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Course Description
This course introduces the student to the basic models necessary to understand how different
national economies are integrated with each other. The course provides a description of the
various ways that countries are affected by each other through trade linkages, multinational
production, or financial markets. The course also explains how these forces affect the decisions of
individuals firms and national economies. It is assumed that students have successfully
completed the first aspect of the course i.e ECN316 which focuses on the International Trade
Theory aspects of International Economics
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Course Objective
The aim of this course is to assist students develop an understanding of the international
financial arrangements that facilitates trade among nations and the main implications of
increasing integration of the world economy. The course is also aimed at providing students
with the tools necessary to critically read and understand discussions of international economic
policy found in popular media such as The Economist magazine, the Wall Street Journal and the
Financial Times, as well as providing a basis for additional coursework in international
macroeconomics.
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MODULE ONE: Introduction to Foreign Exchange Market and
International Payments
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Key currencies, Foreign Exchange and international Transactions
Instruments of International Finance
Concept of Foreign Exchange Market
Operators in the Foreign Exchange Market
Spot and Forward Foreign Exchange Market
The Nominal Exchange Rate
Demand and Supply of Foreign Exchange
Foreign Exchange Supply and demand curve and the equilibrium
exchange rate
Stability of the Exchange rate equilibrium
Rate of Devaluation/Depreciation of a currency
Aims and effects of Devaluation
Overvaluation and Undervaluation of a Currency
Theoretical determinants of Nominal Exchange Rate
Summary and Conclusions
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MODULE TWO: Hedging, Arbitrage and Speculation in the FOREX
MARKET
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Introduction to Hedging
Foreign Exchange Speculation
Foreign Exchange Arbitrage
Interest Arbitrage
Interest Parity conditions for Arbitrage
Summary and Conclusions
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MODULE THREE: Exchange Rate Regimes
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Concept of exchange rate policy and exchange rate regime
Unified versus Multiple Exchange Rates
Fixed Exchange rate regime
The gold standard
The gold standard/Bretton woods system
Currency boards and dollarization
Monetary Union
Currency Peg, crawling peg/crawling band or target zone
Prerequisite for adopting firmly-fixed exchange rate regimes
Summary and conclusions
Exchange rate regimesFile
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MODULE FOUR: Flexible Exchange Rate Regimes and Choice of Exchange
Rate Regimes
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Types of Flexible Exchange Rate Regimes
Clean float versus managed float
Interbank and auction system
Case for and against Flexible Exchange Rate Regimes
Pre-requisites for a successful Floating Exchange Rate Regimes
Considerations for choice of an Exchange Rate Regime
Some lessons and Policy Conclusions on Exchange Rate Regimes
Summary and Conclusions
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MODULE FIVE: Real Exchange Rates
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The bilateral real exchange rate
Nominal and Real Effective Exchange Rates
Equilibrium Exchange Rates
The Purchasing Power Parity (PPP) Doctrine
Elements and Assessment of the PPP Doctrine
Significance of Real Exchange Rates
Summary and Conclusions
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MODULE SIX: Elements of Balance of Payments (BOP)
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Meaning of Balance of Payments
Sources of Balance of Payments Data
Changes in BOP Classification
Significance of the Accounting Balance of Payments
Balance of Payments Accounting and Notion of Balance
Current, capital and financial Accounts
Balance on Capital and Financial Accounts
The balance of international indebtedness
Summary and Conclusions
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MODULE SEVEN: Measures of Balance of Payments Disequilibrium
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Measuring Surplus or Deficit under the Accounting balance
Autonomous and Accommodating Transactions
Overall balance of Payments in the Concept of autonomous
Transactions
Types of Overall Balance
Balance of Payments Concepts used by Nigeria
Summary and conclusions
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MODULE EIGHT: Balance of Payments Adjustment and Policies
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Financing of payments imbalance
Suppression of imbalance by quasi-adjustment policies
Automatic adjustment mechanisms
Adjustment policies
Types of Adjustment policies/Mechanisms
Summary and Conclusions
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Revision and Examinations