Discipline Specific Elective (DSE) — Finance Track

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Parameter	Details
Course Code	DSE-Fin01
Course Title	International Financial Management
Course Type	Discipline Specific Elective (Finance Track)
Credits	4
L-T-P	3 – 1 – 0
Contact Hours	4 hours per week (3 Lectures + 1 Tutorial)
Total Hours (Semester)	60 hours (15 weeks)
Offered in	Semester V / VI / VII / VIII
Prerequisites	CC403 Financial Management
Assessment	Internal (40 marks) + External (60 marks) = 100 marks

1. Course Description

International Financial Management introduces students to financial management from the perspective of a global corporation operating across national boundaries. In an increasingly integrated world economy, financial managers must navigate the complexities of multiple currencies, diverse regulatory environments, international capital markets, and geopolitical risks. This course equips students with the theoretical frameworks and practical tools needed to make sound financial decisions in the international context.

Students will explore the structure and functioning of foreign exchange markets, the determinants and management of exchange rates, mechanisms of balance of payments, and the strategies for raising capital and making investments across borders. Through a blend of theoretical concepts, numerical problem-solving, case study analysis, and exposure to real-world currency events, the course prepares students for roles in corporate treasury, international banking, global portfolio management, and multinational financial consulting.

2. Course Objectives

On completion of this course, students will be able to:

1. Understand the unique challenges and complexities involved in managing the financial activities of a multinational corporation compared to a purely domestic firm.

1. Comprehend the structure, functioning, participants, and instruments of the foreign exchange market and its critical importance to international trade and investment.
2. Analyze the factors that determine and influence foreign exchange rates, including purchasing power parity, interest rate parity, the Fisher Effect, and the role of central bank interventions.
3. Evaluate the challenges and opportunities associated with global fund raising, international portfolio diversification, foreign direct investment, and financing of international subsidiaries.

3. Course Outcomes (COs)

Upon successful completion of this course, students will be able to:

CO	Description	Bloom’s Level
CO1	Explain the scope of international financial management and differentiate it from domestic financial management, including the role of MNCs and the Balance of Payments framework.	Understanding
CO2	Analyze exchange rate movements using theories such as Purchasing Power Parity, Interest Rate Parity, and the Fisher Effect, and assess the impact of central bank policies on exchange rates.	Analyzing
CO3	Compute and interpret foreign exchange quotations including spot rates, forward rates, cross rates, and identify arbitrage opportunities in the FX market.	Applying
CO4	Evaluate alternative strategies for raising capital in global markets (GDRs, ADRs, Masala Bonds, ECBs) and constructing internationally diversified investment portfolios.	Evaluating

CO-PO Mapping

CO	PO1	PO2	PO3	PO4	PO5	PO6
CO1	3	2	2	1	1	2
CO2	3	3	3	2	2	2
CO3	2	2	3	2	2	1
CO4	3	3	2	2	3	3

3 = Strongly Mapped | 2 = Moderately Mapped | 1 = Slightly Mapped

4. Course Content

Unit 1: Introduction to International Financial Management

Contact Hours: 12 (9 Lectures + 3 Tutorials)

Unit Objective: To establish the foundational understanding of international financial management, its distinction from domestic finance, the role of multinational corporations, and the macroeconomic framework of international trade and balance of payments.

Topics Covered:

1.1 Domestic vs. International Financial Management – Scope and nature of International Financial Management (IFM) – Key differences: currency exposure, political risk, market imperfections, expanded opportunity set – Goals of IFM: shareholder wealth maximization in the international context – Agency problems in MNCs and governance challenges

1.2 Multinational Corporations (MNCs) – Definition, evolution, and characteristics of MNCs – Theories of MNC growth: Product Life Cycle Theory, Internalization Theory, Eclectic (OLI) Paradigm – Modes of international business: exports, licensing, franchising, joint ventures, wholly owned subsidiaries – Advantages and criticisms of MNCs

