1. Dr. Noureen Adnan Academic
PhD (Financial Economics), University of Surrey, UK
MSc (Financial Economics) Cardiff Business School, UK
MBA (Finance) University Institute of Management Sciences, Pakistan
GTA (Graduate Teaching Certificate) London School of Economics.

2. International Finance
Lecture 1
International Finance

3. Topics International Financial Management
International Flow of Funds and BoP
International Financial Markets
Foreign Exchange Rate and Types
Government Intervention in Exchange Rates

4. Topics Inflation, Exchange and Interest Rate
Risk Management of Exchange Rates
Managing Economic, Transaction & Translation Exposure
Direct Foreign Investment

5. MULTINATIONAL COMPANIES
Goals of MNCs
Agency Problems
Centralized vs. Decentralized System
Theories of International Business

6. Common methods to conduct international business
International trade,
Licensing,
Franchising,
Joint ventures,
Acquisitions of existing operations,
Establishing new foreign subsidiaries
Investment opportunities
Financing opportunities
Marginal Returns and Marginal Costs

7. Capital Account (Flow of funds; one country to other)
Direct Foreign Investment
Portfolio Investment
Capital Investment
Trade volume is different
Over all the World is developing

8. Trade Agreements
NAFTA, GATT, EU
Trade Disagreements
Tariffs, Quotas, Job loss
Rules are different (Child labor, Bribe, etc)
Outsourcing

9. Economic Factors Affecting Trade
Inflation
Impact of National Income
Government Restrictions
Foreign Exchange Rates
International Capital Flows
Factors Affecting International Trade flows
Factors affecting DFI
Factors Affecting Portfolio Investment
Agencies that Facilitate International Trade

10. Motives to use International Market
Economic Conditions
Exchange Rate
International Diversification
Foreign exchange Market
Gold Standard
Fixed Exchange Rate
Floating Exchange Rate

11. Spot Market
Bid/Ask Spread
Direct & Indirect Quote
Future Market
Forward Market
Attributes of Banks
Options
Put option
Call Option
Domestic Money Market

12. Domestic & International Money Market
Standardization of Banking Regulations
Single European Act
Basel Accord I
Basel Accord II
Syndicated Loans
International Credit Market
International Bond Markets

13. International Stock Markets
Transaction Costs
Information Costs
Exchange Rate Risk
International Stock Diversification

14. Exchange Rates
Depreciation and Appreciation of Currency
Exchange Rate Equilibrium
Liquidity
Factors that affect Exchange Rates

15. Relative Interest Rate
Relative Income Level
Expectations
Speculating on Anticipated Exchange Rates

16. Exchange Rate System Currency Boards Fixed Exchange Rate
Freely Floating
Managed Float
Pegged
Currency Boards
Investors Confidence
Argentinean Economy and Currency Boards

17. Dollarization (e.g. Ecuador)
Single European currency
Impact on Monetary & Fiscal Policy
International trade
International flows
Impact on Exchange Rate Risk
Government Intervention

18. Reliance on Reserves
Direct Intervention
Sterilized
Non Sterilized
Indirect intervention
Inflation, interest rates, income level, government controls, expectations

19. Covered Interest Arbitrage
Locational Arbitrage
Banks/Individuals
Triangular Arbitrage
Covered Interest Arbitrage

20. Interest Rate Parity
Transaction Costs
Political Risk
Differential Tax Laws

21. MNCs need exchange rate forecasts for their
Hedging Decisions,
Short-term Financing Decisions,
Short-term Investment Decisions,
Capital Budgeting Decisions,
Earnings Assessments

22. Long-term financing decisions
Forecasting Techniques
Technical,
Fundamental,
Market-based
Mixed.

23. Diversification Argument Types of Exposure Transaction Economic
Forecasting Error
Forecasting Services
Forecasting Bias
Diversification Argument
Types of Exposure
Transaction
Economic
Translation
Source: Adopted from South-Western/ Thomson Learning 2006

24. Hedging Techniques Identify degree of transaction exposure.
Decide whether to hedge this exposure.
Choose a hedging technique if it decides to hedge part or all of the exposure.
Hedging Techniques
Futures hedge,
Forward hedge,
Money market hedge, and
Currency option hedge.
Source: Adopted from South-Western/ Thomson Learning 2006

25. Management of Exposures
Transaction
Identify the degree
Decision
Hedging
Economic
Restructuring
Translation

26. Direct Foreign Investment
Motives
Revenues
Costs
Issues