International Finance

obowiązkowe

The course is designed to study the main issues in international financial markets and international macroeconomics. Topics to be covered are: balance of payments, operation of exchange market and exchange rate determination models, international capital markets, financial and currency crises, and optimum currency areas and currency unions. Course crediting by written exam.

1. Balance of payments – current account, capital account, net international investment position, global imbalances, current account sustainability

2. The modern foreign exchange market and exchange rates - equilibrium exchange rates and foreign exchange risk, players and dealing in foreign exchange markets, spot market, forward market, foreign exchange swap market

3. The real exchange rate and purchasing power parity - the law of one price, absolute PPP, PPP exchange rates and standard of living comparisons, relative PPP, deviations from PPP (nontradable goods, trade barriers, home bias)

4. International capital market integration - covered and uncovered interest rate parity, carry trade as a test of UIP, the forward premium puzzle, real interest rate parity and capital mobility

5. Capital controls – capital controls and interest rate differentials, macroeconomic effects of capital controls

6. Nominal rigidity, exchange rate policy and unemployment – the macroeconomic consequences of different shocks under floating and fixed exchange rate and downward wage rigidity

7. International monetary systems: a historical view - classifying monetary systems: the open-economy trilemma, the gold standard, floating exchange rates, fixed exchange rates

8. Managing currency pegs – a boom-bust cycle, the currency peg externality and policies to address this externality

9. Financial globalization: opportunity and crisis – international financial markets, portfolio diversification, regulation of international banking, causes and costs of financial crises, financial crises in advanced economies, financial crises in emerging economies

10. Currency crises – currency crisis models, the Latin American crisis of the 1980s, the speculations on European currencies in the early 1990s, the Mexican, South American, and Asian crises

11. Optimum currency areas and currency unions – the theory of optimum currency areas, the evolution of the EMU

Required reading:

1. Stephanie Schmitt-Grohé, Martín Uribe, and Michael Woodford, 2022, International Macroeconomics: A Modern Approach, Princeton University Press

2. Paul R. Krugman, Maurice Obstfeld, and Marc Melitz, 2018, International Finance: Theory and Policy, Pearson

Additional reading:

1. Frederic S. Mishkin, 2016, The Economics of Money, Banking, and Financial Markets, Pearson

2. J. Orlin Grabbe, 1995, International Financial Markets, McGraw-Hill

A) Knowledge: Student acquires knowledge of international financial markets and international macroeconomics. In particular student is acquainted with the principles of currency markets, understands the determinants of current account and macroeconomic effects of capital controls, knows the theory of nominal and real exchange rate determination.

B) Skills: Student gains skills to identify and solving problems in operation of international currency and money markets; evalualuating financial instruments denominated in foreign currencies; understands causes and costs of different crises and identifies advantages and disadvantages of different exchange rate regimes.

C) Social competences: Student is able to predict the results of processses and events occurring in world financial markets, to understand the interrelatedness of different markets and their feedbacks. Student is capable of solving problems arising in the course of conducting economic activities on an international scale.

KW01, KW02, KW03, KW04, KW05, KU01, KU02, KU03, KU04, KU05, KU06, KU07, KK01, KK02, KK03

Written exam