1.3 International Trade Theories – Theory of Absolute Advantage (Adam Smith) – Theory of Comparative Costs (David Ricardo) – Heckscher-Ohlin Factor Proportions Theory – Leontief Paradox – Free Trade vs. Protectionism – Tariff and Non-Tariff Barriers to Trade – Regional Trade Blocs and their impact on financial management

1.4 Balance of Payments (BOP) – Meaning, definition, and importance of BOP – Components of BOP: Current Account, Capital Account, Financial Account, Errors and Omissions – BOP identity and equilibrium – Surplus and Deficit in BOP — causes and consequences – Disequilibrium in BOP: types and corrective measures (automatic and deliberate) – Foreign Exchange Reserves: composition, adequacy indicators – Accounting principles in BOP compilation (IMF BPM6 guidelines) – India’s BOP trends — historical perspective and current scenario

Tutorial/Practical Exercises:

1. Comparative analysis of BOP statements of India for three consecutive years
2. Case discussion: Impact of trade barriers on a specific industry
3. Mapping the global footprint of a selected Indian MNC

Unit 2: Exchange Rate Determinants

Contact Hours: 15 (12 Lectures + 3 Tutorials)

Unit Objective: To enable students to understand exchange rate systems, analyze the factors affecting exchange rate movements, apply key parity theories, and appreciate the role of central banks in exchange rate management.

Topics Covered:

2.1 Exchange Rate Systems – Meaning and definition of exchange rate – Evolution of the International Monetary System: – Gold Standard (1870s–1914) – Bretton Woods System (1944–1971) – Smithsonian Agreement (1971) – Post-Bretton Woods: Managed Float – Types of exchange rate regimes: – Fixed/Pegged Exchange Rate System – Floating/Flexible Exchange Rate System – Managed Float / Dirty Float – Currency Board Arrangement – Dollarization – IMF Classification of Exchange Rate Arrangements – India’s Exchange Rate Regime (LERMS to present)

2.2 Factors Affecting Exchange Rates – Demand and Supply framework for foreign exchange – Fundamental factors: inflation differentials, interest rate differentials, income levels, government controls, expectations – Speculation and market sentiment – Political stability and economic performance – Terms of trade and productivity changes

2.3 Theories of Exchange Rate Determination

Purchasing Power Parity (PPP) Theory – Law of One Price — absolute and relative forms – Big Mac Index as an informal PPP measure – Limitations and empirical evidence of PPP

Interest Rate Parity (IRP) Theory – Covered Interest Rate Parity (CIRP) – Uncovered Interest Rate Parity (UIRP) – Relationship between forward premium/discount and interest rate differential – Numerical problems on IRP

Fisher Effect – The Fisher Equation: nominal vs. real interest rates – International Fisher Effect (IFE) – Implications for exchange rate forecasting – Numerical problems on Fisher Effect

Other Theories – Asset Market Approach – Portfolio Balance Approach – Monetary Approach to exchange rates

2.4 Role of Central Banks – Central bank intervention in foreign exchange markets – Objectives of intervention: smoothing volatility, managing reserves, maintaining competitiveness – Sterilized vs. unsterilized intervention – Reserve Bank of India’s exchange rate management policy – Foreign Exchange Management Act (FEMA), 1999 — key provisions

2.5 Exchange Rate Shocks and Currency Crises – Devaluation vs. Depreciation – Revaluation vs. Appreciation – Causes and consequences of currency crises – Case studies: Asian Financial Crisis (1997), Mexican Peso Crisis (1994), Russian Ruble Crisis (1998), Indian Rupee depreciation episodes (2013, 2018) – Early warning indicators of currency crises – Crisis management and policy responses

Tutorial/Practical Exercises:

1. Numerical problems on PPP, IRP, and Fisher Effect (minimum 10 problems)
2. Charting and analyzing USD/INR exchange rate movements over the past decade
3. Case analysis: Asian Financial Crisis 1997 — causes, impact, and lessons

Unit 3: Foreign Exchange Market

Contact Hours: 15 (12 Lectures + 3 Tutorials)

Unit Objective: To familiarize students with the structure, functioning, instruments, and quotation conventions of the foreign exchange market and develop computational skills in FX rate calculations and arbitrage identification.

