19.
BEC 471: International Finance Theory and Practice
Pre-requisites: BEC 212
Course Aim:
The aim of this course is to provide students with the basic knowledge of international finance.
The course explores the theories and operations of international financial institutions and the
effects of these institutions on the world economy.
Course Objectives
By the end of this course students are expected:
- demonstrate understanding of the functioning of foreign exchange markets.
- demonstrate knowledge of the international monetary systems and capital markets.
- depict the basis for applied and advanced study of international finance.
Course Contents
1. The Study and Methodology of International Economics
The nature, scope and methodology of international economics
The nature, scope and methodology of international finance theory and practice.
2. The Foreign Exchange Market
The Nature of the Foreign Exchange Market.
Reading foreign quotations.
Determination of foreign exchange rates.
Actors in the foreign exchange market.
Importers, Exporters, Speculators, Hedgers and Arbitrageurs
3. Exchange Rate Determination
The effective interest rate and its relation to money, time and inflation.
Foreign exchange exposure
Theories of Exchange rate determination (Purchasing Power Parity Model,
Overshooting Model, Portfolio balance model, Stock-Flow Approach)
4. The Balance of Payments
The balance of payments: concept and accounting system, surplus and deficit.
Zambia's Balance of Payments accounting
Adjustment of Balance of Payments
Elasticity and Absorption Approaches to Balance of Payments
The monetary approaches to the balance of payments
Flexible versus Fixed Exchange Rates.
5. Macroeconomic Policy in an Open Economy
Problem of Internal and External Balance
Mundell-Fleming Model
6. International Monetary Systems
The Bretton Woods System.
The Smithsonian realisation.
The Critics of the 1970s.
The Managed Float.
The International Monetary Fund and the future of the international monetary system.
7. Offshore Currency Markets
The nature and rationale for Offshore Currency Markets.
Financial institutions in the Euro-Currency Markets.
Determinants of the Euro-Currency rates;
The Future of the Euro-Dollar Market.
Method of Teaching:
Four contact hours, consisting of one-hour lecture, three times a week and one hour tutorial, once
a week.
Course Assessment
Continuous Assessment 50%
One assignment 20%
Two tests 30%
Final Examination 50%
Required Reading:
Pilbleam, K (2006) International Economics London: Macmillan Press Ltd
Halowood, C and MacDonald D (1994) International Money and Finance. Blackwell Publishers,
Oxford
Recommended Reading:
Salvatore, Dominick (2004) International Economics, 9th edition, John Willey and Sons Inc.
Company, New Jersey, USA
Krugman P. and M. Obstfeld (2006) International Economics: Theory and Policy, 7th Edition ,
Pearson Addison Wesley, New York
