EC362 International Finance

Winter 2014-2015


8:30-10:20 Tuesdays and Thursdays  Evald 113.
DR. CHRIS MARMÉ
OFFICE CARLSSON HALL 115
OFFICE PHONE:794-7514
OFFICE EMAIL chrismarme@augustana.edu
(See my webpage for office hours.)
Required Text: Appleyard and  Field, International Finance, McGraw-Hill Higher Education (McGraw Hill Create custom edition ). 
Instructions on how to obtain a copy of our text directly from McGraw Hill was sent out finals week of fall term.  If you did not receive this email or would like me to send a copy to you, please let me know as soon as possible.
 

Course Objectives: (1a) To help you develop an understanding of what drives short-run changes in the rate of exchange of major ("hard") currencies (1b) To help you develop an understanding of why this matters and how individuals and businesses react to the opportunities and risks associated with fluctuating exchange rates (1c) To help you appreciate how economic policy is affected by the trade in currencies (1d) To help you understand the current world financial system, its evolution since the early part of the last century and to discuss the impact of the global financial crisis on the foreign exchange market.  (2) To increase your awareness of how important (1a) to (1d) are to financial analysis. (3) To help further develop your higher order thinking skills. 

Emphasis in this course will be placed on knowledge, understanding, and application, especially application.  Understanding key concepts well enough to apply them is not easy but is necessary if you are to understand why people dealing in financial markets worry so much about exchange rates and why international finance is such an important topic.  

 


Course outline

 (1) The lay of the land:             Chapters 1-2: The balance of payments. 
                                        Chapter 3: Hard currency exchange rates and the role of category III transactions.
                                           (Read 4 and 5  for further background.)

(2) The role of the current account (Category I) in the foreign exchange market:

                                         Chapter 7: National income and the current account.

                                         (Read chapter 6 for the role of price changes on current account and the exchange rate). 

(3) Policy and the macroeconomy in an international context (with both fixed and flexible exchange rates):

                                        Chapters 8 -10.

(4) Prices, production, employment, real income and growth in an open economy.

                                        Chapter 11.

(5) Fixed versus flexible exchange rates.  The international Monetary System.

                                        Chapter 12-14.

 


 

Course grade

How much you are learning will be measured through exams*.  There will be two exams and a final.   Both of the two exams will be worth 40% of your course grade.  The final represents the remaining 20% of your grade.  The first exam is scheduled for Thursday of week 4, December 11th. 

*(Various small assignments may be given over the course of the term.   The points awarded on these will become part of your exam scores.  For example, before your first exam I may give you two assignments worth 10 points each.  The exam itself would then be 80 points and your score on exam would be the sum of points earned on the exam out of 80 PLUS your scores on these two assignments. These figures combined would go down in the spreadsheet as your total score out of 100 points possible for exam 1.)

Our final is scheduled for Wednesday 9:00-11:00 February 18th 2015.  Please note the following re finals from the registrar's office:

1.      No final examination may be changed from its scheduled period except with the approval of the Registrar. Travel arrangements, vacations, employment plans and convenience will not be viewed as sufficient reasons to change an examination.

2.   The deadline to submit a petition requesting to change a scheduled exam is the Monday of week 10 each term. Requests after this deadline will not be granted.

 

Note too that everything is cumulative!  This means that, for example. I will expect you to remember what went on during the first week of class when we are working on material in the last of our three weeks together. This is to avoid what we can call "bulimic learning". In bulimic learning you digest material well enough to purge on a given quiz or assignment and then it’s gone. As a result, you learn relatively little. Not good!

Because of the cumulative nature of assignments, if I see evidence of steady and appreciable progress in your learning over the term, the weights assigned to different parts of grade can and will be adjusted to reflect this. I hope this will give you the motivation to continue, right to the end of the term, to learn as much as possible.  The final then gives you the opportunity to demonstrate how much you've learned.

The grading scale in this class is the following (Please see below for information on how borderline grades will be determined):

A 90-100%

B 80-90%

C 70-80%

D 60-70%

F <60%

 


                                                                   DETAILS

(1) Attendance. Attendance represents the minimal degree of participation. No more than one unexcused absence will be allowed. The key reason for this is that I don't give lectures.  I conduct classes.  There is an important difference between the two. In a lecture, a student sits passively in front of the professor and receives the little pieces of wisdom that the professor decides to share or "profess". The Professor is the "sage on the stage". (The word lecture itself comes from the Latin word lectus or a derivative of the Latin legere "to read".  You have got a text and can read on your own.  I don't need to lecture or read to you.   Lectures should have gone out with the printing press.)  

In a class or group (check the dictionary for the derivation of the word class), the student is expected to be just that, part of the group.   Our group is dedicated to the study of International Finance.  My role is to help guide you through your process of learning.  In other words, my job is to be a "guide on the side" rather than the "sage on the stage". What you learn and how much you learn depends on the connections you draw between what we are talking about in class, what you are reading about and working on outside of class and what YOU already know and understand; what you bring to ECON 201.  If we don't talk or communicate through writing, either in class or outside of class, I have no way of knowing if you are making the sort of connections you need to make and therefore learn as much about Macroeconomics as you possibly can.

To encourage you to do what we all need to do to really truly learn more about any subject, to communicate, I will give each of you a large index card on the first day of class.  Please put your name on it.

If you feel that you have made a contribution to a particular day's class, to your own learning or what the rest of us are learning,  make a note of that contribution on this card and put the date down as well. 

At the one end of the spectrum your contribution may be something as simple as asking me to clarify what we have already covered.  At the other end of the spectrum, it may be something as sophisticated as responding to a point raised by another student or bringing up something from outside class that is relevant to what we are discussing.  

