International Finance

BBA, Specialization, Finance

Course Objectives:

This course aims to enhance the students the skills required to manage the financial risks of firm operating in the international environment.

Course Contents:

1.    Spot exchange market                                                                               3 hours

Organization of the inter-bank spot market, delivery and settlement, retail vs. inter-bank spot rates, customer draft and wire transfer, convention for spot exchange quotations, direct vs. indirect exchange and cross-exchange rates

2.    Forward and Future Exchange Markets                                                     6 hours

Forward and Future Contracts on Foreign Exchange Market; Forward exchange premium and discount; Forward rates vs. expected future spot rates, out right forward exchange and swaps, bid-ask spread and forward maturity; convention in forward quotations. Currency futures, future contract vs. forward contract and their payoff comparisons. introduction to currency options and currency option contracts in exchange markets.

Determination of Exchange Rates

3.     Balance of Payments (BOP)                                                                      3 hours

BOP and factors affecting them, and implications of imbalances in trade account, in capital account;

4.    International Parity Conditions                                                                  6 hours

Law of one price, absolute and relative form of Purchasing Power Parity (PPP), reasons for departure from PPP. Covered and Open interest parity conditions, combining interest parity and P and the reasons for violation of interest parity conditions.

5.     Foreign Exchange Risk and Exposures                                                     15 hours

Nature of exchange rate risk and exposure; exposure on domestic assets, liabilities and operating incomes;

Operating exposure of importer and exporter, the effect of currency of invoicing; To hedge or not to hedge; hedging with futures, forward, currency of invoicing, swaps.

6.     International Trade, Instruments and Institutions

Letter of credit and its role in financin2 international trade; various forms of financing of imports and                exports, institutions regulating international trade.

7.     Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI)    9 hours

           Risks in foreign investment vs domestic investment, global FDI market, Nepal’s prospects and problems in tapping FDI.The benefit of international portfolio investment, segmentation vs integration of capital markets, cost and benefit of opening economy for FPI. Analytical discussion of crisis faced by Latin American economies, East Asian economies and events of similar nature.

Text Book

1.      Levi, Maurice D.: International Finance, McGraw-Hill International Edition.

Reference Books

1.       Copeland, Laurance S.: Exchange Rates and International Finance, Addison-Wesley.

2.       Bowen, Harry P. et all: Applied International Trade Analysis (Studies in International Trade Policy), Univ. of Michigan Press.

3.       Melvin, Michael: International Money and Finance, Addison-Wesley.

4.        Grabbe, J. Orlin: International Financial Markets, Prentice-Hall.