ECONOMICS OF GLOBAL FINANCIAL MARKETS
This module is concerned with both practical and theoretical issues related to international financial markets. It is designed to provide an in-depth understanding of reasons for foreign investment, foreign exchange risk and methods of dealing with it. It also comprehensively addresses the theories of exchange rate determination, the implications of various monetary and fiscal policies in open economies, international financial arrangements, international debt and the Emerging Markets.
Studying this module, you will learn and understand:
- International Capital movements
International capital movements and economic welfare; Theories of foreign investment and the advantages and disadvantages of foreign direct and indirect investment for host and exporting countries.
- Foreign Exchange Markets
The structure and operation of foreign exchange markets, financial instruments used in global financial markets; International banking centres, the nature of international risk, and the use of spot, forward, futures and option contracts.
- Short-term Borrowing and Investment Decisions
Economic exposure, and the avoidance and acceptance of exchange rate risk. Hedging and speculation in spot and derivative markets. Interest rate parity theorem, and its implications.
- Balance of Payments and Exchange Rates
Elasticity, absorption and monetary approaches to the balance of payments. The Purchasing Power Parity theorem and monetary models of exchange rate determination. Sticky price model of exchange rate determination.
- Macroeconomic policy in an open economy
Problems of internal and external balance, Mundell- Fleming Model, exchange rate regimes. The degree of capital mobility and the effectiveness of macroeconomic policies.
- International Financial Arrangements
European Monetary Union, its background and factors affecting its operation. Optimum currency areas and the associated conditions.
- International Capital flows and Emerging markets
International portfolio investment; international diversification; the role of commercial banks in international debt. Emerging Markets.
