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International Economics II:
International Finance & Open-Economy Macroeconomic Policy

Course Syllabus

Date: Sep. 2008

1. Course Information                      

Course Title: International Economics II (International Finance)
Course Number:
Credits: 3
Lecture Hours: 51
Prerequisite: Micro-Economics, Macro-Economics

2. Course Description

This course presents foundational theories of International Monetary Economics and applies it towards gaining an understanding of recent events and current macroeconomic policy issues. The theory presented in this course covers a broad range of topics including exchange rate determination, monetary and fiscal policy in an open economy, balance of payments crises and the relative advantages of fixed and flexible exchange rate systems. The insights provided by these theoretical frameworks will enable us to discuss topics such as debt crises in Latin American countries, the single currency in Europe, the Asian financial crisis, the financial trouble in Argentina and the international monetary reform.

3. Course Objectives

After completing this module, students are required to master the basic theories, policies and analyzing frameworks about International Finance systematically, such as the exchange rate determination theories, the balance-of-payments adjustment theories, and the fiscal and monetary policies in open economy. Based on these theories and polices, the students should be able to apply these international financial analyzing frameworks to make further analysis on some certain international economic phenomenon or activities.

4. Course Schedule and Contents

This schedule may be updated and additional readings will be assigned during the course.

Part One Understanding Foreign Exchange

  • Balance of Payments

1.    Why do we need to understand the balance of payments?
2.    A Brief introduction of the Balance of Payments
3.1 Definition of the balance of Payments
3.2 Double-Entry Accounting
3.    Balance-of-Payments Structure
3.1 Current Account
3.2 Capital and Financial Account
3.3 Statistical Discrepancy: Errors and Omissions
4  Equilibrium of the balance of payments
4.1The macro meaning of the current account balance
4.2 The Macro Meaning of the Overall Balance
4.3 The international investment position
4.4 The economic implications of the balance-of-payments equilibrium
4.5 Business Cycles, Economic growth and the Current Account
This section will discuss the main concepts behind national income accounting and balance of payments accounts. Special emphasis will be put on the relation between the current account and the budget deficit. The links between national saving, investment and the current account will also be illustrated when we present the part of international investment position. The target for this chapter’s learning is to help understand how the different balances (or sub-balances) can be interpreted.

  • The Foreign-exchange Market

1. Preparation: we need to know something before we start
1.1. Why we need foreign exchange
1.2 A mysterious and strange Land- the foreign exchange market
1.3 Analyzing Basis--Profit Maximization and Competition
2. Cognition Formulation: all about the Foreign Exchange Market
2.1 Basic definitions
2. 2 Foreign Exchange Market
3. Exploration: Demand and Supply for Foreign Exchange
4. Extension: Arbitrage within the Spot Exchange Market
The purpose of this chapter is to present the foreign exchange market and exchange rate. It also makes detailed analysis about the basic arbitrage conditions that govern the behavior of exchange rates. The description of the foreign exchange market in this chapter goes well beyond the traditional detail found in other texts

  • Forward Exchange and International Financial Investment

    1. Exchange Rate Risk
2. The market basics of forward foreign exchange
2.1 Hedging using forward foreign exchange
2.2 Speculating Using Forward Foreign Exchange
3. International Financial Investment
3.1 International investment with cover
① Covered interest arbitrage
② covered interest parity
3.2 International Investment without Cover
4. Empirical evidence of Interest Parity
This chapter is intended to present the uses of forward foreign exchange rates and the returns and risks of international financial investments, both covered and uncovered. In the final section of this chapter, some evidence on whether the various parity conditions actually hold is presented.

  • What Determines Exchange Rates

Part I. Asset Market Approach to Exchange Rate
1.    The role of Interest Rates (i, if)
2.    The role of the Expected Future Spot Exchange Rate (eex)
Part II. Purchasing Power Parity (PPP)
1. The law of One Price
2. Absolute Purchasing Power Parity
3. Relative Purchasing Power Parity
4. Relative PPP: Recent Experience
Part III. The Monetary Approach
1. Money, Price levels and Inflations
2. Money and PPP combined
3. The effect of Money Supplies on an Exchange Rate
4. The Effect of Real Incomes on an Exchange Rate
Part IV. Exchange Rate Overshooting
How Well can we Predict Exchange Rate
This is a very important chapter for us to do some research in deep, which examines how monetary policy affects exchange rates. It also provides solid grounding in the fundamentals with links between prices and exchange rates and interest rates and exchange rates discussed in the context of current examples and data. Three main exchange rate determining theories will be introduced in this chapter: Asset Market Approach to Exchange Rate (in the short run), Purchasing Power Parity (PPP) (in the long run) and the Monetary Approach for the long-run exchange rate determination. While, in the last section, the phenomenon called “Overshooting” will also be illustrated in order to explore the underlying relationship between short-term volatility and long-run trend of exchange rate.

