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International Finance 2017/2018

  • 5 ECTS
  • Taught in Portuguese
  • Both continuous and final Assessment

Objectives

The student must be able to: - Master the basic tools necessary to understand the functioning of the foreign exchange market ; - Know the instruments that could be used in the period covering the exchange rate risk and interest rates; - Understand and apply the different techniques and hedging of foreign exchange risks and interest rate through the use of hedging instruments ; - Know how to analyze and evaluate the functioning of OTC contracts ; - Understand and know how to evaluate the different techniques of payment and receipt of international trade.

Recommended Prerequisites

Not applied

Teaching Metodology

The methodology is characterized by the coexistence of the exposition with the interactive models. The student will be encourage to have an active participation in classes. As a strategy for achieving the goals of curriculer unit, practical excercises will be promoted followed by their presentation in class. Students will be encouraged to develop an activity of permanent literature consult with the necessary guidance. Practical classes will encourage independence in cognitive analysis and problems solving.

Body of Work

1. International Finance Framework
1.1 Historical evolution of the International Monetary System
1.2 The European Monetary System and the euro
1.3 Global capital markets and the organization of international business
2. Foreign exchange market
2.1 Functions, characterization and participants
2.2 Exchange rate
2.3 Cross ratios
2.4 Spot and forward exchange rates
2.5 Forecasting of forward exchange rates
2.6 Practical Exercises
3. Risks in international financial markets
3.1 Foreign exchange risk
3.2 Interest rate risk
3.3 Credit risk
3.4 Liquidity risk
3.5 Other risks
3.6 Practical Exercises
4. Strategies in the financial markets
4.1 Arbitration
4.2 Speculation
4.3 Hedging
4.4 Practical Exercises
5. Financial hedging instruments
5.1 Over-the-counter contracts
5.2 Practical Exercises
6. International trade banking operations
7. Decisions on international investment

Recommended Bibliography

•Eun, C., Resnick, B. (2011), International Financial Management, New York: McGraw-Hill/Irwin, 6th edition.
•Eiteman, D., Stonehill, A., Moffet, M. (2006), Multinational Business Finance, Reading: Adisson-Wesley Publishing Company, 10th edition.
• Pacheco, L.; Tavares, F.; Salazar, V.; Vieira, E.; Peguinho, C. (2017). Finanças Internacionais – Teoria e Prática. Editora Sílabo, ISBN: 978-972-618-902-2.
•Pinho, J., Soares, I. (2007): Finanças – Mercados e Instrumentos, Lisboa: Edições Sílabo.
•Silva, E.; Mota, C.; Queirós, M.; Pereira, A. (2013). Finanças e Gestão de Riscos Internacionais, Porto: Editora Vida Económica, 1ª Edição.

Complementary Bibliography

•Feenstra, R.; Taylor, A. (2012). International Economics, Worth Publishers, 2nd ed.,.
•Krugman, P.; Obstfeld, M.; Melitz, M.; (2012). International Economics: Theory and Policy, Pearson, 9th ed..

Weekly Planning

1
1. International Finance Framework
1.1 Historical evolution of the International Monetary System
1.2 The European Monetary System and the euro
1.3 Global capital markets and the organization of international business
2
2. Foreign exchange market
2.1 Functions, characterization and participants
2.2 Exchange rate
2.2.1 Presentation of currencies
2.2.2 Foreign exchange rates of purchase and sale

3
2.2.3 Quotation methods
2.3 Cross ratios
2.3.1 Direct cross ratios
2.3.2 Indirect cross ratios

4
2.4 Spot and forward exchange rates
2.5 Forecasting of forward exchange rates
2.5.1 Efficient Market Theory
2.5.2 Formation of forward exchange rates

5
2.5.3 Premium coins and coins at discount
2.5.4 Overvalued and undervalued currencies
2.6 Practical Exercises

6
3. Risks in international financial markets
3.1 Foreign exchange risk
3.2 Interest rate risk
3.3 Credit risk
3.4 Liquidity risk
3.5 Other risks
3.6 Practical Exercises

7
4. Strategies in the financial markets
4.1 Arbitration
4.1.1 Foreign exchange arbitrage operations
4.1.2 Arbitrage operations across financial markets

8
4.1.3 Spot and forward arbitrage operations
4.2 Speculation

9
4.3 Hedging
4.3.1 Currency risk hedge
4.3.2 Coverage of interest rate risk
4.4 Practical Exercises

10
5. Financial hedging instruments
5.1 Over-the-counter contracts
5.1.1 Forward contracts
5.1.2 Forward rate agreements

11
5.1.3 Swaps
5.1.4 Caps, floors and collars
5.2 Practical Exercises

12
6. International trade banking operations
6.1 Bank transfers
6.2 Bank checks
6.3 Bills of Exchange
6.4 Documentary shipments
6.5 Letters of documentary credit
6.6 Practical Exercises

13
7. Decisions on international investment
7.1 Foreign direct investment
7.1.1 Introduction to issues raised by foreign direct investment
7.1.2 Political risk in international direct investments and ways of managing it

14
7.2 Financial management of multinational companies
7.2.1 Transfer mechanisms for international investment funds
7.2.2 Instruments to circumvent the freezing of funds

15
7.4 Practical Exercises

Demonstration of the syllabus coherence with the curricular unit's objectives

The contents are consistent with the objectives to be achieved. Thus, for the purposes of mastering the basic tools necessary to understand the functioning of the foreign exchange market, their instruments, and underlying concepts, the study of currency exchange and its basic concepts, as well as arbitrage and speculation strategies are complemented with the resolution of practical exercises. In order to understand and apply the different techniques of hedging of foreign exchange risks and interest rate risk, the characteristics, functions and operation of the spot and forward markets are presented creating different scenarios of decision making.

Demonstration of the teaching methodologies coherence with the curricular unit's objectives

For all learning objectives it is used the lecture method with brainstorming and well-strutured expression of opinion. Through the use of an exposition methodology combined with an interactive model, students participation are encouraged to operationalize concepts and knowledge of the foreign exchange market and it´s main strategies. By encouraging students to develop an activity of ongoing research, the development of capabilities are promoted within the spot and forward markets, specially in technical aspects of spot rates and time restructuring debts/credits, foreign exchange and interest rates risk management techniques. Through brainstorming and problems solving, it is aimed to understand and analyze the construction of a basket of currencies, swaps and fra's operations as well as main techniques of payments within the international trade.

relevant generic skillimproved?assessed?
Achieving practical application of theoretical knowledgeYesYes
Analytical and synthetic skillsYesYes
Balanced decision makingYes 
Commitment to effectiveness  
Commitment to quality  
Ethical and responsible behaviour  
Event organization, planning and management  
Foreign language proficiencyYes 
Information and learning managementYes 
IT and technology proficiencyYes 
Leadership  
Problem Analysis and AssessmentYes 
Problem-solvingYesYes
Relating to others  
Research skillsYes 
Self-assessmentYes 
Teamwork  
Written and verbal communications skillsYesYes
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