Bachelor 2020/2021

International Currency and Financial Relationships

Type: Compulsory course (World Economy)

Area of studies: Economics

Delivered by: School of World Economy

Where: Faculty of World Economy and International Affairs

When: 2 year, 3 module

Mode of studies: offline

Instructors: Ksenia Bondarenko, Eduard P. Dzhagityan, Daria Leonteva, Mikhail Orekhov, Anastasia Podrugina

Language: English

ECTS credits: 3

Contact hours: 56

Course Syllabus

Abstract

This Program aims at holistic understanding and fact-based view by the students of the principles, logics, consistency, dynamics, and perspectives of the international currency and financial relationships (ICFR) together with the role of the ICFR and their institutional framework in shaping the processes of financial globalization at the national, regional, and international levels. The Program delves into the evolution and specifics of the macrofinance policy and how it is tailored and managed amid imperfection and asymmetries of international financial markets. The Program also looks into the extent to which the ICFR promotes financial stability. Students will acquire knowledge about the key characteristics and mechanisms of the ICFR of Russia. The Program will equip students with broad-based outlook for the functional specifics of international finance, trade finance, and credit; international financial institutions/organizations; international capital flow; and the weaknesses and risks of the post-crisis recovery in the area of international finance. Students will expand their awareness of the latest developments in financial globalization and will be able to grasp the insights of the policy-making events and issues associated with the ICFR.

Learning Objectives

• To develop students’ skills and expertise necessary for holistic and unbiased understanding of economic principles, framework, processes, and perspectives associated with the ICFR, including institutional aspect, and the interrelationship between the ICFR’s structural elements at different economic hierarchies, including those applicable to the context of financial stability.
• To make students understand the economic background, rationale, driving forces, evolution, and the post-crisis issues of the ICFR, as well as the role and criticality of the ICFR in the processes of financial globalization and regionalization through the prism of the specifics of macro-financial policy, imbalances of global financial markets, and asymmetries of the global financial markets that affect the financial markets participants.
• To equip students with understanding of the complex mechanisms and patterns of the ICFR in different phases of the business, financial, and economic cycles; of the specifics of the relationship and interdependence of the ICFR with other segments of macro-financial management and, as such, to expand their understanding of the processes in the global financial environment and how they are affected by international financial intermediation.

Expected Learning Outcomes

• understand core principles, issues, and challenges of the contemporary international currency and financial relationships (ICFR); risks of financial globalization and regionalization, as well as how the ICFR are affected by crises.
• be able to differentiate among various categories of world currencies; understand how the exchange rate is settled; and what is the specifics of the monetary policy trilemma.
• know the specifics of the balance of payments’ structure, the purpose of its accounts, and how they are offset in case of the positive or negative balance.
• understand differences among the main forms of the trade finance instruments and when they are used, as well as the risks associated with international trade finance transactions.
• recognize the main differences between international credit and international project finance. They should understand why international leasing is required and be able to make the difference between international factoring and international forfeiting.
• be able to analyze the specifics of the foreign exchange position of the bank and how it affects its stress resilience, how the instruments of international capital markets are used, and how the national credit and eurocredit markets work.
• acquire a hands-on approach in identification of the various types of risks associated with the ICFR. They should understand the extent to which risk transmission affects international financial markets and financial stability, and risks in the ICFR could be mitigated.
• understand factors underlying the institution and operationalization of the international financial institutions, their core functions, and differentiate between global and regional financial institutions.
• understand how Russia affects the ICFR by means of the participation in the international financial markets, what is the specifics of the Russian balance of payments, and how the exchange rate of the Russian ruble affects the exchange rate policy of the Central Bank of the Russian Federation.

