Department of Finance and Banking, Islamic University, Kushtia

Course name: Foreign Exchange Management

Course code: FIN-415

Chapter 1: Globalization and the Multinational Firm

1. What's special about international Finance
2. Globalization and world economy; Major Trends and developments
3. Multinational corporation
4. Mini case: Nike and sweatshop labor

Questions at the end of this chapter (according to above topic):

1) Why is it important to study international financial management?
2) How is international financial management different from domestic financial
management?
3) Discuss the major trends that have prevailed in international business during the last
two decades.
4) How is a country's economic well-being enhanced through free international trade in
goods and services?
5) What considerations might limit the extent to which the theory of comparative
advantage is realistic?
6) What are multinational corporations (MNCs) and what economic roles do they play?

Mini case: Nike and Sweatshop Labor

Nike, a company headquartered in Beaverton, Oregon, is a major force in the sports footwear
and fashion industry, with annual sales exceeding $12 billion, more than half of which now
come from outside the United States. The company was co-founded in 1964 by Phil Knight, a
CPA at Price Waterhouse, and Bill Bowerman, college track coach, each investing $500 to
start. The company, initially called Blue Ribbon Sports, changed its name to Nike in 1971 and
adopted the "Swoosh" logo-recognizable around the world-originally designed by a college
student for $35. Nike became highly successful in designing and marketing mass-appealing
products such as the Air Jordan, the best-selling athletic shoe of all time. Nike has no
production facilities in the United States. Rather, the company manufactures athletic shoes and
garments in such Asian countries as China, Indonesia, and Vietnam using subcontractors, and
sells the products in the U.S. and international markets. In each of those Asian countries where
Nike has production facilities, the rates of unemployment and under-employment are quite
high. The wage rate is very low in those countries by U.S. standards-the hourly wage rate in
the manufacturing sector is less than $1 in each of those countries, compared with about $20
in the United States. In addition, workers in those countries often operate in poor and unhealthy
environments and their rights are not particularly well protected. Understandably, host
countries are eager to attract foreign investments like Nike's to develop their economies and
raise the living standards of their citizens. Recently, however, Nike came under worldwide
criticism for its practice of hiring workers for such a low rate of pay-"next to nothing" in the
words of critics-and condoning poor working conditions in host countries. Initially, Nike
denied the sweatshop charges and lashed out at critics. But later, the company began monitoring
the labor practices at its overseas factories and grading the factories in order to improve labor
standards. Nike also agreed to random factory inspections by disinterested parties.
Discussion points:

1. Do you think the criticism of Nike is fair, considering that the host countries
are in dire needs of creating jobs?
2. What do you think Nike's executives might have done differently to prevent the
sensitive charges of sweatshop labor in overseas factories?
3. Do firms need to consider the so-called corporate social responsibilities in
making investment decisions?

Chapter 11: International Banking and Money Market

1. International banking service
2. Reasons for international banking
3. Types of international banking offices
4. International money market
5. International debt crisis
6. The Asian crisis

Questions at the end of this chapter (according to above topic):

1) Briefly discuss some of the services that international banks provide their customers
and the marketplace.
2) Briefly discuss the various types of international banking offices.
3) How does the deposit-loan rate spread in the Eurodollar market compare with the
deposit-loan rate spread in the domestic U.S. banking system? Why?
4) What is the difference between the Euro note market and the Euro commercial paper
market?
5) Briefly discuss the cause and the solution(s) to the international bank crisis involving
less-developed countries.
6) Explain how Eurocurrency is created.

Chapter 13: International Equity Markets

1. Market structure, trading practices, and costs
 2. Trading in international equities
3. American Depository Receipt (ADR) and its advantages
4. Factors affecting international equity returns

Questions at the end of this chapter (according to above topic):

1) As an investor, what factors would you consider before investing in the emerging stock
market of a developing country?
2) Compare and contrast the various types of secondary market trading structures.
3) Discuss any benefits you can think of for a company to (a) cross-list its equity shares
on more than one national exchange, and (b) to source new equity capital from foreign
investors as well as domestic investors.
4) Why might it be easier for an investor desiring to diversify his portfolio internationally
to buy depository receipts rather than the actual shares of the company?
5) Why do you think the empirical studies about factors affecting equity returns basically
showed that domestic factors were more important than international factors, and,
secondly, that industrial membership of a firm was of little importance in forecasting
the international correlation structure of a set of international stocks?

Chapter 14: Interest Rate and Currency Swaps

1. Types of swaps
2. The Swap bank
3. Interest rate swaps
4. Currency swaps
5. Risks of interest rate and currency swaps
6. Is the swap of market efficient?
7. Mathematical Example: 14.3, 14.4, and 14.5

Questions at the end of this chapter (according to above topic):

1) Describe the difference between a swap broker and a swap dealer.
2) What is the necessary condition for a fixed-for-floating interest rate swap to be
possible?
3) Discuss the basic motivations for a counterparty to enter into a currency swap.
4) How does the theory of comparative advantage relate to the currency swap market?
5) Discuss the risks confronting an interest rate and currency swap dealer.
6) Assume a currency swap in which two counterparties of comparable credit risk each
borrow at the best rate available, yet the nominal rate of one counterparty is higher
than the other. After the initial principal exchange, is the counterparty that is required
 to make interest payments at the higher nominal rate at a financial disadvantage to the
other in the swap agreement? Explain your thinking.

Chapter 16: Foreign Direct Investment and Cross-border Acquisitions

1. Introduction + Global trends in FDI
2. Why do firms invest overseas?
3. cross border mergers and acquisitions
4. Political risk and FDI

Questions at the end of this chapter (according to above topic):

1) Recently, many foreign firms from both developed and developing countries acquired
high-tech U.S. firms. What might have motivated these firms to acquire U.S. firms?
2) Japanese MNCs, such as Toyota, Toshiba, and Matsushita, made extensive
investments in Southeast Asian countries like Thailand, Malaysia, and Indonesia. In
your opinion, what forces are driving Japanese investments in this region?
3) How would you explain the fact that China emerged as one of the most important
recipients of FDI in recent years?
4) Explain the internalization theory of FDI. What are the strengths and weaknesses of
the theory?
5) Why do you think the host country tends to resist cross-border acquisitions rather than
greenfield investments?
6) How would you incorporate political risk into the capital budgeting process of foreign
investment projects?
7) Explain and compare forward versus backward internalization.
8) Define country risk. How is it different from political risk?
9) What are the advantages and disadvantages of FDI as compared to a licensing
agreement with a foreign partner?
10) What operational and financial measures can a MNC take to minimize the political risk
associated with a foreign investment project?
11) Study the experience of Enron in India and discuss what we can learn from it for the
management of political risk. Discuss the different ways political events in a host
country may affect local operations of a MNC.
12) What factors would you consider in evaluating the political risk associated with
making FDI in a foreign country?

Chapter 20: International Trade Finance

 1. Some introductory discussion regarding the foreign trade documents like Letters of
credit, time draft, and bill of lading
2. A typical foreign trade transaction and its process (graphically)
3. Forfaiting
4. Government assistance in exporting
5. Countertrade
6. Forms of countertrade

Questions at the end of this chapter (according to above topic):

1) Discuss some of the reasons why international trade is more difficult and risky from
the exporter's perspective than is domestic trade.
2) What three basic documents are necessary to conduct a typical foreign commerce
trade? Briefly discuss the purpose of each.
3) How does a time draft become a banker's acceptance?
4) What is a forfaiting transaction?
5) What is the purpose of the Export-Import Bank?
6) Do you think that a country's government should assist private business in the conduct
of international trade through direct loans, loan guarantees, and/or credit insurance?
7) Briefly discuss the various types of countertrade.
8) Discuss some of the pros and cons of countertrade from the country's perspective and
the firm's perspective.