Course Code and name

 

EKO658 International Finance

Course Type

 

Elective

Course Credit

 

3 0 3

ECTS Credit

 

7

Lecturer

 

Assist. Prof. Lütfi ERDEN

Pre-requisite(s)

None

Course Length

 

1 Semester / 3 hours each week

Course Contents

 

Part I

  1. Basic Concepts and Terminology
  2. Exchange rate markets (Spot, Arbitrage, Forward, Swap, Eurodollar Market)
  3. Global Exchange rate systems: (Bretton Woods before and after: Fixed, Flexible, Managed, Currency board, Dolarization)

Lothian, J. (1998) “Some new stylized facts of floating exchange rates” Journal of International Money and Finance, v 17, 29-39.

Arize, A. C. (1998) “The effects of exchange rate volatility on US imports: An empirical investigation”, International Economic Journal, v 12, no 3, 31-40.

  1. Balance of Payment Account

Ott, (Sep-Oct 1988) “Have US exports been larger than reported?” Federal Reserve Bank of Saint Louis Review.

 

Hakkio, C. S. (July-Agust 1995) “The US current account: The other deficit”, Federal Reserve Bank of Kansas City Economic Review.

 

Part II: Building Blocks

  1. Purchasing Power Parity

Frenkel, J. (1981) “The collapse of purchasing power parity during 1980s” European Economic Review, v 16, 145-165.

 

Cheung, and Lai, (1993) “Long run PPP during the recent float” Journal of International Economics.

 

Norrbin, S. and Reffett, K. (1994) “The dynamic adjustment process for PPP” FSU Working Paper.

 

Bilson (July 1984) “PPP as a trading strategy” Journal of Finance

 

  1. Interest rate parity (Covered and Uncovered)

McCormick, (Apr 1979) “Covered interest rate arbitrage: Unexploited profits?” Journal of Political Economy.

 

Taylor, (Nov 1987) Covered interest parity: A high frequency, high qualilty data study” Economica.

 

  1. Efficient Market Hypothesis

Fama (1984) “Forward and spot exchange rates” Journal of Monetary Economics.

 

Hakkio and Rush (1989) “Market efficiency and cointegration: An application to the streling and deutschemark exchange markets” Journal of International Money and Finance.

 

Norrbin and Reffett (1996) “Exogeneity and forward rate unbiasedness” Journal of International Money and Finance, v 15, n 2, 267-274.

 

  1. International capital mobility

Solnik (July-Aug 1974) “Why not diversify internationally rather than domestically” Financial Analysts Journal.

 

Glassman, D and Riddick, L. (1994) “International diversification: New evidence on the market segmentation” International Review of Economics and Finance, v 3, n 1, 73-92.

 

Goodwin, B. and Grennes T. (1994) “Real interest rate equalization and the integration of international financial markets” Journal of International Money and Finance, v 3, 107-124.

 

Feldstein, M. and Horioka, C. (June 1980) Domestic Saving and International Capital Flows. Economic Journal, 90, 314-329.

 

Coiteux, M. and Olivier, S. (2000) The Saving Retention Coefficient in the Long-run and in the Short-run: Evidence from Panel Data. Journal of International Money and Finance, 19, 535-548.

 

Demir, F. (2004) A Failure Story: Politics and Financial Liberalization in Turkey,

Revisiting the Revolving Door Hypothesis. World Development, 32 (5), 851-869.

 

Erden, L (2004) “Structural Adjustment and Domestic Private Saving and Investment Interaction in Turkey: A Cointegration Analysis” H.Ü Working Paper.

 

Part III.  Exchange rate determination

1. Trade Flow Approach

Miles, (June 1979) “The effects of devaluation on the trade balance” JPE.

 

Himarios, (Dec 1985) “The effects of devaluation on the trade balance: a critical view and reexamination of Miles’ new results” Journal of International Money and Finance.

 

Moffett (1989) “The J curve revisited: An empirical examination for the US” Journal of International Money and Finance.

 

  1. Asset Market Approaches

a)      Monetarist Approach

Baillie and Pecchenino (1991) “The search for equilibrium relationships in international finance: The case of monetary model” Journal of International Money and Finance.

b)      Total Expenditure Approach

c)      Currency Substitution

McKinnon (1982) “Currency substitution and instability of the world dollar market” American Economic Review, v 72, n 3, 320-333.

 

Ratti, R. And Jeong, B. (1994) “Variation in the real exchange rate as a source of currency substitution” Journal of International Money and Finance, v 13, 537-550.

d)      Role of News

Frenkel (Aug 1981) “Flexible exchange rates, prices, and the role of news” JPE,

e)      Overshooting

Dornbusch, (Dec 1976) “Expectations and exchange rate dynamics” JPE.

 

  1. Empirical Evaluation of Exchange rate models

Chinn, M. And Meese, R. (1995) “Banking on currency forecasts: How predictable is change in money” Journal of International Economics, v 38, 161-178.

Course Objective and Fulfillments to be obtained by Students

 

This course focuses on the theoretical and empirical issues in international finance literature. At the end of this course, students should be able to: understand exchange rate systems and determination and conduct empirical analyses on the subject.

References

 

Teaching Methods

 

Lecture and presentation and term paper

Assessment methods

Final %35 , presentations %15 and term paper %50

Instruction Language

Turkish