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Dr. Noureen Adnan Academic

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Presentation on theme: "Dr. Noureen Adnan Academic"— Presentation transcript:

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

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

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