Course Contents

• International currency and financial relationships, and financial globalization
  Financial globalization and regionalization as driving forces of the world economic development. Framework and specifics of the contemporary landscape of the international currency and financial relationships (ICFR). Core principles of the ICFR. Fundamentals of the ICFR. Evolution and core milestones of the international monetary system. Cross-border capital movement. Risks of financial globalization and regionalization. Economic effect of financial globalization and regionalization. Financial regionalization in the EU and the EU-wide financial institutions and financial architecture. ICFR and financial crises.
• International monetary system, policy, and regulation
  What is currency? Currency classification criteria. Reserve currencies. Factors affecting the currency exchange rate, and the exchange rate quantification mechanism. Exchange rate quotation. What is monetary system? National vs. international monetary system. Foreign exchange restrictions and convertibility of currencies. Regionalization (supranationalization) and integration of the monetary system (evidence from the EU). Monetary policy trilemma (the Mundell-Fleming model). Obstacles to financial integration.
• Balance of payments
  Why we need the Balance of Payments (BoP)? Definition and structure of the BoP. Components of the BoP and the BoP accounts. Net balance of payments (surplus/deficit) and its valuation techniques. Principles of accounting in the BoP. BoP transactions. Deficit and surplus of the Current account. Factors affecting the BoP quantitative parameters. Regulation of the BoP. Balance of payments deficit and mechanisms of minimization of BoP imbalances.
• International trade finance
  International trade finance (a.k.a. international settlements) in promoting foreign economic relations. Specifics of international trade finance. Instruments of international trade finance (Letter of Credit, Documentary Collection, Bank Transfer, Bill of Exchange, Standby Letter of Credit, Letter of Guarantee) and their comparative analysis. Official documents underlying international trade finance. Risks in international trade finance.
• International credit
  Principles and functional specifics of international credit. Forms and types of international credit. International project finance. International loan syndication and its advantages. Differences between international project finance and international loan syndication. International leasing. International factoring. International forfeiting. Financial and payment terms underlying international credit agreements/arrangements. Collateral under international credit. Regulation of international credit relationships.
• International foreign exchange, credit, and securities markets
  International foreign exchange, credit, and securities markets amid the processes of financial globalization and regionalization. International foreign exchange market and its instruments (spot, forward, swap, futures, options, foreign exchange arbitrage). Functional specifics of international foreign exchange markets. The structure and the participants of international foreign exchange markets. Foreign exchange position of the bank. Long and short positions. Activity of economic agents in international foreign exchange markets. International credit (capital) markets and their specifics. Instruments of international capital markets. National credit and eurocredit markets. LIBOR, its core characteristics, and the proposed successors. International markets of hybrid financial instruments and financial derivatives. International securities markets. Primary and secondary securities markets. Eurofinancial securities markets. International financial centers.
• Risks in international currency and financial relationships
  Inevitability of risks in the ICFR. Sources of risks. Types of risks. Macro level risks (sovereign risk, country risk, systemic (system-wide) risk, political risk). Commercial risks (strategic risk, reputational risk, cybersecurity risks, risk of information asymmetry). Market risks (foreign exchange (currency) risk, interest rate risk). Operational risks (credit risk, liquidity risk). Risk insurance/risk hedging in the ICFR. Quantitative and qualitative approaches in risk analysis. Mechanisms of risk transmission (contagion effect) and instruments of risk mitigation. Normal or excessive risk transmission? National export credit agencies/banks as the enablers of risk minimization in the ICFR.
• Institutional framework of international currency and financial relationships
  What is international financial institution? The background, evolution, and core milestones of international financial institutions. The system of international financial institutions. International financial institutions as the ICFR participants. Functions and functional specifics of the international financial institutions. Global financial institutions. The International Monetary Fund (IMF). Special Drawing Rights (SDR). IMF quota and its calculation. IMF quota revision. The World Bank Group (WBG). Sources of the World Bank’s credit resources. The Bank for International Settlements (BIS). The Financial Stability Board (FSB). The Basel Committee on Banking Supervision (BCBS). Regional financial institutions (international/multilateral development banks) and their specifics. EU international financial organizations. European Investment Bank (EIB). European Bank for Reconstruction and Development (EBRD). Asian Development Bank (ADB).
• International currency and financial relationships of Russia
  Russia in the ICFR. Fundamentals, core elements, and principles of the Russian foreign exchange system and the foreign exchange policy. Russian ruble and the extent of its convertibility. International foreign exchange liquidity of Russia. Foreign exchange regulation in Russia. Foreign exchange quotation by the Central Bank of the Russian Federation. Structure of the Russian foreign exchange assets. Balance of payments of the Russian Federation. Russia as an international borrower and an international lender. Participation of Russia in international financial organizations. Specifics of financial interplay between Russia and other members of the Eurasian Economic Union (EAEU).

