MFIN 5501 International Finance
This course is an overview of international financial markets and institutions. Topics include an introduction to the foreign exchange markets, in which nearly $4 trillion worth of currencies and foreign exchange derivatives are traded each day. Several types of products trade in these markets, including spot transactions, forward transactions, swaps and options. Much of this activity is due to commercial banks and securities dealers, along with corporations seeking to hedge their exposure to foreign exchange risk. In addition, central banks may periodically intervene in foreign exchange markets in order to pursue domestic policy goals. The factors that determine the value of exchange rates and the relationship between nominal and real exchange rates is also covered in detail, along with several international parity conditions such as purchasing power parity, the International Fisher Effect, and interest rate parity. The course also explores different strategies for hedging foreign exchange risk. Pricing models for each type of derivative are also examined. A variant of the Black-Scholes model, the Garman-Kohlhagen model, is used to price foreign exchange options as well as derive several measures of risk that are collectively known as the Greeks. The course closes with a closer look at the role of central banks in foreign exchange markets, alternative exchange rate systems, international investment and diversification, and the management of portfolios of domestic and foreign bonds.