Course Code : AFIN 411


Weekly Course and application hours of the course: 3-0

Brief Course Description:

Introduction to International finance

  • The risks of a multinational firm including exchange rate risk, political risk and interest rate risk
  • The goals of international financial management for shareholder value maximization and risk management
  • National income accounting and the balance of payments
  • The effect of national debt and its effect on import/export industries
  • The link between balance of payments imbalances and exchange rates under fixed and floating exchange rate regimes
  • The main historical developments of the international monetary environment, the current monetary environment and the reasons for major international financial crises

Valuation of forwards, futures and options

  • No arbitrage conditions and rational prices for forward and future contracts
  • Currency forwards contract pricing
  • Using forward pricing theory to connect spot currency prices, expected currency prices and home and foreign interest rates
  • No-arbitrage theory and the valuation of simple currency options and Quantos

Exchange rate determination and the link with interest rates, prices

and economic policy

  • The Law of One price and absolute and relative purchasing parity
  • International version of Fisher Effect connecting inflation, real and nominal interest rates of different countries
  • Empirical evidence regarding purchasing power parity and potential reasons for these deviations
  • Interest rate parity by building on the theory of no-arbitrage for forward contracts
  • The link between expected inflation differences between countries and expected changes in the exchange rates
  • Covered interest arbitrage for deviations of interest rate parity
  • Understand the short run equilibrium in the product and asset markets and the effects of temporary and permanent shifts in monetary and fiscal policy

Managing foreign exchange rate and interest rate exposure

  • Risks involved in international operations in different industries and their measurement
  • Using forward, futures and option contracts to hedge currency risk with examples in different industries
  • Using swaps to hedge interest rate risk

Foreign investment decisions and the cost of capital of international


  • List the types of entity for foreign operations and possible barriers to entry.
  • Critically analyze the complexities of foreign direct investment. Discuss the implications of political risk on the overseas investment decision
  • The international cost of capita using international version of the CAPM. Discuss how the adjusted present value can be used in international investment decisions. Evaluate the international capital structure decision
  • The effect of taxation on international investment

Developments in the international markets

  • Recent developments in international financial markets and the relationships between countries and trade
  • Financial innovation developments such as Credit Default Swaps (CDS) and their impact on economy
  • The impact of CDS on firms’ capital structure and its choice of debt financing for high risk investments
  • Other financial (derivatives) and innovations in financial markets (e.g., cryptocurrency) and impact on financial markets
  • Textbooks and supplementary books:
  1. Multinational Business Finance , 11th Edition, 2006, D. Eiterman, A. Stonehill and M.

Moffet, “ Addison-Wesley

  1. International Economics: Theory and Policy, 8th edition, 2008 P. Krugman, M. Obstfeld, “ Pearson Education Limited,
  2. Futures and Other Derivatives, 6th edition, 2006, J. Hull Options, Pearson-Prentice Hall.
  3. Risk Management, 2001, M. Crouhy, D. Galai, and R. Mark, McGraw-Hill.
  4. Principles of Corporate Finance, 9th Edition, 2017, R. Brealey, S. Myers and F. Allen McGraw-Hill.

Course Evaluation:

Participation / Attendance : 10%,

Mid-Term Exam : 30%,

Homework : 10%,

Final Exam : 50%,

Attendance is at least 95 % mandatory.