| |UNIVERSITI TUNKU ABDUL RAHMAN (UTAR) |
| |FACULTY OF ACCOUNTANCY AND MANAGEMENT |
| | |
| |Bachelor of International Business (Hons) |
| | |

| |Unit Code & |UKFF4024 |
| |Unit Title: |MULTINATIONAL FINANCE |
| |Course of Study: |Bachelor of International Business (Hons) |
| |Year of Study: |Year Three, Trimester Two |
| |Trimester Year |Jan 2016 |
| |Credit Hour: |4 credit hours |
| |Lecturing hours and |3 hours lecture per week for the duration of 14 weeks |
| |Tutoring hours |1.5 hours tutorial per week for the duration of 14 weeks |
| |Lecturer: |Miss Tan Kok Eng (tanke@utar.edu.my) (K629) |
| |Tutor: |Miss Tan Kok Eng (tanke@utar.edu.my) (K629) |
| |Moderator |Ms. Siti Nurhidayah Mohd Roslen |
| |Mode of delivery |Lectures and Tutorials |
| |Objectives: |This unit offers the field of study that focuses on business activities that cross national boundaries. It |
| | |includes exports and imports as well as foreign direct investment (FDI) and raising finance in foreign capital |
| | |markets. Besides that, this unit provides basic understanding on how multinational enterprises (MNEs) use |
| | |various hedging strategies to reduce exchange rate risk and formulate global business strategies to deal with |
| | |intensified competition globally. The aim is to provide a panorama of the most important activities in |
| | |international business and to offer a framework of working from managerial perspective. |
| |Learning Outcomes: |Upon completion of this unit, students will be able to: |
| | |1. Recognise the role of financial management in a multinational enterprise. |
| | |2. Differentiate between various exchange rate systems and explain the pros and cons of each system. |
| | |3. Explain how trade and capital flows affect a country’s Balance of Payments, and analyse factors that caused |
| | |changes in trade and capital flows; explain how Balance of Payments changes and exchange rate changes influence|
| | |multinational enterprise’s decision making. |
| | |4. Explain how foreign exchange market functions; differentiate between bid and ask rates, spot and forward |
| | |rates; compute cross rates, forward premiums and discounts. |
| | |5. Explain the relationship between exchange rates, interest rates and inflation rates; apply Interest Rate |
| | |Parity and Purchasing Power Parity to compute arbitrage profits; explain factors that influence the demand and |
| | |supply of a currency and how they affect exchange rates. |
| | |6. Explain how governments intervene in foreign exchange market and affect exchange rates. |
| | |7. Differentiate between transaction, economic and translation exposures; apply various techniques to hedge |
| | |transaction and economic exposures. |
| | |8. Compute the payoffs from forward market hedge, money market hedge and options hedge. |
| | |9. Recognise the features of foreign currency futures, options and swaps and illustrate how these instruments |
| | |could be used to hedge currency risks. |
| | |10. Identify alternative sources of financing for a multinational enterprise and analyse how a multinational |
| | |enterprise make capital structure decision. |
| | |11. Describe various methods to undertake foreign direct investment. |
| | |12. Appraise the profitability of potential foreign investment projects using Adjusted Present Value Model, |
| | |coupled with risk-adjustment and sensitivity analysis. |
| | |13. Explain how multinational enterprise manages its cash in practice and describe various methods of |
| | |international trade financing. |
| |Reading List: |Main Text Books: |
| | |1. Eun, C., Resnick, B. G., Ng, K.K., Tee, P.L., & Maran, M. (2011). International financial management. |
| | |McGraw-Hill. |
| | |2. Moffett, M. H., Stonehill, A. I., & Eiteman, D. K. (2006). Essentials of global finance (2nd ed.). Boston: |
