International Finance
- Credits: 6
- Ending: Examination
- Range: 24P
- Semester: winter
- Year: 1
- Faculty of Economics and Finance
Teachers
Included in study programs
Teaching results
By completing the course, the students receive a set of theoretical and practical knowledge from the International Monetary System environment in the context of increasingly globalized financial markets and economic policies. They are: international mobility of the goods, services, capital and their determinants. In general, the class teaches the students to understand and apply various theories and models in international finance during the economic decision-making process. It enables the students to develop their ability to perform quantitative empirical research in the exchange rate, interest rate party balance of payments and other areas of international finance.
Knowledge and understanding:
After successful completion of the course, the students should be able to:
Understand the changing nature of the global financial landscape and International monetary system, its participants, key institutions and rules.
Understand and use the methodology of accounting principles used to capture the international exchange of the goods, services and capital flows in the Balance of Payments, International Investment Position and Gross External Indebtedness.
Understand the macroeconomic relations between domestic economy and the rest of the world. Analyze the balance resp. imbalances of the Balance of Payments, the causes and the consequences. Know various forms of the Balance of Payments crisis and the possibilities of the rebalancing.
Analyze the exchange rates from different perspectives, clearly identify the determinants of its fluctuations in time. Gain the ability to analyze and estimate its development and assess the consequences of these fluctuations.
To know the history and the evolution of the key institutions covering the governance and oversight over the International Monetary System, study their role and consider current challenges.
To offer a balanced judgment on critical issues in international finance. Formulate professional statements, use the facts and write an essay by using the gained knowledge.
Skills and attributes:
To analyze the Balance of Payments and International Investment Position
To quantify relationships between movements in price level/interest rates and exchange rates,
To interpret empirical works in the area of interest rates and exchange rates,
Conduct primary research based on gained knowledge about the International Finance area
Deliver effective and clear presentation and offer some policy implications for the national economy policies, work effectively and professionally in teams and prove the understanding for the social and cultural diversity
Indicative content
1. International finance – Introduction. The formation of the IMS, history and current development of the IMS and key institutions. The importance of various macroeconomic policies, transitional regimes of exchange rates, exchange rates manipulations. Trends towards monetary integration. Reserve currencies. Weakened quality of the US financial market. Markets support and moral hazard problem.
2. Balance of Payments as a mean of assessing the external balance/imbalance of a country. Balance of payments as element of foreign exchange demand and supply. Foreign exchange interventions and foreign reserve assets. International liquidity. Current account and capital account analysis. Current trends in international capital flows. Capital inflow and outflow and the impact on domestic macro policies.
3. Balance of Payments as a mean of assessing the external balance/imbalance of a country. The importance of the macro policies for the IMS stability. The impact of macro policies on the international finance and the global economy. The problem of international coordination of macro policies. External imbalances. Different approaches to explanation of global macro imbalances. The drivers of international financial flows. Global excess of savings versus suboptimal macro policy. The impact of real interest rates on savings and investments.
4. International indebtedness and international capital flows. Foreign debt in times of financial crisis. Indicators of the foreign debt sustainability. Foreign indebtedness – case of developed, catching up and developing economies. Debt ownership and debt forgiveness. IMF and capital mobility liberalization. Capital inflow and outflow and the impact on domestic policies.
5. Exchange rates models and classifications. Foreign exchange market. Economic and financial determinants of the exchange rate variable. Exchange rates formation. Money, interest rates and exchange rates interrelations. Current account, capital account and the exchange rate interrelations. Price level and exchange rate – short term and long-term perspective. Equilibrium exchange rate concept and its estimation. Theoretical approach to real effective exchange rate estimation.
6. International finance parity relations. Absolute and relative purchasing power parity. PPP line. Harrod- Balassa-Samuelson model. International Fischer effect, Penn’s effect. Interest rate parity covered and uncovered version. Carry trade.
7. Hedging and hedging strategies as a mean of currency risk elimination. Currency risk management. Derivatives usage in currency risk management.
8. Choosing the exchange rate regime. System and criteria for classification of the exchange rate regime. Exchange rate policies. Different models of exchange rates. Economic aspects of fixed and flexible exchange rates. Transitional exchange rate regimes. Macro policy design under different exchange rate regimes. Nominal, nominal effective, real and real effective exchange rate.
9. Optimal Currency Area. Economic integration – advantages and disadvantages of fixed exchange rate. Deciding about monetary union membership. Theory of optimal monetary area – European experience. Trilemma in international finance.
10. Foreign exchange market and exchange rate manipulation. Simultaneous equilibrium on money and exchange rate market. Forex markets effectiveness. Overshooting according to Dornbusch. Foreign exchange interventions. Competitive devaluations.
11. The position of developing and catching up economies. Question of the economic performance in relation to liberalization of the capital mobility. Sensitiveness towards speculation attacks. Trends in their exchange rates development.
12. Models of currency crisis and early warning system models. Balance of Payments crisis in the world. The role of international and key national institutions in liquidity steering and liquidity crisis management. International financial centers.
13. Current issues in International Finance World. Depending on the most recent topic in International Finance Area.
Support literature
IMF: Balance of Payments Manual, 6th edition, 2009.
Pilbeam, K.: International Finance 4th edition, Palgrave Macmillan, 2013.
Krugman, P. – Obstfeld, M. – Melitz, M. International Economics – Theory and Policy, 10th edition, Pearson, 2013.
Requirements to complete the course
1. Evaluation of seminar activities 30%
of which:
- seminar paper - 5%
- student’s activity during seminars - 10%
- midterm exam - 15%
2. Written final exam - 70%
Student workload
- Lectures 26h
- Seminars 26h
- Seminar paper 26h
- Preparation for seminars 26h
- Individual studying 52h
Date of approval: 09.02.2023
Date of the latest change: 28.12.2021