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DISCLAIMER by Sohrab Behdad and Timur Kuran about Theory of Islamic Economics: Tradition and Transformation.
From Granville
to Samarkand
and Kashghar

International Finance (Fall 2007)

In this course we will study international monetary relations and the international financial problems of nations. First, we will study the theory of international finance. That is, after becoming familiar with the balance of payments account of nations, we will look into the international currency market to see how supply and demand for a currency give rise to the currency's rate of exchange. This enables us to examine the effects of various domestic and international factors on the currency exchange rate and balance of payments of a country. The counteractive adjustment policies of governments under the fixed and flexible currency regimes will be studied in the context of the above theoretical model.

Our theoretical study is followed by a review of the changes in the international monetary system since the gold standard. Our concentration will be on the development and collapse of the Bretton Woods Agreement that established the supremacy of the U.S. dollar in international monetary relations. We will consider the monetary system under the Bretton Woods Agreement, the role of the International Monetary Fund, and the conditions that caused the collapse of this system. Then the present international monetary system is evaluated, and the position of the U.S. dollar in the world economy is examined.

At last, we will have a simulation of foreign exchange crisis and the political economy of exchange rate realignment. We will study the Spring 2001 currency crisis of Turkey as our case.

Office Hours

  • TWR 2:00-2:50 pm
  • And by appointment. (You are always welcome to drop in.)

Students who need an accommodation based on the impacts of disability should contact me privately as soon as possible. I rely on the communication from Office of Academic Support (104 Doane) to make the necessary accommodation.

Required reading

  • Mordechai Kreinin, International Economics, 10th edition, 2006, Thompson/South-Western, available at the bookstore.
  • Selected articles from, Finance and Development; Published by International Monetary Fund. They are on ERes under our course, with the password account. These articles are identified with a [IMF # ] reference in the reading assignments below.
  • A simulation packet. This packet of readings will be available later in the semester.
  • Daily news of wire services on the currency markets.
  • A number of articles will be handed out in class.

Attendance

Regular attendance is absolutely required. I expect you in class in body and soul everyday, and on time! There is penalty for missing classes, and for late arrivals.

Please Note!!

For conducting our simulation we must meet two extra sessions. These will be on Monday Decemeber 3 and Friday December 7 from 5:00 to 6:00 pm. Everyone must attend all four sessions of the simulation (those above, and Tuesday December 4 and Thursday December 6, our class time). Because of the nature of a simulation there cannot be a make up. Please mark your calendar and set the time aside for this class.

News

We begin our class on Tuesdays with a discussion of the important foreign currency news of the day. Every one should be prepared to inform the class about one item of news from wire services (Reuter, Bloomberg , etc.) Bring the print out of the news with you to class. I expect you to bring to the class an item of news with interesting analytical or policy dimensions. This will become a boring exercise if you pick the first item that comes on the screen and simply report that, for example, yen went up and euro went down. We should want to contribute to our class by presenting interesting and thought provoking issues. In these presentations it is not as important to have the exact right answer. It is important to raise a good question. You may find the latest news in the currency market at any one of these sites:

Search for forex or for any specific currency that you are interested in, for example, Russian rubble or Indian rupee..This is by far the best source. But you may also want to try the following sites, too.

Search for currency or forex, or any specific currency, like Indian Rupee, Botswana Pula, or Mexican Peso.

To see various exchange rates (currency converters) go to:

Interactive tables of U.S. International Transaction Accounts Data are available at here

Grades

Grades will be given on the following basis:

  • Exam I (Thursday, September 27): 100 points
  • Exam II (Thursday, November 8): 100 points
  • Homework assignments 5 (10-20 points each)*: 75 points
  • Simulation (December 3,4,6,7): 100 points
  • Class contributions: 75 points
  • Final Exam (according to University?s schedule of final exams): 150 points
  • Total**: 600 points

* Each homework assignment will be handed out 4 days (including the weekend) before its due date.

** Announced or unannounced quizzes may be given. The points for quizzes will be added to the total.

Exams

The dates for hourly exams may be changed with a one-week advanced notice. All exams are comprehensive. That is, they will be on all the material covered since the beginning of the course. Exam dates are tentative and may change with a one week notice.

Course Outline

  1. Introduction: Kreinin pp. 1-12, 181-182

    A - Theory of International Finance

  2. Balance of Payments Account: Kreinin, pp. 183-197
    • [IMF #1] "Statistical Discrepancies in the World Current Account"
  3. Demand and supply of foreign currencies: Kreinin, pp. 198-211
    • [IMF #2] "Assessing Offshore Financial Centers"
    • [IMF #3] "Improving the Framework for Reporting on International Reserves"
    • [IMF #4] "Challenges of ?E-Banking Revolution?"
    • [IMF #5] "The Surprising Popularity of Paper Currency"
    • [IMF #6] "Purchasing Power Parity Measures of Competitiveness"
  4. Forward market, arbitrage and speculation: Kreinin, pp. 211-217
    • [IMF #7] "Putting a Stop to Self-fulfilling Crises?"
    • [IMF #8] "Liberalizing Capital Account Restrictions"
  5. Fixed and flexible exchange rates: Kreinin, pp. 221-225
  6. National income determination in an open economy: Kreinin, pp. 247-250, & Hand-out
  7. Balance of payments adjustment policies: Kreinin, pp. 241-265
  8. Exchange rate adjustments: Kreinin, pp. 266-301
    • [IMF #9] "Why are Structural Reforms So Difficult?"
    • [IMF #10] "Beyond the Washington Consensus"
    • [IMF #11] "Refocusing IMF Conditionality"
  9. Exchange control and multiple exchange rates: Kreinin, pp. 324-329
    • [IMF #12] "Combating Money Laundering and the Financing of Terrorism"

    10. B - International Monetary Relations

  10. Bretton Woods Agreement and its collapse: Kreinin pp. 333-334 & 225-240
    • [IMF #13] "The IMF Story"
    • [IMF #14] "IMF at 60"
    • [IMF #15] "Rethinking IMF Governance"
    • [IMF #16] "Time for Change at the IMF"
  11. Post Bretton Woods Agreement: Kreinin, pp. 314-332
    • [IMF #17] "Exchange Rate Regimes"
    • [IMF #18] "Should MENA Countries Float?"
    • [IMF #19] "Euro Turns Five"

    12. C - International Monetary Policy Making

    Currency Crisis
    A Simulation: Turkey 2001


    Reading material will be in separate packets.