University of Jordan Jordan University Business School (JUBS)business.ju.edu.jo/Lists/Courses/Attachments/82... · express either as an annualized rate Explain covered interest rate

University of Jordan Jordan University Business School (JUBS)

Course Syllabus

1 JUBS-March 2017

1. Department Name: Finance 2. Program Name: BA Finance 3. Program Code 03

4. Course Code and Title: 1603445 International Investment

5. Course credits: 3

6. Pre-requisites: 1603322 Investment Management

7. Course Instructor/ Coordinator Name and Email

Dr. Tariq Alzoubi

[email protected] 8. Course web-page: http://eacademic.ju.edu.jo/t.alzoubi 9. Academic year: 2016/2017

10. Semester: First ✓ Second 1st Summer 2nd Summer

11. Textbook:

Global Investments: Pearson New International Edition (2013), Bruno Solnik and Dennis

McLeavey 6th

Edition, Pearson. 12. References:

Global Investments (2009), Bruno Solnik and Dennis McLeavey, 6th edition.

13. Other resources used (e.g. periodicals, software, eLearning, site visits, etc.):

Notes and example available at http://eacademic.ju.edu.jo/t.alzoubi

14. Course description

The course discusses the impact of exchange rates on investment decisions, and

mentions the various investment securities that are available for investors to invest it

abroad. Also it discusses tools and methods that are been used in order to assess the

impact of foreign investment and how to build investment portfolio.

15. Course Intended Learning Outcomes:

Mapping to PILOs

CILOs 1 2 3 4 5 6

1. Understand the exchange rate quotations, and convert

direct (indirect) exchange rate.

✓ ✓

2. Calculate cross rates, given two spot exchange rate quotations

involving three currencies. ✓ ✓ ✓

3. Calculate the profit on a triangular arbitrage opportunity,

given the bid–ask quotations for the currencies of three

countries.

✓ ✓ ✓

4. Compute the return of the domestic and international stock and bond. ✓ ✓ ✓ ✓ ✓ ✓ 5. Explain the effect of the international diversification on the efficient

frontier. ✓ ✓ ✓ ✓ ✓

6. Discuss the factors that cause equity and bond markets

correlations across countries.

✓ ✓ ✓ ✓


Course Syllabus

2 JUBS-March 2017

17. Description of Topics Covered

Topic Title Description

After working through each chapter we expect student to

Chapter 1

Currency Exchange

Rates

■ Define direct and indirect methods of currency exchange rate quotations ■ Define and calculate the spread on an exchange rate quotation ■ Explain how spreads on exchange rate quotations can differ as a result of market conditions, bank/dealer positions, and trading volume ■ Convert direct (indirect) exchange rate quotations into indirect (direct) exchange rate quotations ■ Calculate cross rates, given two spot exchange rate quotations involving three currencies ■ Calculate the profit on a triangular arbitrage opportunity, given the bid–ask quotations for the currencies of three countries ■ Distinguish between the spot and forward markets for currency exchange rates ■ Define and calculate the spread on a forward currency exchange rate quotation ■ Explain how spreads on forward currency exchange rate quotations can differ as a result of market conditions, bank/dealer positions, trading volume, and maturity/length of contract ■ Define forward discount and forward premium ■ Calculate a forward discount or premium on an exchange rate and express either as an annualized rate ■ Explain covered interest rate parity ■ Define and illustrate covered interest arbitrage

Chapter 2

Foreign Exchange

Parity Relations

■ Explain how exchange rates are determined in a flexible (or floating) exchange rate system ■ Explain the role of each component of the balance of payments accounts ■ Explain how current account deficits or surpluses and financial account deficits or surpluses affect an economy ■ Describe the factors that cause a nation’s currency to appreciate or depreciate

16. Course evaluation:

Assessment Type

Details/ Explanation of Assessment in relation to CILOs

Number Weight Date(s)