  • Government Policies towards the Foreign Exchange Market
    • Background: Rate Flexibility and Restrictions
    • Exchange Rate System

2.1 Floating Exchange Rate
2.2 Fixed Exchange Rate (Target, Time and Methods)

    • Official Intervention

3.1 Defending against Depreciation
3.2 Defending against Appreciation
3.3 Temporary Disequilibrium
3.4 Long-term Disequilibrium

    • Exchange Control
    • International Currency Experience

 The first half of this chapter examines types of government policies toward the foreign exchange market and provides analysis of government intervention and exchange controls. It focuses on the fixed exchange rate system and explains the mechanism and operations of official intervention under the fixed exchange rate system. The second half examines the actual polices that governments have adopted during the past 130 years.

  • International Lending and Financial Crises
    • General Introduction about International Lending
    • Gains and Losses Analysis of International Lending
    • International Lending Risks and Problems
    • International Lending to Developing Countries

4.1 Recent Cases Study
4.2 Debt Forgiveness and Debt Reduction

    • Financial Crises and its Countermeasures

5.1 Recent Cases Study
5.2 The Root of crises
5.3 Resolving Financial Crises
5.4 Reducing the frequency of Financial Crises
International capital movements can bring major gains both to the lending or investing countries to the borrowing countries, through intertemporal trade and through portfolio diversification for the lenders/investors. But international lending and borrowing is not always well-behaved—financial crises are recurrent. This chapter examines both the gains from well-behaved lending and borrowing and what we know about international financial crises. The first section or two of this chapter on the gains from international capital flows and the taxation of international capital flows can be assigned and covered in conjunction with the material of Part I or Part II.
Part Two Macro Policies for Open Economies

  • How Does the Open Macro-economy Work?
    • Analyzing Framework for Macro-Economy
    • Domestic Production depends on Aggregate Demand
    • Trade depends on Income
    • Equilibrium GDP and Spending Multipliers
    • IS-LM-FE Model in Three Markets

2.1 The Domestic Product Market (IS)
2.2 The Money Market (LM)
2.3 The Foreign Exchange Market (FE)

    • Price Adjustments
    • Trade depends on Price Competitiveness

This chapter provides a framework and model—IS-LM-FE model or Mundell-Fleming model for analyzing international macroeconomics. The IS-LM-FE model provides a more complete framework for analyzing the open macroeconomy. It is intended to show the determination of the short-run equilibrium levels of the country's real GDP and interest rate while also indicating the state of the country's official settlements balance (or, equivalently, the pressure on the exchange rate value of the country's currency). We are relaxing the assumption that the interest rate is steady. This model will be introduced in detail in this part, and it will be used to analyze both fixed (Chapter 9) and floating (Chapter 10) exchange rates. The final piece of the framework that we develop in the text is that the country's exports and imports depend on international price competitiveness, in addition to depending on national incomes. The price of foreign-produced traded products relative to the price of home-produced substitute products is Pf×e/P, where e is measured as units of domestic currency per unit of foreign currency. This ratio is the real exchange rate introduced in Chapter Five.

  • Internal and External Balance with Fixed Exchange Rates
    • Preparation: Basic theoretical Frameworks
    • From the Balance of Payments to the Money Supply

1.2 From the Money Supply back to the Balance of Payments
1.3 Sterilization

    • Monetary Policy with Fixed Exchange Rates
    • Fiscal Policy with Fixed Exchange Rates
    • Perfect Capital Mobility

