S1212 The Internationalization of Finance: causes, consequences, contagion and tools (S1212)

The focus of this course will be on international movements of financial assets, the changing nature of these markets and the instruments used. We will begin with a discussion regarding the role of finance in economic growth and development. We will also start with some discussion regarding how we measure internationalization and what we mean by globalization. Measurement issues specific to international capital flows will then be introduced. The changing nature of capital flows will be examined and the causes and the implications of these changes for the macro-economy will be discussed. Next we will turn our attention to exchange rate markets and the determination of the value of one country's currency vis-a-vis another. This discussion will be followed by an examination of various types of financial crises- exchange rate crises, banking crises and sovereign debt crises. We will then explore the tools, instruments and strategies of hedging exchange rate movements and discuss the differences between hedging, speculation and arbitrage in business. The course will close with thoughts and proposals to deal with the globalization of finance.


Prerequirements: Principles of Microeconomics, Principles of Macroeconomics.

 

Teaching and Evaluation Methods

 

We will have 3 exams including the final. The first exam will consist of T/F explain statements; the 2nd exam will consist of 3-4 "big think" essays; the final will consist of both forms of examination. Each exam will count 20% each. If you miss exam 1 (the easiest), or 2 you will make up the missed percentage by reweighting it to the final. The final is comprehensive and is NOT optional. Attendance and participation will contribute 5% to your grade and the class presentation will contribute 10%. The remaining 25% of your grade will come from an 8 page paper that you will write based on the prompt below.

 

All written assignments will be evaluated for both content and form. Generally, papers in economics start with an introduction and review of the relevant literature in order to capture the reader's interest and place the topic. Next, the research will outline the key points, theoretical issues, mechanism, etc. surrounding the debate. The model, methodology and/or data sections follow. The theoretical solutions will then be derived or the empirical results presented. This will be followed by a discussion of the findings. The conclusion will summarize the work and point out directions for further work, related issues, etc. Your written assignment will deviate from this format in the sense that there will be no modeling or data/methodology section. Instead you will jump to your conclusions based on the evidence and research you bring to bear on the topic.

 

I will assign or you will choose a topic from the list at the back of the syllabus for an individual, pair or group of students to present in class (the topic choice will determine how many students can work together as some are more difficult and dense than others). The presentation will be worth 10% of your grade. The student(s) will prepare a summary of the topic and teaching points which they will turn in after they "teach" their material to the class.

 

Prompt: Outline the issues surrounding sovereign debt crises drawing on the book "This Time is Different" by Reinhart and Rogoff. Using this information as a foundation, compare the Greek debt issue and the European response to the potential debt issues surrounding the US fiscal position OR compare the Greek debt issue and European response to that of Ireland. Papers are due the last day of class.