Turn this card in to me at the end of each day's class. I will return the card to you at the start of the next class. I will award points for these daily contributions.  These points will count for up to 5 points extra credit on your course grade.

As I have noted attendance represents the minimal degree of participation. No more than one unexcused absence will be allowed.  I will deduct 5% from your overall grade for every unexcused absence after the first one.

2.) Study habits.

Don't get behind. You can't even come close to fully understanding what we're doing here without working things out on your own, outside of class.  This is because of the higher order thinking skills used. In other words, there is a far more to this class than memorizing a bunch of definitions and learning a handful of procedures.

You should try to study at least two hours for every hour in the classroom. This means about an hour each day. You should review your notes, takes notes on what you have read, make a list of questions you have, bring them to the lab or to me to clarify points you are confused about.  Do this before you have too much to catch up on. Review class material as soon after class as possible. For more on this, click here.

Also read the assigned material at least once before class meets. Then read the assigned chapters after class as you review your notes.

 (3) Annotated notes. Annotated class notes are a big help. What are annotated notes you ask? Set aside one note book completely for International Finance. Write the days notes on the sheet on the right hand side of the notebook. After each class, go over your notes. (Research indicates that the sooner after class or readings that you review the better.)  On the sheet on the left hand side of your notebook write out the main formulae and the main definitions that you have worked with on that day. ALSO IT IS IMPORTANT THAT YOU DRAW THE DIAGRAMS YOURSELF ("draw the graphs, draw the graphs, draw the *@#..+-! Graphs") AND THAT YOU -ON YOUR OWN- WORK THROUGH THE NUMERICAL EXAMPLES WE DO TOGETHER IN CLASS. PLEASE NOTE THAT I OFTEN FEEL LIKE A VOICE CRYING IN THE WILDERNESS BECAUSE THIS EXCELLENT ADVICE SO OFTEN IS IGNORED.  TRY IT! 

(4) Key to success. Clarify your doubts right away either in class or soon after. If you are not sure about something do not pray to all that's good and holy that I will not ask you about that particular topic. You can be almost certain I will ask questions over such material.

(5) Motivation/Participation. It is my job to teach you this subject. It is YOUR job to convince yourself that what you are learning here is important and relevant. It is also YOUR job to convince yourself that what we cover in this class is interesting and worth the time you will have to invest in studying. More than just showing up and possibly answering questions when asked to, you need to think about what we're discussing in class outside of class time and to listen to questions other students raise concerning the material both in class and outside of class.

Problems with a course frequently start at the point where the student makes up his or her mind that the entire topic is not worth the close attention it demands to master it. Also note that while it is unlikely that you will feel that we are going too slowly over the material but if so please let me know. I will happily give you other material to look at. This material will add additional depth to what we are working through together in class. Finally pretend that this class is your first job. Just as you would need to be as involved and interested in what is going on at work please try to do the same here.

(6) Late work: A pain for you and most definitely a pain for me.  If you turn stuff in to me on time you have a good chance of getting it back soon enough to benefit you.   With work turned in late, there is far less of a chance that I will get the time to look at it carefully and to really help your learning.   Bottom line, unless we've discussed it before hand and there is a good reason for the delay,  late work=0 credit on that assignment.

(7) Basic truths:

Basic truth #1. Much of this material is hard. You have to put in the time and the effort to master it (Please see above). You are not to suffer silently. Keep up with the material, don't try to cram (it won't work) and, if you are having trouble, let's sit down together and review your study habits. Actively review your notes, when you don't understand something in either your notes or the text come in to see me.

Basic truth #2 You need to read the book. I had a student in one class a few terms ago who had stopped reading the book after the third week and instead relied solely on class notes. His reason for not reading the book was that it confused him. His scores however went from a 78 on the first exam (a period in which he was reading the book) to a 65 on the second exam and a 52 on the third exam. Ask yourself what one should conclude from this story.

Basic Truth #3. Once you have graduated and are in the real world a year or two a lot of this material will become exceedingly relevant to you. Any class you take should be of interest to you.  The more interested and involved you are in the material the easier it should be. Also note that If you pay attention now you'll have a lot less to learn in the school of hard knocks later on.

 

Finally, in compliance with federal requirements, the following boils down to telling you what you should already know; if you do what you’re supposed to do in any class, taking a three credit college level course is basically equivalent to signing on for three full forty hour work weeks.  Therefore taking three 3 credit courses over ten weeks then=(132 hours*3)/40≈10 full weeks’ worth of work! It’s just like working full time (except you don’t get paid)! Life is indeed mysterious and wonderful!

In class activities: (2 days x 110 minutes x 10 weeks).  Note this is roughly the equivalent of one full work week!

36.67

hours

Required Readings: (14 chapters readings x 3.5 hours each)

48

hours

Normal daily class review=Review of notes, handouts, materials posted to Moodle, going to lab, meeting with me, testing yourself by answering questions handed out in class.=   Half an hour a day every day, seven days a week over the ten week term!

35

hours

Prep for two exams and the final=A minimum of an additional four-five hours per test over and above the half hour a day already accounted for above in “normal daily class review”.

12-15

Hours

Total

131.67 to 134.67

hours

 PLEASE NOTE THAT THE MORE YOU CUT CORNERS VIS-À-VIS THE 95 TO 98 HOURS OF WORK OUTSIDE OF CLASS (OR THE LESS CONSISTENTLY YOU WORK THROUGHOUT THE TERM) THE MORE NEEDLESS STRESS YOU CREATE FOR YOURSELF AND THE LESS YOU WILL LEARN.