Global Markets and Currencies

Subject Area: Economics

Lecturer:  Richard Portes

Course Code: E306

Term: Aut08

Credit Value: 1


Aims and objectives


What would happen if China were to let its exchange rate float? Is the US current account deficit sustainable, or will there be a dollar crash? – and if a crash, what would happen to interest rates and trade? Are Brazil and Turkey now ‘out of the woods’, or is there still a significant possibility of a financial crisis in a ‘systemically important economy’?...

This course deals with the international financial environment facing firms in a globalised economy. It will provide tools for assessing the impact of economic policy shocks and financial disturbances on financial markets, exchange rates, and capital flows. It will be especially relevant for people with career interests in investment analysis, asset management, capital markets, hedge funds, corporate finance, and the finance/treasury function of corporates. The course is also suitable, however, for anyone seeking further understanding of the international macroeconomy. There is very little overlap with the elective in International Finance (E207) – this course gives the global macroeconomic context in which international financing decisions are taken.

 


Topics Covered


·         Exchange rates and the current account of the balance of payments

·         Real exchange rates and purchasing power parity

·         Nominal exchange rates, prices, and interest rates

·         The market microstructure approach to forex markets and exchange rates

·         What determines the nominal exchange rate?

·         Financial globalisation

·         Speculative attacks and financial crises

·         Capital flows, sovereign borrowing, and sovereign risk

·         International financial stability

·         Common currencies and Economic and Monetary Union (EMU)

 

Format & Teaching Method

 

Teaching will be primarily in the form of lectures, with some distinguished visiting speakers (last year, these included the Head of Global Economic Research, Goldman Sachs; Deputy Chair, Deutsche Bank London; Capital Markets Editor, Financial Times; Head of Foreign Exchange, Reuters; and CEO of Cross-Border Capital). For each topic there will be a specific application of the tools discussed, and students will do group presentations on these cases.

 

There will be no single set text – articles will be distributed in advance, and there will be handouts for each session (all will be on the Forum).  But there will be frequent citations from the following textbooks:

 

P. Krugman and M. Obstfeld, International Economics: Theory and Policy (Pearson/Addison Wesley, ,7th ed.), Chs. 12-22. A basic text.

 

L. Sarno and M. Taylor, The Economics of Exchange Rates, Cambridge UP, 2002.

 

N. Mark, International Macroeconomics and Finance (Blackwell, 2001). Excellent, sometimes technical, survey of empirical work in international macroeconomics and finance.

 


Pre-requisites

 

International Macroeconomy and Competitiveness (the MBA/EMBA) core course or prior knowledge of basic macroeconomics (review with D. Miles and A. Scott, Macroeconomics: Understanding the Wealth of Nations, second edition, Wiley, 2004).


Assignments and assessment

Assessment will be based on two 500-word individual assignments (15% each), a class presentation (which will be done in groups of 4 or 5) (25%), a ‘take-home’ exam (30%), and class participation (15%).