Global Financial Management

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Course Overview. PrerequisitesBusFin 810 and/or BusFin 811Requirements and GradingClass support and Cases (20% 20%)Midterm Exam (30%)Final Paper or Final Exam (30%)Class MaterialsEun and Resnick, 2007, International Financial Management, Irwin McGraw-Hill, Boston, fourth Edition (third Edition OK).Packet of Cases and Readings accessible in Uniprint Tuttle and online at

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Global Financial Management Course Overview and Introduction to International Financial Management

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Course Overview Prerequisites BusFin 810 or potentially BusFin 811 Requirements and Grading Class investment and Cases (20%+20%) Midterm Exam (30%) Final Paper or Final Exam (30%) Class Materials Eun and Resnick, 2007, International Financial Management , Irwin McGraw-Hill, Boston, 4 th Edition (3 rd Edition OK). Bundle of Cases and Readings accessible in Uniprint Tuttle and online at

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Course Overview Course Objective To give a structure to settling on corporate budgetary choices in a global setting. Related Courses F821 Seminar in Corporate Financial Analysis F822 Security Markets F823 Special Topics in Investment Management F826 Management of Financial Institutions F829 Risk Management and Derivatives

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Course Overview Foreign Exchange Markets Sourcing Capital in Global Markets International Financial Management Synthesis Managing FOREX Exposure Foreign Investment Decisions

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Course Overview Introduction to worldwide fund Introduction and course diagram The outside trade showcase Corporate administration Parity conditions in universal back Foreign trade subordinate contracts International corporate fund issues Transactions presentation to trade rates Translation introduction to trade rates Operating presentation to trade rates

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Course Overview International speculation examination Cost of capital International security markets International value markets Capital structure Corporate procedure and remote speculation investigation Offshoring/Outsourcing Project Finance Cross-fringe Joint Ventures Cross-outskirt Mergers

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Course Overview Global Financial Crisis Bailouts and Bans Can a nation go bankrupt?

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What is uncommon about worldwide back? Outside trade hazard E.g., a surprising degrading antagonistically influences your fare advertise… Political hazard E.g., a startling upset of the legislature that imperils existing arranged contracts… Market flaws E.g., exchange obstructions and duty impetuses may influence area of generation… Expanded open door sets E.g., bring reserves up in worldwide markets, picks up from economies of scale…

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What is cash? Bargain economy Search contacts Indivisibilities Transferability Commodity cash Beaver pelts Dried corn Metals Fiat cash Faith in government…

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The Monetary System Bimetallism: Before 1875 Free coinage was kept up for both gold and silver Gresham's Law: Only the copious metal was utilized as cash, plunging all the more rare metals unavailable for general use Classic best quality level: 1875-1914 Great Britain presented undeniable best quality level in 1821, France (viably) in the 1850s, Germany in 1875, the US in 1879, Russia and Japan in 1897. Gold alone is guaranteed of unlimited coinage There is a two-route convertibility amongst gold and national monetary standards at a steady proportion Gold might be uninhibitedly sent out and imported Cross-fringe stream of gold will help rectify misalignment of trade rates and will likewise direct adjust of installments. The highest quality level gave a 40 year time of remarkable soundness of trade rates which served to advance global exchange.

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The Monetary System Interwar period: 1915-1944 World War I finished the established best quality level in 1914 Trade in gold separated After the war, numerous nations endured hyper expansion Countries began to "cheat" (sanitization of gold) Predatory depreciations (recuperation through fares!) The US, Great Britain, Switzerland, France and the Scandinavian nations reestablished the highest quality level in the 1920s. After the considerable despondency, and resulting managing an account emergencies, most nations surrendered the best quality level. Bretton Woods framework: 1945-1972 U.S. dollar was pegged to gold at $35.00/oz. Other significant monetary standards built up standard qualities against the dollar. Deviations of ±1% were permitted, and depreciations could be arranged.

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Guess what happened to swelling?

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The Monetary System

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The Monetary System Jamaica Agreement (1976) Central banks were permitted to mediate in the outside trade markets to resolve ridiculous volatilities. Gold was authoritatively relinquished as a worldwide hold resource. Half of the IMF's gold property were come back to the individuals and the other half were sold, with continues used to help poor countries. Non-oil sending out nations and less-created nations were given more prominent access to IMF stores. Court Accord (1985) G-5 nations (France, Japan, Germany, the U.K., and the U.S.) concurred that it would be alluring for the U.S. dollar to devalue. Louver Accord (1987) G-7 nations (Canada and Italy were included) would participate to accomplish more prominent conversion standard security. G-7 nations consented to all the more nearly counsel and arrange their macroeconomic strategies.

