Dr. Karl V. Lins R.

Thayne Robson Faculty Fellow and Associate Professor of Finance

Spring 2009

FINANCE 4550 International Financial Management

Section 1 (MW from 7:30 to 8:50 am) Section 2 (MW from 2:00 to 3:20 pm)

Course Materials The required materials for the course are: The course pack including the syllabus and lecture notes; this is available from the University Copy Center in the Student Union building. The text: International Financial Management Fourth Edition, authored by Eun and Resnick published by Irwin, McGraw-Hill, 2007. Calculator: Hewlett-Packard 10-BII financial calculator (about $35). I will often work problems in class using special keys on this calculator. To get the most out of class sessions, it is important that you bring your HP 10-BII every day. It is inefficient to deal with describing multiple calculators functions so if you choose another be sure you can familiarize yourself with its functions on your own. NOTE: WebCT has the syllabus and will have Homework Solutions posted at appropriate times. Highly recommended materials for the course are: The Economist Magazine and The Wall Street Journal: We will sometimes read and/or discuss current business events and historical perspectives and The Economist and the WSJ are excellent sources of news and analysis for factors that affect business in an international context. Much of the same information can also be obtained from various websites with wire reports so these subscriptions are not mandatory.

Prerequisites Students are expected to have completed Finance 3040 or equivalent.

Course Objective The course addresses the basics of finance from an international perspective and focuses on the theory and practice of international financial management. We will look how international factors affect the operating, investing, and financing functions of a firm and what managers can do to maximize the value of the firm. At a minimum, the objectives of the course are to: Understand the underlying rationale for international trade Understand the role of foreign exchange and how it affects both multinational and domestic-only firms Understand the effects of political risk on the multinational firm Understand the use of currency forward, futures, and options contracts and their role in hedging risk in the firms cash flows. Understand how to pose and analyze the capital budgeting decision of the multinational firm Understand the importance of corporate governance for investing decisions

These goals are deliberately broad, and allow room for modification if class members are interested in a specific problem. Current events are always fair game for classroom discussion and detours. The course is structured around lecture, examples, homework, and cases. The only way to become comfortable with international finance techniques is to practice them, so it is important that each one of you personally work through all aspects of the problems and cases that are assigned throughout the semester. Homework:

Homework Assignments: Problems will be assigned that correspond to the lecture material, as the material is covered in class. These problems will not be collected and will not be graded. They are certainly supposed to be completed by each student by the due date. I will post solutions to the homework immediately after it the date for which it is due to be completed.

Exams: Midterm Exam: There will be one midterm exam given near the middle of the semester. The midterm will comprise 35 percent of the course grade. Final Exam: There will be a final exam for this course given at the normal universityscheduled time period. The exam will last 2 hours as that is the official time allocated. The final exam will be comprehensive in nature; however the bulk of the material will be geared toward the second half of the course. The final exam will comprise 40 percent of the course grade Cases: In this course, we will work two cases in teams of three to four students. One is a regular case and one is a final case. Details regarding each are below. IT IS UP TO EACH STUDENT TO FORM A GROUP OF THREE TO FOUR STUDENTS THAT SUITS HER/HIM. If a student wishes to do the case solo or with one other classmate, that is fine but is not encouraged (multiple viewpoints make for a fruitful case analysis experience). I will grade the cases and will turn back the regular case (see below). On the last day of class, I will distribute a confidential case teammate evaluation sheet that I will require each of you to fill out and turn in on that day (thus, it is mandatory). Regular case: Once we learn how to use hedging instruments, we will do a two-part case on a company (Dozier Industries) that just made its first international business move (a bid for an overseas contract) and has already gotten itself into a significant unhedged currency exposure. For this case we will figure out what they can do going forward and what they should have done to begin with. Each team will submit one write-up for the case. The case writeup should be no longer than three pages of double-spaced text, not including any supporting documentation. All exhibits, such as figures, tables, spreadsheet analysis description, sample calculations, etc., should be clearly labeled and referenced. Students are expected to have many questions about the case as a result of their preparation and their solution to the case we can then explore these questions in class where I will devote a full day to assessing the case issues and solutions. The regular case will account for 10% of the course grade. Final case: Toward the end of the class, we will do our best to think critically and strategically about applying international cash flow analysis techniques to a case regarding Dow Chemicals decision to acquire a chemical manufacturer in Argentina. This case analysis will be a bit more difficult in nature. The case writeup should be no longer than five pages of double-spaced text, not including figures and tables and any supporting documentation. All exhibits, such as figures, tables, spreadsheet analysis description, sample calculations, etc., should be clearly labeled and referenced. Each

team will submit one write-up for the case. The Final case will constitute 15 percent of the course grade. Case Teammate Evaluation: On the last day of class, I will distribute a confidential case teammate evaluation sheet that I will require each of you to fill out and turn in on that day. This evaluation is required and it helps me to understand whether any team member did not perform her/his work in a satisfactory fashion compared to what was asked of the team member.

Class Participation: It is extremely helpful to the learning environment for us to have an open, active, and competent dialogue throughout each class section. Each student is expected to be prepared for class and to contribute to class discussions.

Absences: I ask that you please make every possible effort to attend all of the class sessions. Who knows, class may even be fun! If you are unable to attend one (or more) classes, it will be up to you to ensure that you read over missed notes, work all problems, and turn in items that are due on the class day. I will not accept or grade items that are turned in late. Also, later in the semester, we will be working on cases in teams and you will want to be a good team member so please make sure that you make up missed time in other ways that help your team. I will not go picking on students that are absent, but absences relating to case work may affect whether your grade on team projects is adjusted based on confidential teammate evaluations at the end of the course.

