06300761 - Risk Management

Whenever a firm initiates an international economic transaction, it has to cope with several types of risk (technical, operational, environmental, lawsuit, fiscal, information systems, financial, etc.). The risk manager has the objective to identify potential risks and build the best strategy to manage these risks. It can take the form of acceptation, reduction of risk or risk transfer. The firm can also decide to develop a strategy in order to prevent risks to occur.

The first objective is to analyze the main financial risks undergone by firms in international business and measure firm risk exposure. The main types of risk, studied in this course are foreign exchange risk and interest rate risk. The second objective is to develop the main tools for managing or covering these risks.

In a first part, the course allows to detail the different types of financing international operations. In a second part, it focuses on interest rate risk. The third part develops a framework useful for understanding international finance. The main focus of this part is on foreign exchange and international capital markets. It allows to analyze the different tools for managing exchange rate risk.

TARGETED KNOWLEDGE

After attending the course, the students should be able to understand key aspects of topics like interest rate risk, foreign exchange rate, exchange rate determination, exchange rate risk measuring and hedging, general organization of the international monetary system and international capital markets.

TARGETED SKILLS

The students should be able to give some advice of how to manage and finance international operations. They should acquire skills about managing interest rate risk and exchange rate risk.

CSR DIMENSION 

Economic and social utility of interest rate and foreign exchange operations.
Introduction to social responsible investment (SRI) in an international context.
 

• Chapter 1 - The financing policy of international investment projects and the architecture of international financial markets
• Chapter 2 - Identification, definition and measure of interest rate risk
• Chapter 3 - The protection against interest rate risk
• Chapter 4 – Introduction to International finance and to the foreign exchange markets
• Chapter 5 – The forward and futures exchange markets and the options exchange markets
• Chapter 6 – Exchange rate determination and parity relations
• Chapter 7 – The protection again exchange rate risk

BOOKS USED AS REFERENCE

• HULL J.C., 2009, Risk management and financial institutions, Prentice Hall.
• SERCU P., 2009, International Finance: Theory into Practice, Princeton University Press

ADDITIONAL READINGS :

• COPELAND L., 2005, Exchange rates and international finance, Prentice Hall.
• DAMODARAN A., 2003, Corporate finance : theory and practice, Wiley.
• DAMODARAN A., 2011, Applied corporate finance, Wiley.
• EITEMAN D, A. STONEHILL ET M. MOFFETT, 2004, Multinational business finance, Pearson Education.
• SHAPIRO A.C., 2013, Multinational Financial Management, Wiley.

Among websites, many interesting analysis applying in practice the concepts here discussed can be found on the website of organizations (non-exhaustive list) like the International Monetary Fund, the Bank of International Settlements, or the European Central Bank…You can also have a free access to many data through these websites.

ADDITIONALLY FOR MASTER'S DEGREES

EMBLEMATIC BOOKS OR RESEARCH PAPERS REGARDING THE SUBJECT OF THE COURSE

• Adler M. et Dumas B., 1983, International portfolio choice and corporation finance : a synthesis, Journal of Finance, v38(3), 925-984.
• Adler M. et Dumas B., 1984, Exposure to currency risk: definition and measurement, Financial management, v13(2), 41-50.
• Fisher L. et Weil R., 1971, Coping with the risk of interest rates, Journal of Business,
• v44, 408-431.
• Flood E. et Lessard D., 1986, On the measurement of operating exposure to exchange rates: a conceptual approach, Financial management, 25-37.
• Froot K.A. et Ramdorai T., 2005, The information content of international portfolio flows, Journal of Finance, 60, 1535–66.
• Froot K.A. et Ramdorai T., 2008, Institutional Portfolio Flows and International Investments, Review of Financial Studies, v21(2), 937–971.
• Merton R., 1974, On the pricing of corporate debt: the risk structure of interest rates, Journal of finance, v29(2), 449-470.
• Reitano R., 1992, Non-parallel yield curves shifts and immunization, Journal of portfolio management, 36-43.

PUBLICATIONS OF THE iaelyon FACULTY REGARDING THE SUBJECT OF THE COURSE

• Boutron E., Gajewski J.-F., Gresse C. et Labégorre F., 2006, IPO procedures in Europe: The development of practices and perspectives, Revue d’Economie Financière, v82, 99-115.
• Boutron E., Gajewski J.-F., Gresse C. et Labégorre F., 2007, Are IPOs Still a puzzle? A survey of the Empirical Evidence from Europe, Finance, v28(2), 5-41.
• Bouzouita N., Gajewski J.-F. et Gresse C., 2015, Liquidity Benefits from IPO Underpricing: Ownership Dispersion or Information Effect, Financial Management, v44(4), 785 – 810.
• Gajewski J.-F. et Ginglinger E., 2002, Seasoned equity issues in a closely held market: evidence from France, Review of Finance, v6(3), 291-319.
• Gajewski J.-F., Ginglinger E. et Lasfer M., 2007, Why do companies include warrants in seasoned equity offerings?, Journal of Corporate Finance, v13(1), 25-42.

Final Exam
Written, 2h
MCQ and Exercises

Continuing Examination
Presentation of cases and research papers, 1h

TEACHING METHODS

Courses notes and other documents are made available for the students.

TECHNOLOGY ENHANCED LEARNING 

Teaching allows through mcq and the use of applications on smartphone to facilitate the acquisition of theoretical knowledge. Practice is also done thanks to the analysis of case studies and to the use of excel simulations.

PRE-REQUISITE

Financial Economics, financial theory.