Introduction

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# Introduction
## EC 480: International Finance
### Youssef A. Benasser
### Summer 2021

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# Prologue

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# Who am I?

[**Youssef Ait Benasser**](https://youssefaitb.github.com)

- PhD Candidate in economics

- International Trade, Finance, Econometrics

- My dissertation focuses on the trade policy implications of changes to the international economic system.

Where can you find me?

- Office: 506 PLC (Probably zoom)
- Office hours: Monday 11-12, Wednesday 11-12, or by appointment
- Email: [.mono[youssefa@uoregon.edu]](mailto:youssefa@uoregon.edu) **(use EC 480 in the subject line)**

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# Syllabus

[**Click Here for the Syllabus**](https://canvas.uoregon.edu/courses/183807/assignments/syllabus)

If you have questions that are not covered in the Syllabus, feel free to post it on the question discussion board, or reach out to me.

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# Syllabus

#### Will there be a curve
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**No**

- At the end of class I will assign grades based on your approximate rank-ordering

- Depending on how the class does as a whole, this may make your percentage score less meaningful ... all that matters is how you do relative to others

- The grading will never le less generous than this scheme: 100-90%: A, 89%-80%: B, 79%-60%: C

- I believe that students who **complete every assignment** and put forth effort deserve to pass a class

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# Motivation

## What is international finance?

###### The study of large-scale economic interactions among interdependent economies.

1. It is __international__ because a deeper exploration of the interconnections among nations in essential to understanding how the global economy works.

1. It is __finance__ because it focuses on financial flows, but it is also __macroeconomics__ because it focuses on key economic-wide variables.

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# Motivation

## Why study Intl Finance?

###### Provide answers to important questions about economic policy in an intergated world. Econ is the study of efficient allocations, and global allocations determine a lot of the international and local economic outcomes.

- ***Money(s)***: Why do over 150 currencies exist? How do they affect the working of our global economy? What are the causes and consequences of the changing value of one currency against another?

- ***Finance***: International financial transactions have risen to record levels as capital has become ever more mobile internationally. Why do all these transactions occur and what purpose do they serve? Does the free flow of finance have costs as well as benefits?

- ***Policy***: How do international capital flows and exchange rates affect an economy? what are the trade-offs for monetary, fiscal and other policy decisions? Is there even a single right approach to intricate economic problems facing interdependent countries?

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# The Exchange Rate

## The Most Important Price in International Economics

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# The Exchange Rate

## Relevance

Products and investments move across borders constantly.

Fluctuations in the exchange rate can have significant effects on:

- The relative prices of home and foreign __goods__,

- The relative prices of home and foreign __services__,

- The relative prices of home and foreign __assets__!

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# Example of Exchange Rate Fluctuations

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# Plan of Study

1. We will first learn about the structure and operation of the markets in which foreign currencies are traded. (tomorrow)

1. We will then develop a theory of the exchange rate, in the long run, and in the short run. (wednesday, into next week)

1. Later on we will use this understanding of the exchange rate dynamics to study an array of topics about international transactions, and policy choices. (week 3 and beyond)

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# Globalization of Finance

## Debts and Deficits

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# Topic Relevance

A few years ago, very little of the financial activity spilled across international borders.

Today, many countries are more open: financial globalization has taken hold around the world, starting with the economically advanced countries and spreading to many emerging market countries.

The international financial system allows countries to be better off by letting them lend and borrow, to smooth their consumption and insure against risks.

However, defaults, crises, and other riskss mean that the potential gains from globalization come with trade-offs.

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# National and BoP Accounting

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# Global Imbalances

???
What explains imbalances, how are they financed, how long can they persist, what's the role of a CA imbalance, why do they focus policy debate

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# External Wealth

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What forms can a nation's external wealth take and does composition matter what explains the level of external wealth and its dynamics, how important is the CA as a determinant of wealth, impacts on country's current and future economic welfare?

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# Plan of Study

1. First, we will familiarize ourselves with concepts of national and BoP accounting, and how international finance flows are accounted for.

1. We will then look at the benefits and helpful functions that imbalances can play in a well-functioning economy in the long-run
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1. The short-run role of imbalances and the role of policy in stabilizing and managing the external poisition of a country will be our third topic in this area.

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# Government and Institutions

## Policies and Performance

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# The Role of Governments

Government actions influence economic outcomes in many ways by making decisions about exchange rates, macroeconomic policies, whether to pay (or not pay) their debts, etc.

The focus here will be on the usual aspects of policy that you have seen in 202, 313, but we will additionally be looking at the broader framework of policies: the __regimes__ in which policy choices are made.

Three characteristics of policy regimes:

1. Openness to capital mobility

1. Exchange rate regime

1. The institutional structure of policy making

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# Heterogeneity in financial oppenness

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Why have so many countries made the choice to pursue policies of financial openness? what are the potential economic benefits of removing capital controls? what are the costs?

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# Exchange rate regimes

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Why do some countries not have their own currency? why do some countries create a common currency or adopt another nation's currency as their own? why do some countries choose fixed exchange rates, and others don't?

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# The role of institutions

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The quality of governance can help explain large differences in countries' economic outcomes. Poor governance generally means that a country is poorer, subject to more damaging macroeconomic and political shocks, and cannot conduct policy in a reliable and consistent way. This forces us to think carefully abt how to formulate optimal policies and policy regimes in rich and poor countries. One size may not fit all.

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# Plan of Study

This component is transverse to the chapters of this course.

1. We will look at the trade-offs between financial openness, and exchange rate regimes.

1. We will reflect on the economic rationales for financial liberalizations, and trade-offs that are involved.

1. We will also discuss crises and the role that government policy can play in causing, and in addressing them.

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# Looking ahead

## Planning

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# What you need to do?

- Be prepared for a very intensive few days

- Stay on top of the assignments, and do not fall behind

- Show up to office hour if it is helpful

- Sign up for leading discussions on Thursday

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# I am very excited about this class!

## I hope you are too!

### See you tomorrow!