Dr. Robert M. Eldridge, Seabury Hall 304
Tel: 203-392-5628 (O); 203-876-5046 (H); 203-392-5254(F)
email: ELDRIDGER1@SOUTHERNCT.EDU

Mon: 1430-1630;
Thurs: 1430-1630;
Fri: 1100-1200;
Or by appointment

Thurs:1700-1930;
Location: EN A 113

1. Fundamentals of Multinational Financial Management, 6th edition, Alan C. Shapiro and Atulya Sarin. John Wiley & Sons, 2009. ISBN: 13 9780470-1295-4
2. Subscription to the Wall St. Journal

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 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

Foreign Exchange markets

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

Determination of Exchange Rates

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

Paper 1 due

Capital Budgeting for the Multinational Firm

Mar 29

Catch-up/Review

Prob: 14:3,4,5. Paper 2B due

International Portfolio

investment I

Select a country whose exchange rate you will examine in paper 2 discussed below. For the period (a) 1 Jan 2003-31 Dec 2007 and (b) 1 Jan 2008-31 Dec. 2010, 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 the currency of chosen for paper 1, as long as it has at least five years of data in Datastream. The paper will be a historic look over the five year period of 1 Jan 2005-31 Dec 2010. The paper will be done in three parts to submitted at separate dates as noted on the syllabus. Preparation of the paper will require the use of Datastream in the library.

Part A: (2-3 pages of text). In this part you will look at the exchange rate between the US dollar and your currency. This will require three plots: 1) the mean exchange rate; 2) the bid and ask rate on the same chart; 3) the bid ask spread. In your discussion, examine and report on the changes in the exchange rate over time as well as changes in the bid/ask spread. Your discussion should consider policy changes made by each government as well as significant events such as trade deficits or significant political events. This paper is 25% of the grade for paper 2.

PART B: (2-3 pages of text). In this part you will examine interest rates in both countries. This paper will require two plots: the interest rate of each country (Overnight Fed Funds rate for the US and the equivalent for the other country), and the interest rate differential. Your discussion will cover the monetary policy of each country during this period, the impact on its interest rates and the resulting impact on the differential. This will require the examination of the issues giving rise to policy changes and the magnitude of the changes to the interest rates that result. Your discussion will also analyze and interpret the interest rate differential. Attach paper 2A to paper 2B and include the results of this paper in the discussion of 2B as appropriate. This paper is 25% of the grade for paper 2.

Part C: (3-4 pages of text). In this part you bring everything together. You will plot the exchange rate against the interrest rate differential. Since you will be plotting two different units of measure, you will need to index the plot. You will also calculate the correlation between the exchange rate and the interest rate differential. Finally, calculate whether or not Interest Rate Parity seems to hold for any part of the time period by using Datastream and testing the text book model: f(1) - e(0)[(r(h)-r(f)) + 1] = 0.

The questions to be addressed in this part are: does Interest Rate Parity seem to hold for this currency and during this time period, and if not, why not. You should include in your discussion the exchange rate models discussed in class. Attach papers 2A and 2B and include their results in your discussion and summary of 2C as appropriate. This paper is 50% of the grade for paper 2.

Note: Datastream gives you both spot and forward rates. Use annual rates of both interest rates and exchange rates.