The first part of this course is identical to the course GRA 6553 International Finance and the Firm (3 ECTS), and therefore both courses cannot be chosen by the same student.
The overall goal of the course it to provide the participants with a sound understanding of foreign exchange markets and their role for the economy. The course is relevant for decision making by investors in the international arena, policy makers and multinational firms.
Economies and firms are increasingly becoming exposed to the international economy. This creates both opportunities and challenges for firms, investors and policy makers. A sound understanding of international markets is needed to deal with these opportunities and challenges.
- Background: International monetary system;
- Foreign Exchange Markets; International trade and capital flows. International markets for short-term debt instruments.
- Parity relations: Covered and Uncovered Interest rate Parity; Purchasing Power Parity; International Fisher effect.
- Testing parity conditions.
- Exchange Rate determinantion
- International capital budgeting; Capital structure and cost of capital
- Foreign exchange microstructure: Dealer behavior, liquidity and price formation.
- Exchange rates, macro, financial intermediation and order flow. Explaining exchange rate movements.
- Carry trading and currency momentum. Creating and evaluating international investment strategies.
- Currency risk premia. Sources and variation.
Learning outcome knowledge
The course can be split into two halfs. In the first half, the learning outcome covers the three parts in the 3 ECTS course GRA 6553 International Finance and the Firm. In the first part of the course, the students learn about the history and organization of international financial markets, with special emphasis on the foreign exchange market. In the second part, students learn different models for exchange rate determination, with special emphasis on macroecnomic determinants of exchange rates. The third part of the course will give students knowledge on issues in corporate finance, like capital budgeting, in an international setting.
The second half of the course, focus more on the currency risk premium in order to understand exchange rates. The first part of the second half of the course, the students will learn about the Market microstructure approach to exchange rates. The second part will go through different investment strategies involving exchange rates, and students will learn how to understand exchange rates through the lens of modern asset pricing.
- Written assignment: 50%
- Written exam: 50%