| | |Pearson Addison Wesley. |
| | |3. Madura, J. (2010). International corporate finance (10th ed.). Ohio: Thomson South-Western. |
| | | |
| | |Supplementary Reading: |
| | |4. Crum, R. L., Brigham, E. F., & Houston, J. F. (2005). Fundamentals of international finance. Florida: |
| | |Thomson South-Western. |
| | |5. Homaifar, G. A. (2004). Managing global financial and foreign exchange rate risk. New Jersey: John Wiley & |
| | |Sons. |
| | |6. Melvin, M. (2004). International money and finance (7th ed.). Boston: Pearson Addison Wesley. |
| | |7. Moosa, I. A. (2004). International finance: An analytical approach (2nd ed.). Sydney: McGraw-Hill Irwin. |
| | |8. Shapiro, A. C. (2005). Foundations of multinational financial management (5th ed.). New Jersey: John Wiley &|
| | |Sons. |
| |Method of Assessment: |METHOD OF ASSESSMENT |
| | |Coursework (40% of Total Assessment) |
| | |Components of Coursework |
| | |Marks |
| | |Weightage of Total Assessment |
| | | |
| | |a. Mid-Term Test |
| | |40 marks |
| | |16% |
| | | |
| | |c. Group Assignment |
| | |60 marks |
| | |24% |
| | | |
| | |Total |
| | |100 marks |
| | |40% |
| | | |
| | | |
| | |Component a: Mid-Term Test |
| | |This test consists of 30 multiple choice questions. It will be held in WEEK 6 and will cover Topic 1 to Topic 3|
| | |(refer Teaching Plan below). |
| | | |
| | |Component b: Assignment (Group) |
| | |Students are advised to strictly comply with all requirements stated for the assignment. Students are required |
| | |to group themselves into a group of at least FOUR or a maximum of FIVE members and register their grouping with|
| | |respective tutor by WEEK 1 or ten (10) marks will be deducted for any delay in registration. Each assignment |
| | |group is required to select a pair of multinational corporations (MNCs) to analyse on. Assignment groups from |
| | |the same tutorial group are not allowed to choose the same pair of MNCs for analysis. No changes are allowed |
| | |after the submission. Lead lecturer’s approval must be obtained if there is any change in the number of |
| | |students due to withdrawal from the unit. |
| | | |
| | |Assignment will be submitted in WEEK 9. All assignment groups are required to submit their work according to |
| | |the format stated in assignment question. Failure submit assignment on the due date will be subject to Late |
| | |Submission Penalty Clause. |
| | | |
| | |Any assignment groups that are caught plagiarising or letting part or whole of their work to be plagiarised |
| | |will be penalised, with all the groups involved be awarded ZERO (0) mark for the assignment. In addition, the |
| | |students involved could face disciplinary action from the University. (please read Plagiarism below) |
| | | |
| | |Late Submission Penalty Clause |
| | |Deadline for submission of assessment item(s) is to be strictly adhered to. No extension of time will be |
| | |allowed except in extenuating circumstances, e.g. medical reasons. Students who wish to apply for extension of |
| | |time for submission of assessment item(s) after the due date shall put in writing the request together with |
| | |validated documentary evidence to support the application to his/her class tutor. The lead lecturer may |
| | |consider and grant such extension of due date for the assessment item(s) based on the tutor's recommendation. |
| | |Any assessment item required by the Coursework Assessment which is submitted after the due date, without an |
| | |approved extension, will be penalised. A penalty of 10% (from awarded marks) for each calendar day of delay |
| | |from the specified deadline will apply. No assignment submitted FIVE (5) calendar days after the due date will |