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The Monetary System Plaza 1985 ???? Jamaica 1978 Louver 1987

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Current Exchange Rate Arrangements 36 noteworthy monetary standards, for example, the U.S. dollar, the Japanese yen, the Euro, and the British pound are resolved to a great extent by market strengths. 50 nations, including the China, India, Russia, and Singapore, embrace a few types of "Oversaw Floating" framework. 41 nations don't have their own particular national monetary forms! 40 nations, incorporating numerous islands in the Caribbean, numerous African countries, UAE and Venezuela, do have their own particular monetary forms, yet they keep up a peg to another money, for example, the U.S. dollar. The rest of the nations have some blend of settled and drifting swapping scale administrations. Note: As of July 31, 2005.

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The Euro Product of the yearning to make a more coordinated European economy. Eleven European nations received the Euro on January 1, 1999: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain. The accompanying nations quit at first: Denmark, Greece, Sweden, and the U.K. Euro notes and coins were presented in 2002 Greece received the Euro in 2001 Slovenia embraced the Euro in 2007

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Will the UK (Sweden) join the Euro? The Mini-Case can be found in E&R, p. 57. It would be ideal if you read E&R pp. 35-46 in arrangement for the dialog next time. Consider: Potential advantages and expenses of embracing the euro. Monetary and political imperatives confronting the nation. The potential effect of British appropriation of the euro on the worldwide money related framework, including the part of the U.S. dollar. The suggestions for the estimation of the euro of growing the EU to incorporate, e.g., Eastern European nations.

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The Foreign Exchange Market The FX showcase includes: Conversion of acquiring force starting with one money then onto the next; bank stores of outside cash; credit named in remote cash; remote exchange financing; exchanging outside money choices & prospects, and money swaps No focal commercial center expansive linkage of bank money merchants, non-bank merchants ( IBanks , insurance agencies, and so forth.), and FX intermediaries—like a universal OTC market Largest budgetary market on the planet Daily exchanging is assessed to be US$3.21 trillion Trading happens 24 hours a day London is the biggest FX exchanging focus

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Global Foreign Exchange Market Turnover Source: BIS Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in April 2007.

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BIS Triennial Survey…

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The Foreign Exchange Market The FX market is a two-layered market: Interbank Market (Wholesale) Accounts for around 83% of FX exchanging volume—for the most part theoretical or arbitrage exchanges About 100-200 universal banks overall stand prepared to make a market in remote trade FX merchants coordinate purchase and offer requests yet don't convey stock and FX pros Client Market (Retail) Accounts for around 17% of FX exchanging volume Market members incorporate worldwide banks, their clients, non-bank merchants, FX specialists, and national banks Note: Data is from 2007.

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Central Banking The U.S. money related specialists incidentally mediate in the outside trade (FX) market to counter confused economic situations. The Treasury, in conference with the Federal Reserve System, has duty regarding setting U.S. conversion scale arrangement, while the Federal Reserve Bank New York is in charge of executing FX mediation. U.S. FX intercession has turned out to be less successive as of late. WEDNESDAY, NOVEMBER 8, 2000 U.S. Mediates IN THIRD QUARTER TO BUY 1.5 BILLION EUROS NEW YORK FED REPORTS NEW YORK – The U.S. fiscal experts interceded in the remote trade showcases on one event amid the second from last quarter, on September 22nd , purchasing an aggregate of 1.5 billion euros, the Federal Reserve Bank of New York said today in its quarterly answer to the U.S. Congress. As per the report, the dollar acknowledged 8.2 percent against the euro and acknowledged 2 percent against the Japanese yen amid the three month time frame that finished September 30, 2000. The intercession was done by the outside trade exchanging work area at the New York Fed, working as a team with the European Central Bank (ECB) and the money related specialists of Japan, Canada, and the United Kingdom. The sum was part uniformly between the Federal Reserve System and the U.S. Treasury Department's Exchange Stabilization Fund (ESF). The report was introduced by Peter R. Fisher, official VP of the New York Fed and the Federal Open Market Committee's (FOMC) director for the framework open market account, for the benefit of the Treasury and the Federal Reserve System.

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The Foreign Exchange Market

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The Spot Market The spot advertise includes the im