Assessment Elements

• Seminars
• Control work 1
• Control work 2
• Essay
  In case the student fails to submit an essay within the period stipulated by the Program, the student receives “0” (fail) grade for the essay, and the final grade (GF) is re-calculated based on the following formula: GF = 0,24*GS + 0,14*GCW1 + 0,24*GCW2 + 0,29*GE + 0,09*GA where GS is the grade for the seminars, GCW1 and GCW2 are the grades for the control work 1 (CW-1) and control work 2 (CW-2) accordingly, GE is the grade for the essay, and GA is the grade for class attendance. At the same time, the grades for each element of the final grade are re-calculated and rounded to the nearest smallest whole number, regardless of the decimal digit. The final grade for the ICFR discipline is rounded in the same way. For example, a grade of 7.9 is rounded to 7. For students who submitted the essay within the period stipulated by the Program, the mathematical rounding rules apply.
• Class attendance
• Exam (for students received grades 0-3 for the Program)
  This is an oral exam with synchronous proctoring. The exam is based on the Webinar platform (https://webinar.ru/), proctoring is based on the Examus platform (https://hse.student.examus.net). Students must be online 15 minutes before the exam starts. Software testing is available on the Examus platform. The student’s computer must meet the following requirements: https://elearning.hse.ru/data/2020/05/07/1544135594/Технические%20требования%20к%20ПК%20студента.pdf) To participate in the exam, the student should access the proctoring platform in advance, conduct a system test, turn on the camera and microphone, and confirm his/her identity. During the exam students are prohibited from communicating (using social networks or with somebody else in the room), cheating. During the exam students are allowed to use the calculator. An up to 1 minute interruption in communication is considered as a short-term following which students may continue the exam. Interruption in communication of 1 minute and more is considered as a long-term, following which students cannot continue their participation in the exam. Retaking the exam is similar to the exam as above. Экзамен проводится в устной форме с использованием синхронного прокторинга. Экзамен проводится на платформе Webinar (https://webinar.ru/), прокторинг на платформе Экзамус (https://hse.student.examus.net). К экзамену необходимо подключиться за 15 минут. На платформе Экзамус доступно тестирование системы. Компьютер студента должен удовлетворять следующим требованиям: https://elearning.hse.ru/data/2020/05/07/1544135594/Технические%20требования%20к%20ПК%20студента.pdf) Для участия в экзамене студент обязан: заранее зайти на платформу прокторинга, провести тест системы, включить камеру и микрофон, подтвердить личность. Во время экзамена студентам запрещено: общаться (в социальных сетях, с людьми в комнате), списывать. Во время экзамена студентам разрешено пользоваться калькулятором. Кратковременным нарушением связи во время экзамена считается прерывание связи до 1 минуты. Долговременным нарушением связи во время экзамена считается прерывание связи 1 минута и более. При долговременном нарушении связи студент не может продолжить участие в экзамене. Процедура пересдачи аналогична процедуре сдачи.

Interim Assessment

• Interim assessment (3 module)
  0.1 * Class attendance + 0.15 * Control work 1 + 0.25 * Control work 2 + 0.25 * Essay + 0.25 * Seminars

Bibliography

Recommended Core Bibliography

• CIURLĂU, F. C. (2018). Financial Globalization and Economic Dynamics. Economics, Management & Financial Markets, 13(3), 340–350. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=bsu&AN=132128343
• Grahame Thompson. (2019). Financial globalization? History, conditions and prospects. Chapters, 32. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.h.elg.eechap.18293.2
• Stanley, L. (2018). Emerging market economies and financial globalization: Argentina, Brazil, China, India and South Korea. Germany, Europe: London: Anthem Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.B6B463E6

Recommended Additional Bibliography

• Diehl, E., Clift, J., & International Monetary Fund. (2007). Financial Globalization : A Compilation of Articles From Finance & Development. Washington, D.C.: International Monetary Fund. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=449549