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| FINA0028-1 | Multinational Financial Management
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| Duration : | 24h Th |
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| Credits/ECTS : |
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| Holder(s) : | Aline Muller |
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| Language : | Langue anglaise |
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| Course contents : | The course is structured along three related dimensions:
International Investments
Standard financial theory suggests that diversification of investments leads to a reduction in risk, while not reducing returns. In this course we extend the idea of diversification to an international setting. International diversification can obviously lead to further risk reduction as the systematic risk of international markets is typically lower than the systematic risk within a country. However, the benefits of international diversification are offset by various limitations. Apart from legal and tax restrictions foreign investors are often affected by exchange rate movements. In addition, in times of financial crises the benefits from international diversification may disappear as markets start to co-move. Lastly, measuring the performance of an international portfolio is not trivial as it is affected by various factors. Knowing the extent to which each factor affects performance is crucial in measuring the performance of, say, an international fund manager.
Foreign Exchange Parity Relations
Both the international investor and international manager are faced with a complex environment: economic and financial markets are quite different from one another and trading in these markets requires the use of multiple currencies. Because of the importance of exchange rates in international investment and management, we will spend a couple of hours describing foreign exchange transactions and understanding the foundations and underlying mechanisms of exchange rates.
International corporate management
One of the most striking financial developments of recent decades is the tremendous increase in exchange rate instability following the collapse of the Bretton Woods system in 1973. The recent currency crises and the ongoing internationalization of trade urge managers - first of all - to identify and understand the risks associated with this more and more globalized markets in order to be able, afterwards to manage them to an acceptable level. This last section of the course will focus on these new and very challenging issues of international business finance. |
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| Course objective : | At the end of this course students will be able to: - Understand the concept of international diversification, knowing benefits and several caveats of international diversification
- Know the products to hedge currency risk and be able to hedge currency risk using currency futures.
- Understand how portfolio performance can be measured in an international portfolio.
- Understand the importance of the exchange rate in investing internationally.
- Understand the importance and multiple dimension of international corporate management.
- Practical knowledge of the theoretical concepts addressed during the course will be gained through the various course projects, through the paper discussions and through the hypothetical investment portfolio that students manage during the course. |
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| Prerequisites : | Finance and / or investment course. |
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| Workshops : | The Investment Project and Final Report: The Investment Game is a game that lasts for the whole duration of the course. Students construct a hypothetical portfolio of investable securities, which they update and track over the duration of the course. Details on the project are in this handbook under projects. The full project accounts for 40% of the final grade. This grade consists of two components:
- An initial report plus presentation motivating the strategy followed and securities selected, max. 5 pages.
- A final report plus presentation evaluating the performance of the portfolio and reflecting on the selected strategy, max 20 pages.
Course Projects: During the course students are required to hand in 3 course projects. These projects carry a total weight of 30% of the final grade. All components (projects and presentation) carry equal weights in this 30%. Reports have a maximum of 5 pages, excluding appendices.
Paper Presentations: During the course each group will present for ~20/25 minutes with 5/10 minutes discussion. The presenting group should present the paper and after the presentation take the initiative to start a discussion, and guide the discussion. It is therefore advisable to end the presentation with a few discussion points. |
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| Organization : | Tentative Weekly Schedule
Week 1
Session 1: 19/9
- Opening Lecture
- Lecture - Introduction to international financial markets
Literature:
Solnik Ch. 5, 6, 7 and 8
Session 2: 20/9
- Lecture - Derivative instruments
Literature:
Solnik Ch. 10 and 11
Week 2
Session 1: 26/9
- Lecture - International Diversification
Literature:
Solnik Ch. 9
Week 3
Session 1: 3/10
- Presentation Initial Portfolios
- Discussion - Country, Industry, Stock Selection
- Literature
Solnik, Ch. 5 (background reading), Ch. 6, p. 256 - 292.
Session 2: 4/10
- Presentations Cases International Diversification
- Discussion - Individual Stock Return Volatility
Literature:
Campbell, J.Y., M. Lettau, B.G. Malkiel and Y. Xu, 2001, Have individual stock become more volatile? An empirical exploration of idiosyncratic risk, Journal of Finance 56, 1-43.
And others to be announced
Week 4
Session 1: 10/10
- Discussion of assigned problems (Ch. 9)
- Discussion - Diversification benefits
Literature:
Kalra, R., M. Stoichev and S. Sundaram, 2004, Diminishing gains from international diversification, Financial Services Review 13, 199-213.
Chan, K. V, Covrig and L. Ng, 2005, What determines the domestic bias and foreign bias? Evidence from mutual fund equity allocations worldwide, Journal of Finance 60, 1495-1534.
Akdogan, H., 1996, A suggested approach to country selection in international portfolio diversification, Journal of Portfolio Management 23, 33-39.
Diermeier, J. and B. Solnik, 2001, Global pricing of equity, Financial Analysts Journal 57, 37-47.
Session 2: 11/10
- Lecture - Foreign exchange markets
Literature:
Solnik Ch. 1 - 2
Week 5
Session 1: 17/10
- Lecture - Foreign exchange parity relations
Literature:
Solnik Ch. 2 - 3
Session 2: 18/10
- Presentations Cases Foreign Exchange markets
Week 6
Session 1: 24/10
- Discussion of assigned problems (Ch. 1, 2, 3)
- Discussion - Foreign exchange markets
Literature:
To be announced
Session 2: 25/10
- Lecture - International Corporate Management
Literature:
To be announced
Week 7
Session 1: 31/10
- Presentations Cases International Corporate Management
Week 8
Session 1 & 2: 7-8/11
- Presentations Final Reports
Literature :
Fama, E., 1972, Components of Investment Performance, Journal of Finance 27, 551-567. |
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| Written notes : | - Solnik, B. and D. McLeavey, 2004, International Investments, Pearson Addison Wesley, 5th International Edition. (required chapters: 1, 2, 3, 4, 6 (partly), 9, 10, 11, 12)
- Additional article readings (to be announced). |
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| Assessment : | Investment Project and final report
40% (group effort)
Course Projects
30% (group effort)
Paper Projects
30% (individual effort) |
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| Contacts : | Aline Muller, Ph.D.
Ethias Professorship
Assistant Professor of Finance, HEC - Business School of the University of Liège (Belgium)
Assistant Professor of Finance, Nijmegen School of Management, Radboud University (The Netherlands)
Please note that my address and phone number have changed :
Rue Louvrex 14, Bldg. N1,
B-4000 Liège Belgium
tel : 0032 4 232 7435
email : aline.muller@ulg.ac.be
website : www.finance.hec.ulg.ac.be |
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