International Financial Management
Course Number 1470
Associate Professor C. Fritz Foley
Fall; Q1; Q2; 3 credits
Most finance courses and textbooks implicitly assume that firms operate in only a single country and that differences between countries are irrelevant. However, since the end of World War II, the foreign activities of firms have grown substantially, and this growth, if anything, appears to be accelerating. Firms of all types and sizes now face decisions about how to best obtain and deploy resources abroad. Furthermore, significant differences between countries have persisted, and these give rise to considerable variation in the prevalence of market imperfections.
As a consequence, basic financial decisions now involve cross-border complexities. Choices about raising capital, investment, risk management, acquisition activity, restructuring, and other aspects of financial policy typically involve international considerations. When making these choices, managers must analyze exchange rates, differences in tax rules, country risk factors, and variation in legal regimes. This course provides the foundations for learning how finance works in this rich cross-border setting.
IFM is intended for students who will be involved in cross-border investment and financing decisions as multinational firm managers, transaction advisors (investment bankers, commercial bankers, or consultants), or investors (research analysts or money managers). Students seeking to reinforce the foundations of finance with particular attention to issues related to international finance and economics are also encouraged to enroll.
The goal of the course is to provide students with a deep understanding of financial management issues in a global setting. The course aims to help students develop analytical tools that incorporate key international considerations into fundamental financial decisions. The cases provide opportunities to build the skills needed to create and capture value across borders.
Course Content and Organization
IFM has four distinct modules:
- Currencies and Asset Prices:
This module provides basic theories and fundamental tools that will be used in the rest of the course. What are the basic mechanics of exchange rates? What determines asset prices in global markets, and how do currencies influence stock prices?
- Multinational Financial Decision Making:
This module considers several of the central financial decisions multinational firms must make concerning capital structure, risk management, and tax optimization. How should firms capitalize subsidiaries around the world? When should firms partner with local firms? How are firms exposed to exchange rates, and how should firms hedge those exposures? How do tax considerations factor into internal financial decision-making?
- Cross-border Valuation and Financing:
This module covers how valuation techniques and financing decisions must be modified in a cross-border setting. How should firms think about the cost of capital around the world? How should investments in emerging markets be evaluated? How can firms capitalize on market imperfections in their financing and investment decisions?
- Institutions and Finance:
This module considers how differing institutional arrangements, both formal and informal, impact financial decision-making. Professor Foley will focus on how differences in legal regimes, especially differences in the legal protection of creditors and shareholders, affect investment and restructuring decisions. Professor Jin will focus on investing in emerging markets using cases on M&A and PE transactions in China, with an emphasis on the importance of informal institutional arrangements and relationship building.