Department of Economics, NUML Islamabad

ECO-867: International Finance

Fall 2022

Dr. Arshad Ali Bhatti (C-002, SOE, IIIE)

Time and Location: Monday: 03:15PM- 06:00PM, Computer Lab

Office Hours: Open door policy.
Email: arshad_bhatti@iiu.edu.pk
Course Description:
This course focuses on the open economy macroeconomics aspect of international finance. The
course will examine how exchange rates are determined using the monetary approach for long-run
determination and the asset approach for short-run determination. In addition, the course will cover
fixed and flexible exchange rate regimes and their implications for macroeconomic policy. The
global capital market and its role in international investment will also make up a significant portion
of the course. Further, discussion on a variety of current international finance issues will be
undertaken. Topics may include international financial crises, debt crises, external imbalances and
adjustment, and growth.

Course Objectives

• This course will introduce the mechanics of international finance.

• Students will gain an understanding of the workings of foreign exchange markets.
• Students will be able to read and evaluate policy statements that may affect the flow of capital
around the world.
• Students will be able to critically analyze the importance of open capital markets to economic
growth. Further, they will be able to report their findings by producing an end-of-the-term paper/
project.

Required Textbooks:
• Krugman, P.R., Obsfeld, M., and Melitz, M.J. (2018). International Finance: Theory and
Policy, 11th Ed., Harlow: Pearson [KOM]
• Feenstra, R. C., & Taylor, A. M. (2017). International Macroeconomics. NY: Worth
Publishers [FT]
• Schmitt-Grohé, S., Uribe, M., & Woodford, M. (2022). International Macroeconomics: A
Modern Approach. NJ: Princeton University Press [SUW]
• Terra, C. (2015). Principles of International Finance and Open Economy Macroeconomics.
Academic Press [TER]
Supplementary Reading materials:
• The Economist magazine, the Financial Times, the Wall Street Journals, articles on
VoxEu.com, etc.
• Academic articles will be posted on the course website.

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Course Prerequisites:

This course presumes knowledge of microeconomics, macroeconomics, and differential calculus at

the undergraduate level.

Communication and Course Website

All the course materials will be posted on my personal blog (www.ecopulsars.blogspot.com ).

Assessment and Grading Scheme

Your final grade will depend on your performance on the following assessments: a midterm exam
(25%), a final exam (50%), and a class term paper/ presentation/ problem set (25%). There will be
only one mid-term exam, and it will be scheduled according to the University calendar around the
mid of November. All problem sets are to be submitted at the beginning of class on the due date.
Late submissions shall carry ZERO reward.

Electronic Devices: The use of cell phones, pagers, and text messaging devices will be prohibited
in class. Please respectfully put them away. Laptops and tablets can be used for taking notes. Yet if
one is found to use these devices for other purposes, he or she will lose the right to use these devices
in class for the rest of the semester.
Course Outline
This outline is tentative. Topics may be deleted from this list or taken up in a different sequence.
Additional topics may be added as the course progresses. It is the sole responsibility of the students
to always remain abreast of any changes. Changes will be announced during the lectures.

1. Introduction
Discussion on the course outline, resources, and class projects/ term papers (Week 1)
2. National income and the Balance of Payments (Weeks 1 &2)
KOM Ch2, FT Ch2
3. Exchange Rates I: The Asset Approach in the Short Run (Weeks 3 &4)
KOM Ch3, FT Ch4
4. Exchange Rates II: The Monetary Approach in the Long Run (Weeks 4 &5)
KOM Ch4, FT Ch3
5. Price Levels and the Exchange Rate in the Long Run (Weeks 6,7)
KOM Ch5, FT Ch 3
6. Output and the Exchange Rate in the Short Run (Weeks 8,9)
KOM Ch6, FT Ch7
7. Fixed Exchange Rates and Foreign Exchange Intervention (Weeks 10 &11)
KOM Ch7, FT Ch4, 8
8. Financial Globalization: Opportunity and Crisis (Weeks 12 &13)
KOM Ch9, FT Ch6
9. Developing Countries: Growth, Crisis, and Reforms (Weeks 14 &15)
KOM Ch11, FT Ch8
10. Revision and discussion on problems (Weeks 16)

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