Course code Ekon5145

Credit points 4.50

International Finance and Settlements

Total Hours in Course120

Number of hours for lectures24

Number of hours for seminars and practical classes12

Independent study hours84

Date of course confirmation18.12.2018

Responsible UnitInstitute of Economics and Finance

Course developers

author Ekonomikas un finanšu institūts

Gunita Mazūre

Dr. oec.

author Ekonomikas un finanšu institūts

Romēna Šulca

Dr. oec.

Prior knowledge

Ekon5082, Financial Accounting I

Ekon5089, Macroeconomics Analysis

Ekon5144, Enterpreneurship Financing

Ekon6040, Risk Management Process

Course abstract

The course provides the knowledge on the most significant modern theoretical and institutional developments in the field of international finance, understanding of Incoterms in international trade transactions and their practical application in the international trade supply contracts. During the course students study the international monetary system, foreign exchange market operation, the activities of international financial institutions and derivatives as well as they will master the ability to analyse the role of international monetary policy and financial institutions in shaping the international currency policy and to assess the problems in the exchange rate and parity.

Learning outcomes and their assessment

Students will be able to
1) Demonstrate the knowledge and understanding of the international monetary system, the operation of international financial institutions, financial derivatives and the way the interbank forex market operates in Latvia and in the world. Independent work.
2) Demonstrate the knowledge of specifics of composition of national external debt and the role of balance-of-payments indicators in the representation of international financial operations and in the management of the balance of payments. Discussions in classes.
3) Demonstrate the knowledge and understanding of the international financial framework and principles, exchange rates, forex transactions in international trade, the application of financial instruments and theory on international payment flows. Test with calculations.
4) Demonstrate the knowledge and understanding of methods of payment settlement and of international commercial terms (Incoterms). Test with calculations.
5) Perform foreign exchange calculations, analyse monetary policies and the role of financial institutions in making forex policies, assess problems in the area of exchange rates and currency parity. Test with calculations, calculations in classes.
6) Reasonably discuss international financial aspects, draw economically feasible conclusions and proposals related to a problem examined. Independent work, discussions in classes.
7) Review financial policies and do empirical research and an analysis of a balance of payments. Independent work, discussions in classes.
8) Comprehend the role of forex transactions in a market economy in international trade. Independent work, discussions in classes.
9) Responsibly plan the completion of the assignments given. Independent work.
10) Engage in classwork and assume responsibility for the results and an analysis of the results as well as present the results of independent work. Independent work, presentations, a report and the presentation of the report.

11) Apply the acquired theoretical knowledge of and practical skills in the international financial framework, international commercial terms and principles, exchange rates and their effect on international trade transactions, the application of financial derivative instruments, theory and practice regarding international payment flows in the economic and financial contexts, independently define and critically analyse international financial and payment settlement aspects and problems. Independent work, tests, a report and the presentation of the report, presentations.

Course Content(Calendar)