Midterms Midterm Exam, CILOs 1, 2 and 3. 1 30 % 16/3/2017

Second Exam Second Exam, CILO 4. 1 10 % 30/4/2017 Participation Class discussion and answering end-of-

chapter questions, All CILOs. 10%

Final Final Exam, All CILOs 50% To be declared later by the Registration Unit

Total 100%


Course Syllabus

3 JUBS-March 2017

■ Explain how monetary and fiscal policies affect the exchange rate and balance of payments components ■ Describe a fixed exchange rate and a pegged exchange rate system ■ Define and discuss absolute purchasing power parity and relative purchasing power parity ■ Calculate the end-of-period exchange rate implied by purchasing power parity, given the beginning-of-period exchange rate and the inflation rates ■ Define and discuss the international Fisher relation ■ Calculate the real interest rate, given interest rates and inflation rates and the assumption that the international Fisher relation holds ■ Calculate the international Fisher relation, and its linear approximation, between interest rates and expected inflation rates ■ Define and discuss the theory of uncovered interest rate parity and explain the theory’s relationship to other exchange rate parity theories ■ Calculate the expected change in the exchange rate, given interest rates and the assumption that uncovered interest rate parity holds ■ Discuss the foreign exchange expectation relation between the forward exchange rate and the expected exchange rate

Chapter 3

Foreign Exchange

Determination and

Forecasting

■ Discuss the evolution of international monetary arrangements ■ Discuss the empirical evidence on the various parity conditions ■ Contrast the findings for purchasing power parity in the short run and in the long run ■ Draw the implications for international management in terms of risk and return ■ Discuss the various methods used in exchange rate forecasting ■ State why possible central bank intervention should be considered when forecasting exchange rates

Chapter 4

International Asset

Pricing

■ Explain international market integration and international market segmentation ■ Discuss the impediments to international capital mobility ■ Discuss the factors that favour international market integration ■ Explain the extension of the domestic capital asset pricing model (CAPM) to an international context (the extended CAPM) ■ Describe the assumptions needed to justify the extended CAPM ■ Determine whether the real exchange rate changes in a period, given the beginning-of-period (nominal) exchange rate, the inflation rates in the period, and the end-of-period (nominal) exchange rate ■ Calculate the expected exchange rate and the expected domestic currency holding period return on a foreign bond (security), given expected and predictable inflation rates for the period, the beginning-of-period nominal exchange rate, and the real exchange rate (assumed to be constant) ■ Calculate the end-of-period real exchange rate and the domestic currency ex post return on a foreign bond (security), given the end-of-period exchange rate, the beginning-of-period real exchange rate, and the inflation rates during the period ■ Explain a foreign currency risk premium in terms of interest rate differentials and in terms of forward rates ■ Calculate a foreign currency risk premium ■ State the risk–pricing relation and the formula for the international capital asset pricing model (ICAPM) ■ Calculate the expected returns on a stock, given its world market beta and currency exposure, as well as the appropriate risk-free rates and risk


Course Syllabus

4 JUBS-March 2017

premiums

Chapter 5

Equity: Markets and

Instruments

■ Explain the origins of different national market organizations ■ Differentiate between an order driven market and a price-driven market, and discuss the risk and advantages of each ■ Discuss the evolution of stock markets worldwide and their differences in terms of size, transaction volumes, and concentration ■ Calculate the impact of different national taxes on the return of an international investment ■ Explain the relative advantages of various stock indexes ■ Explain how indexes are adjusted for free float ■ Describe the components of execution costs: commissions and fees, market impact, and opportunity cost ■ Explain ways to reduce execution costs, and discuss the advantages and disadvantages of each ■ Describe an American Depositary Receipt (ADR) and differentiate the various forms of ADRs in terms of trading and information supplied by the company listed ■ Explain why firms choose to be listed abroad

Chapter 7

Global Bond

Investing

■ Discuss the difference between domestic bonds, foreign bonds, and international bonds ■ Describe the various stages of an international bond issue ■ Describe the various ways to invest in bonds from emerging countries ■ Describe a Brady bond ■ Define bond quotation and day count conventions across the world ■ Describe the basic valuation method for straight fixed-rate bonds ■ Define a yield curve based on zero-coupon bonds ■ Describe and contrast the various methods used to report a yield to maturity (simple yield, annual yield, semi-annual yield) ■ Define the duration, or interest sensitivity, of a bond ■ Compute the expected excess return (risk premium) on a domestic bond as the sum of the yield spread over the cash rate plus the duration-adjusted expected yield movement ■ Define the three components of the quality spread (expected loss component, credit-risk premium, liquidity premium)

