Tentative Schedule, Homework, Suggested Problem Sets and Links (FINA 7360)

Press below to see the topics covered in each lecture:
1st Lecture - 2nd Lecture - 3rd Lecture - 4th Lecture - 5th Lecture - 6th Lecture - 7th Lecture
First Midterm
8th Lecture - 9th Lecture - 10th Lecture - 11th Lecture - 12th Lecture - 13th Lecture - 14th Lecture
Second Midterm

Suggested Problem Sets
Problem Set 1 - Problem Set 2 - Problem Set 3 - Problem Set 4
Problem Set 5 - Problem Set 6

1st Lecture

One Part (Introduction and Chapters I and II):
Introduction to FINA 7360
Definition of Foreign Exchange (FX) Rates
FX Market: Supply and Demand Considerations
Exchange Rate Determination: Basic Economic Variables
Introduction to the FX Market and its Instruments
Exchange Rate Regimes
Central Bank Intervention

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2nd Lecture

First Part (Chapters II, III)
Review from Last Class
Central Bank Intervention: Sterilized & Non-Sterilized
Arbitrage in the FX Market: Local and Triangular

Second Part (Chapters III, IV and V)
Arbitrage in the FX Market: Covered
Interest Rate Parity Theorem (IRPT)
IRPT with bid-ask spreads
Behavior of Exchange Rates: Theories & What is a Good Theory?

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3rd Lecture

First Part (Chapters V)
Review from Last Class
Behavior of Exchange Rates:
PPP: Absolute and Relative
IFE
Expectations hypothesis

Second Part (Chapters VI)
Brief review of Testing: t-test & F-test
Testing PPP and IFE
Testing Application - KOW/USD: Data Set for Case 1 (Practice Homework Assignment) (LN V) (xls format)
(Bring computer to class)

Suggested Problem Set 1: I.6, II.1, III.4, III.8, IV.7, IV.8, IV.9.

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4th Lecture

First Part (Chapters VI)
Behavior of Exchange Rates (continuation):
Expectations hypothesis
Structural models: BOP v. Monetary Approach
Random walk hypothesis
Forecasting in FX Markets: Fundamental Approach & Technical Analysis

Second Part (Chapters VI and VII)
Forecasting FX: Examples using Economic Models
FX Volatility

Brief Review CASE 1 (Bring computer to class)

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5th Lecture

First Part (Chapters VI & VII)
Discussion of CASE 1: Nike Inc: Forecasting Exchange Rates. (Case homework due)
Introduction to Chapter VI - FX Risk Management
Hedging with FX Futures
Equal Hedge
Changes in V_t
Basis Risk
Optimal hedge ratio

Second Part (Chapters VI and VII)
Hedging with FX Options
Black-Scholes formula
Static and Dynamic Hedging with FX Options
Exotic Options
Financial Hedging Tools: Applications

Suggested Problem Set 2 : VI.2, VI.6, VI.7, VII.1, VII.3, VII.9.

Useful links:
CME foreing exchange contracts
PHLX foreing exchange contracts (part of NASDAQ-OMX)
SGX foreing exchange contracts

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6th Lecture

First Part (Chapters VIII)
Firm Specific Hedging Tools (continuation)
Classes of FX Exposure
Transaction exposure
Translation exposure
Economic exposure

Second Part (Chapters VIII)
Measuring Transaction and Economic Exposure
EE in Practice: Do IBM & Kellogg face EE? Managing Transaction and Economic Exposure
Discussion of Case Study in LN VIII

Brief Review CASE 2 (Bring computer to class)

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7th Lecture

First Part (Chapters VIII)
Discussion of CASE 2: Popescu, Hagi and Associates (Case Homework due)
Managing Economic Exposure
EE: The Case of Disney Should a Firm Hedge?

Second Part (Chapters I-VIII)
REVIEW FOR EXAM: Problems

Suggested Problem Set 3 : XVII.3, XVII.4, XVII.6.
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FIRST EXAM

8th Lecture

First Part (Chapters XVIII)
Asset Allocation: Passive and Active Approach
Design of an International Performance Analysis
Risk-Adjusted Perfomance Measures: Sharpe, Treynor, RAROC and Jensen Measures
Asset Allocation in Practice: Construction of an Optimal Portfolio with Application to International Markes.

