Finance 40500

International Finance  

Fall 2006


John Stiver

231 Mendoza College of Business

Notre Dame , IN 46556

Phone: (574) 631-2803

Fax: (574) 631-5255




Office Hours: By Appointment


Teaching Assistants:  Jonathon Brewis ( )


                                    Brian Lasky (


                                    Office Hours: M,T,W: 7-9PM (Giovaninni Commons)

Objective: The objective if the course is to understand currency markets work and how they influence both business and policy decisions.  To that end, we can break up the course into roughly three pieces.  Each piece examines currency markets from a different point of view. 

Primary Source: Madura, Jeff, International Financial Management, 8th Edition, Southwestern, 2003

Other Sources:

Grading: There will be two midterms given during the semester, a non-cumulative final given during finals week. Further, there will be various group projects during the course of the semester. To determine your grade:


Midterms (2 @ 100 pts each)                      = 200pts

Group Projects                                            = 100pts

Final                                                            = 100pts

Total                                                              400pts

The median score (out of 400 points) will be set at a 'B'.  The ranges for other grades will be at  intervals around the median (contingent on the standard deviation) For example, if the median score for the class is 310/400 (this is the average that I'm shooting for) , the grade distribution MIGHT look as follows: 


                                        360 - 400: A

                                        340 - 360: A-

                                        320 - 340: B+

                                        300 - 320: B

                                        280 - 300: B-

                                        260 - 280: C+

                                        240 - 260: C

                                        220 - 240: C-

                                        200 - 220: D

                                        <200       : F

Honor Code:  This course, like all other courses at Notre Dame, is subject to the Academic Code of Honor. Please read the Handbook to refresh your understanding of the code.

Academic Misconduct: Academic misconduct in any form is in violation of the University Student Conduct Code and will not be tolerated. This includes, but is not limited to, copying or sharing answers on tests or assignments, plagiarism,, and having someone else do your academic work. Depending on the act, a student could receive an F grade on the test/assignment, F grade for the course, or could be suspended or expelled.

Some Empirical regularities in Search of a Good Explanation:

  1. Exchange rates do not appear to be related to any underlying fundamentals.
  2. Exchange rates appear to show high persistence with little short run dynamics.
  3. Exchange rate systems appear to affect the behavior of real exchange rates.
  4. Real and nominal exchange rates move together very closely.
  5. Forward exchange rates are poor and biased predictors of future spot rates; on average, the forward rate predicts the wrong direction for future spot rates.
  6. Devaluations appear to have real effects.
  7. People choose very little international diversification of investment portfolios.
  8. Consumption is not highly correlated across countries despite the apparent gains from risk sharing.
  9. National Borders appear to play a major role in deviations from the law of one price.
  10. Currency crises are associated with devaluations and a variety of real effects.
  11. Currency crises tend to occur in bunches, suggesting contagion.

Some other Interesting Questions:

  1. What causes currency crises? What underlying conditions make them more likely?
  2. What are the effects of currency crashes?
  3. What conditions lead to speculative attacks on fixed exchange rates? Do these attacks have real effects?
  4. What causes exchange rates to change?
  5. Why are exchange rates so highly variable?
  6. What are the effects of exchange rate changes?
  7. What causes the balance of trade to change?
  8. What are the allocative and distributional effects of alternative exchange rate systems?
  9. Under what conditions can we rank exchange rate systems in terms of welfare?
  10. Why do governments often have strong preferences about the exchange rate system? What effects a country’s actual choice of exchange rate system?
  11. Are business cycles transferred from one country to another or are there common shocks across countries?
  12. What effects do one country’s macroeconomic policies have on other countries?
  13. How do international financial markets alter the effects of fiscal and monetary policy?
  14. What are the effects of the policies of international organizations such as the IMF and World Bank?