Topics Covered:

3.1 Structure and Participants – Definition and features of the Foreign Exchange Market – Global FX market size and turnover (BIS Triennial Survey data) – Market structure: OTC nature, 24-hour trading, global trading centers – Participants: – Commercial banks and dealers (market makers) – Central banks – Corporations and businesses – Institutional investors and hedge funds – Retail traders and brokers – Forex brokers and electronic trading platforms – Major currency pairs: EUR/USD, USD/JPY, GBP/USD, USD/INR – Trading sessions: Asian, European, North American – Electronic trading systems: EBS, Reuters Matching, Bloomberg

3.2 Foreign Exchange Quotations – Direct and Indirect quotations – American and European terms – Two-way quotes: Bid and Ask rates – Spread and factors affecting spread – Spot rates: meaning, quotation, and settlement – Forward rates: meaning, quotation, and forward points – Forward premium and discount — calculation and interpretation – Annualized forward premium/discount formula – Numerical problems on spot and forward rate calculations

3.3 Cross Rates and Chain Rule – Concept of cross rates – Computation of cross rates from two given exchange rates – Chain rule / rule of three for multi-currency conversions – Numerical problems on cross rates

3.4 Arbitrage in Foreign Exchange Markets – Concept of arbitrage and no-arbitrage condition – Types of arbitrage: – Two-point arbitrage (Locational arbitrage) – Three-point arbitrage (Triangular arbitrage) – Covered Interest Arbitrage (CIA) – Identifying and computing arbitrage profits – Numerical problems on all three types of arbitrage

3.5 Exchange Rate Forecasting – Fundamental vs. Technical forecasting approaches – Market-based forecasting (forward rates as predictors) – Model-based forecasting – Forecasting performance evaluation – Practical limitations of forecasting

Tutorial/Practical Exercises:

1. Numerical problems on bid-ask spreads, forward premiums, and cross rates (minimum 15 problems)
2. Live FX rate observation exercise using Bloomberg/Reuters/online sources
3. Triangular arbitrage computation and profit identification exercises
4. Simulation: Covered Interest Arbitrage opportunity identification

Unit 4: International Investments

Contact Hours: 18 (12 Lectures + 6 Tutorials)

Unit Objective: To equip students with the knowledge and analytical skills to evaluate cross-border investment opportunities, understand global capital raising instruments, appreciate the benefits of international portfolio diversification, and assess the risks associated with international investments including geopolitical factors.

Topics Covered:

4.1 Raising Capital Across the Globe – Motivations for raising capital internationally – Instruments for international equity financing: – American Depository Receipts (ADRs) — Levels I, II, III; Rule 144A ADRs – Global Depository Receipts (GDRs) – Indian Depository Receipts (IDRs) – International debt instruments: – Foreign bonds (Yankee, Samurai, Bulldog bonds) – Eurobonds and Eurocurrency markets – Foreign Currency Convertible Bonds (FCCBs) – Masala Bonds (Rupee-denominated bonds overseas) – External Commercial Borrowings (ECBs) — RBI guidelines, routes (automatic and approval) – Comparative analysis of funding sources: cost, regulatory requirements, currency risk – Case: Successful GDR/ADR issuance by an Indian company

4.2 International Portfolio Investments – Benefits of international portfolio diversification – Reduction of unsystematic risk through cross-border diversification – Correlation structure of international equity markets – Home bias puzzle in equity investing – Barriers to international diversification: – Regulatory restrictions – Information asymmetry – Currency risk – Political risk – International Mutual Funds and Exchange Traded Funds (ETFs) – Emerging markets: risks and return characteristics

4.3 International Asset Pricing – Extending the Capital Asset Pricing Model (CAPM) to international context – International CAPM (ICAPM) – Single-factor vs. multi-factor models for international markets – Global macroeconomic risks: inflation risk, exchange rate risk, sovereign risk – Country risk assessment: political risk, economic risk, financial risk – Sovereign credit ratings and their impact on investment decisions

4.4 Financing International Subsidiaries – Capital structure decisions for MNC subsidiaries – Parent vs. subsidiary perspective on financing – Sources of subsidiary financing: – Parent company equity and loans – Local borrowing in host country – International borrowing (Euro markets) – Development finance institutions (IFC, ADB, etc.) – Transfer pricing and its financial implications – Repatriation of profits: dividend policies, withholding taxes – Tax havens and offshore financial centers

4.5 Exchange Rate and Geopolitical Shocks – Impact of currency fluctuations on MNC value – Transaction exposure, translation exposure, and economic exposure (overview) – Geopolitical risk assessment frameworks – Impact of sanctions, trade wars, and political instability on international investments – Brexit: financial and investment implications – US-China trade tensions: effects on global capital flows – Russia-Ukraine conflict: financial market spillovers – Strategies for managing geopolitical risk in international portfolios

Tutorial/Practical Exercises:

1. Numerical problems on GDR/ADR pricing and ECB cost calculations
2. Portfolio diversification exercise: comparing domestic vs. international portfolio risk-return
3. Case study analysis: Examination of the financing structure of an international subsidiary of an Indian firm
4. Research paper review and presentation on a recent currency/geopolitical crisis
5. Country risk assessment exercise: comparing sovereign ratings and investment attractiveness

5. Pedagogy

The course employs a multi-modal teaching approach:

Method	Description	Weightage
Interactive Lectures	Concept delivery with PPT, whiteboard explanations, and real-time examples	40%
Numerical Problem Solving	Hands-on computation of FX rates, arbitrage, parity conditions, and investment analysis	25%
Case Study Analysis	Harvard/Ivey cases and real-world currency crisis analyses	15%
Group Discussions & Presentations	Student-led presentations on current IFM topics and research papers	10%
Self-Learning	Assigned readings, online resources, and independent research	10%

6. Textbooks and References

Primary Textbooks (Latest Editions):

1. Eun, C., Resnick, B., & Chuluun, T. — International Financial Management, McGraw Hill.
2. Apte, P. G., & Kapshe, S. — International Financial Management, McGraw Hill.
3. Seth, A. K. — International Financial Management, Galgotia Publications, New Delhi.
4. Gautam, A., Jaiswal, T., & Keshari, A. — International Financial Management, PHI Learning.

Supplementary References:

1. Madura, J. — International Financial Management, Cengage Learning.
2. Shapiro, A. C. — Multinational Financial Management, Wiley.
3. Levi, M. D. — International Finance, Routledge.
4. Buckley, A. — Multinational Finance, Pearson.
5. Bekaert, G., & Hodrick, R. — International Financial Management, Pearson.

Research Papers / Articles:

1. Intervention in Foreign Exchange Markets: The Approach of the Reserve Bank of India, BIS Papers No. 73.
2. Prakash, A. — Major Episodes of Volatility in the Indian Foreign Exchange Market in the Last Two Decades (1993–2013): Central Bank’s Response, RBI Occasional Papers, Vol. 33, No. 1 & 2, 2012.
3. External Commercial Borrowings (ECB) Policy — Issuance of Rupee Denominated Bonds Overseas, RBI/2015-16/193 A.P. (DIR Series) Circular No. 17.
4. Froot, K. A., & Thaler, R. H. (1990) — Anomalies: Foreign Exchange, Journal of Economic Perspectives, 4(3), 179–192.
5. Meese, R. A., & Rogoff, K. (1983) — Empirical Exchange Rate Models of the Seventies: Do They Fit Out of Sample?, Journal of International Economics, 14(1-2), 3–24.

Suggested Case Topics:

1. Explore a recent currency crisis (e.g., Turkish Lira 2018, Argentine Peso 2019, Sri Lankan Rupee 2022).
2. Explore the history of the US Dollar – Indian Rupee exchange rate and its linkage to the underlying interest rate differential.
3. Examine the financing structure of an international subsidiary of an Indian firm and of an Indian subsidiary of a foreign firm.
4. Case: Tata Motors’ JLR acquisition — financing structure and currency exposure.
5. Case: Masala Bond issuance by Indian corporates — HDFC, NTPC, or Kerala Infrastructure.

