The objective of the course is to equip students with the relevant techniques, analytical skills and academic research to interpret current developments in the fast-changing area of international finance, from the shifts in capital flows to the electronification of forex trading, from the persisting dominance of the US dollar in the international monetary order to China’s alleged exchange rate manipulations, from the crypto assets innovations and the development of central bank digital currencies to the turbulence in the oil market, from the rise in global imbalances to the COVID-19 global shock, from the effects of the Ukraine war and related energy crisis on inflation to central banks’ responses and effects on exchange rates.

This course approaches such key issues and topics in international finance using foreign exchange and exchange rates as a unifying theme. The foreign exchange market is the largest financial market, turning over every couple of weeks the equivalent of the yearly value of pre-C19 global GDP. It is also a unique market where prices are determined not only by the fundamentals of this asset class but also by government and central bank interventions. Exchange rates are an open economy’s most important price as their movements affect the relative value of an entire economy.

This course provides a 360-degree perspective on exchange rates and is divided into four parts: theory, government policy, global risk and markets. First, the course considers what finance and economic theory identify as the determinants of the relative price of two currencies. Macroeconomic, market microstructure and behavioural finance approaches are examined. