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SYLLABUS INTERNATIONAL FINANCE Chapter 1: Balance of payment Knowledge: - National Accounting: GDP, GNP, Saving and Current account. - BOP: Credit and Debit, Double Entry Bookkeeping, Current Account, Capital account, Financial Account, official international reserves. Question Essay: 1. "The Balance of Payment always is balanced: Discuss In theory, Due to the double-entry bookkeeping of each transaction ( each international transaction is recorded twice in the balance of payments, once as a credit and once as a debit of equal value), the balance of payments accounts will balance by the the following equation: CA + FA + KA = 0. But in reality, It has statistical errors, cause by the under-recording of economic transactions, time inconsistencies, under-reporting and smuggling.... So the BOP equation: CA + FA + KA + SP = 0. 2. Calculate: Saving, Current account, financial account. S = Y - C - G = I + EX - IM CA = EX - IM = Sp + Sg - I = Sp + ( T - G ) + I = Sp - ( G - T) - I 3. The measures of exports and imports used in GNP accounts include final and intermediate goods. Does this cause a double counting? Yes, including both final and intermediate goods in the measures of exports and imports can lead to double counting in the Gross National Product (GNP) accounts. Double counting occurs when the value of a good or service is counted more than once in the calculation of a country's economic output. In the case of exports and imports, including both final and intermediate goods can result in double counting because intermediate goods are already included in the value of the final goods.
Chapter 2: Forex and exchange rate - Concept of exchange rate: Spot rate, bid-ask rate, Forward rate. Depreciation/ Appreciation, Revaluation/devaluation. Effect of exchange rate to CA (export and import) - FOREX: Factor in Forex, Arbitrages, Foreign exchange transactions: Spot, Forward, Swap, Option - The foreign currency: Factor effect to demand of assets: The return of assets, risk, liquidity. - The FOREX: Domestic Currency Deposit Return: R, Foreign Currency Deposit Return R* = (E e -E)/E Question: Using diagram of Forex, what happens to exchange rate when R change, R* change and Ee change Chapter 3: The Determination of the exchange rate: An asset - Market Approach. - Money: Function of Money, Demand of Money, Supply of Money - Money market: Factor effect to Money market and interest rate - Model combinations between Money market and FOREX: Short run/long run. Temporary/Permanent - Inflation, Overshooting. + In the short-run, the exchange rate rises above the long-run level, showing a greater depreciation of domestic currency in the short-run as compared to the long-run level. This phenomenon is called the exchange rate overshooting. + The exchange rate overshooting can be explained by the interest parity condition so that the higher domestic interest rate must be offset by the appreciation of the domestic currency during the adjustment.
Question 1: Using a figure describing both the U.S. money market and the foreign exchange market, analyze the effects of below event in the European money supply on the dollar/euro exchange rate. a. US temporary/Permanent decrease Ms in Short run
a’. Us temporary increase Ms in Short run