Some Important Question of international Finance
Chapter 1
1- Why is there an "international" finance?
2- Distinguish between international trade and international finance.
3- Understand the role of the U. S. dollar in international finance.
4- Describe reasons that corporations expand internationally.
5- Describe risks faced by Multinational Corporations (MNCs).
6- Explain why comparative advantage leads to international trade.
7- Understand why globalization of business is occurring at a rapid rate.
8- Understand the current international financial environment in which businesses operate.
9- Understand the valuation model for an international firm.
Chapter 2
1- Understand the key components of the balance of payments.
2- Explain how international transactions are influenced by economic factors and other factors.
3- Describe the relationship that must exist between the capital account and current account.
4- Understand the impact of a trade deficit on a nation's economy and why seeking a balanced trade account is not easy.
5- What does the J-curve imply about the impact of a change of a nation's exchange rate on its balance of trade?
Chapter 3
1- Understand what is meant by a foreign exchange market.
2- Understand what is meant by an exchange rate system.
3- Briefly describe the following exchange rate systems:
Gold standard
Bretton Woods Agreement
Fixed exchange rates
Floating exchange rates
Smithsonian Agreement
4- Understand the nature of the foreign exchange market:
Spot market
Bid/ask spreads
Forward markets
Premium discounts on forward rate
SDRs and ECUs
Cross-exchange rates
Currency futures and options markets
Eurocurrency market
Eurodollar market
Eurocredit market
LIBOR
Eurobond
Chapter 3 - Appendix
1- Understand the rationale of international asset diversification in constructing investment portfolios.
2- Distinguish between methods to invest internationally in equities:
Direct purchase of foreign stocks
Investment in MNC stocks
American depository receipts (ADRs)
International Mutual Funds
Chapter 6
1- Be able to distinguish and explain various exchange rate systems:
Fixed
Freely floating
Managed float
Pegged
Gold standard
2- Explain how governments use direct and indirect intervention to control exchange rates.
3- Explain how government intervention in FX markets can affect economic conditions.
4- Understand the history of US exchange rate systems:
Gold Standard
Bretton Woods Agreement
Smithsonian Agreement
Plaza Accord
Louvre Accord
5- Explain sterilized versus nonsterilized intervention.
6- Detail the European Exchange Rate Mechanism and the movement to the Euro.
7- Detail the advantages and disadvantages of the Euro.
Chapter 5
1- Understand how currency futures and options are used by speculators and hedgers.
2- Be able to distinguish between futures contracts and forward contracts.
3- Understand the risk characteristics of options and futures contracts.
4- Be able to explain the basics of pricing of puts and calls.
5- How to construct contingency graphs for options.
Chapter 4
1- Be able to explain how exchange rate movements are measured.
2- Explain how the equilibrium exchange rate is determined.
3- Examine factors that affect the equilibrium exchange rate.
4- Be able to use and explain a supply/demand model for foreign exchange determination.
5- Understand the methodology of speculating on anticipated changes in exchange rates.
Chapter 7
1- Be able to explain and work problems in:
Locational Arbitrage
Triangular Arbitrage
Covered Interest Arbitrage
2- Understand the market forces behind arbitrage.
3- Explain the concept of Interest Rate Parity and its implications for pricing of forward contracts.
4- Understand that covered interest arbitrage works in other forward markets besides currencies.
Chapter 8
1- Explain purchasing power parity (both relative and absolute).
2- Understand what PPP implies about exchange rate changes.
3- Understand the Fisher equation.
4- Be able to explain the international Fisher effect (IFE) theory and its implications to exchange rate changes.
5- Explain the rational expectations theory and the market forces that could bring it about.
6- Compare and contrast the various theories: IRP, IFE, PPP, and rational expectations.
Chapter 9
1- Distinguish between technical and fundamental forecasting methods.
2- Know the value and problems of exchange rate forecasting.
3- Be able to explain how efficient market theory applies to exchange rate forecasting.
Chapter 10
1- Be able to explain the three types of exchange rate exposure.
2- Understand how correlation between currencies impacts the hedging decision.
3- Understand the basics of how MNC decide whether to hedge exchange rate exposure.
4- Know why estimating the volatility of a currency's rate of change is important to MNCs.
5- Understand the difference between direct and indirect exchange rate exposure.
Chapter 11
1- Identify the commands used and techniques for hedging exchange rate exposure.
2- Explain how each technique can be used to hedge future payables and receivables.
3- Compare the advantages and disadvantages among hedging techniques.
4- Explain other methods of reducing exchange rate risk.
Chapter 12
1- Understand how a MNC's economic and translation exposures can be hedged.