4.1 Internal Shocks
4.2 International Capital-Flow Shocks
4.3 International Trade Shocks

    • Imbalances and Policy Responses

5.1 Internal and External Imbalances
5.2 Monetary-Fiscal Mix
6.  Surrender: Changing the Exchange Rate
7.  Trade Balance Responses to Exchange Rate Changing
This chapter presents the analysis of the macro-economy of a country that has a fixed exchange rate. This analysis is important because some countries currently have fixed exchange rates or floating rates that are so heavily managed that they resemble fixed rates, and because there are ongoing discussions of proposals to return to a system of fixed rates among the world's major currencies. We’ll focus on defense of the fixed exchange rate through official intervention in the foreign exchange market. Rather than allowing these automatic adjustments toward external balance, the monetary authority can resist by sterilization—taking an offsetting domestic action (like an open market operation) to reduce or eliminate the effect of the intervention on the domestic money supply. In the face of a payments imbalance, a country's government that is not willing to adjust domestic policies and the domestic economy may conclude that surrendering—changing or abandoning the fixed exchange rate—is best. We generally expect that the trade balance deteriorates at first, because the price change occurs quickly while trade quantities change more slowly. After a moderate time period, the volume effects become large enough that the balance improves. In this case the response of the current account balance to a devaluation of the country's currency traces out a pattern called the J curve.

  • Floating Exchange Rates and Internal Balance
    • Introduction
    • Monetary Policy with Floating Exchange Rates
    • Fiscal Policy with Floating Exchange Rates
    • Shocks to the Economy

4.1 Internal Shocks
4.2 International Capital-Flow Shocks
4.3 International Trade Shocks

    • Internal Imbalance and Policy Responses
    • International Mcroeconomic Policy Coordination   

This chapter presents the analysis of the macroeconomy of a country that has a floating exchange rate. If government officials allow the exchange rate to float cleanly, then the exchange rate changes to achieve external balance. While a cleanly floating exchange rate assures external balance, it does not assure internal balance, and changes in the floating exchange rate to achieve external balance can exacerbate an internal imbalance. Government monetary or fiscal policies may be used to address internal imbalances. Changes in government policies adopted by one country can have spillover effects on other countries. International macroeconomic policy coordination involves some degree of joint determination of several countries' macroeconomic policies to improve joint performance.

  • National and Global Choices: Floating Rates and the Alternatives
    • Determinants of Exchange Rate Policy Choices
    • Effects of Macroeconomic Shocks
    • The Effectiveness of Government Policies
    • Differences in Macroeconomic Gals , Priorities and Policies
    • Controlling Inflation
    • Real Effects of Exchange Rate Variability
    • National Choices

2.1 Extreme Fixes
2.2 The International Fix-Monetary Union
This chapter provides a capstone to the discussion of international finance and international macroeconomics by examining the choice between fixed and floating exchange rates. Much of the discussion examines this choice from the point of view of a single country, but the discussion also examines some issues related to the functioning of the entire system. A group discussion about the desirability of different exchange rate systems for NAFTA may be organized in the class. Groups can meet and prepare formal statements of key arguments, with class presentations of the groups' statements. After any follow-on discussion, the class could end with a vote—if you were a Canadian (or a Mexican, or an American) politician or businessperson, what system would you favor?

Recent Debates (Internal Semester)
This section will summarize the main recent debates opened in the field of International Finance with special reference to current events.
Readings for this lecture will be assigned later in the course.

5. Lecture Hours Allocation



Lecture Hours

Chapter 1

International Economics Is Different


Chapter 2

Balance of Payments


Chapter 3

The Foreign Exchange Market


Chapter 4

Forward Exchange and International Financial Investment


Chapter 5

What Determines Exchange Rates?


Chapter 6

Government Policies toward the Foreign Exchange Market


Chapter 7

International Lending and Financial Crisis
(Group Discussion and Conclusion)


Chapter 8

How does the Open Macro Economy Work


Chapter 9

Internal and External Balance with Fixed Exchange Rates


Chapter 10

Floating Exchange Rates and Internal Balance


Chapter 11

National and Global Choices: Floating Rates and the Alternatives


6. Instructional Methods

Lectures are a supplement and not a substitute for the readings. The lectures are designed to cover the most fundamental issues and provide a foundation for the readings. It is essential that students work their way through (at least) the required readings as the course progresses. Students should take full advantage of the lecture times to clarify doubts and discuss readings.