| | |be accepted and hence the assignment will be awarded ZERO (0) mark. |
| | | |
| | | |
| | |Final Examination (60% of Total Assessment) |
| | |The final examination for this unit will be based on a three (3) hours closed-book written examination. In |
| | |Section A (40 marks), students are required to answer one compulsory question. In Section B (60 marks), |
| | |students are required to answer any 2 questions of 30 marks each out of 3 questions. |
| | | |
| | |Aggregate Marks |
| | |Students must achieve at least 50 marks out of the aggregate marks for coursework and final examination in |
| | |order to Pass this unit with a grade C. Failure to achieve this will result in repeat for this unit in future |
| | |trimester. |
| | | |
| | | |
| |Remarks |INDEPENDENT LEARNING |
| | |As a third year university student, you are expected to undertake independent learning and reading up on each |
| | |topic in addition to attending lectures and tutorials each week. To assist you to do this, a schedule of |
| | |recommended reading has been prepared. International finance is a dynamic subject and you are also expected to|
| | |keep up-to-date with current events by reading the financial pages of the newspapers and financial magazines, |
| | |such as www.imf.org, www.adb.org, www.ft.com www.bnm.gov.my, biz.thestar.com.my, www.nst.com.my, , |
| | |www.awsj.com, www.theedgedaily.com, etc. |
| | | |
| | | |
| | |ACADEMIC REGULATIONS |
| | | |
| | |Plagiarism |
| | |Plagiarism is defined as the submission or presentation of work, in any form, which is not one's own, without |
| | |acknowledgment of the sources. If a student obtains information or ideas from an outside source, that source |
| | |must be acknowledged. Another rule to follow is that any direct quotation must be placed in quotation marks and|
| | |the source immediately cited. Plagiarism is also defined as copy of all or part of the work of another |
| | |student(s) of current or previous batch of this University or another higher learning institution. |
| | | |
| | |The University's degree and other academic awards are given in recognition of the candidate's personal |
| | |achievement. Plagiarism is therefore considered as an act of academic fraudulence and as an offence against |
| | |University discipline. |
| | | |
| | |Intellectual Property |
| | |Copyright must be seriously protected. The University takes a strong stand against any illegal photocopying of |
| | |textbooks and any other materials by students. Students are forewarned of the consequences and the penalty that|
| | |may be meted out if they are "caught in the act". |
| | | |
| | | |
| | |Mode of Referencing |
| | |Students are advised to incorporate proper academic modes of referencing. The normally acceptable mode of |
| | |academic referencing is the American Psychological Association (APA) system. |
TEACHING PLAN - WEEKLY SCHEDULE

|Week |Lecture Topic |Tutorial Topic |Assignment/Test |Reference |
|1. |Topic 1: Multinational Financial Goals |Tutorial 1 |Group Assignment |Moffett |
|18/1 – 24/1 |Multinational Financial Management |Description of Assignment.| |(Chapter 1) |
| |Globalisation: Transitions from | |Date given: Week 1 |Eun et al |
| |Domestic Phase to International Phase |Clarify what are required |Due date: Week 9 |(Chapter 1) |
| |to Multinational Phase |from students for this |Description: |Madura |
| |Shareholder Wealth and Corporate Wealth|unit. |Assignment |(Chapter 1) |
| |Maximization | | | |
|2. |Topic 2: The Balance of Payments |Tutorial 2 | |Moffett |
|25/1 – 31/1 |Typical BOP Transactions |(Topic 1) | |(Chapter 3) |
| |Fundamentals of BOP Accounting |Minimum 4 questions to be | |Eun et al |
| |BOP Flow Statement |answered and will be | |(Chapter 2) |
| |Current Account and Capital Account |discussed in tutorial | |Shapiro |
