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UNIVERSITY OF THE WEST INDIES

CAVE HILL CAMPUS
DEPARTMENT OF MANAGEMENT STUDIES
FACULTY OF SOCIAL SCIENCES

MGMT 3053 – INTERNATIONAL FINANCE

COURSE OUTLINE
Semester 2, 2020-2021

Lecturer: Professor. Justin Robinson

Office: S14 Email: Justin.Robinson@cavehill.uwi.edu
Office Hours: By request.

STOCKTRAK https://www.stocktrak.com:443/members/registerstudent?
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COURSE OBJECTIVES:

The primary purpose of this course is to provide students with a thorough

understanding of international capital markets and the opportunity to use
such markets in maximizing the value of the firm. While the course places
emphasis on the opportunities and risks for firms arising from international
capital markets it also explores developments in the international financial
system and current issues in international finance.

We expect that through your exposure to lectures, exercises, case analyzes and
classroom interaction, you will be able to:

 Understand the mechanics of the major international bond,

currency, commodity and equity markets;
 Analyze and make recommendations for managing exchange rate
risk;
 Value cross border mergers and acquisitions;
 Critique the evolution and current state of the international
financial architecture.

INSTRUCTIONAL METHODS:

The instructional methods to be employed in this course are, Lectures, Case

Studies and Problems. Their success depends heavily on meaningful
preparation and participation by the Lecturer, tutors and students: I
therefore expect that you will:
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 Meaningfully prepare cases and participate in discussions

 Be personally responsible for your own learning.

COURSE REQUIREMENTS

Global Investor (March 26 2021) 20%

Tutorial Participation 10%
Take Home Exam (March 26 2021) 10%
Final Examination 60%

COURSE OUTLINE

MODULE 1: REVIEW OF KEY FINANCE CONCEPTS

1.1 Corporate Valuation

1.2 Cost of Capital
1.3 Capital Budgeting

Cases & Readings

Cash Flow Valuation Methods
AES and Globalizing the Cost of Capital

MODULE 2: EXCHANGE RATES & GLOBAL MARKETS

2.1 Exchange Rate Regimes

2.2 International Parity Relationships
2.3 Balance of Payments

Cases & Readings

BigMac Index
Reading The Balance of Payments
Managing The Dollar in the 1980s

MODULE 3: EXCHANGE RATES & FIRMS

3.1 Exchange Rate Risk and Its Management

Cases & Readings

F Mayer Imports
Dozier Industries
Sask Power
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Voyages Soleil
MODULE 4: FINANCING DECISIONS WITHIN FIRMS

1.1 International Equity Market

1.2 International Bond Market
1.3 International Derivatives Markets

MODULE 5: THE GLOBAL FINANCIAL SYSTEM

5.1 The Evolution of The Global Financial Architecture

Cases & Readings

International Financial Institutions

IMF vs China

MODULE 6: CROSS BORDER CORPORATE FINANCE

Cases & Readings

Cross Border Valuation
Paginas Americas

TUTORIALS

1. AES and Globalizing The Cost of Capital

2. Investing Fundamentals and Intermediate Investing Fundamentals
3. Trading 1 and 2
4. Barbados Balance of Payments
5. International Parity Relationships
6. International Parity Relationships
7. F Mayer Imports
8. Dozier Industries
9. Voyages Soleil
11.IMF vs China
12.Paginas Americas
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CASE QUESTIONS

Globalizing the Cost of Capital and Capital Budgeting at AES

1. How would you evaluate the capital budgeting method used historically
by AES? What’s good and bad about it?
2. If Venerus implements the suggested methodology, what would the range
of discount rates that AES would use around the world?
3. Does this make sense as a way to do capital budgeting?
4. What is the value of the Pakistan project using the cost of capital derived
from the new methodology? If this project was located in the US, what
would its value be?
5. How does the adjusted cost of capital for the Pakistan project reflect the
probabilities of real events? What does the discount rate adjustment
imply about expectations for the project because it is located in Pakistan
and not the US?

Managing The Dollar In The 1980s

1. What does it mean for a currency to be “overvalued”? In late 1984, what
evidence was there that the dollar might have been overvalued?

2. How would you explain the dollar’s strength prior to 1985? What
economic fundamentals appear to have been at work? What risks and
opportunities did this strength present to U.S. business interests?

3. Was the dollar appropriately priced in late 1986? Again, what evidence
would you cite in support of your opinion.

4. Is a weak dollar good for the U.S. economy? Why or why not? Why has
the US. Trade deficit been slow to respond to the weakened dollar?

5. Why and how do exchange rates influence corporate investment

decisions? Corporate financing decisions
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F Mayer Imports
1. Critique the effectiveness of F Mayers’ hedging program.
2. Use the payoff diagrams and map out:
a. F. Mayers’ exposure, given a budget rate of AUD/EUR 0.69
b. A foreign exchange forward contract at an AUD/EUR 0.6910
c. The three alternatives proposed in the case (put/call/ zero collar and
knock in)
d. The payoff after applying the hedging strategies,

Dozier Industries
1. Discuss the source and nature of the exchange rate exposure.
2. Analyze the payoff under the various hedging alternatives described in
the Cases A & B and recommend a course of action for Dozier.

Voyages Soleil
1. Given the information in the case, how does the future of the
Canadian travel industry look over the next six (6) months? Over the
next year.
2. Do you expect the value of the Canadian dollar to
increase/decrease/remain the same over the next six (6) months?
Over the next year.
3. Are your answers to questions 1 and 2 related?
4. As an advisor to Dupuis, what would you suggest that he do
regarding the foreign exchange risk associated with this contract?

PAGINAS AMERICAS
1. What is the valuation problem here? In what currency are the cash
flows denominated? In what currency should the discount rate be
denominated? Be sure you understand Exhibits 1, 2, 3 and 4 of case.
2. In this case, why doesn’t J.P. Morgan discount local cash flows at a local
required rate of return? In fact, why not use that approach in general?
3. To complete the estimation of a required rate of return, what other effects
should we incorporate into our standard weighted-average cost of capital
(WACC) and capital asset pricing model (CAPM) formulas?
4. Please estimate required rates of return for the cash flows originating in
Argentina, Brazil, and Chile.
5. Please estimate a long-term perpetual growth rate for businesses in
Argentina,, Brazil and Chile.
6. Based on your answers to questions 4 and 5, and referring to case
Exhibits 2, 3, and 4, what is a reasonable range of value for Brasil
Investimentos’ yellow pages business? What key assumptions underlie
your suggested value range.
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TAKE HOME EXAM

1. Integrative problem Part 1. (30%)

2. Integrative problem part 2. (50%)
3. Mid term Self Exam. (20%)