7. Textbook

Thomas A. Pugel (2005): International Finance, 12th Edition. Published by McGraw-Hill Education (Asia Co.) & China Renmin University Press

8. Recommended Readings

The text for this course in Chinese Vision is International Economics by J, Xue. J, Tong & K, Li., (Higher Education Press), 2000. As to the textbooks in English vision, the students can choose anyone the following books for reference:

  • Steven Husted & Michael Melvin (2002): International Economics, 5th Edition, Higher Education Press & Pearson Education.
  • Paul Krugman and Maurice Obstfeld (2002): International Economics: Theory and Policy, 6th edition, HarperCollins.
  • Robert J. Carbaugh (2005): International Economics, 9th Edition, Higher Education Press.
  • Dominick Salvatore (2004): International Economics, 8th Edition, Tshinghua University Press.
  • Newspapers/magazines: New York Times, Wall Street Journal, Financial Times, Economist and Business Week..

Other Course Material in Internet
The official website provided by McGrawHill Press to accompany Pugel’s twelfth edition offers the most complete content for any international text of its kind.
For the students in my class, some specific learning materials can be available on the online homepage ( The syllabus, announcements, problem sets (assignments and answers), and some sample exams are posted on the download area page (, and the supplementary reading materials for each chapter are on the supplements page.

9. Grading and Evaluation

There will be several take-home assignments and a final exam during the semester. All the assignments will be given a 15% and the final exam a 70% in determining the final grade. In addition I will assign problem sets during the semester that along with attendance will count for 15% of the course grade.

10. Instructor Info

   Instructor: Xinying Liu (Associate Professor)
 Office hours: 14:00-16:00, every Thursday; Room.104, the School of International Economics and Trade
Tel:  82953471

Practical International Trade

Course Syllabus

School of International Economics
Shandong University of Finance
Date: Sep. 2008

1. Course NamePractical International Trade
2. Course Character:Compulsory Course
3. Course Prerequisites: 
None,however Prior business and English courses will prove helpful.
4. Available: School of International Economics
5. Credits:3 Points
6. Total Course Hours54                 
7. Grading: Written Examination
8. Course Description:
Nowadays, the international trade is coming through a great change, i.e. the Economic Globalization and Regional Economic Integration. With the unceasing update of the contents of the international trade, many new modes, laws and practices of the international trade come into being. It is estimated that there is an urgent need of specialists on international trade area after China’s accession into WTO. For this regard, the purpose of the course: Practical International Trade has been designed to high qualified international trade specialists, who will possess necessary knowledge in both international trade theories and practices. During the class, the students will learn a comprehensive knowledge system consisting of international sales contract clauses, the incoterms, the conclusion and performance of the international import and export contracts, traditional and new trade forms in the international business. The focus of the course is on the practical operation of various international trade theories and customs.
9. Course Objectives:
Through learning, the students will be able to:

  • Increase understanding the characteristics of the international business after China’s accession into WTO;
  • Develop ability to handle the procedure of the practical international import and export business; 
  • Carry out our country’s foreign trade laws correctly to maximize the economic benefits and meanwhile use the ways generally accepted in the international trade area during the process of the international business;

The deliberation of the course is to let students understand the practical operation of the international trade rather than various theories.
10. Required Textbook:
Zhou Zhenbang
“Practical International Trade”,
Ocean University of China Press, 1997
11. References:

  • Li Xiaoxian

“Practical International Trade”
University of International Business and Economics Press, 2000

  • Yao Chang, Xu Zirong

“Foreign Trade Business”
Lixin Accountant’s Press, 2003

  • Li Guohua

“International Economics and Trade: Theory and Practice”
People’s University of China Press, 2002
12. Weekly Schedule and Assignments:




Week 1

Chapter 1: Business Contract


Week 2

Chapter 2: Quality of Goods


Week 3

Chapter 3: Quantity of Goods


Week 4

Chapter 4: Packing of Goods


Week 5
Week 6

Chapter 5: Price of Goods


Week 7
Week 8

Chapter 6: Delivery of Goods


Week 9
Week 10

Chapter 7: Cargo Transportation Insurance


Week 11

Chapter 8: Inspection of Goods


Week 12
Week 13

Chapter 9: Payment of Purchase Price


Week 14

Chapter 10: Disputes, Claim, Arbitration and Force Majeure


Week 15

Chapter 11: Export Business Negotiation and Conclusion of Contract


Week 16

Chapter 12: Performance of Export Contract


Week 17

Chapter 13: Import Business Negotiation and Conclusion of Contract


Week 18

Chapter 14: Technology Transfer