Boston University

Metropolitan College

MET FI 763 D1 Spring 2008

Multinational Finance and Trade Dr. Alon Raviv
Thursday
6-9 pm - Main Campus
Room 201 SHA

Office:
Hours: Tuesday, Wednesday 1:00-13:30 PM
Room 215 FLR 808 Commonwealth Ave.
E-mail: araviv@bu.edu

http://courseinfo.bu.edu/courses/08sprgmetfi763_d1/

Course Description

Operating a business or investing on a multi-national basis presents many unique

challenges. The primary objective of this course is to identify and examine these unique
aspects and how these challenges can be addressed. These factors range from different
sovereign jurisdictions, legal and regulatory environments, foreign exchange regimes and
currency fluctuations, trade barriers, to language, business customs and distance. We will
analyze these factors and the tools and mechanisms designed to manage or mitigate their
effects. Similarities and differences between managing an operating business, foreign
direct investment and international outsourcing will be distinguished from more passive
portfolio investment.

Course Objectives:

We will commence the course by addressing sovereign and country risk, what
consequences it poses for companies or investors operating in different sovereign
jurisdictions and how these risks can be analyzed. We turn next to international financial
flows and their impact on foreign exchange rates, another area distinguishing operations
and investments in different countries. Given these risks, financial managers and
investors focus significant attention on mitigation, through forward and futures markets,
swaps, and use of derivatives. The class will focus on the basic mechanics of these
instruments and how they can be utilized to hedge attendant risks. We will then move on
to specific topics in multinational finance – distinctions in the financial instruments used
in international finance, measurement and management of risk, especially through
portfolio management, foreign direct investment, financing of international trade, and
outsourcing, which is increasingly being used by companies in all commercial sectors.

Basic Text: Alan Shapiro, Multinational Financial Management, 8th ed. Wiley, 2006

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Other References and Texts (Not Mandatory!):

Bruno Solnik and Dennis McLeavey, International Investments, 5th ed. Addison
Wesley, 2003

At their websites, the World Bank (International Bank for Reconstruction &
Development) and its private-sector oriented cousin, the International Finance
Corporation, the Organization for Economic Cooperation & Development
(OECD), and the Bank for International Settlements have a bounty of useful data
and analysis.

CME Tutorial: http://www.cme.com/multimedia/tradefx/CME_FX/

Two highly readable and pertinent reviews of finance and risk taking are:

Peter Bernstein, Against the Gods, The Remarkable Story of Risk, Wiley, 1998
Roger Lowenstein, When Genius Failed, The Rise and Fall of Long-Term Capital
Management, Random House, 2001

Daily reading of the Financial Times and the Wall Street Journal are encouraged,
as well as the weekly newsmagazines The Economist and The Far Eastern
Economic Review. Others include Business Week and Fortune. Particularly the
FT, the Economist and the Far Eastern Economic Review generally have a more
international or global perspective than some more US-centric sources.

Prerequisites:

MET AC 630
MET FI 631

Information Sharing and Plagiarism

One of the best ways to learn is by discussing and sharing ideas with others. This is
especially true in many areas of business and finance where there are no simple, absolute
“right” and “wrong” answers. Such discussion is strongly encouraged. However, unless it
is clearly intended as a group project, any work submitted by you, whether in case
studies, exams or papers, must be your own. Use of reference materials is essential, but
direct use of any such material should be clearly cited. The University and the
Department consider any form of cheating or plagiarism to be a serious offense and
subject to severe penalty. The instructor considers it a capital offense.
This course will strictly follow the Code of Academic Conduct of Boston University.
Please keep this in mind. Academic conduct promoting the desired educational
environment of the College involves behavior which refrains from cheating on exams,
plagiarism, misrepresentation or falsification of data, theft or destruction of
examinations or papers, or alteration, forgery, or knowing misuse of academic records or

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documents or other similar behavior.α The internet has made plagiarism even easier, and
be aware that text from the Internet is a bona fide form of plagiarism that could result in
dismissal from Boston University.β This applies in any course at Boston University.

Grading:

Midterm Exam 20%

Final Exam 40%
Country Analysis Paper 20%
Quizzes, Case Studies & Problem Sets 10%
Class Participation 10%

Exams will generally consist of a combination of multiple choice and conceptual

questions. The midterm exam will cover material addressed in the first half of the
course. The final exam will be comprehensive, covering the entire contents of the
course, though more weight will be placed on topics covered during the second
half of the course. For all exams students may bring and use one 5x8 file card
(half a sheet of paper) containing formulas, definitions, etc. of your discretion.

All grading will be done on a curved basis. That is, individual grades for each
exam, paper, etc. will be viewed relative to the mean and standard deviation of all
the class’ grades for that particular assignment.