| |Direct Investment and Portfolio |class. | |(Chapter 5) |
| |Investment | | |Madura |
| |BOP in Total: Surplus and Deficit | | |(Chapter 2) |
| |Capital Mobility | | | |
| |Factors affecting the BOP position | | | |
| |Correcting a Balance of trade deficit | | | |
|3. |Topic 3: International Monetary System |Tutorial 3 | |Moffett |
|01/2-07/2 |History of the International Monetary |(Topic2) | |(Chapter 2) |
| |System |Minimum 4 questions to be | |Eun et al |
| |Exchange Rate Systems |answered and will be | |(Chapter 3) |
| |Fixed exchange rate, Freely and Managed|discussed in tutorial | |Madura |
| |Floating exchange rate, Pegged exchange|class. | |(Chapter 6) |
| |rate | | | |
| |Currency Boards | | | |
| |Dollarization | | | |
| |The Birth of Euro Currency | | | |
| |Sterilized and Non-sterilized | | | |
| |Interventions | | | |
| |Government Intervention on Exchange | | | |
| |Rate | | | |
|4. |Topic 4: The Foreign Exchange Market |Tutorial 4 | |Moffett |
|08/2– |Foreign Exchange Market |(Topic 3) | |(Chapter 6) |
|14/2 |Market Participants |Minimum 4 questions to be | |Eun et al |
| |Interbank and Client Markets |answered and will be | |(Chapter 4) |
| |Foreign Exchange Rate & Quotations |discussed in tutorial | |Madura |
| |Bid and Ask Rates |class. | |(Chapter 3) |
| |Cross Rates | | | |
| |Intermarket Arbitrage | | | |
| |Spot and Forward Rates, Premiums and | | | |
| |Discounts | | | |
|5. |Topic 5: International Parity |Tutorial 5 | |Moffett |
|15/2 – |Conditions |(Topic 4) | |(Chapter 4) |
|21/2 |Prices and exchange rates |Minimum 4 questions to be | |Eun et al |
| |Purchasing Power Parity (PPP) |answered and will be | |(Chapter 5) |
| |Fisher Effect |discussed in tutorial | |Madura |
| |International Fisher Effect |class. | |(Chapter 7 & 8) |
| |Interest Rate Parity (IRP) | | | |
| |Covered and Uncovered Interest | | | |
| |Arbitrage | | | |
| |Locational Arbitrage | | | |
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|6. |Topic 6: Exchange Rate Determination |Tutorial 6 |Mid-Term Test |Madura |
|22/2 – |Factor affecting supply and demand for |(Topic 5) |Topic 1 to 3 |(Chapter 4 & 9) |
|28/2 |foreign exchange rates |Minimum 4 questions to be | |Eun et al |
| |Expectation |answered and will be |30 multiple choice questions |(Chapter 6) |
| |Speculation in foreign exchange market |discussed in tutorial | | |
| |Exchange Rate Forecasting |class. | | |
|7. |Topic 7: Foreign Currency Derivatives |Tutorial 7 | |Moffett |
|29/2 – |Foreign Currency Futures |(Topic 6) | |(Chapter 7) |
|06/2 |Foreign Currency Options |Minimum 4 questions to be | |Eun et al |
| |Net Payoff for Options Buyer or Seller |answered and will be | |(Chapter 7) |
| |Pure Spot Market Speculation |discussed in tutorial | | |
| |Forward Market Speculation |class. | | |
| |Options Market Speculation | | | |
| | | | | |
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|8. |Topic 8: Measuring Foreign Exchange |Tutorial 8 | |Moffett |
|07/2 – |Exposure |Discuss Mid-Term Test. | |(Chapter 8, 9 & 10) |
|13/3 |Types of Exposure: Transaction, | | |Eun et al |
| |Economic and Translation | | |(Chapter 9) |
| |Why Hedge? | | |Madura |
| |Techniques to eliminate Transaction | | |(Chapter 10 & 11) |
| |Exposure: | | | |
| |Futures Hedge, Forward Hedge, Money | | | |
| |Market Hedge, Option Hedge, Leading and| | | |
| |Lagging, Cross-Hedging, Exposure | | | |
| |Netting | | | |
| |Comparison of Hedging Techniques | | | |
| |Limitations of Hedging | | | |
| | | | | |
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|9. |Topic 9: Managing Foreign Exchange |Tutorial 9 |Assignment Due |Moffett |
|14/3 – |Exposure |(Topic 7) |Submit on the day of lecture.|(Chapter 8, 9 & 10) |
|20/3 |Techniques to reduce Economic Exposure:|Minimum 4 questions to be | |Eun et al |
