International Financial Economics

* denotes advanced material that can be omitted without loss of the basic content of an undergraduate course. Preface I. FOREIGN EXCHANGE RATES FX ratesduction to Foreign Exchange FX Rate Changes FX Volatility and FX Exposure Fundamental FX Supply and Demand Interbank FX market Central Banks and Balance of Payments Speculators Triangular Arbitrage 2. Foreign Exchange and Purchasing Power Absolute Purchasing Power Parity (APPP) FX Misevaluation The Big Mac Index OECD and APPP FX Misvaluation and Trade Imbalances Relative Purchasing Power Parity (RPPP) Gold and FX Rates The Bretton Woods System of Pegged Exchange Rates (1944-1973) The Euro Currency Boards and Dollarization * Trade Finance 3. Forward Foreign Exchange Long and Short Forward FX Positions Difference Check Settlement Forward FX Contracts and Hedging FX Transaction Exposure The Eurocurrency Market Synthetic FX Forwards and Money Market Hedging Market-to-Market Value of a Forward FX Contract FX Swaps and Futures * PERLs 4. Foreign Exchange and Interest Rates Covered Interest Arbitrage Covered Interest Rate Parity (CIRP) CIRP in Percentage Form Uncovered Interest Rate Parity (UIRP) Interest Rate Changes and FX Rates FX Forecasting Siegel's Paradox * Siegel's Paradox and Forward versus Expected FX Rates II. LONG-TERM FOREIGN EXCHANGE EXPOSURE 5. Foreign Exchange Operating Exposure FX Operating Exposure FX Operating Exposure of a Foreign Subsidiary FX Revenue and Cost Exposures and FX Pass-Through Operational Hedging and Operating Leverage Theoretical Estimation of FX Operating Exposure * Regression Estimation of FX Exposure 6. Debt and Foreign Exchange Exposure Should Firms Manage FX Exposure? Debt Denominated in Foreign Currencies: Eurobonds Debt and FX Net Cash Flow Exposures FX Value Exposure FX Equity Exposure Hedging FX Equity Exposure with Foreign Currency Debt FX Net Cash Flow Exposure versus FX Equity Exposure Debt Maturity Estimation of FX Equity Exposure Unlevering Estimated FX Equity Exposure 7. Currency Swaps World Bank-IBM Swap Fixed-for-Fixed Currency Swaps Parallel Loans and Back-to-Back Loans Swap-Driven Financing Settlement of Swap Components with Difference Checks Mark-to-Mark Valuation of Currency Swaps Off-Market Swaps Currency Swaps and FX Equity Exposure Managing FX Equity Exposure with Currency Swaps * Unlevering Estimated FX Equity Exposure 8. Economic Foreign Exchange Exposure Economics of Foreign Exchange, Price, and Volume * Compound FX Revenue Exposure * Competitive FX Revenue Exposure * FX Revenue Exposure: Domestic Firm with a Foreign Competitor * FX Operating Exposure of a Foreign Subsidiary with a Foreign Competitor III. COST OF CAPITAL AND CROSS-BORDER INVESTMENTS 9. Global Finance and the Cost of Capital Returns on Foreign Assets Depositary Receipts Cost of Capital The Capital Asset Pricing Model Global Equity Beta and the Cost of Equity Risk-Free Rate Cost of Debt and the WACC Systematic FX Risk * Risk-Adjusted Uncovered Interest Rate Parity 10. Cost of Capital for Overseas Investments Operating Risk Approach Accounting Beta Method Country beta Method Emerging Market Investments Cost of Capital in a Foreign Country Unlevering Equity Betas: Basic Case * WACC and Operating Risk * Unlevering Equity Betas: General Case * Pure Play Proxy Method * FX Exposure and Beta * Risk and return in Non-US Dollar Currencies 11. Accounting for Foreign Investments and Hedging FX Translation and SFAS 52 Hedging and SFAS 133 Cash Flow Hedges Net Investment Hedges FX Value Exposure vs. FX Accounting Exposure 12. Overseas Investment Decisions Overseas Acquisition Production Relocation Foreign Currency Perspective Interpreting NPVs of the Currency Perspectives Equilibrium NPV or Home Currency NPV Impact of Hedging and Financing Decisions Expansion of Overseas Capacity * Forecasts of Corrections of FX Misvaluation * Asset Values and Correction of FX Misvaluation Index