Class Participation

Students are expected to attend and participate in the class. The essence of this course is
learning a set of concepts and understanding how they apply in a variety of situations.
Mastering the material requires you to assess, think, and form judgments, so high quality
participation is essential. High-quality participation includes substantive contribution to
class discussions, insights into topics we are discussing, questions regarding relevant
topics, and on-line interactions with others. There is not much time to accomplish quite a
bit so it is essential that you do not fall behind. Those that are not prepared can expect to
be downgraded accordingly. Occasionally, illness, family or business obligations will
prevent you from attending class. This is recognized and especially if you are ill, not
attending may be best for your fellow students and instructor as well as you. Missing an
individual class should not affect your grade. Nevertheless, if you are unable to attend a
class, it is expected that you will fully familiarize yourself with the subject matter
covered in that session.

Make Up Examinations, Late Assignments and Extra Work

from Metropolitan College “Code of Academic Conduct”

from Metropolitan College “Code of Academic Conduct”

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Requests for a make-up exam will be handled on a case-by-case basis. Since written or
presented material can be (and should be) done in advance there would be no situation
that I can think of that would allow this material to be late. Please consider the date of the
presentation and the paper to be the last date that this material can be presented not the
day that it is to be presented. This will help you to make deadlines should unfortunate
situations that arise at the last minutes. Requests for make up exams place an extra
burden on both the student and the instructor and can be unfair to the other students who
take the exams as scheduled. Thus you are strongly advised to avoid requesting a make-
up exam. Infrequently, extreme situations arise that could make it essential to miss the
exam. If these can be foreseen in advance, please talk to the instructor as soon as possible
regarding rescheduling. This is done not to penalize any individual student but to attempt
to assure that there is a level playing field and the total class feels confident that no one
has a unique or unfair advantage.
Extra Work does not represent a replacement for any assigned work or exam. Further,
extra work cannot be offered to raise a grade since permitting this would be
fundamentally unfair to all other students in the course.

Sovereign Analysis Paper:

Using what you’ve learned in the first section of the course, you’ll prepare a paper (not to
exceed 10 pages, double spaced) analyzing a sovereign country of your choice. While
the basic analysis will largely be the same, you’re asked to evaluate the country from
three perspectives:
How safe would it be to buy the bonds of the government?
How safe would it be to buy securities (bonds or equities) of companies which
primarily or exclusively do business in that country?
How safe would it be to directly invest in a manufacturing plant in that country to
either export the production or sell the output in the domestic market?

It is strongly suggested that you pick something other than the most exotic country (to
ensure that you can obtain sufficient information about the country to be able to analyze
it) or the most prominent.

These papers will be due at the beginning of the 9th session.

The paper is to be prepared using the APA writing style and guideline for references
format. This is for references at the end of the paper and the citation of author and dates
in the body of the paper. The department uses the APA style as it lends itself well to both
reading the paper and understanding references without being cumbersome as some of
the other styles are (such as Chicago or MLA). You can down load the student style guide
from the American Psychological Association (http://www.apastyle.org/elecref.html)
web site or you can purchase the APA style guide from the book store. There is even a
help disk that can be purchased for about $ 40 (http://www.apa.org/software/ ) that will
work you through the process as you write you paper if you desire a more “personal
assistance”.

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Papers are to be RESEARCH PAPERS. Remember that work that you use from other
authors MUST be referenced. Since it is assumed that you are not an authority on the
topic that you are writing on it is expected that this paper is an overview of many
different sources of information. These must be contributed to the author using the APA
format. This is your paper and not the cut and paste of someone else's work. Keep in
mind that the Boston University Library as well as your local, state and the national US
Library of Congress have extensive on line services. USE THEM.
The paper is to be submitted as both printed copy and as a disk. Remember you can turn
in your paper ANY TIME before the last date and you are encouraged to do so.

Scheduling

The course is scheduled to meet every Wednesday, commencing January 16th.

Course Outline: Session Date

I. Introduction 1 1/17

Course overview
What is unique in multinational financial management?
Assignment:
Shapiro , Ch. 1

II. Sovereign Risk & Overview of FX Market 2,3 1/24, 1/31

Assignment:
Shapiro, Ch 6, 7
Standard & Poor’s Criteria Paper & Sovereign Default History
http://www.standardandpoors.com , then Credit Ratings; then Criteria &
Definitions; then Sovereigns; then Criteria & Definitions

III. International Financial Flows

Balance of Payments, International Monetary Flows 4 2/07

Assignment:
Shapiro , Ch.3, 5

Exchange Rates 5 2/14

Assignment:
Shapiro , Ch.2, 4

Options, Swaps & Derivatives 6 2/21

Assignment:
Shapiro , Ch.8, 9

Mid-Term Exam 7 2/28

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IV. International Capital Markets 8, 9 3/06, 3/20
Assignment:
Shapiro , Ch.12, 13, 14

Sovereign Analysis Papers Due at Beginning of Session 9

V. Portfolio Investment
Investing in International Markets 10 3/27
Assignment:
Shapiro , Ch.15

Measuring & Managing Risk 11 4/03

Assignment:
Shapiro , Ch.10, 11

VI. Operating on a Multinational Platform

Foreign Direct Investment 12 4/10

Assignment:
Shapiro , Ch. 16, 17

Financing Trade 13 4/17

Assignment:
Shapiro , Ch.18, 19

Review 14 4/24

Final Exam 15