International Finance

Durée

30h Th

Nombre de crédits

Enseignant

Julien Hambuckers

Langue(s) de l'unité d'enseignement

Langue anglaise

Organisation et évaluation

Enseignement au premier quadrimestre, examen en janvier

Horaire

Horaire en ligne

Unités d'enseignement prérequises et corequises

Les unités prérequises ou corequises sont présentées au sein de chaque programme

Contenus de l'unité d'enseignement

In today's globalized world, managers, investors and policy-makers need a deep understanding of the international environment and its underlying mechanisms to take sound financial and strategic decisions. In light of these considerations, this course is a course of financial economics that focuses on foreign exchange (fx) rates theory and international parity conditions. In particular, the following topics will be covered: fx rate fundamentals (definition, distinction between direct vs. cross, real vs. nominal and spot vs. forward fx rates), fx rate dynamics (how are markets organized, who is participating in these markets, how do we arbitrage on these markets?),  international parity relationships as well as more structural and/or institutional parameters of fx markets (exchange rate regimes, roles and objectives of central banks, trade and capital flows). The course will also tackle international investment issues like the identification, measurement, and management of exchange rates and international exposure. Especially, investement strategies based on FX rates and interest rate differential will be discussed. Finally, we will also review the notion of country risk and systemic risk, and analyse recent views on the subject. The theoretical course focuses on presenting established theories and to compare their implications with empirical evidence. The goal is to provide the student with the necessary knowledge to understand the limitations of those theories, and the necessary intellectual tools to investigate and challenge empirical questions leading to investment decisions on international financial markets.
A second part of the course will be dedicated to study recent findings in empirical finance investigating the determinants and the predictability of FX rates. We will cover a set of reseach articles challenging the economic theory with econometric analyses of exchange rate data. 
A third and important part will consist in the redaction of a term paper (per group), aiming at replicating empirical findings of the financial economic literature. In this term paper, the students are expected to conduct an empirical analysis of some exchange rate data using the software R and the regression techniques used in mainstream financial economics (time-series regression, hypothesis testing, model selection).
 

Acquis d'apprentissage (objectifs d'apprentissage) de l'unité d'enseignement

At the end of this course students will be able to
- understand the organization and the general functioning of FX markets, explain and synthetise this functioning.
- analyse the drivers of FX rates, and how they can be used to explain and anticipate some of the variations in FX markets;
- understand the theoretical international parities driving FX markets and explain these concepts.
- criticize and assess these theories, in particular in explaining their empirical limitations.
- read and understand cutting-edge scientific research on exchange rate.
- use simple regression models to replicate the empirical findings of scientific articles related to international parities, and explain and criticize their own findings.

Specific skills and competences trained during this course.
At the end of this course students will have:
- strengthened their knowledge and understanding of macroeconomic, finance and econometrics - in particular in international market finance;
- strengthened their capacity to research autonomously and methodically the information needed to solve a complex, transversal real-life economic and/or management problem, to perform a rigorous analysis of the problem at hand and to provide economically sound solutions; 
- understood the transversal role of quantitative reasoning, gained knowledge and understanding of these quantitative reasoning techniques and developed the ability to mobilize them in order to solve real-life economic and/or management problems or cases;
- developed their ability to speak in English; 
- developed team work abilities;
- developed basic programming and statistical analysis skills;
- developed a transversal, interdisciplinary and global vision;
- developed their critical sense (arguing);
- strengthened their professional capacity for oral communication;
- and strengthened their professional capacity for written communication.

Savoirs et compétences prérequis

- Fundamentals in macroeconomics (understanding of key aggregates, fundamental of trade, dynamic of market forces, definition of interest rates and commodities). A course like International Macroeconomics (ECON0307) is a good prerequisite.
- Fundamentals in finance (notion of arbitrage, net present values, financial markets). A course like Applied Financial Instruments (FINA0068), Financial Derivatives (FINA0052) or Banking and Insurance (FINA0051) is a good prerequisite.
- Fundamentals in statistics (introductory econometrics, notion of univariate regression models, how to conduct hypothesis tests). Courses like Empirical Methods in Financial Markets (FINA0060), Financial Risk Modelling (FINA0064), Financial Data Modelling (FINA0063) or Advanced Econometrics (ECON0213) are good complement.
- Fundamentals in programming (notion of loops, basic algorithmic, use of a statistical software like R).

