International Finance and Globalization

2020/2021

Academic Year

ENG

Instruction in English

3

ECTS credits

Delivered at:

Faculty of World Economy and International Affairs

Course type:

Elective course

When:

3 year, 1 module

Instructor

Khromova (Fokina), Ella

Course Syllabus

Abstract

The course International finance and globalization is an introductory one-module course for third-year undergraduate students. The course is taught in English. Russian is used as supplementary language to explain basic concepts and introduce some Russian terminology. The first part of the course is devoted to with principles of international banking. It compares different banking systems all over the world and discusses the role and rationale of financial intermediation in the economy, the standard tools of risk management for financial institutions, and the regulation of the banking system. The second part deals principles of international finance (capital markets). It covers the essentials of capital budgeting and securities valuation, as well as instruments for construction of a well-diversified portfolio.

Learning Objectives

• To acquaint students with the principles of the financial theory
• To examine types of financial intermediaries and the ways of their functioning in the modern financial markets
• To identify banking risks and methods of their management, as well as the rationale for their regulation under Basel control
• To highlight the main differences between financial systems across countries and the reasons and consequences of the financial crises
• To study the concept of time value of money by recognizing the principles of present value and discounting
• To evaluate different investment projects and obtain asset pricing skills such as valuation of bonds, stocks and derivatives and the risks they carry

Expected Learning Outcomes

• The main learning outcome of the course is the ability to construct a well-diversified investment portfolio that will have some forecasted risk and return. The portfolio can contain such financial instruments like bonds, stocks and derivatives like options and futures.

Course Contents

• Cross-country comparison of financial systems
  Bank-based (Japan, Germany, France) and market-based (USA, UK) systems. Emerging markets. Financial crises: banking, currency and debt crises. Disintermediation. Financial crises
• A Nature of Financial intermediation
  Types of intermediaries: Mutual funds, Pension funds, Insurance companies, Banks (retail, wholesale, investment banks). Why do financial intermediaries exist? Transaction costs. Asymmetric information: adverse selection and moral hazard, principal-agent problem. Maturity, size and risk transformation.
• Capital Budgeting and Project Valuation
  Methods of project's valuation. Cash Flows. The concept of present value. Discount rate. Annuities and Perpetuities. Appraisal techniques: NPV, IRR, Payback period, Discounted Payback period.
• Financial instruments
  Equity (common stock, preferred stock), Bonds (riskless vs risky, zero-coupon, coupon-paying, maturity, convertibles), derivatives (futures, forwards, options). Discount rates (risk-free, yield curve, country premium)
• Valuation of Bonds
  Coupon and Discount Bonds. Corporate bonds. Yield Curve. Yield to maturity. Duration of a bond.
• Valuation of Stocks
  Fair Price versus Market price. Discounted Cash Flows (DCF) Models. Dividends. Gordon Growth Model.
• Construction of a diversified portfolio
  Mathematical characteristics of risk and return. Mean- variance portfolio theory. The risk and return of the portfolio. Correlation of returns. Risk-return trade-off. Diversification. Risk premium. Systematic and non-systematic risks.

Assessment Elements

• Home assignments
  The course contains 2 obligatory home assignments after the Banking section and after the Capital markets section of the course. Both Home assignments have equal weights and are evaluated out of 10-point scale. If a student wants to increase her grade she can do an additional (optional) home assignment that may cover up to 10% of the course.
• Participation during lectures and classes
  Students are expected to attend every lecture and class and participate by contributing to the in-class discussions and problem solving. In the case if a student cannot attend offline lecture and classes due to COVID reasons, the weight of this form of control is transformed to Home Assignments.
• Group project
  The project can be presented offline during the class or online via Zoom.
• Final written exam
  Final written exam is held during an exam week. The exam is obligatory and cannot be covered by the cumulative grade. The exam lasts 120 minutes and contains 8 problems that includes some essays and problem- solving tasks similar to home assignments and class problems. For those students that cannot attend offline exam due to COVID reasons a separate exam with proctering tools will be held.

Interim Assessment

• Interim assessment (1 module)
  0.3 * Final written exam + 0.4 * Group project + 0.15 * Home assignments + 0.15 * Participation during lectures and classes

Bibliography

Recommended Core Bibliography

• Corporate finance, Berk, J., 2007
• Financial institutions management : a risk management approach, Saunders, A., 2018
• Financial markets and institutions, Mishkin, F. S., 2018
• Principles of corporate finance, Brealey, R. A., 2017

Recommended Additional Bibliography

• Modern banking in theory and practice, Heffernan, S., 2001