfolios internationally, how much they can gain from these diversification; and what are the effects of exchange rate fluctuation on international portfolio investment, etc.
Class discussion: How much can QFII do to help building up an efficient and full-fledged capital market in China?
Reading:
Eun, Cheol S. and B. G. Resnick, International Financial Management, chapter 15. McGraw-Hill，5th ed. 2009.
McKinsey on Finance “A quiet revolution in China’s capital markets”, No. 24, summer 2007.
Moerman, F. Wu, Niping, “China’s Quest for Sound Capital Market”, International Financial Law Review, 02626969, Sep. 2005, Vol. 24, Issue 9.
Huang, A. G., Hung-Gay Fung, “Floating the Non-floatables in China’s Stock Markets” Emerging Markets Finance & Trade, Vol. 41, No. 5, Sept-Oct 2005, pp 6-26.
Required readings:
Eun, Cheol S. and B. G. Resnick, International Financial Management, McGraw-Hill 5th ed. 2009.
The Economist, “The Big Mac Index”, July 23 2010.
McKinsey Surveys: “Competition from China”, The McKinsey Quarterly, April 2008.
Thomas Luedi, “China’s track record in M & A”, The McKinsey Quarterly, No. 3 2008.
Marc Goedhart, Tim Koller and David Wessels, “The Five Types of Successful Acquisitions”, McKinsey on Finance, The McKinsey Quarterly, no. 36, Summer 2010.
David Cogman and Jacquellne Tan, “A Lighter Touch for Post-merger Integration”, McKinsey on Finance, no 34, 2010.
McKinsey on Finance “A quiet revolution in China’s capital markets” ,The McKinsey Quarterly, No. 24, summer 2007.
Jianwei Liu & Chunjiao Liu “Value Relevance of Accounting Information in Different Stock Market Segments, The Case of Chinese A_, B_, & H Shares”, Journal of International Accounting Research Vol. 6 No. 2 2007 pp55-81.
Richard Dobbs and Marc Goedhart, “Why Cross-listing Shares doesn’t Create Value”, McKinsey on Finance, no 29, autumn 2008.
Huang, A. G., Hung-Gay Fung, “Floating the Non-floatables in China’s Stock Markets” Emerging Markets Finance & Trade, Vol. 41, No. 5, Sept-Oct 2005, pp 6-26.
Moerman, F. Wu, Niping, “China’s Quest for Sound Capital Market”, International Financial Law Review, 02626969, Sep. 2005, Vol. 24, Issue 9.
Brief Biography of Instructor:
Xu Xiaoping holds a Ph.D. in Economics from the University of Sussex, UK. He is currently a professor at Shanghai University of Finance and Economics (SUFE) where he is also the director of The Center for Small Enterprise Financing Studies. Xi Xiaoping also served as an Associate Professor in the School of Economics and Management at Tongji University, Shanghai, and was a visiting fellow at the School of Oriental and African Studies at The University of London. He also worked for the Shanghai offices of Prudential Securities Inc. USA (investment banking) and DG BANK, Germany (commercial banking) and has been a long-term observer of China’s financial sector reform, and of China’s banking sector in particular. His most recent published works include:
Co-author with Li Meng, “The Supply of Trade Credit: evidence from SMEs in Shanghai”, Journal of Financial Research, May 2009, Beijing
Co-author with Li Xiaojie, “Credit Gap of Small Firms, Credit Technical Defects, and Government Interventions”, Journal of Shanghai University of Finance and Economics, Vol. 11 No. 4, 2009, Shanghai.
Co—author with Li Meng, “The Logic of 30 Years’ Rural Financial Reform in China: A New Comparative Economics Analysis”, Journal of Finance and Economics, June 2008 Shanghai
Co-author with Cheng Qingsheng, “Multinational Corporate Finance”, Shanghai University of Finance and Economics Press, 2007.
International Corporate Finance
This course defines and explores those aspects of corporate financial management that are unique to an international or global environment. It considers the development of financial strategy in such an environment with special emphasis on the measurement and management of foreign exchange risk. The course also addresses the means by which investment returns can be enhanced and financing cost reduced through the use of financial and risk management instruments. The course will also incorporate China’s unique financing and operating environments for international firms operating in China.
The course builds upon the foundation Finance course. It aims to provide students with a conceptual and theoretical framework for understanding international corporate finance.
None
Through the study of the course, students are expected to be able to develop an understanding of the practical aspects of international corporate finance. In particular, students should develop an understanding of:
Lectures combined with class discussions and group/individual presentations devoted to specific topics.
