Student guide Facoltà di Economia A.A. 2010/11

Aim of the course is to offer an updated framework of the rapidly changing international financial markets with the specific purpose of understanding and analysing the new strategic and management approaches of banks and other financial intermediaries.

The course is structured in two main parts.

In the first part is a short introduction to some basic concepts trough the presentation of cases taken from the history of finance.  The aim is to make the student familiar to topics such as money, bank, public finance and systemic risk considering cases from the past, in which an evident relation between finance and real economy or the magnitude of phenomena could make financial dynamics easier to understand than in the higher-complex contemporary world.

In the second part, the goal is to provide the basic economic and financial tools for understanding the historical moments that we are living in and appreciating the debate that is rising around the working and the future of the International Monetary and Financial System. Financial markets are the expression of Globalisation and Internet is the medium through which Globalisation reaches everyone

The textbook and the main part of the readings are available on Internet, other material will be provided during the course.

Assessment organisation and a complete plan of lessons and readings will be provided at the beginning of the course. 

a) Course synopsis

1.         Money

This session provides an evolutionary perspective on the monetary systems from the Ancient World (Mediterranean, China) to the Modern Age (XV-XVIIIth Century), focusing on the characters and the differences between monetary standards based on precious metals and the origin of paper money.

 

2.         Public finance

Fiscal policies and public debt will be analysed as key features for the building of the first monetary and financial architecture of Europe during Middle Age (Italian city-states) and during Early Modern Age. A better understanding of why/how debt was issued and managed will offer a better insight on the topic of financial stability.

 

3.         Bank

We will review the different functions of banking and some of different forms the bank adopted during the past Centuries. Main focuses of this section will be the evolution from currency changers to deposit bankers during Middle Age, the origin of central bank (and its bonds with the finance of the national states during Early Modern Age), the new need originated by industrialisation and the national models of bank during XIXth Century.

 

4.         Panic and crisis

Some crisis which affected pre-industrial and industrial economies of the past allow to underline the interaction of relevant elements as panic, institutional failures and the linkages  between finance and real economy. In this section we will review some pre-industrial financial bubble (Tulipomania and South Sea Bubble), the US bank-panic crisis in the XIXth Century and the Latin American debt-default crisis during the second half of XXth Century.

 

5.         Institutions

This section will present some of the historical answer that the states implemented to cope with instability and systemic risk. We will highlight the evolution of central banks' role until Late Modern Age, the emergence of the international gold standard during the XIXth century and the origin of international financial institutions (IMF, WB) after Bretton Woods' conference (1944). 

 

b) Materials

A complete list of assigned readings and web-based resources will be provided at the beginning of the course.

Further references (NOT COMPULSORY):

·                    The Origins of Value. The Financial Innovations that Created Modern Capital Markets, edited by W.N. Goetzmann and K.G. Rouwenhorst, Oxford, OUP, 2005

·                    J. Atack and L. Neal, The Origins and Development of Financial Markets and Institutions. From the Seventeenth Century to the Present, Cambridge, CUP, 2009

 

 

a) Course synopsis

1.      International Finance and the Global Crisis

This session highlights the importance of the topics of International Finance in order to understand the World in which we live. The Global Crisis of 2007-2009 was born in the financial sector and spread to the entire economy because of the role that International financial institutions and capital markets are playing in a more and more interconnected world.

 

2.      Basic Concepts in Balance of Payments, Capital Flows and Global Imbalances

We define the basic concept behind the balance of payments accounts and how the interconnection between the current account and the financial account is established. We discuss the twin-deficit identity and a country's international investment position, using as an example the US-China relationship.

 

3. An Introduction to Capital Markets and their Financial Instruments

We will review the workings and methods of the capital markets and their instruments. We will focus primarily on foreign exchange markets, but we will review the most important derivatives contracts and relevant markets for determining capital flows among countries

 

4. Models for Exchange Rates’ Determination: Interest Parity and PPP

This session highlights the linkage between the exchange rate, and interest rates through the interest rate parity condition. It is shown how changes in economic variables can affect differential rates of returns, which in turn can affect the value of the exchange rate. This session presents the theory of purchasing power parity. The logic of the theory as an explanation for exchange rate movements is provided. More importantly, the supplemental readings help teach the way PPP exchange rates are used to make international comparisons of economic data.

 

 

5. Monetary Policy, Interest Rates and Exchange Rates: the Mundell-Fleming model

This session presents the basic model of interest rate determination and then links it with the interest rate parity model for exchange rate determination. This session introduces discusses long-run effects of monetary policy and central bank interventions in a floating system.

 

6. Monetary Policy, Interest Rates and Exchange Rates: policy with fixed and floating exchange rates

This session is the prosecution of the previous one. Fixed exchange rate systems are then  introduced in the basic macroeconomic model.

 

7. International Financial Markets and Global Stability

This session looks at current financial developments  and  focus on the issue of Global Stability. This session closes the course and should give an understanding of the sources and nature of the risks that international financial markets pose for the investors and the multinational companies

 

b) References

Textbooks

·                    S. Suranovic, “International Finance Theory and Policy”, http://internationalecon.com/downloads.php

 

c) Institutional websites

 

·                    Bank for International Settlements

·                    Financial Stability Forum

·                    IMF -- International Monetary Fund Home Page

·                    ECB: European Central Bank home page