Assignment 

1

1. IFM  Chpt.1 Appendix 1A and Chpt.3

2.  Readings from World Trade Survey from Economist 10/3/98 (BP#2, W)

3. Profits over People  from Economist 10/3/98 (BP#3, W)

4. Is the US Current Account Deficit Sustainable? R. Cooper, CESIfo Forum, 2005,  (BP#4, W)

 Practical Debate:                                      

1. The Overstretch Myth, Levey and Brown, Foreign Affairs, Mar/Apr, 2005 (W)

2. How Scary Is the Deficit?  Setser and Roubini, Foreign Affairs, Jul/Aug, 2005 (W)

3. What businesses need to know about the US current-account deficit,  McKinsey 2007

NEWS:  BEA News Release on 2007 US Current Account Balance

2

1. IFM: Chpts 4 and 5 (pp.107-113)

2. All About the Foreign Exchange Market in the United States, FRBNY, Chpts 2, 3, 4, 5, and 7 (BP#5, W) or OL at: http://www.newyorkfed.org/education/addpub/usfxm/ )

3. Big Mac Index, Economist (BP#6, W) OL at http://www.economist.com/markets/bigmac/index.cfm)

Optional Reading:

1. A Prism into the PPP Puzzles – Parsley and Wei (W)

2. Triennial Survey of Foreign Exchange and Derivatives Market Activity 2007, BIS 2007, (W, or OL at http://www.bis.org/publ/rpfx07.htm )

4/26

3

9:00 - 12:00

1. IFM: Chpt. 5 (remainder) and 6 (pp 138-143)

2.  All About the Foreign Exchange Market in the United States, FRBNY, Chpt. 11  (BP#7,or W) or OL at http://www.newyorkfed.org/education/addpub/usfxm/

Additional reading:

• The Failure of Empirical Exchange Rate Models, no longer new, but still true,  Econ Policy, Ken Rogoff (W)
• Will there be a dollar crisis?   Economic Policy, Paul Krugman (W)
• The Economics of Exchange Rates, M Taylor, JEL (1995) (W)

Problem Set #1 (W): Due Thursday 5/8 11:59pm PDT email to bodnar@jhu.edu)
one submission per study group -please include study group name in file name

5/15

4

1. IFM: Chpt. 2

2. The Foreign Exchange Market in the United States, FRBNY, Chpt. 10 (BP #9, W or OL at http://www.ny.frb.org/pihome/addpub/usfxm/)

Practical Debate: (website only)

• World Survey, Economist, Sept 22, 2005 (excerpts)

• Lost in Translation - Briefing on US - China Trade, Economist, 5/19/2007 

Problem Set #2 (W) - Due WED 5/28  11:59pm PDT email to bodnar@jhu.edu)

III. The Impact of Exchange Rates on the Firm

5/17

5

1. IFM: Chpt.8 pp.192-93, and Chpt.9  pp. 225-234

2. Corporate Exposures to Exchange Rates, classnote (BP#11 or W)

3. On the Measurement of Operating Exposure to Exchange Rates: A Conceptual        Approach," Flood and Lessard, FM 1986. (BP#12)

4. Identifying, Measuring and Hedging Currency Risk at Merck, Lewent and Kearney, 1990 (BP#13). 

Extra Reading on Translation Exposure: 

• FAS #52-Measuring the Performance of Foreign Operations, B Carsberg 1983 (W)

• IFM: Chpt.10

Case: Jaguar plc (BP#14) - Due 6/27 in class
also email to bodnar@jhu.edu 

5/31

Midterm EXAM (lectures 1-5) - in class 9:00 - 12:00pm

6/27

Case: Jaguar plc - Class Discussion

6

B. Why Should a Firm Hedge?

1. An Integrated Approach to Corporate Risk Management, A. Shapiro and S. Titman MCJF, 1985 (BP #15)

2. Framework for Risk Management, Froot et al, HBR 1994 (BP #16)

Sample Exams and Solutions

Optional Lecture: Options and Option Pricing

1. IFM: Chpt.7, pp. 172 – 185

6/28

7

1.  IFM: Chapter 13, and 12 (pp. 294 – 298)

2. Techniques for Managing Economic Exposure,” classnote (BP #17 or W)

3. Wharton 1998 Survey of Financial Risk Management by U.S. Non-Financial Firms, (BP #18 or OL at http://finance.wharton.upenn.edu/~weiss/research)   

Problem Set #3  (W) - Due WED 7/9 (11:59 PDT email to bodnar@jhu.edu)  

7/10

8

1.  IFM Chpt. 21 and Chpt. 19 pp. 476 - 484 

2. Taxation of International Operations, Baker, Chpt.17 International Finance, 1998 (BP #19)

3.   Transfer Pricing,  Chpt 5 by Schadewald and Misey (W) (BP #20)

   EXTRA: KPMG Corporate Tax Rate Survey 1993-2006 KPMG     
                 KPMG Global Transfer Pricing Review, 2005  KPMG

1.  IFM: Chapter 15 and 17 (pp. 422 – 435)

2.  Exchange Rates and International Differences in the Cost of Capital, and Zimmer, FRBNY Quarterly Review, 1994 (BP #21)

3. Globalization of Capital Markets and the Cost of Capital: The Case of Nestle, R. Stulz,  JACF, Fall 1995 (BP #22) (BP #22)

10

1. IFM Chpt 18 and Chpt. 16 pp. 410 – 417  
2. Valuation in Emerging Markets,  McKinsey , Fall 2000 (BP#23)

Case: Return of Lafarge (W) - Due 7/27 (in class)
also email to bodnar@jhu.edu)

7/27

1. Measuring the Performance of Operations Subject to Fluctuating Exchange Rates, Flood and Lessard  (BP#24)

7/28

12

1. IFM: Chpts 7, 8, and 18
2. Guidelines for Global Financing Choices, Lessard and Shapiro, MCFJ 1983 (BP #25)

8/8

Second EXAM - Lectures 6 - 12 (in class 4:45 - 6:45pm)