This lecture provides an overview of international corporate finance. It intends to lay some economic and institutional foundation for specific topics of the following lectures. Special attention will be paid to risks faced by international firms; different corporate goals in the world; etc.
Reading:
The lecture introduces the organization and operation of the spot and forward foreign exchange market, and how forex is quoted and traded. It also provides an introduction of currency futures and options contracts.
Reading:
In this lecture, the fundamental international parity relationships among exchange rates, interest rates, and inflation rates are presented. An understanding of these relationships is essential for managing international corporate financing.
Reading:
This lecture is designed to introduce to students various types of currency exposures an international firm may face in their global operations. We will first define the nature of transaction, economic and accounting exposures, and then will employ instruments that were presented in Lecture 2 by which these exposures may be managed, including, for instance, forward contract and option contract, etc.
Reading:
This lecture discusses why firms invest abroad. Since cross-border M & A has increasingly becoming a major mode of FDI entry, it also provides a discussion of motivations for those merger activities, and presents an assessment of effects of cross-border M & A on related parties.
Class discussion/presentation: Do China’s “go global” initiatives pose any challenge to the international business community?
Reading:
This lecture deals with the fixing of equity capital; measurement of the cost of debt, and factors that affect debt and equity capital, as well as factors that influence capital structures of international companies.
Reading:
A review of the basic NPV model, complications for international capital budgeting, capital budgeting from both parent’s perspective and subsidiary’s perspective are presented. Management of cash within an international corporation is also dealt with in this lecture.
Reading:
International firms may raise funds in international bond and/or equity markets. Major types of international bonds and various methods of share trading in the secondary markets are discussed. The lecture will also provide a discussion of advantages to firms of cross-listing shares.
Class discussion: The possibility and implications of stock listing for international firms operating in China: is the Chinese capital market ready for an international board?
Reading:
This lecture discusses potential benefits from international diversification. It deals with issues like why investors diversify their portfolios internationally, how much they can gain from these diversification; and what are the effects of exchange rate fluctuation on international portfolio investment, etc.
Class discussion: How much can QFII do to help building up an efficient and full-fledged capital market in China?
Reading:
Eun, Cheol S. and B. G. Resnick, International Financial Management, McGraw-Hill 5th ed. 2009.
The Economist, “The Big Mac Index”, July 23 2010.
McKinsey Surveys: “Competition from China”, The McKinsey Quarterly, April 2008.
Thomas Luedi, “China’s track record in M & A”, The McKinsey Quarterly, No. 3 2008.
Marc Goedhart, Tim Koller and David Wessels, “The Five Types of Successful Acquisitions”, McKinsey on Finance, The McKinsey Quarterly, no. 36, Summer 2010.
David Cogman and Jacquellne Tan, “A Lighter Touch for Post-merger Integration”, McKinsey on Finance, no 34, 2010.
McKinsey on Finance “A quiet revolution in China’s capital markets” ,The McKinsey Quarterly, No. 24, summer 2007.
Jianwei Liu & Chunjiao Liu “Value Relevance of Accounting Information in Different Stock Market Segments, The Case of Chinese A_, B_, & H Shares”, Journal of International Accounting Research Vol. 6 No. 2 2007 pp55-81.
Richard Dobbs and Marc Goedhart, “Why Cross-listing Shares doesn’t Create Value”, McKinsey on Finance, no 29, autumn 2008.
Huang, A. G., Hung-Gay Fung, “Floating the Non-floatables in China’s Stock Markets” Emerging Markets Finance & Trade, Vol. 41, No. 5, Sept-Oct 2005, pp 6-26.
Moerman, F. Wu, Niping, “China’s Quest for Sound Capital Market”, International Financial Law Review, 02626969, Sep. 2005, Vol. 24, Issue 9.
Xu Xiaoping holds a Ph.D. in Economics from the University of Sussex, UK. He is currently a professor at Shanghai University of Finance and Economics (SUFE) where he is also the director of The Center for Small Enterprise Financing Studies. Xi Xiaoping also served as an Associate Professor in the School of Economics and Management at Tongji University, Shanghai, and was a visiting fellow at the School of Oriental and African Studies at The University of London. He also worked for the Shanghai offices of Prudential Securities Inc. USA (investment banking) and DG BANK, Germany (commercial banking) and has been a long-term observer of China’s financial sector reform, and of China’s banking sector in particular. His most recent published works include:
January 2011