25752 - International Finance

Learning outcomes

The goal of the course consists in providing students with all the knowledge to interpret the dynamics of exchange rates as well as the constraints imposed by international financial markets on domestic monetary and fiscal policies. After taking this course each student will be able to: - interpret the dynamcs of capital flows in modern economies; - study global imbalances caused by Balance of Payments fluctuations; - interpret major global economic shock and figuring out the best policy mix needed to cope with it.

Course contents

This course aims to provide all necessary tools and knowledge to interpret modern phenomena relative to international economics evolution. The focus of the course will be on monetary aspects of international economics. In particular, we will study the role of optimal currency areas and the most important theories on exchange-rate determination. Moreover, the attention will be devoted to the analysis of balance of payment crisis as a mechanism derived from the internal economic policy contradiction of a given country. Therefore, what is going to be the optimal exchange-rate regime ? How an inadequate choice about exchange-rate regime will translate into a Balance of Payment Crisis ?

A tentative schedule will cover the following list of topics:

1. Introduction to the course. Exchange Rate: spot, real, cross rates.Forward and futures.The exchange rate market.
2. Arbitrage conditions.Exchange rate risk.Exchange-Rate regimes. The central bank’s balance sheet in open economy.
3. Balance of payments. The ‘J’ effect and the pass through effect. The absorption approach to Balance of Payments.
4. Economic Policy in Open Economy: the Mundell Fleming model with perfect and imperfect capital mobility. Optimal Currency Areas.
5. The monetary approach to balance of payments.
6. Purchasing Power Parity.
7. Overshooting of Exchange-Rate.
8. The portfolio balance approach to exchange-rate determination.
9. Target Zones.
10. The Reserve Currency paradigm.

Readings/Bibliography

Pilbeam K., “International Finance”, fourth edition, 2014, Palgrave McMillan

Additional readings will be distributed in class.

Teaching methods

The course is offered on a traditional in-class lecture: there will be 10 class meetings, each of them is 3 hours-long, for a total of 30 hours.

Assessment methods

18-23: the student has sufficient preparation and analytical skills, spread however, over just few topics taught in the course, the overall jargon is correct

24-27: the student shows and adequate preparation at a technical level with some doubts over the topics. Good, yet not to articulate analytical skills with the use of a correct jargon

28-30: Great knowledge about most of the topics taught in the course, good critical and analytical skills, good usage of the specific jargon

30L: excellent and in depth knowledge of all the topics in the course, excellent critical and analytical skills, excellent usage of specific jargon.

Teaching tools

Slides, overheads and additional set of notes (copyrighted) will be distributed in class.

Specific set of readings from the international literature.

Office hours

See the website of Massimiliano Marzo