B9501: International Financial Decisions, Spring Quarter 1998

Professor Robert J. Hodrick
Telephone: 212-854-3413
E-mail:[email protected]
Office: 605A Uris Hall

The purpose of this course is to learn about issues in international financial management through the analysis of cases. The major issues that will be examined and discussed are the valuation of direct foreign investments and the analysis of international capital budgeting decisions including the determination of the cost of capital for foreign investments, the determination and management of foreign exchange risks of various types, and the use of innovative, international financing for the multinational corporation.

The formal prerequisites for the course are basic courses in corporate finance and international finance. This should not be your first exposure to either corporate finance or international finance unless you are willing to work hard. The course is reasonably self-contained, and I have found that good students can learn the international aspects of the course if they have a reasonable financial background.

The following textbook is available from the Columbia and Papyrus bookstores.

Carl Kester and Timothy Luehrman, Case Problems in International Finance, McGraw-Hill, 1993.

Other readings including drafts of Chapters from Hodrick, International Financial Management
,forthcoming Prentice-Hall 1998, are available from a case packet.

Background References:

Alan C. Shapiro, Multinational Financial Management, 5th Edition, Prentice-Hall, 1996.
Piet Sercu and Raman Uppal, International Financial Markets and the Firm, South-Western, 1995.
Richard Brealey and Stewart Myers, Principles of Corporate Finance, 5th Edition, Chapter 34.

Course Requirements:

Your grade will be based on the following requirements:
Class Participation: 35%; Four Group Executive Memoranda: 65%

Note on Executive Memoranda:

The due dates for the assignments are listed on the schedule. Executive Memoranda are limited to three pages (typed, double spaced, minimum 11 point font). The first three pages must contain your entire case critique and solution. Supporting data, tables, or graphs can be included at the back of the memo in technical appendices. Papers are due at the beginning of the assigned class period.

Schedule

Note: An asterisk indicates the reading is recommended but not required.

Introduction, Group Formation, The International Economic Environment
January 21	Class 1	Reading: Kester and Luehrman, pp. 19-30, The Foreign Exchange Market Kester and Luehrman, pp. 37-46, Note on Fundamental Parity Conditions Kester and Luehrman, pp. 167-178, Note on Transaction and Translation Exposure Kester and Luehrman, pp. 267-278, Note on Operating Exposure to Exchange-Rates *Shapiro, Chapters 2, 3, 6, 7
I. International Financing with Transactions Foreign Exchange Risk
January 28	Class 2	Reading: UVA Case F-850, Sallie Mae: Reverse Yen PERLS Issue Kester and Luehrman, pp. 315-330, R. J. Reynolds International Financing Hodrick, Chapters 12 and 13 on Foreign Currency Options Due: Turn in Executive Memorandum 1 (on Sallie Mae)*
II. Direct Foreign Investment and International Capital Budgeting
February 4	Class 3	Reading: Hodrick, Chapters 17, International Capital Budgeting Hodrick, Chapters 18, Advanced International Capital Budgeting Kester and Luehrman, pp. 49-74, Note on Cross-Border Valuation Copeland, Koller and Murrin, Chapter 10 of Valuation: Measuring and Managing the Value of Companies.
February 11	Class 4	Reading: Fama and French, AValue versus Growth: The International Evidence@ Kester and Luehrman, pp. 81-94, Ocean Drilling, Inc.
February 19	Class 5	Reading: Kester and Luehrman, pp. 95-108, Simmons Japan Limited Due: Turn in Executive Memorandum 2.
Ferbuary 25	Class 6	UVA Case F-1149, Continental Cablevision, Inc./Fintelco Joint Venture
III. Foreign Exchange Risk Management
March 4	Class 7	Reading: Hodrick, Chapter 19, The Foreign Currency Hedging Decision Stulz, ARethinking Risk Management,@Journal of Applied Corporate Finance, Vol. 9, Fall 1996.
March 11	Class 8	Reading: Hodrick, Chapter 5 Interest Rate and Foreign Currency Swaps Kester and Luehrman, pp. 201-214, The Walt Disney Company's Yen Financing Kester and Luehrman, pp. 215-232, Gaz de France *Kester and Luehrman, pp. 189-200, Foreign Currency Swaps
March 18	Spring Vacation (Relax and Have Fun!)
March 25	Class 9	Reading: Kester and Luehrman, pp. 279-292, Jaguar plc, 1984 Due: Turn in Executive Memorandum 3.
April 1	Class 10	Reading: Kester and Luehrman, pp. 253-266, Universal Circuits, Inc. Lessard and Sharp, "Measuring the Performance of Operations Subject to Fluctuating Exchange Rates"
IV. Global Financing
April 8	Class 11	Kester and Luehrman, pp. 565-582, Elders IXL Limited - 1986 Kester and Luehrman, pp. 331-348, International Pharmaceuticals Incorporated
V. Review and Synthesis
April 15	Class 12	Reading: Kester and Luehrman, pp. 547-564, Dainippon Ink and Chemicals, Incorporated Due: Turn in Executive Memorandum 4.