International Finance

Economics 244
Spring 2011

Instructor: Pedro Gete Teaching Assistants: Tim Bian & Shen Qu

Email: pg252@georgetown.edu Emails: sq34@hoyamail.georgetown.edu
Office: ICC 553 yb33@georgetown.edu
Office hours: Wednesdays: 10:30am-12pm

Course Objectives
This course has two complementary objectives. First, to study some basics of exchange rates and the
balance of payments. Second, to equip the students with the tools and facts to understand the international
financial system. The course will emphasize both theoretical and practical considerations. International
Finance topics are everyday in the newspapers and we will study key policy questions as the “global
imbalances” or currency wars. Moreover, we will study some Central Banks and their interaction with the
financial markets and the economy. The course will be demanding. Students are expected to attend the
lectures.

Grading
Course grades will be determined according to this system:
- There will be a midterm and a final. If the grade in the final is higher than in the midterm, the final
will count for 90% of the grade. If the grade in the midterm is higher than in the final, the final will
count 60% of the grade and the midterm will count 30%. Hence the midterm will provide insurance
against having a bad day in the final. Warning: If you miss the midterm, for any reason, the final will
count for 90% of the grade. Dates for the final exam and the conflict exam can be found on the
Registrar’s web page (for the Final is: Friday, May 13th, 12:30 - 2:30pm). The midterm will be on
Tuesday, March 22nd. You must take the exam for the section in which you are enrolled. Conflict
exams must be approved by your Dean's office. Exams will not be administered on any other day; so,
plan your travel accordingly.
- There will be two types of homeworks:
i) “Mandatory homeworks”: They will be assigned every 3 or 4 weeks. They will count 10% of
the grade. You are encouraged to work in groups but each student should hand in a separate set of
answers. The purpose of doing the homeworks is to help you learn the material, and to inform you
and me about your progress. Even if your answers are wrong you will get the 10% if you submit all
your homeworks on time and your answers show that you put effort to do them.
ii) “Voluntary homeworks”: They are just for you to practice. They will be assigned every 2 weeks.

I will adhere to the new grading guidelines of the Economics Department: at most 45% of the students
will get A/A-. 50% will get B-, B or B+. And 5% will receive C and below. Any student caught cheating on
any exam or engaging in any other form of academic dishonesty will receive a grade of F (fail) and be
reported to the Dean.
If you have a complaint about the grade that you received then send me an email describing your
complaint, the grade received and the grade you feel you deserve. Do not e-mail me explaining the

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circumstances under which you took the final exam or the midterm. I will strictly apply the previous grading
system.

Textbooks and Newspapers

I will post my lecture slides in Blackboard. But my lecture slides are not meant to be self-
contained. Much of the intuition and the analysis are not written out on the slides. Moreover, many days I
will not use slides but write in the traditional blackboard. Very often we will discuss articles from the
financial press that I will post in Blackboard. The exam will be based only on the material discussed in
class.
Most of the topics that we will cover are well explained in the textbook International Macroeconomics by
Robert Feenstra and Alan Taylor, Worth Publishers, 2008. (The same material is available as the second
part of the book entitled International Economics which also contains material on international trade.)
There is a Study Guide by Stephen Ross Yeaple designed for use with International Macroeconomics.
Nothing in it will be assigned. However, some students have found it helpful. The bookstore has ordered
copies. Very often there will be differences between my lectures and the textbook, i.e. the textbook should
help you to follow most of the topics but it cannot replace my lectures. And if you understand the lectures
and do the readings you may not need the textbook to succeed in this course.
I strongly encourage students to read regularly the Wall Street Journal and/or The Economist. This will
enhance your understanding of the material presented in this course. If you want to subscribe and save
money you may use a student subscription:
http://subscribe.wsj.com/semester
http://www.economistacademic.com/ my Faculty ID is 5662

Outline
The following reading list gives a guide to the topics that we will cover. It is tentative; we will feel free
to modify it if it suits us. At the end of each lecture I will announce the readings for the following lecture. I
will also send out regular email messages to the class mentioning specific articles to review before class.

I. Introduction to Exchange Rates: Nominal Exchange Rates, Trade-Weighted Exchange Rates,

Appreciations and Depreciations, Overview of Exchange Rates Regimes, The Market for Foreign
Exchange, Spot contracts, Derivatives contracts, Hedging vs Speculation.

II. Exchange Rates and Interest Rates: Uncovered and Covered Interest Rate Parities (UIP, CIP)

III. Exchange Rates and Prices: Real Exchange Rates and Purchasing Power Parities (APPP, RPPP)

IV. A model of Exchange Rate determination for the long run: PPP and money demand

V. A model of Exchange Rate determination for the short run: UIP

VI. An integrated model of Exchange Rate determination: Overshooting

VII. The Balance of Payments and the Global Imbalances

VIII. Monetary Policy around the World

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 IX. Introduction to the economics and structure of the International Financial Markets

X. Fundamentals of Banking and Money Markets. The Yield Curve.

XI. The International Shadow Banking System

XII. Currency Wars

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