1. International financial environment and economic relations. EU single market for financial services. The concept and essence of the international financial environment. Regulation, supervision, monitoring, promotion. International financial resources. Basel Committee on Banking Supervision and Basel III Principles and Pillars of Standards for Supervision. EU single market for financial services. (lecture - 2 hours, practical work - 2 hours).
2. Development of the International Monetary System (SMS), financial and currency elements. Historical development of the international monetary system. Monometallism and bimetallism. Gold standard. Bretton Woods currency system. Jamaican system. Currency and financial elements of the international monetary system. European Monetary System (EMS). An integrated economy - a single currency. Euro and EMU. Euro introduction and inflation, euro exchange rates. Differences in commodity prices across euro area countries. Euro floating exchange rate against the US dollar.(lecture - 2 hours).
3. Currency systems and their characteristics. International monetary system, its development stages. International currency market, its functions and operation. Basic principles of FOREX market operation. Fundamental and technical analysis of the foreign exchange market. Exchange rate forecasting methods. The concept, essence, classification and historical development of technical analysis. Price trend formation and analysis methods. Common features and contradictions of trend models. Method of analysis "Japanese candles". Japanese candle shapes and patterns. Other exchange rate forecasting methods: simulation modeling, expert systems. Trading systems.(lecture - 2 hours).
4. Exchange rate regimes and their essence in international finance. Currencies, currency quotations and risk mitigation. Currency convertibility. Exchange rate regime and classification of IMF exchange rate regimes. Exchange rate policy. Currency Board. Factors influencing exchange rates: political, economic and social. Macro indicators and their impact on the exchange rate. Exchange rate premiums and discounts. Prerequisites for foreign exchange operations and types of settlement. Exchange rate hybrids. Types of exchange rates: nominal exchange rate, real exchange rate, nominal effective exchange rate, real effective exchange rate. Macroeconomic equilibrium method. Normative theory and practical application of exchange rates. Fixed and floating exchange rates. Theories of optimal currency areas. Currency multicourses. Currency intervention. Currency market risk: currency transaction risk, currency translation risk, inflation and deflation risks, currency economic risk, contract risk and competition risk. Currency devaluation and revaluation.(lecture - 2 hours, practical work - 4 hours).
5. International parity and exchange rate forecasting. Basic principles of international parity - absolute and relative parity. Interest rate parity. Principle of purchasing power parity. Fisher effect. International Fisher effect. Forward rate as an objective predictor of future spot rate. Exchange rate fixing policy. (lecture - 2 hours).
6. World market for financial derivatives or currency derivatives. Historical origin, types and characteristics of financial derivatives. Over - the - counter futures or forward transactions. Exchange futures or futures transactions. Options or option transactions. Valuation of options. Monte Carlo imitation model. Option price sensitivity. Profit and loss characteristics of options. Key option strategies. Currency risk hedging with options. Options market in Latvia. Currency swaps. Hedging strategy in future transactions. Specification and use of currency futures in business transactions. Maintenance margin. Long and short position. Clearing process. Forward and futures comparison. Valuation of financial futures. Fixed income financial instruments. Fluctuations in the market price of derivative contracts. IRS transactions.(lecture - 2 hours).
7. International financial institutions, their activities and functions. Structure of the system of international institutions. International multifunctional organizations, trade and regional organizations. International financial institutions: World Bank Group (International Bank for Reconstruction and Development - SRAB, International Development Association - SAA, International Finance Corporation - ICF, International Investment Guarantee Agency - SIGA, International Investment Dispute Settlement Center - SISIC); International Monetary Fund (IMF); Bank for International Settlements (BIS); The European Central Bank (ECB); European Bank for Reconstruction and Development (EBRD); European Investment Bank (EIB). Other international institutions and organizations.(lecture - 2 hours).
8. International payment flows and balance of payments. Forms of international loans and types of lending. Import and export financing. Parallel credit. Compensation credit. Venture capital funds. Private investors (business angels). Crowd financing (co - financing). Balance of payments and methodological bases of its formation. Current account: goods, services. Income: income from wages, income from investments (direct and portfolio investments). Current transfers. The essence of transfers. Transfer of public administration institutions. Financial and capital account, its essence. Capital account. Financial account: direct investment, portfolio investment, financial derivatives, other investment, reserve assets. Statistical deviation. Reserve. Balance of payments indicators and factors influencing them. Balance of payments regulation methods. Balance of payments and foreign trade. The role of balance of payments indicators in the reflection of international financial operations and balance of payments management. International economic transactions and their reflection in the balance of payments. Central government debt, government external and internal debt, their structure and monitoring. EU convergence criteria and their fulfillment. (lecture - 2 hours, practical work - 4 hours).
9. Settlement methods and special types of financing in international settlements. Settlement methods in the international market for export and import transactions. Types of payment methods. Postpay. Documentary collection and its application in practice. Documentary letter of credit and its application in practice. Special types of financing in international settlements. Importance of factoring in trade transactions. Types of guarantees and their application. Offsetting as a document certifying long-term or medium-term receivables in purchase transactions. Bills of exchange and their use in forfeiting transactions. (lecture - 4 hours, practical work - 2 hours).

10. International Trade Rules Incoterms. Incoterms International Trade Rules: Nature and Objectives. Incoterms: a tool for risk reduction and good governance in international trade. Incoterms explanation of term groups. Classification and division of incoterms according to the type of transportation. (lecture - 4 hours, practical work - 2 hours).

