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Course schedule: Mondays (3-5PM), Thursdays (1-3PM), as listed in the course outline.

Goals

Students taking this elective course should expect to learn the nature and purposes of international financial management, with the aim of preparing future CFOs to have a leading role in key strategic business decisions. Topics may range from financial planning and control to the sourcing and allocation of capital to the various parts of the business, taking into account financial risk and international tax planning. This semester there will be a focus on forex risk management, including currency overlays. This course is recommended for students interested in pursuing a career in finance with international companies or banks.

Instructor

Prof. António Marques-Mendes
Office nr.: 417. Tel +351-239-790-548; Fax +351-239-790-413
Web site http://www.marques-mendes.com • E-mail feuc.students@marques-mendes.com

Lectures and seminars take place in room 2.3

Tutorials and appointments are available by prior booking through email

Details on Marques Mendes' current research interests and availability to supervise MBA and PhD thesis can be found in his personal web page.

Pedagogy

The course employs project work as well as classroom lectures and discussions. We will make use of international as well as domestic examples. Written projects will be due for each part of the programme. Each student will be expected to participate actively in class discussions. There will be a final oral exam.

What is expected of you

Total study hours are estimated at 125, comprising 10 lectures, 9 seminars, 3 workout sessions (all with a ninety minute duration) and 105 hours of private study approximately 5 hours per week during the teaching term and the remainder devoted to revision in the examination term. The lectures will introduce the material for the course. Lectures are not compulsory, but if you are to take the course seriously and want to qualify for final oral examination you must attend a minimum of 60% of the lectures and seminars. The success of seminars and case study discussions depends on the willingness of all students to do the prior reading required on the topic to be discussed or debated. Seminars are also an opportunity to raise questions about topics not understood in the lectures or readings. All students are expected to participate in discussion. Practice in presenting an argument, putting forward a point of view and communicating orally is an important part of a students training. Formal seminar presentations of your projects should be brief and to the point.

The Course on the Internet

We will make use of the Internet for resource material and communication. Lecture materials, as available, can be downloaded from the course site on the Web. (In some cases you will need the Adobe Acrobat reader, Version 6 or higher, available free from Adobe's World Wide Web Site http://www.adobe.com/prodindex/acrobat/readstep.html.).

To keep up with the world of international finance you are encouraged to visit regularly the following Web sites:

CNN Finance • The Financial Times • Yahoo Finance • Bloomberg • Reuters
and many more at Marques-Mendes's Investment Resources on the Web

Texts and cases

Suk H. Him, Seung Hee Kim, Kenneth A. Kim, Global Corporate Finance, Blackwell Business, 1999

Adrian Buckley, Multinational finance, 4th edition, Financial Times - Prentice Hall, 2000

José António Porfírio, Gestão Financeira Internacional, Ed. Rei dos Livros, 2003

Grading

Class participation 10%
Essay + Project 60%
Final oral examination 30%.

Students failing to pass through project work and oral examination can still register for the regular written examination, but are discouraged to do so because the pass rate is usually very low.

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Course Outline

(The links to the readings will be updated as we proceed)

Date (Weeks)	#	Topic	Chapters JAP (AB) [HKK]	Other Readings and Materials on the Web	Cases/Assignments
28/9-2/10/09	0	Introduction to International Financial Management	MM(1)	Global integration and the four (six) pillars of civilization	Class registration: register for class attendance and selection of currencies and essays for individual projects. Presentations on: The latest BIS Quarterly Statistics on International Lending (1111) and Derivatives (2222); The latest data of Banco de Portugal on the Balance of Payments (3333) and the International Investment Position (4444) of Portugal.
6-9/10/09	1	An Overview of International Financial Markets	HKK, pp. 3-21		Presentations on: The latest IFSL Reports on International Financial Markets in the UK 1H-2009 (1111); External Finance for Emerging Markets 2009 (22222); Bond Markets 2009(33333); Equity Markets 2009 (4444); Insurance 2008 (55555); International Private Wealth Management 2008 (6666); Pension Markets 2009 (7777); Derivatives 2009 (88888); and Foreign Exchange 2009 (9999).
12-16/10/09	2	The foreign exchange markets	HKK	Classification of Exchange Rate Regimes Why has FX trading surged? What drives the growth in FX activity? Interpreting the 2007 triennial survey DESENVOLVIMENTOS NO MERCADO DE CÂMBIOS E DE PRODUTOS DERIVADOS PORTUGUÊS EM 2005	Individual online practice of FX trading Forward foreign exchange markets
19-23/10/09	3	FX Forwards and FRAs		IFM Project 1 – An assessment of volatility and forecasting in Forex markets	Individual online practice of FX trading
26-30/10/09	4	To hedge or not to hedge: the case of currency risk		To hedge or not to hedge? Derivatives Usage in Risk Management by US and German Non-Financial Firms: A Comparative Survey	Project I work: Evaluation of the current position to hedge
2-6/11/09					Project I work: Assess when to close a current hedge rather than create a new one
9-13/11/09	5	Theories of exchange rate determination and forecasting	HKK		FX Correlations (July): How Do Currencies Move In Relation To Each Other? US Dollar – What Are The Most Market Moving Economic Indicators?
16-20/11/09	6	Currency forecasting	HKK	Technical analysis in the foreign exchange market: a layman's guide	Presentations on: Theories of exchange rate determination and forecasting: PPT(101010), Overshooting, Portfolio(1111), TA vs. FA(1212) and Comparing Forecasts (1313).
23-27/11/09	7	International Risk Analysis		Country Risk and the choice of International Business Jurisdictions	Project I work: Evaluation of the current position to hedge. Assess when to close the current hedge rather than create a new one.
30/-4/12/09	8	International Payments, Trade Finance and bank guarantees	JAP - Chs. 5,8 and 9	Trends in Trade & Trade Finance New Ideas in Trade Finance	Presentations on: International Risk Analysis of Angola (1414), Brazil (1515), Guinea-Bissau(1616), Venezuela (1717) e Russia (1818)
7-11/12/09					Presentations on: Trade Finance and bank guarantees (1919): History & Trends (2020), Chs. 5,8 and 9, Payment Networks
14-18/12/09	9	FX hedging with financial instruments	AB	Comparing Futures and Forwards Deconstructing Myths About Foreign Exchange Options	Project I work: Evaluate the use of alternative financial instruments to hedge. Evaluate the results of the hedging strategy used. Careers in International Financial Management

