ECO4013S - International Finance I

Course Information

This course exposes participants to the conceptual and methodological issues in international finance. Emphasis will be on contemporary topics, principally (i) international asset markets (covering international money and capital markets, and foreign exchange markets---spot, forward, futures, currency swaps, and options); and (ii) international macroeconomic policies (bearing on economic growth, debt, and foreign aid).

Description

This is a twelve-lecture, eighteen-hour course in international finance, at the introductory graduate level. (Honours courses at UCT include advanced undergraduate and graduate material, a distinction which is not always clear. This course is closer to the graduate level, both in terms of depth and teaching approach.) International Finance is a vast field, spanning open economy macroeconomics, finance, and monetary economics. We will not try to discuss everything. The course will focus on the economics of exchange rate determination, including a solid introduction to the recent microstructure approach. Part of the course will be devoted to topics of particular interest in emerging economies, including commodity markets, corporate finance and currency crises. International Finance II complements this course by placing greater emphasis on open economy macro. Previous exposure to the basic concepts of international macroeconomics (at the level of Krugman and Obstfeld, International Economics, or similar text) is strongly recommended, but not required. Comfort with (or tolerance for) the application of basic mathematics to the precise expression of economic ideas is indispensable. Please revise basic probability (particularly, random variables, conditional expectations, and the normal distribution) before the course starts. Always study the required readings (pencil and paper in hand) before each class.

Syllabus

Fundamentals and classic exchange rate determination: International parity conditions; classic monetary models; empirics; introduction to selected recent advances. Commodities and exchange rates: commodity currencies; fundamentals of commodity markets. Information-theoretic approach to currency markets: order flow and institutions; CARA-normal framework; implicit auctioneer, rational expectations; strategic trade, explicit auctioneer; sequential trade; simultaneous trade; empirics. Corporate finance and macroeconomics: borrowing capacity; credit rationing and economic activity; balance-sheets and currency crises. Speculative attacks. (Number of lectures devoted to each section may vary from year to year.)

Main Textbooks

Lyons, Richard. 2001. The Microstructure Approach to Exchange Rates. Cambridge, Mass.: MIT Press.
Isard, Peter. 1995. Exchange Rate Economics. Cambridge: Cambridge University Press.
Tirole, Jean. 2006. The Theory of Corporate Finance. New Jersey: Princeton University Press.