Chapter 9

The Case for

International

Diversification

■ Discuss why investors should consider constructing global portfolios ■ Compare the relative size of the U.S. market with other global stock and bond markets ■ Discuss the changes in risk that occur when investors add international securities to their portfolios and calculate the expected return and standard deviation for a two-asset portfolio containing a domestic asset and a foreign asset ■ Demonstrate how changes in currency exchange rates can affect the returns that investors earn on foreign security investments ■ Demonstrate how changes in currency exchange rates can affect the risk that investors bear on foreign security investments ■ Explain the effect of international diversification on the efficient frontier by comparing a frontier that includes foreign investments with one that does not ■ Discuss the factors that cause equity market correlations across countries to be relatively low ■ Discuss the factors that cause bond market correlations across countries to be relatively low ■ Discuss the influence of time differences between countries on the


Course Syllabus

5 JUBS-March 2017

correlation of daily returns ■ Discuss the reasons for an increased Sharpe ratio with international investing and explain why this increase could be simultaneously true for investors of different countries ■ Illustrate the potential risk–return impact of adding bonds to a global asset allocation ■ Discuss patterns of global equity returns and global market correlations for different market environments ■ Discuss the reasons that currency risk may only slightly magnify the volatility of foreign currency–denominated investments ■ Explain the increasing correlation argument against international diversification and discuss the factors leading to increased correlations ■ Evaluate the implication of non-normal return distributions and changes in volatility for the usual case in favour of global risk diversification ■ Explain the country-specific outperformance argument against international diversification ■ Discuss the barriers to international investing ■ Discuss the pitfalls in estimating correlations during volatile periods ■ Explain why international performance opportunities have increased over time ■ Distinguish between global investing and international diversification ■ Discuss the potential benefits of investing in emerging markets ■ Evaluate the historical performance of emerging equity markets ■ Discuss the return volatility, return correlation, and expected return characteristics that result from including emerging-market securities in a portfolio ■ Discuss the importance of currency issues in emerging-market investing ■ Describe the concept of investability in emerging markets ■ Discuss the segmentation versus integration characteristics of emerging markets

18. Course Weekly Breakdown:

Week Date Topics covered CILOs Teaching

Method

Assessment

1 29 Jan Introduction Discussions,

Real-life

Examples and

illustrations.

Participation

and Exam

2 5 Feb Chapter 1 1, 2, 3 Discussions,

Real-life

Examples and

illustrations.

Participation

and Exam


Real-life

Examples and

illustrations.

Participation

and Exam


Real-life

Participation

and Exam


Course Syllabus

6 JUBS-March 2017

Examples and

illustrations.


Real-life

Examples and

illustrations.

Participation

and Exam

6 5 Mar Chapter 4 4 Discussions,

Real-life

Examples and

illustrations.

Participation

and Exam


Real-life

Examples and

illustrations.

Participation

and Exam


Real-life

Examples and

illustrations.

Participation

and Exam


Real-life

Examples and

illustrations.

Participation

and Exam

10 2 Apr Chapter 7 6 Discussions,

Real-life

Examples and

illustrations.

Participation

and Exam


Real-life

Examples and

illustrations.

Participation

and Exam


Real-life

Examples and

illustrations.

Participation

and Exam


Real-life

Examples and

illustrations.

Participation

and Exam

14 30 Apr Review All Discussions,

Real-life

Examples and

illustrations.

Participation

and Exam

15 7 May Final Exam Period


Course Syllabus

7 JUBS-March 2017

16 14 May Final Exam Period

19. Others:

Description

Attendance policies:

Students are not allowed to miss more than 15% of the classes during the semester. Failing to meet this requirement will be dealt with according to the university disciplinary rules.

Absences from exams and handing in assignments on time:

No make-up exam could be held.

Health and safety procedures:

Based on the University disciplinary rules.

Honesty policy regarding cheating, plagiarism, misbehavior:

Based on the University disciplinary rules.

Course Coordinator: Dr. Tariq Alzoubi Add your Signature

Head of Department: Type the Name Add your Signature

Head of curriculum committee/ School Level:

Type the Name Add your Signature

Dean: Type the Name Add your Signature

Approved by the Program Coordinator/ Head of the Department on:

Type the date: DAY/MONTH/YEAR

Copy to:

Head of Department

Assistant dean for Development and Quality Assurance

Course Portfolio

Documents

University of Jordan Jordan University Business School (JUBS)business.ju.edu.jo/Lists/Courses/Attachments/82... · express either as an annualized rate Explain covered interest rate