Trinity College, Department of Economics

  • Economics 316: International Finance (Spring 2016).
  • Prof.: Miguel. D. Ramirez
  • Texts: Dominick Salvatore, International Economics, 11th ed. (New Jersey: John Wiley & Sons, Inc., 2013).
  • . The reading materials ( RM ) will be posted on Moodle as PDF files.

  • Course Objectives and Organization
  • This course is designed to provide students with a basic understanding of an economy's trade in financial assets as well as the impact of these transactions on key macroeconomic variables and policies. In so doing, students are exposed to major theoretical and policy issues faced by business firms, the government, and individual investors in their international financial transactions. The techniques and concepts developed in this course will help you understand the major financial problems and issues facing an open economy. For instance, they provide insights into some of the following questions: How does the forward exchange market contribute to reducing the risk of investing in foreign assets? What is a foreign currency option, and how does it differ from a futures contract? Does the law of one price hold over time in its relative form and does it matter? Why is monetary policy relatively ineffective in a financial regime characterized by high degrees of capital mobility and currency substitution? Can the industrialized countries coordinate their policies in order to stabilize their exchange rates and economies? Is the world moving towards regional trading blocks such as NAFTA, MERCOSUR, and the EU? Will the euro challenge and supplant the dollar as a reserve currency? Have hedge funds contributed to destabilizing world financial and exchange markets? Is dollarization a good idea for less developed countries such as Ecuador or El Salvador? What are some of the common institutional (and economic) causes of the Asian financial crisis of 1997-98, the 2001 Argentine economic meltdown, and the current European financial and economic debacle? Did (do) these aforementioned crises constitute a real threat to the stability of the world financial system? More important, is there anything the governments of the world can, or should do, to prevent these crises? And so forth.

    The course is divided into five sections. Briefly, the first section introduces the student to the workings of foreign exchange markets and international money markets. The next section examines the money links existing between the United States and the rest of the world as recorded in the balance of payments. Section III begins by developing and modifying a simple macro model to suit the needs of an open economy. It then proceeds to examine the relative effectiveness of fiscal and monetary policy under fixed and flexible exchange-rate systems with varying degrees of capital mobility. Section IV discusses how the economy and the price level adjusts to economic shocks and policy changes. That is, we focus on the transition between the short run and long run. Finally, we examine alternative international monetary regimes and analyze the unique macroeconomic challenges confronting developing and transitional economies. 

  • Course requirements
  • During the spring term two major exams will be given on dates announced below. The exams will be a combination of short answer, numerical, and analytical problems. Exams will cover the assigned text, lectures, and any handouts or readings given in class. Short quizzes (12 minutes) will be given on a weekly basis. In addition, you will be required to write at most five  short critical review papers (3 to 4 pages) on articles assigned in class and available on Moodle as PDF files (I reserve the right to change the articles listed below). Finally, homework will be assigned on a weekly basis (every M and due by F of the same week).

  • Course Grades
  • The tentative weights and dates of the components of your final grade are as follows:

                                                                               Weights (%)                  Dates

  • Office Hours and other Administrative Information
  • My office is located in Williams Memorial, Rm 227, and I will be available for consultation on T: 2:15- 3:15 and Th: 10:00-11:50, and by appt. I will only accept messages on my phone system (X2487) in the event of an emergency. An emergency constitutes missing a scheduled exam and/or failing to hand in a written review or homework on the scheduled date. Email messages are welcome as long as they pertain to substantive topics related to class material. Unexcused absences will be counted against you in the determination of your final grade. Please turn off your cell phones, laptops, Iphones, and refrain from getting up in class. My email at Trinity College is: Miguel.Ramirez@trincoll.edu

  • Schedule
  • I. Currency Markets, Exchange Rates, and the Monetary Approach (approx. 4 weeks).

    II. The Balance of Payments (approx. 2 weeks).

    III. Open Economy Macroeconomics (approx. 3 weeks).

    IV. Prices and Output in an Open Economy (approx. 2 weeks)

    V. Recent Issues in Open-Economy Macroeconomics (approx. 2 ˝ weeks).