| | |answered and will be | |(Chapter 10 & 11) |
| |Selecting Low Cost Production Site, |discussed in tutorial | |Madura |
| |Diversification of Markets, Flexible |class. | |(Chapter 12) |
| |Sourcing Policy | | | |
| | | | | |
| | | | | |
| |Topic 10: Currency and Interest Rate | | |Moffett |
| |Swap | | |(Chapter 14) |
| |Management of Interest Rate Risk | | |Eun et al |
| |Interest Rate Swap | | |(Chapter 8) |
| |Currency Swap | | | |
| |Unwinding Currency Swap | | | |
| |Cross-Currency Interest Rate Swap | | | |
| | | | | |
| | | | | |
|10. |Topic 11: Multinational Cost of Capital|Tutorial 10 | |Madura |
|21/3 – |and Capital Structure |(Topic 8 & 9) | |(Chapter 17 & 18) |
|27/3 |Weighted Average Cost of Capital |Minimum 4 questions to be | |Eun et al |
| |Country differences in cost of debt and|answered and will be | |(Chapter 13) |
| |equity |discussed in tutorial | | |
| |Capital Asset Pricing Model under |class. | | |
| |cross-listing | | | |
| |Using the cost of capital to assess | | | |
| |foreign projects | | | |
| |MNE's Capital Structure Decision | | | |
| |Interaction between subsidiary and | | | |
| |parent financing decisions | | | |
| |Target capital structure: local versus | | | |
| |global | | | |
| |Sources of short-term financing | | | |
| |Effective Financing Rate | | | |
|11. |Topic 12: Multinational Capital |Tutorial 11 | |Madura |
|28/3 – |Budgeting |(Topic 8 &9) | |(Chapter 14) |
|03/4 |Revision of domestic capital budgeting |Minimum 4 questions to be | |Eun et al |
| |Adjusted Present Value (APV) model |answered and will be | |(Chapter 14) |
| |Capital budgeting from parent firm’s |discussed in tutorial | | |
| |perspective |class. | | |
| |Sensitivity analysis | | | |
| |Real option | | | |
| | | | | |
| |Topic 13: Foreign Direct Investment | | | |
| |Motives for FDI | | | |
| |Comparing Benefits of FDI Among | | | |
| |Countries | | |Madura |
| |International Diversification Benefits | | |(Chapter 13) |
| |Government Incentives and Barriers | | |Moffett |
| |How to invest abroad? | | |(Chapter 16) |
| | | | |Eun et al |
| | | | |(Chapter 12) |
|12. |Topic 14: Multinational Cash Management|Tutorial 12 | |Madura |
|04/4 – 10/4 |The management of international cash |(Topic 11) | |(Chapter 21) |
| |balances |Minimum 4 questions to be | |Eun et al |
| |Bilateral netting of internal and |answered and will be | |(Chapter 15) |
| |external net cash flows |discussed in tutorial | | |
| |Reduction in precautionary cash |class. | | |
| |balances | | | |
| |Transfer pricing and related issues | | | |
| |Blocked funds | | | |

|Week |Topic | | |Reference |
|Week 13 |Topic 15: Financing International Trade|Tutorial 13 | |Madura |
|11/4 – |Financing International Trade |(Topic 13) | |(Chapter 19) |
|17/4 |Payment Method: Prepayment, Letter of |Minimum 4 questions to be | |Eun et al |
| |Credit, Bills of Exchange, |answered and will be | |(Chapter 16) |
| |Consignments, Open Accounts |discussed in tutorial | | |
| |Trade Finance Method: Accounts |class. | | |
| |Receivable, Factoring, Letter of | | | |
| |Credit, Banker's Acceptance, Working | | | |
| |Capital Financing, Forfaiting, | | | |
| |Contertrade | | | |
|Week 14 |Revision |Tutorial 14 | | |
|18/4 – | |(Topic 14 & 15) | | |
|24/4 | |Minimum 4 questions to be | | |
| | |answered and will be | | |
| | |discussed in tutorial | | |
| | |class. | | |

This Unit Plan is
|Prepared by: |Moderated by |Approved by: |
| | | |
| | | |
| | | |
| | | |
| | | |
|Lecturer in charge |Moderator |Head of Department Economics |
|Miss Tan Kok Eng |Ms. Siti Nurhidayah Mohd Roslen |Mr. Sia Bik Kai |
|Date |Date |Date |

Note: The information provided in this Unit Plan is subject to change by the Lecturer. Students shall be notified in advance of any changes.