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The starting point for understanding any financial market is that, on a large scale, firms and governments have to turn to institutions (such as banks) and markets (such as bond markets) to finance their core operations. Even if a government or firm currently has no need to borrow or obtain new capital funds, it operates on financial markets to manage its old financial liabilities (such as its outstanding bonds which are traded on markets) or to invest currently surplus funds. At the same time, banks and other financial institutions essentially operate on financial markets as their main business activity.

The fundamental fact underlying this module is that such large players’ financial operations take place on financial markets that are international in character. That is especially true now that, since the 1970s, economies have experienced a fast pace of globalisation. For centuries firms’ and governments’ financial operations have generally involved an international dimension, but modern globalisation has been accompanied by changes in both its scale and its character.

You will study a variety of theories throughout the module, which seek to explain the ways in which finance is handled internationally. One question we want you to keep in mind throughout your study of is: ‘Is the theory true?’ Whatever your answer, your next step should be to consider the related, but different question ‘Is the theory useful?’

Learning outcomes

When you have completed your study of this module you will be able to:

  • explain the nature of an exchange rate regime, and assess the future evolution of such regimes
  • identify and discuss drivers of the growth of the global foreign exchange market
  • explain the nature of exchange rate quotations
  • discuss the foreign exchange market microstructure
  • interpret balance of payments accounts
  • use purchasing power parity measures of gross domestic product (GDP)
  • explain the law of one price
  • assess the uses of absolute purchasing power parity and relative purchasing power parity
  • explain how firms can use currency derivatives to manage risks through hedging
  • discuss what determines whether firms do use currency derivatives for hedging
  • discuss models and empirical evidence on the difference between the beta coefficient of multinational enterprises as compared with domestic firms
  • outline evidence on the connection between agency costs and the capital structure of multinational enterprises
  • explain the main features of 'third generation' models of currency crises
  • discuss the effects of regulatory regimes on firms' choice of stock exchange for their foreign listings
  • explain the differences and relative merits of project finance compared to corporate finance as methods of raising international finance
  • compare them with the main features of first and second generation models

Study resources

Study guide

The module study guide is carefully structured to provide the main teaching, defining and exploring the main concepts and issues, locating these within current debate and introducing and linking the assigned readings.

Key texts

Eiteman DK, AI Stonehill & MH Moffett (2021) Multinational Business Finance. 15th (Global) Edition. Pearson Higher Education.


Throughout the module you will be directed to study a selection of readings, including journal articles, book extracts and case studies that are of particular relevance and interest to the topics covered in the module.

Virtual learning environment

You will have access to the VLE, which is a web-accessed study centre. Via the VLE, you can communicate with your assigned academic tutor, administrators and other students on the module using discussion forums. The VLE also provides access to the module Study Guide and assignments, as well as a selection of electronic journals available on the University of London Online Library.

Module overview

Unit 1 The International Context of Finance
  • 1.1 Exchange Rate Regimes
  • 1.2 Fixed and Floating Exchange Rates
  • 1.3 Exchange Rate Regimes – a Bipolar Future?
  • 1.4 Recent Examples of Hard Pegs and Intermediate Regimes
  • 1.5 A New Bretton Woods System?
  • 1.6 Conclusion
Unit 2 The Markets for Foreign Exchange
  • 2.1 A Global Twenty-Four-Hour Market
  • 2.2 The Mechanics of the Foreign Exchange Market
  • 2.3 Hedging Techniques
  • 2.4 Market Microstructure
  • 2.5 Conclusion
Unit 3 Exchange Rates and Prices
  • 3.1 Introduction
  • 3.2 The Balance of Payments
  • 3.3 A Standard for Measuring Economies
  • 3.4 Purchasing Power Parity Theory
  • 3.5 The Big Mac Measure
  • 3.6 Empirical Evidence – Short-Run Deviations from Purchasing Power Parity
  • 3.7 Conclusion
Unit 4 Exchange Rates and Interest Rates
  • 4.1 Introduction
  • 4.2 Interest Rates and Exchange Rates
  • 4.3 Interest Rate Parity
  • 4.4 Conclusion
Unit 5 Managing Foreign Exchange Exposure
  • 5.1 Introduction
  • 5.2 Types of Risk Exposures and Their Management
  • 5.3 Financial Firms' Management of Currency Exposure
  • 5.4 Empirical Studies on Currency Hedging
  • 5.5 Conclusion
Unit 6 International Corporate Finance and Project Finance
  • 6.1 Introduction
  • 6.2 Corporate Finance – Going International
  • 6.3 Corporate Finance – International Equity Markets
  • 6.4 International Bond Issues
  • 6.5 How Diversification Affects Firms' Financial Needs
  • 6.6 More Reading and a Conclusion
Unit 7 Capital Structure and Cost of Capital in International Financing
  • 7.1 Introduction
  • 7.2 How International Financing Affects Firms' Costs
  • 7.3 Does Localisation Matter?
  • 7.4 Conclusion
Unit 8 Tax Policies of Multinationals
  • 8.1 Introduction
  • 8.2 International Tax Environment
  • 8.3 Tax Arbitrage
  • 8.4 Conclusion

Tuition and assessment

Students are individually assigned an academic tutor for the duration of the module, with whom you can discuss academic queries at regular intervals during the study session.

You are required to complete two Assignments for this module, which will be marked by your tutor. Assignments are each worth 15% of your total mark. You will be expected to submit your first assignment by the Tuesday of Week 6, and the second assignment at the end of the module, on the Tuesday after Week 10. Assignments are submitted and feedback given online. In addition, queries and problems can be answered through the Virtual Learning Environment.

You will also sit a three-hour examination on a specified date in September/October, worth 70% of your total mark. An up-to-date timetable of examinations is published on the website in July each year.

Module sample

Click on the link below to download the module sample document in PDF.