INTERNATIONAL FINANCIAL INSTITUTIONS AND MARKETS
Learning outcomes of the course unit
a) Knowledge and understanding of: the functioning of the foreign exchange market; the main problems related to the financial management of multinational firms; the role of microfinance in overcoming financial exclusion; the main problems in managing microfinance institutions, providing a basis for originality in developing ideas on balancing financial and social objectives.
b) Ability to apply knowledge in order to: measure the exposure to foreign exchange risk; manage the main risks of multinational operations; identify the features of a microfinance intervention useful to overcome financial exclusion.
c) Ability to integrate knowledge and handle complexity, and formulate judgements with incomplete or limited information in order to: choose financial instruments appropriate for managing the risks of multinational operations; decide whether a microfinance intervention can be an effective solution to specific social and financial problems.
d) Students will have the ability to communicate their conclusions and the underpinning knowledge and rationale to financial operators as well as to non-specialist audiences using a proper technical language.
e) Since a problem solving approach will be adopted, together with the analysis of case studies, students will learn to study in a largely self-directed and autonomous manner.
Basic knowledge of financial mathematics.
Suggested reading: D. Luenberger, "Investment Science", Oxford University Press, 1998, Chapter 2 "The Basic Theory of Interest".
Course contents summary
The aim of the course is to analyse the functions of a financial system in providing services to multinational firms and the reasons why financial markets, in channeling funds to deficit units, can fail to serve low-income households and entrepreneurs.
The first part of the course focuses on the role of financial institutions and markets in providing financial services to multinational firms. The international financial environment is examined, with a particular focus on foreign exchange and Eurocurrency markets. The way multinational firms finance international trade, consolidate and manage their financial flows, and measure and manage exposures to currency risks are analysed as part of treasury management.
The second part of the course focuses on the failures of the mainstream financial system in channeling funds to low-income households and entrepreneurs. Starting from the problem of financial exclusion, the role of microfinance in economic and social development is examined. Microfinance institutions provide financial services that allow people to save and invest in small businesses, allowing them to overcome financial exclusion. Lending policies, financial performance, and sustainability of microfinance institutions will be discussed.
- Meaning and determinants of interest rates.
- The ECB's monetary policy.
- Foreign exchange and Eurocurrency markets.
- International parity relationships.
- Financing the firm’s international trade.
- Managing the multinational firm’s cash flows.
- Managing the currency risk.
- Financial exclusion.
- Role of microfinance in providing access to finance.
- Microfinance service providers.
- Microfinance institutions: products, financial performance, sustainability, and vulnerabilities.
The reading material will be indicated during the course.
Lectures, exercises, and analysis of specific cases based on newspaper articles.
Assessment methods and criteria
Knowledge and understanding, the ability to study in a largely autonomous manner, the ability to formulate judgements with incomplete data, and the ability to communicate conclusions will be assessed through 3 open-ended questions for up to 18 marks and 2 true or false questions (with argumentation) for up to 6 marks.
The application of knowledge and understanding through problem solving abilities in new or unfamiliar environments will be assessed through 1 or 2 exercises, for up to 6 marks.