Chapter 1
1- Why is there an "international" finance?
2- Distinguish between international trade and international finance.
3- Understand the role of the U. S. dollar in international finance.
4- Describe reasons that corporations expand internationally.
5- Describe risks faced by Multinational Corporations (MNCs).
6- Explain why comparative advantage leads to international trade.
7- Understand why globalization of business is occurring at a rapid rate.
8- Understand the current international financial environment in which businesses operate.
9- Understand the valuation model for an international firm.
Chapter 2
1- Understand the key components of the balance of payments.
2- Explain how international transactions are influenced by economic factors and other factors.
3- Describe the relationship that must exist between the capital account and current account.
4- Understand the impact of a trade deficit on a nation's economy and why seeking a balanced trade account is not easy.
5- What does the J-curve imply about the impact of a change of a nation's exchange rate on its balance of trade?
Chapter 3
1- Understand what is meant by a foreign exchange market.
2- Understand what is meant by an exchange rate system.
3- Briefly describe the following exchange rate systems:
Gold standard
Bretton Woods Agreement
Fixed exchange rates
Floating exchange rates
Smithsonian Agreement
4- Understand the nature of the foreign exchange market:
Spot market
Bid/ask spreads
Forward markets
Premium discounts on forward rate
SDRs and ECUs
Cross-exchange rates
Currency futures and options markets
Eurocurrency market
Eurodollar market
Eurocredit market
LIBOR
Eurobond
Chapter 3 - Appendix
1- Understand the rationale of international asset diversification in constructing investment portfolios.
2- Distinguish between methods to invest internationally in equities:
Direct purchase of foreign stocks
Investment in MNC stocks
American depository receipts (ADRs)
International Mutual Funds
Chapter 6
1- Be able to distinguish and explain various exchange rate systems:
Fixed
Freely floating
Managed float
Pegged
Gold standard
2- Explain how governments use direct and indirect intervention to control exchange rates.
3- Explain how government intervention in FX markets can affect economic conditions.
4- Understand the history of US exchange rate systems:
Gold Standard
Bretton Woods Agreement
Smithsonian Agreement
Plaza Accord
Louvre Accord
5- Explain sterilized versus nonsterilized intervention.
6- Detail the European Exchange Rate Mechanism and the movement to the Euro.
7- Detail the advantages and disadvantages of the Euro.
Chapter 5
1- Understand how currency futures and options are used by speculators and hedgers.
2- Be able to distinguish between futures contracts and forward contracts.
3- Understand the risk characteristics of options and futures contracts.
4- Be able to explain the basics of pricing of puts and calls.
5- How to construct contingency graphs for options.
Chapter 4
1- Be able to explain how exchange rate movements are measured.
2- Explain how the equilibrium exchange rate is determined.
3- Examine factors that affect the equilibrium exchange rate.
4- Be able to use and explain a supply/demand model for foreign exchange determination.
5- Understand the methodology of speculating on anticipated changes in exchange rates.
Chapter 7
1- Be able to explain and work problems in:
Locational Arbitrage
Triangular Arbitrage
Covered Interest Arbitrage
2- Understand the market forces behind arbitrage.
3- Explain the concept of Interest Rate Parity and its implications for pricing of forward contracts.
4- Understand that covered interest arbitrage works in other forward markets besides currencies.
Chapter 8
1- Explain purchasing power parity (both relative and absolute).
2- Understand what PPP implies about exchange rate changes.
3- Understand the Fisher equation.
4- Be able to explain the international Fisher effect (IFE) theory and its implications to exchange rate changes.
5- Explain the rational expectations theory and the market forces that could bring it about.
6- Compare and contrast the various theories: IRP, IFE, PPP, and rational expectations.
Chapter 9
1- Distinguish between technical and fundamental forecasting methods.
2- Know the value and problems of exchange rate forecasting.
3- Be able to explain how efficient market theory applies to exchange rate forecasting.
Chapter 10
1- Be able to explain the three types of exchange rate exposure.
2- Understand how correlation between currencies impacts the hedging decision.
3- Understand the basics of how MNC decide whether to hedge exchange rate exposure.
4- Know why estimating the volatility of a currency's rate of change is important to MNCs.
5- Understand the difference between direct and indirect exchange rate exposure.
Chapter 11
1- Identify the commands used and techniques for hedging exchange rate exposure.
2- Explain how each technique can be used to hedge future payables and receivables.
3- Compare the advantages and disadvantages among hedging techniques.
4- Explain other methods of reducing exchange rate risk.
Chapter 12
1- Understand how a MNC's economic and translation exposures can be hedged.