		Entrega dos trabalhos			Written essays must be delivered in printed form at my Office before 12:00PM on the 15th January 2010 (Nota: as versões em papel devem ser entregues na portaria ou no gabinete do docente. Os anexos em excel devem ser enviados para o endereço: trabalhos_ifm2009@marques-mendes.com com o nome do aluno no assunto.
Dias de atendimento em Janeiro:		Das 15 às 17 horas	Dias: 4; 6; 11; 13; 18; 20
Exame 1a. chamada (11/1/2010) Exame da 2a. chamada (5/2/2010)		1/2-Hour Final Oral Exams: 25-26/1/2010	NOTAS 2009-10	Lista dos alunos elegíveis para avaliação continua. Calendário das orais	List of Projects 1, and 2 (see: Sample projects by former students, non-edited: Ricardo 2006(2), Corina 2006 (2), Joana (2008)

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Theories of exchange rate determination

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Course Topic Contents

The foreign exchange markets Tipology of currency markets Major currencies traded The daily value of currency transactions The infrastructure of currency markets The major banks Financial intermediaries in Forex markets Major Forex financial centers The evolution of global Forex markets The structure of FX transactions in London The Forex market in smaller markets (e.g. Lisbon+)

Price theories and FX forecasting How (and where) are exchange rates determined Central Bank interventon in currency markets Controversies about the market efficiency hypothesis Economic models of exchange rate determination The theory of purchasing power parity The Dornbusch model Different approaches to currency forecasting Who’s got the Crystal Ball? How to use currency forecasts

Currency forecasting

Preliminaries: market forecasting vs. Nature forecasting The role of money and key drivers in currency markets Central bank intervention in currency markets Different approaches to market forecasting Who has the crystal ball? An example of technical analysis: Elliott waves Economic models of exchange rate determination How to assess currency forecasts Basic rules on the use of currency forecasts How to choose forecasting methodologies

Measuring exposure to foreign exchange risk

Typology of Forex risk exposures Main characteristics of various types of currency risk Exposure durations and scheduling The assessment of net exposures The material relevance of FX exposures The impact of FX changes on balance sheets Examples of account consolidation A summary of how FX changes impact on multinationals Approaches to monitoring and covering Forex risks The organization of a monitoring system

To hedge or not to hedge: the case of currency risk

Basic rules on FX risk management Strategies and costs of risk coverage Types of currency risk Risk coverage – yes or no? A Lufthansa case study Instruments for FX risk cover Strategies of natural hedging Hedging in the forward currency market Hedging through money markets Hedging in the swaps market Hedging with currency futures and options

FX hedging with financial instruments

Before you hedge The choice of instruments The calculation of forward rates Hedging in Forex forward markets An example: par forwards Hedging through money markets Hedging with swaps Typology of currency swaps Hedging with currency options Comparing hedging instruments.

Hedging Portfolio Risk with Currency Overlays

What is a Currency Overlay? Who can “buy” currency overlays? Why central banks? Don’t they have their own currency experts? What do we need to know before launching a currency overlay programme? Instruments used in a currency overlay strategy How to implement a currency overlay programme?

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