Syllabus
Course outline with dates:
Introduction to international finance. Foreign exchange market: basic features. Sources of data on international transactions, exchanges rates, exchange rate regimes, and financial markets. (February 14th)
Balance of payments structure and national income accounting for open economy. International investment position. Foreign debts. (February 21st)
Introduction to exchange rate determination: asset approach. Covered and uncovered interest rate parity. (February 28th)
Money, interest rates and exchange rates. Long run aspects of exchange rate determination. Oveshooting. (March 7th)
Prices and exchange rates. Fischer effect. Nominal and real (effective) exchange rates. Exchange rates and competitiveness. Balassa-Samuelson effect. (March 14th)
Nominal and real convergence in the EU. Introduction to the AA-DD model. (March 21st)
The AA-DD model: additional details. Application on policy analysis. (March 28th)
Fixed exchange rates: macroeconomic implications. Interventions and sterilization. Policy trilemma. Policy options for reaching internal and external balance. Swan diagram. (April 4th)
Monetary integration: costs and benefits. (April 11th)
Monetary integration: effects – empirical research (April 18th)
Reserve currencies and international monetary system. The future of dollar, RMB, and Euro. (April 25th)
Equilibrium exchange rates: FEER. A brief introduction into the models of balance of payments crises. (May 2nd)
Forex forecasting: fundamental approaches versus alternatives. A brief overview of technical analysis. (May 9th)
Final assignment due. Reserved for a make up class (if needed), can be also used as an early option for the final exam. (May 16th)
Annotation
This course covers, with a focus on both theory and empirics, basic topics in international finance (exchange rate economics & international macroeconomics) at undergraduate level. The course does not deal with international business methods (logistics, use of letters of credits etc.), instead it focuses on theory and policy analysis and attempts to provide some insight into questions such as the following ones:
• How closely (and in which ways) are international financial transactions linked to national economies and international trade?
• Why determines exchange rates?
• How do national economic policies influence external equilibrium of an economy?
• What effect have different foreign exchange policies and foreign exchange arrangements have on economic stability and economic growth?
• What causes balance of payments crises/international financial crises?
• When it is optimal for several countries to share one currency?
• How many global currencies do we really need?
The course is a logical complement to the International Trade I (JEB039), however, it can be also studied independently, the International Trade course is not considered to be a prerequisite.
We will attempt to provide up-to-date examples and references whenever possible (e.g. by discussing topical issues such as global imbalances, internationalization of “new currencies” (RMB), functioning of new digital currencies, stability of Eurozone.