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FIN340.

Preparing for the midterm on Tuesday, October 13


Office hours: Monday after class and by appointment
Roughly
multiple choice and T/F
short answer and problems
longer answer
Bring a calculator. No phones.
TOPICS TO STUDY

Multinational corporations (MNCs)


Decisions that MNCs face
Management structures (e.g., parents, subsidiaries)
Agency costs in an MNC
Centralized vs. decentralized management
Reasons/methods for MNC international expansion
MNC valuation
Sensitivity of MNC valuation (cash flow and exchange rate)
MNC cost of capital
International financial markets
FICC
FX market and exchange rates
Forward contracts and rates
International money market
International flow of funds
Definition and components of balance of payments
U.S. exports and imports
Trade balance, current account, and payment flows
Capital account and financial account
Government influence on exchange rates
Exchange rate systems (e.g., fixed vs. freely floating)
Euro and ECB
Government invention direct vs. indirect
Intervention to stimulate economy and to slow economy
History of Bretton Woods, including gold standard
Role of the IMF
Federal reserve and international finance
The dual mandate and expectations of Fed policy

The September 17 FOMC decision, including recent global


developments
Trading the dollar around an FOMC decision
The market reaction to the FOMC decision
Janet Yellens speech a week later
Responses of interest rates and the dollar
Expectations hypothesis of the yield curve
Path of dollar during the days following the Fed statement

Exchange rate determination


Three ways to measure the value of money
Currency appreciation and depreciation
Supply and demand of currency
Equilibrium exchange rate determination
Factors that shift supply and demand curves
Trade positions in FX
The carry trade
Forecasting exchange rates
Benefits
How forecasting affects MNC decisions, which affects MNC
valuation
Technical, fundamental, and market-based forecasting
Bias and standard error in forecasting
Measuring exposure to exchange rate fluctuations
Exchange rate risk
Transaction, economic, and translation exposure
Reasons not to hedge
MNC as a portfolio of cash flows
Currency volatility and correlations
VaR in exchange rate risk
Effect on sales, cost of materials, and interest expenses
Following the markets
China and the yuan
The Dow (summer, third quarter, recent)
The dollar (including the jobs report)
The Brazilian real
The yield curve (short end and long end) and flight to safety
The corporate bond spreads