Requirements for awarding credit points

Test with a mark, accumulative assessment of study results. During the semester must be successfully passed
International Finance:
1st test - International financial environment, exchange rate calculations, international financial institutions, their objectives, tasks and activities and international credits, balance of payments principles and practical calculations. Test with calculations - 25%.
Independent work: Research of the chosen study course topic, which includes practical aspects, conclusions and proposals. Defense of the report in the form of a presentation - 35%.
Activity in classes - 5%.
International settlements:
2nd test - Payment methods in international trade and special types of financing in international settlements and their application in practice, international trade rules Incoterms. Test with calculations - 15%.
Independent work - report and presentation: “Use of derivative financial instruments to reduce currency risk, application of international settlement methods in connection with the use of Incoterms - 20%.

10% corresponds to one point on the 10-point assessment scale.

Description of the organization and tasks of students’ independent work

To master and strengthen the issues of theory, to study literature, to prepare for tests. To develop independent works, to present them.

Criteria for Evaluating Learning Outcomes

Test with a mark, accumulative assessment of study results. During the semester must be successfully passed: International Finance: 1st test - 25%. Independent work: elaboration and defense of a report in the form of a presentation - 35%. Activity in classes 5%. International settlements: 2nd test - 15%. Independent work - report development and defense in the form of a presentation - 20%. 10% corresponds to one point on the 10-point assessment scale.

Compulsory reading

1. Bekaert, G., Hodrick, R. International Financial Management. International Editon, 2014.
2. Cheol S.E., Bruce G. Resnick. International Financial Management. New York, 2008, p. 482.
3. Eksporta rokasgrāmata. Ceļvedis eksportā. LIAA, 2015, 51.lpp.
4. Eiteman, D.K, Stonehill A. I., Moffett M.H., 2012. Fundamentals of Multinational Finance. 4th Edition, Prentice Hall, p.544.
5. Eiteman, D.K, Stonehill A. I. & Moffett M.H., 2013. Multinational Business Finance. 13th Edition, Prentice Hall.
6. Grath A. The Handbook of International Trade and Finance: The Complete Guide to Risk Management, International Payments and Currency Management, Bonds and Guarantees, Credit Insurance and Trade Finance. Glasgow, 2008, p. 198.
7. Guillermo C. Jimenez. ICC guide to Export/Import. Global Standards for International Trade. International Chamber of Commerce The world business organization. Fourth edition by Guillermo C.Jimenez. New York, 2012, 270.p.  
8. Madura J., Fox R. International Financial Management- Cengage Learning EMEA, UK, 2014. 671.p.
9. Moosa, I. International finance: an analytical approach. 3rd edition, 2010.
10. Ramberg J. ICC Guide to Incoterms 2010. Understanding and practical use. International Chamber of Commerce The world business organization.France, 2011, 215.p.
11. Rubanovskis A. Starptautiskā ekonomika: Valūtas tirgus. Rīga: EKA, 2004, 146 lpp.
12. Rupeika-Apoga R. Valūtas tirgus un valūtas darījumi. Rīga; Datorzinību centrs, 2003, 159 lpp.
13. Rupeika-Apoga R., Zelgalve E. Finanšu tirgus un tā analīzes metodes. Rīga: LU Akadēmiskais apgāds, 2009, 117 lpp.

Further reading

1. Global Finance in the New Century: Beyond Deregulation / Edited by Assassi L., Nesvetailova A., Wigan D. Houndmills, Basingstoke, Hampshire ; New York : Palgrave Macmillan: CGPE, 2007, p.255.
2. International Economics: Theory and Policy, 9th edition / Paul Krugman, Maurice Obstfeld and Marc Melitz. Boston: Pearson/ Addison-Wesley, 2011, p. 701.
3. Jaunzems A., Vasermanis E. Riska analīze. Rīga: Euro Faculty, 2001, 196 lpp.
4. Kirton J., Farnham S., Burligton, VT. International Finance. 2009, p. 555.
5. Levi M.D. International Finance. USA: Routledge, 5th Edition, 2009, p. 567.
6. Levinson M. Guide to Financial Markets. Bloomberg Press, 2006, p. 250.
7. Madura J. International Financial Management. South-Western College Publishing, 6th. ed, 2000, p. 660.
8. Moffett M., Stonehill A., Eiteman D. Fundamentals of Multinational Finance. USA: Prentice Hall, 2011, p. 704.
9. Oļevskis G. Starptautiskā ekonomika. Rīga, 2000, 81 lpp.
10. Praude V. Finanšu instrumenti. I: ieguldījumi, darījumi, analīze. Rīga: Burtene, 2009, 446 lpp.
11. Praude V. Finanšu instrumenti. II: ieguldījumi, darījumi, analīze. Rīga: Burtene, 2010, 487 lpp.
12. Rupeika-Apoga R. Tirdzniecība ar valūtu kā uzņēmējdarbības veids. Rīga, 2006, 335 lpp.
13. Saļņikovs I. Starptautiskais valūtas tirgus FOREX: Valūtas dīlinga pamati. Rīga, 2000, 135 lpp.
14. Scott Hal S. International Finance: Transactions, Policy and Regulation. UK, 2010, p. 1276.
15. Valdez St. An Introduction to Global Financial Markets. Palgrave, 5th ed., 2007, p. 384.

