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Centre for Financial and Management Studies (CeFiMS)

International Finance

Course Code:
C229|C329
Unit value:

Introduction

This course is concerned with the institutions of international finance and the key policy problems that have arisen in recent decades. It presents a policy-oriented perspective, similar to that an economist would use when advising governments on how to work within the modern international financial system and how to overcome its problems.

Resources

Study Guide

You will receive a looseleaf binder containing eight 'course units'. The units are 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 further assigned readings. The unit files are also available to download from the Online Study Centre.

Textbook

Keith Pilbeam, (2006) International Finance, EDI Series in Economic Development, Third Edition, Macmillan

Readings

You will receive three volumes of Readings, which are a compilation of recently published articles or seminal writings which augment and illustrate the main text.

Online Study Centre

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

Objectives and learning outcomes of the course

When you have completed this course, you will be able to do the following:

  • outline the decline of Bretton Woods and the rise of the Flexible Exchange Rate Regime, 1973 to the present
  • analyse and discuss fixed versus flexible exchange rate regimes
  • explain the difference between hedging, arbitrage and speculation and the interaction of hedgers, arbitrageurs and speculators
  • discuss the parity relationships between spot and future exchange rates
  • demonstrate how a balance of payments is constructed with a series of transactions, and show how transactions are recorded
  • explain how the national income framework and elasticities framework can be linked to the absorption framework.
  • discuss the policy problem the Mundell-Fleming model is designed to address, and the historical circumstances that made it relevant
  • differentiate between the assumptions of the Polak model and those of the Mundell-Fleming model
  • assess the strengths and weaknesses of the monetary approach
  • relate the traditional arguments for and against fixed and floating exchange rates
  • explain the rationale behind discretionary intervention in the foreign exchange market
  • give an account of the development of the European Monetary System and the European Monetary Union.

Scope and syllabus

Course Units
Unit 1: Evolution of International Financial Systems
  • 1.1 Introduction to Unit 1
  • 1.2 Bimetallism – before 1879
  • 1.3 Classical Gold Standard – 1879-1914
  • 1.4 The Interwar Period – 1914-1944
  • 1.5 The Bretton Woods System – 1945-1972
  • 1.6 The Flexible Exchange Rate Regime – 1973 Onwards
  • 1.7 The Rise of the Eurodollar
  • 1.8 The International Debt Crisis
  • 1.9 Summary
Unit 2: Foreign Exchange Markets
  • 2.1 Introduction
  • 2.2 Economic Models and Institutions
  • 2.3 Market Institutions and Exchange Rates
  • 2.4 A Simple Model of the Spot Exchange Rate
  • 2.5 A Theory of Spot Exchange Rates: Purchasing Power Parity
  • 2.6 Forward and Spot Exchange Rates: Covered Interest Parity
  • 2.7 Parity Conditions Linking Spot and Forward Exchange Markets
  • 2.8 Foreign Exchange and Other Financial Markets
Unit 3: The Balance of Payments
  • 3.1 Introduction
  • 3.2 Measures of the Balance of Payments
  • 3.3 The Multiplier Approach
  • 3.4 The Elasticities Approach
  • 3.5 The Absorption Approach
  • 3.6 Summary
Unit 4: Balance of Payments: the Mundell-Fleming Approach
  • 4.1 Introduction
  • 4.2 The Internal-and-External-Equilibrium Approach to Policy
  • 4.3 The Mundell-Fleming Approach: the IS-LM-BP Model
  • 4.4 Policies and Events: Shifts of the Three Curves
  • 4.5 Policies under Fixed and Floating Exchange Rates
  • 4.6 Perfect Capital Mobility
  • 4.7 Evaluations of the Mundell-Fleming Model
  • 4.8 Evaluation of Perfect Capital Mobility
Unit 5: Balance of Payments - the Monetary Approach
  • 5.1 Introduction
  • 5.2 Background to the Monetary Approach
  • 5.3 Three Assumptions of the Monetarist Theory
  • 5.4 The Money Supply Identity
  • 5.5 Monetarist Analysis of the Balance of Payments
  • 5.6 Evaluation of the Monetary Approach
  • 5.7 Conclusion
Unit 6: Fixed and Flexible Exchange Rate Systems
  • 6.1 Introduction
  • 6.2 The Case for Fixed Exchange Rates
  • 6.3 The Case for Floating Exchange Rates
  • 6.4 The Modern Evaluation of Fixed and Flexible Exchange Rate Regimes
  • 6.5 The Case for Managed Exchange Rates
  • 6.6 Finance and the Choice of Exchange Rate Systems
Unit 7: Currency Blocs, Financial Integration and International Coordination
  • 7.1 Introduction
  • 7.2 Types of Financial Co-operation
  • 7.3 Macroeconomic Policy Co-ordination
  • 7.4 European Monetary Union
Unit 8: Foreign Exchange Problems and Policies of Developing Countries
  • 8.1 Introduction
  • 8.2 International Finance and Developing Countries
  • 8.3A Capital Flight (Option A)
  • 8.3B Contractionary Devaluation (Option B)
  • 8.4 Conclusion

Method of assessment

You will complete two assignments, which will be marked by your course tutor. Assignments are each worth 15% of your total mark. You will be expected to submit your first assignment by the Tuesday of Week 5, and the second assignment at the end of the course, on the Tuesday after Week 8. Assignments are submitted and feedback given online. In addition, queries and problems can be answered through the Online Study Centre. You will also sit a three-hour examination on a specified date in October, worth 70% of your total mark. An up-to-date timetable of examinations is published in April of each year.