What is and is not allowed for exams and cases: Exams: the exams will be in-class exams and are to be taken without the assistance of books, notes, or other people. I will provide a formula sheet for each exam with basic formulas no other papers can be used. I will provide the formula sheet in advance so you will know what will be available to you on the test. A calculator is permitted, but calculators that allow the storage of text may not be used unless all the stored text is cleared prior to the exam. You may study for exams with fellow classmates, of course, and this is encouraged.

Regular Case and Final Case: All students may work only with their case team members on the final case project. You may ask questions of a general nature of other students and of me.

Grade Determination Final grade assignments will depend upon your overall performance and will be determined as objectively as possible based on the following weights: Midterm Regular Case Final Case End of Semester Final Exam Total 35% 10% 15% 40% 100%

Americans with Disabilities Act The Finance Department of the David Eccles School of Business seeks to provide equal access to its programs, services, and activities for people with disabilities. If you will need accommodations in this class, reasonable prior notice needs to be given to me and to the Center for Disability Services, 162 Olpin Union Building, 581-5020 (V/TDD) to make arrangements for accommodations. All written information in this course can be made available in alternate format with prior notification to the Center for Disability Services.

Instructor Office Hours and Contact Information I will conduct office hours on Monday and Wednesday from 3:40 pm until 5pm. These hours have been selected to best serve a range of students. PLEASE NOTE THAT THE FIRST MONDAY OF EVERY MONTH I WILL NOT BE HAVING OFFICE HOURS BECAUSE I SERVE ON THE UNIVERSITYS ACADEMIC SENATE AND THIS TIME SLOT IS WHEN THE SENATE MEETS. In general, you may reach me at my office much of the time during the week if these times are not convenient; the number is (801) 585-3171. You may also email me with questions or requests at finkvl@business.utah.edu. My office is in KDGB 222. Importantly, I will maintain a webpage devoted entirely to this class. On it you will see items such as homework assignments and solutions to the homework or mini cases (after the due date). WebCT/Blackboard will be the delivery mechanism for course materials over the web.

If you are curious about my research areas and other aspects of my background, my web address is: www.business.utah.edu/~finkvl

Grade Distribution: In the absence of remarkable circumstances, letter grades are supposed to conform to the DESB grading guidelines. Guidelines for the average class grade are: COURSE LEVEL 1000-2000 3000-3990 4000-5990 6000-6990 Class Schedule I have not imposed a rigorous daily schedule so as to maintain flexibility. Reading assignments and topics for each of the sections are shown below. I will let students know which material will covered and will assign problems at least one week in advance. Important Dates are listed below: Midterm Exam: Wednesday, Feb 25 (Note that the last day to withdraw is March 6 I will have the midterm graded at least by Feb 27) Regular Case due: Wednesday March 11 Spring Break: March 16-21 Final Case due: Monday April 27 Final Review Day and last day of class: Wednesday April 29 (no new material covered that day). Final Exams are at the following times and these times are mandated by the University: Section 1 (7:30 am M, W): Tuesday, May 5 from 8 to 10 am Section 2 (2:00 pm M, W): Wednesday, May 6 from 1 to 3 pm GUIDELINE 2.4-2.8 2.6-3.0 2.8-3.2 3.1-3.5

See next page for an outline of the topics we will cover. Following that, I have listed the questions to be addressed in the two cases we will work.

Outline for Progression of the Course: Topic Globalization Overview of Intl Financial Management International Monetary System Balance of Payments Foreign Exchange International Parity Relationships and Exchange Rate Forecasts Options Basics

Readings from Eun and Resnick Ch 1, including appendix Ch 2 Ch 3 Ch 5 Ch 6

Futures and Options on Foreign Exchange Hedging Exchange Rate Risk Dozier Cases A,B (emphasizes the above topics) Raising Capital in Global Markets Assessing International Risks Cross Border Valuation and Capital Budgeting International Corporate Governance of Firms Dow PBB Argentina Case (emphasizes primarily the remaining topics covered after Dozier)

See notes primarily; can also reference basic corporate finance texts Ch 7 Ch 8

Ch 12, Ch 13 See notes primarily; Can also skim the chapters 16, 17 See notes primarily; Can also skim the chapters 16, 17 Ch 4

See case questions on next page.

Case Questions: I. Dozier Industries. This assignment is actually for two cases, Dozier Industries A and B. They will be solved as if they are one big case. Case numbers are: UVA-F-0745 and UVA-F-0746 Address the following questions in your analysis: 1. Should Dozier Industries hedge its exchange rate risk? Remember, one option is not to hedge at all.

2. Regardless of your answer to (1), calculate the payoffs to all possible hedging policies, including forward contracts, money market hedges, and options. What is the preferred solution? Justify your answer in terms of Doziers current situation and future strategy.

3. Comment on the bidding strategy that Dozier used to secure the contract.

4. Are there any alternatives to hedging with financial contracts that Dozier might have considered?

II. Dow Chemicals Bid for PBB Argentina Case Number is: HBS # 204021 Address the following questions/comments in your analysis: 1. Read over the material and decide on the price you would bid for PBB Argentina. For convenience, even though the bid date in the case is November 1995, use the year end 1995 numbers in your analysis as if all of the 1995 cash flows were relevant to Dow. 2. Justify the specific cash flows and the discount rate that you use in your analysis. 3. Mention important factors that lead you to your bidding decision.