International Finance

Learning Outcomes

Subject Specific Intellectual and Research Skills

Having successfully completed this module you will be able to:

• analyse the relationship between the spot exchange rate and the forward exchange rate, and how this relationship may be used to reduce risk in international investments;
• evaluate how central banks and governments deal with unemployment, inflation, high interest rates, etc when the exchange rate is fixed or floating.
• evaluate the advantages and disadvantages of these regimes;
• describe the theoretical and the empirical setup of the spot and forward rate relationship;

Knowledge and Understanding

Having successfully completed this module, you will be able to demonstrate knowledge and understanding of:

• how the exchange rate system operated during the different regimes.
• how to distinguish the difference between different regimes of the exchange rate;

Transferable and Generic Skills

Having successfully completed this module you will be able to:

• have the opportunity to develop key skills in problem solving, IT and analysis.

• The Foreign Exchange Market

This section looks in depth at the structure and working of foreign exchange market. Different forms and types of the foreign exchange rate and foreign exchange regimes are also studied. The section also looks at the history of the exchange rate and its different regimes.

• The International Monetary System

This section studies the European Monetary System (EMS), the Exchange Rate Mechanism (ERM) and the European Union in detail. Advantages and disadvantages of the EMS and ERM are analysed in detail. Other monetary systems in operation are also studied. A comparison between all the present systems of exchange rate (in different regions of the world) will also be conducted.

• Exchange Rate and International Investments

This section studies the forward and spot foreign exchange markets. The effect of exchange rate risk on international investment. The concept of covered and uncovered foreign investments. Purchasing power parity and interest rate parity. The relationship between spot and forward rates and the empirical testing of this relationship (the forward market efficiency) is also studied in this section.

• Open-Economy Macroeconomics

This sections looks at the working of an economy under a fixed and a floating exchange rate regime. The section starts with a brief look at the balance of payments accounts and then a more in depth look at the interaction between the goods market, the money market and the asset market both under the fixed and the floating exchange rate regimes. Both the short and the long term effects of the exchange rate regime (fixed and floating) on the economy are investigated.

• Exchange Rate Determination

This sections looks at the different theories of exchange rate determination. Special attention is given to the Monetary model and the Market Microstructure approach to Foreign Exchange Markets. How to empirically test these models would also be looked at.

Teaching methods include:

Lecturing and videos

Learning activities include:

Mini case study

Formative

This is how we’ll give you feedback as you are learning. It is not a formal test or exam.

Case study

• Assessment Type: Formative
• Feedback: By engaging in the mini-case study, students evaluate their own understanding and that of their peers of key concepts covered in this module. In addition, there is a formative element to the Multiple Choice Test, in that students who find their knowledge insufficient will be made aware of that well in advance of the written exam, and so have a chance to do something about it.
• Final Assessment: No
• Group Work: No

Summative

This is how we’ll formally assess what you have learned in this module.

Referral

This is how we’ll assess you if you don’t meet the criteria to pass this module.

Repeat

An internal repeat is where you take all of your modules again, including any you passed. An external repeat is where you only re-take the modules you failed.