Financial and Political Risk in International Trade

Introduction

This course covers questions of risk and risk management in an international setting, both from a financial and a political economy perspective. It will teach the students

1. the rationale for regulation and the status of the current legislative and institutional regime (the ‘why’ and ‘how’ of market regulation)
2. the effect of existing regulation, including the failure or success of implementation, and distributional consequences (the ‘uncertainties’)
3. how these uncertainties constitute risk for individual firms, and how to manage them in a company/organizational setting

Rather than treating these broad themes solely at a general level, the course will apply them to three sets of challenges that are particularly pertinent to business in today’s global economy. These challenges are:

• International trade and the key international regulatory institutions
• Exchange rates and currency fluctuations
• Sustainability

These challenges represent risks to all companies engaging in cross-border activities, and are therefore a useful starting point for anyone tasked with writing and implementing a risk management strategy. Moreover, they give us the opportunity to expose students to some of the contemporary debates not covered by other courses in this program.

Course content

International trade and institutions:

• Comparative advantages, scale economies and market power as sources of international trade.
• Role and history of institutions that regulate and monitor international trade (esp. the EU and the WTO)
• Evolution of the global trading system – fragmentation, growth of regional agreements, and its implications for (sustainable) development

Currency markets:

• Nominal and real exchange rates. Purchasing power parity. Determinants of exchange rates.
• Currency risk. Foreign exchange derivatives and hedging against currency risk.
• Exchange risk in examples – discussion of topical issues and recent events.

Sustainability:

• Global governance for sustainability (the ‘why’ and ‘how’ of international regulation)
• The international political economy of the sustainability challenge (the effect of implementation and distributional consequences, the ‘uncertainties’)
• The UN Sustainability Development Goals as driver for change (also for companies’ risk management)