Dr. Robert M. Eldridge, Seabury Hall 304
Tel: 392-5628 (O); 876-5046 (H); 392-5254(F)
email: ELDRIDGER1@SOUTHERNCT.EDU

Tues: 1500-1630;
Wed: 1500-1630;
Thursday: 1700-1900;
Or by appointment

Tues:1700-1930;
Location: EN A 113

1. Fundamentals of Multinational Financial Management, 6th edition, Alan C. Shapiro and Atulya Sarin. John Wiley & Sons, 2009.
2. Subscription to the The Financial Times of London.

The objective of this course is to:

1. Establish a foundation in the context of for-profit financial operations in the international area as outlined in the course description. At the end of the course, the student should have an appreciation of the basic issues facing the financial manager operating in the international environment;

The method of instruction will be primarily lectures and problems from the textbook and the World Wide Web.

1. "Two minute drills". Generally, at the end of each class, there will be a one-question quiz lasting two minutes. I will count only the top ten grades. This will constitute 5% of the final grade.
   
   
2. At the end of the course, the student will be requested to complete a "Course Survey" form, separate and distinct from any University Evaluation form. This survey helps me in preparing the course for the next time I offer it. For each form returned, 1/n points will be added to the final grade, where "n" represents the number of students enrolled in the course based on the registrar's final class list.
   
3. The student is permitted and encouraged to tape record lectures for personal study use only.
   
   
4. If any student has a particular disability-related need in order to participate in this course, such as special seating, note-taking assistance, use of tape recorders or modified exam conditions, you will need to visit the Disability Resource Office, EN C105A, to arrange for approved accommodations. If you have other information you wish to share with me, such as emergency medical information, or arrangements in case the building has to be evacuated, please tell me as soon as possible.
   
5. I have developed a phobia: cell phones/pagers that go off in class. To maintain good diplomatic relations with me, please turn off all communications devices in the classroom. NO EXCEPTIONS UNLESS PREVIOUSLY APPROVED BY ME.
   

A. What you may expect from me:

1. A strong grounding in basic international finance.

2. A willingness to work with you on specific problems
you have with the course or its scheduling.

3. A sense of excitement about the field of international finance.

B. What I expect to get from you:

1. Come to class prepared by having read the assignment and at least tried any homework problems.

2. If you know you will miss a class, a call to me would be appreciated.

3. If something does not make sense you will ask me either in class, in office hours or call me at home.

4. A sense of what is going on in the world of international business and finance through a daily reading of the Financial Times.

Country Risk Analysis

Reference Tutorial, Buley Library;

Foreign Exchange markets

1700-1745: BU211; 1800-1930:Regular classroom.

Webex: 5:1,2; Webex: 11:1,2; Prob 5:1,4

Webex: 6:1,2,3; Prob:6:1,2,3; Webex:2:5,6; Prob: 2:2,3,5

Capital Budgeting for the Multinational Firm

Nov 10

Catch-up/Review

Prob: 14:3,4,5

Select a country whose exchange rate you will examine in paper 2 discussed below. For the 5 year period 1 Sept 2003-31 Dec 2008, do an analysis of the balance of payments of the country. Your paper will address the following issues:

1. Report and analyze the four major categories of the BOP: Current Account, Capital Account, Official Reserves and Statistical Discrepancy. What has been happening in each account.
2. Compare the balance of trade with the exchange rate of the currency against the dollar.
3. Identify the country's major trading partners and the major products traded. Do either the trading partners or products have a significant impact on the balance of trade.

Note: A good reference here is International Financial Statistics of the IMF

This paper will look at the exchange rate relationship between the U.S. dollar and a currency of your choice, as long as it has at least five years of data in Datastream. The paper will be in two parts: a historic look over the five year period of 1 Jan 2004-31 Dec 2008 and a look at the current period 1 Jan- 31 Aug 2009.

In both cases, using the Datastream system in the library, the following data will be plotted for each time period:

1. The exchange rate of the currency against the U.S. dollar (mean value).
2. The exchange rate of the currency against the U.S. dollar using the bid and ask rates. (This means two plots on the same page: one for the bid rates and one for the ask rates.)
3. The bid-ask spread.
4. The exchange rate against the interest rate differential of the U.S. dollar (Fed Funds rate) and the equivalent short term rate of the other country.
5. The interest rates of each country (Fed funds for the US; equivalent rate for foreign countries/eurozone.)
6. The interest rate differential.
7. Calculate and print out the correlation coefficient resulting from a regression of the exchange rate against the interest rate differential.
   Note that there will be two separate sets of outputs 1-7 above: one for the period 2004-2008 and one for the eight months Jan-Aug, 2009.

In the development of your paper, you should discuss:

1. Interest rate changes implemented by the monetary authorities of each country (the Fed in the US and the equivalent Central Bank in the other country). Include here the amount of the changes made (in basis points) and the reason for the change.
2. The policy/economic issues giving rise to the change.

The objective of the paper is to address the following questions:

1. Did interest parity appear to hold with regard to the two currencies during the period 1 Jan 2004-31 Dec 2008? If not, can you find an explanation for why it did not hold? Note that Datastream does not give you forward rates, so you have to look at equations 4.17 and 4.18 on pages 114-115 of the textbook to infer as to the direction of the forward rate.
2. How closely were the exchange rates and interest rates correlated, if at all. If they are not correlated, can you explain what is happening?