16. Суэтин А.А. Международный финансовый рынок. Москва: КноРус, 2007, 263 стр.

Periodicals and other sources

1. Bank for International Settlement: Foreign Exchange and Derivatives Reports, Annual Reports [tiešsaiste]. Pieejams http://www.bis.org.
2. Business Week / nedēļas izdevums. Business Week [tiešsaiste]. Bloomberg L.P. Businessweek ISSN 0007-7135. Pieejams: https://www.bloomberg.com/businessweek.
3. Dienas Bizness / Dienas Bizness: nedēļas laikraksts: Latvijas biznesa avīze. Rīga: Diena: Dagens Industri, 2005.
4. European Business / žurnāls. European Business Journal [tiešsaiste]. International Business Verlag GmbH. ISSN 0955-808X. Pieejams: http://www.european-business-journal.com.
5. Financial Times / laikraksts. Financial Times [tiešsaiste]. England based finance newspaper. London: The Financial Times Ltd. Pieejams: http://www.ft.com/home/europe.
6. Forbes / žurnāls. Rīga: SK Media, 2010. ISSN 1691-6018.
7. Incoterms. Pieejams: http://www.incoterms.org.
8. International Monetary Fund / International Monetary Fund: Annual Reports, International Financial Statistics, Working Papers, World Economic Outlook [tiešsaiste]. Pieejams: http://www.imf.org/external/index.htm.
9. Kanādas Eksporta kreditēšanas aģentūras materiāli par eksporta finansēšanu. Pieejams: http://www.edc.ca/english/index.htm
10. Kapitāls / žurnāls lietišķiem cilvēkiem: krāsains biznesa un ekonomikas žurnāls. Rīga: Lietišķās informācijas dienests, 2005. ISSN 1407-2505.
11. Komercbanku mājaslapas pēc savas izvēles, meklējot terminus „eksporta finansēšana” vai „eksporta akreditīvs”, „faktorings”.
12. Latvijas Autotransporta direkcija, informācija par starptautiskajiem autopārvadājumiem, tostarp CMR konvenciju. Pieejams: http://www.atd.lv/lat/normativieakti/starpvalstu%20noligumi/
13. Latvijas Banka / Latvijas Banka: Monetārais apskats, Maksājumu bilance [tiešsaiste]. Pieejams: http://www.bank.lv/publikacijas/publikacijas/2561.
14. Latvijas Ekonomists / žurnāls. Rīga: Mamuts, 2005. ISSN 1025-8922.
15. Starptautiskā Tirdzniecības kamera („Incoterms” piegādes nosacījumu nomenklatūras apraksts) –http://www.iccwbo.org/incoterms.
16. Starptautiskā tirdzniecības palāta (The World Trade organization (WTO). Pieejams: http://www.wto.org
17. The Economist / nedēļas laikraksts. The Economist. London: Economist Newspaper Ltd. [tiešsaiste]. ISSN 0013-0613. Pieejams: http://www.economist.com.

18. Valsts ieņēmumu dienesta raksti par muitas procedūrām. Pieejams: http://www.vid.gov.lv/default.aspx?tabid=9&id=61&hl=1.

Notes

Restricted elective study course for the academic master's study program “Economics” in the specialization direction “Financial Management and Accounting”.
International Finance 2.0 CP (24 h): lectures - 16 h, practical work and seminars – 8 h.
International Settlements 1.0 CP (12 h): lectures - 8 h, practical works and seminars - 4 h.