Second Part (Chapters IX & X)
Country Analysis
Example of Country Analysis: Country Report
Country Risk

Brief Review CASE 3 (Bring computer to class)

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9th Lecture

First Part (Chapters XI)
Discussion of CASE 3: Global Mutual Fund Evaluation (Case Homework due)
Topics in International Corporate Finance (DFI evaluation, Taxation & Cost of Capital)
Information Problems in International Equity Markets
Microstructure and Macrostructure
Practical Aspects: Dual Listing, Comparative Analysis
Valuation: DDM and Cost of Capital
Emerging Markets
Investing in International Equity Markets: Puzzles

Useful links:
Country Risk Analysis: Euromoney
Economic Freedom Analysis: Heritage Foundation Economic Freedom Index
Globalization Analysis: Foreing Policy & AT Kearney Globalization Index
Competitiveness Analysis: World Economic Forum Global Competitiveness Index

Second Part (Chapters XI)
Determinants of International Equity Returns
Linkages between International Equity Markets
The Crash of 1987
Changing correlations: High correlation - High variance

Brief Review CASE 4

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10th Lecture

First Part (Chapters XII)
Discussion of CASE 4: Hydro Aluminium Consolidated (HAC). (Case Homework due)
International Bond Markets: Foreign Bonds and Eurobonds
Type of Instruments
Eurobond Markets: Historical developments, Issuance procedures, Secondary markets

Useful links:
Market Practice and Regulations (for Bond and Other Instruments): ICMA's Homepage
Bond Trading: Bond Traders With Math, Physics Degrees Rise in Pecking Order (Winter 03)

Second Part (Chapters XII)
Foreing Bond Markets: Yankee, Samurai, German, Swiss
Differences Among Markets
Why do we care about International Bond Markets?

Brief Review CASE 5

Suggested Problem Set 4 : XI.13, XI.14, XI.15, XI.18, XI.19.

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11th Lecture

First Part (Chapter XII)
Discussion of CASE 5: GE Capital (Case Homework due)
Problems - Review of Appendix XII
Introduction to Pricing Bond Issues

Second Part (Chapter XII)
Pricing Bond Issues
Pricing a straight Eurobond - Case Study: Merotex
Pricing a Eurobond with equity warrants - Case Study: VOMF
Selecting a Bond Issue among many alternatives
Case Study: Bioneth Engineering
Introduction to hedging interest rate risk

Brief Review CASE 6 (Bring computer to class)

Useful links:
Introduction to Brady bonds
Brady bond contracts
CBOT bond contracts
ICE (former LIFFE) bond contracts
SIMEX bond contracts

Suggested Problem Set 5: XIII.1, XIII.8, XIII.9, XIII.10.

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12th Lecture

First Part (Chapter XIII)
Discussion of CASE 6: Brady Bonds (Case Homework due)
Hedging Instruments:
Notional bond futures: T-bond, 10-year JGB Futures, Bund Futures
Cheapest to Deliver Bond Futures
Index-Based Futures
Examples and Applications

Second Part (Chapter XIII)
Introduction to Swaps
Interest Rate Swaps:
The plain vanilla interest rate swap
Valuation of interest rate swaps
Euromarkets and interest rate swaps: Case Study: Merotex
Currency Swaps:
Types of currency swaps
The plain vanilla currency rate swap: Case Study: IBM-World Bank swap
Valuation of currency swaps
Eurobonds and currency swaps

Brief Review CASE 7 (Bring computer to class)

Suggested Problem Set 6: XIV.1, XIV.8, XIV.12, XIV.13.

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13th Lecture

First Part (Chapter XIV)
Discussion of CASE 7: SWAPS (Case Homework due)
Introduction to Financial Engineering
Combining swaps: Commodity swaps
Synthetic instruments: Equity swaps

Second Part (Chapter XV)
Introduction to Eurocurrency Futures
Eurodollar Strip and Swaps
Gap Risk Management
Forward Rate Agreement (FRA)

Brief Review CASE 8

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14th Lecture

First Part (Chapter XIV)
Hedging with Eurodollars and FRAs
Interest Rate and Eurodollar Futures Options
Caps and Floors
Discussion of Case in LN XV: Banco del Suqia

Second Part (Chapter XIV)
Discussion of CASE 8: Malayan Banking Berhard (Case Homework due)
REVIEW FOR EXAM: Problems
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SECOND MIDTERM

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