Online Resources:

1. RBI Database on Indian Economy — https://dbie.rbi.org.in
2. BIS Statistics — https://www.bis.org/statistics
3. IMF Data — https://data.imf.org
4. Bloomberg Currency Rates — https://www.bloomberg.com/markets/currencies
5. Investing.com Forex Data — https://www.investing.com/currencies

7. Weekly Teaching Plan (15 Weeks)

Week	Unit	Topic(s)	Hours
1	Unit 1	Introduction to IFM — Domestic vs. IFM, goals, scope	4
2	Unit 1	MNCs — evolution, theories, modes of international business	4
3	Unit 1	International Trade Theories — Absolute & Comparative Advantage, H-O Theory, Free Trade vs. Protectionism, Tariff and Non-Tariff Barriers	4
4	Unit 1	Balance of Payments — meaning, components, equilibrium, surplus/deficit, disequilibrium, and corrective measures. India’s BOP trends	4
5	Unit 2	Exchange Rate Systems — Gold Standard to present; fixed, floating, managed float; India’s exchange rate regime	4
6	Unit 2	Factors Affecting Exchange Rates; Purchasing Power Parity (PPP) theory — absolute and relative; numerical problems	4
7	Unit 2	Interest Rate Parity (IRP), Fisher Effect, International Fisher Effect — theory and numerical problems	4
8	Unit 2	Role of Central Banks — intervention, sterilization; FEMA 1999; exchange rate shocks and currency crises with case studies	4
9	Unit 3	Foreign Exchange Market — structure, participants, global trading sessions; FX quotations (direct/indirect, bid/ask)	4
10	Unit 3	Spot and Forward rates; forward premium/discount calculations; numerical problems	4
11	Unit 3	Cross rates — computation and chain rule; Arbitrage — two-point, three-point, covered interest arbitrage; numerical problems	4
12	Unit 4	Raising Capital Across the Globe — ADRs, GDRs, Eurobonds, FCCBs, Masala Bonds, ECBs	4
13	Unit 4	International Portfolio Investments — diversification benefits, barriers, home bias; International CAPM	4
14	Unit 4	Financing International Subsidiaries — capital structure, sources, transfer pricing; Country risk assessment	4
15	Unit 4	Exchange Rate and Geopolitical Shocks — case studies; Course review and revision	4

8. Assessment Scheme

8.1 Internal Assessment (40 Marks)

Component	Marks
Mid-Semester Test (Best 2 out of 3)	20
Quizzes / Assignments	10
Case Study Analysis & Presentation	5
Class Participation & Attendance	5
Total Internal	40

8.2 External Assessment (60 Marks)

Component	Marks
End-Semester Examination	60
Total External	60

8.3 Question Paper Blueprint (End-Semester)

Unit	Weightage	Marks
Unit 1: Introduction to IFM	20%	12
Unit 2: Exchange Rate Determinants	30%	18
Unit 3: Foreign Exchange Market	30%	18
Unit 4: International Investments	20%	12
Total	100%	60

Question Pattern:

• Section A: Short answer questions (5 × 2 = 10 marks) — covering all units
• Section B: Descriptive/analytical questions (4 × 8 = 32 marks) — choice-based
• Section C: Numerical problems / Case-based questions (2 × 9 = 18 marks) — compulsory

9. Mapping of Course Outcomes to Assessment

Course Outcome	Assessment Method
CO1: Explain IFM concepts, MNCs, and BOP	Quiz, Mid-Semester Test, End-Semester Exam
CO2: Analyze exchange rate movements using parity theories	Numerical assignments, Mid-Semester Test, End-Semester Exam
CO3: Compute FX quotations, cross rates, and arbitrage	Practical numerical test, End-Semester numerical section
CO4: Evaluate international investment and financing strategies	Case study analysis, Group presentation, End-Semester case-based question

Note: This syllabus is aligned with the AICTE Model Curriculum for UG Degree in BBA (NEP-2020). Universities and institutions may adapt the content within the overall framework. Course details may be updated to reflect current developments in international financial markets and regulatory changes.

Prepared as part of the BBA (Honours) — Finance Specialization Track