Activités d'apprentissage prévues et méthodes d'enseignement

The course is primarily a lecture, based on the book "International Finance and Open-Economy Macroeconomics", by G. Gandolfo. During these sessions, the theoretical notions will be introduced. Additionally, the presented concepts will be illustrated by real-case examples and exercises. A practical focus will be given to investment decisions in international markets.
Secondly, the students are expected to work (in groups) on a term paper, which consists in replicating some of the important empirical findings in the literature regarding international parities. To this end, the students are expected to gather FX rates, interest rates and oil prices data, and to conduct a regression analysis in the spirit of the referenced papers with the program R. A short tutorial on regression analysis with R will be given during the class, but the students are expected to acquire the necessary knowledge by themselves (self-learning of R).
Lastly, the possibility will be given to the students to present their work and to debate about it.

Mode d'enseignement (présentiel ; enseignement à distance)

The course consists in a face-to-face lecture, and a series of discussions/group work based for the exercises. The students are expected to work by themselves on the term paper and especially on the statistical analysis.

Lectures recommandées ou obligatoires et notes de cours

International Finance and Open-Economy Macroeconomics, by G. Gandolfo (Springer, 2nd edition)

Modalités d'évaluation et critères

The final grade will be determined by the following three parts:
 
Written exam
Explain international parities, what is the theoretical rationals behind, and what are the empirical evidence for and against these theories. Explain the various financial risks faced on international markets, and what are the tools to manage those risk. Solve exercises regarding the use of FX rates-based derivative products. Solve a case study, regarding an investment problem in the financial markets, explaining which management decisions are taken, and why (monetary quantification of the decision, rational in light of theoretical concepts). Explain various notions related to systemic risk.  
Seminar paper
Per group, replicate an empirical study e.g. "Uncertainty and deviations from uncovered interest rate parity" (A. Ismailov and B. Rossi, JoIMF, 2017) or "Can oil prices forecast exchange rates - an empirical analysis of the ralationship between commodity prices and exchange rates" (F. Ferraro et al., JoIMF, 2015). This list might evolved regarding preferences and profiles of the students attending the class. Then, in a 10-page research paper, the students are invited to present the problem of the reference the paper, implement and perform a similar empirical analysis, then present their analysis of the issue their results.

Participation
Depending on the number of participants, possibility will be given to the students to present their research paper. Active participation will lead to bonus points.


Weights between the different parts will be announced in October.

Stage(s)

none

Remarques organisationnelles

none

Contacts

Julien Hambuckers, Ph.D. | Assistant Professor of Finance
HEC - Management School of the University of Liège (Belgium) 
Rue Louvrex, 14, B-4000 Liège Belgium

email : jhambuckers[at]uliege.be

Adaptation des engagements pédagogiques suite à la pandémie de COVID-19 pour la session de mai-juin

Méthodes d'apprentissage mises en œuvre : enseignement à distance

Matière de l'évaluation

Méthodes d'évaluation

Contact

Adaptation des engagements pédagogiques suite à la pandémie de COVID-19 pour la session août-sept

Matière de l'évaluation

Same as in January

Méthodes d'évaluation (et plateforme utilisée)

Oral exam on Lifesize (practical details to be communicated in August): 
- One general question covering the whole course.
- 10 min preparation.
- Up to 20 min of discussions.
The oral exam counts for 75% of the total grade if the student had a passing grade for the assignment during the year. 
Students are expected to have a functioning webcam at all time, both during the exam and the preparation time. They are also expected to register before August 5th at 6 pm by sending an email at jhambuckers[at]uliege.be.

Contact(s)

Notes en ligne