KTTS4170 Economics of Exchange Rates (5 cr)
Purchasing Power Parity. Covered and Uncovered Interest Rate Parity. Currency and interest rate arbitrage. Efficiency of foreign and forward foreign exchange market. Rational expectations in currency market. Risk premium in foreign exchange market. Traditional macro models for exchange rate determination: Monetary model, Dornbusch overshooting model, portfolio balance model. Exchange rate regimes. Empirical testing of foreign exchange models. Basics of microstructure in foreign exchange. Some recent topics in foreign exchange.
Contact teaching course. Organized biannually in even years, autumn semester 2nd period. The study methods of the contact teaching course are specified in the study program annually.
Book exam: academic year
Accepted completion of the designated assignments. The assessment criteria of the course is specified in the study program annually.
- be aware of exchange rate dynamics
- comprehend the basic theories of the foreign exchange
- explain the causes and consequences of exchange rate fluctuations
- analyze the impacts of economic policy on exchange rate
- evaluate the efficiency of foreign exchange market
- evaluate and forecast exchange rate
- model exchange rate dynamics
Recommended timing for Finnish M.Sc. degree students: 3rd or 4th year.
Description of prerequisites
KTTA1120 Introduction to Econometrics
KTTS1110 Mathematical Economics II
- Cuthbertson, K. & Nitzsche, D. 2004. Quantitative Financial Economics: Stocks Bonds and Foreign Exchange. 2nd Edition, Wiley, Chapters 24–27.; ISBN: 9780273683063
- Copeland, L. 2014. Exchange Rates and International Finance. 6th edition.; ISBN: 0273786075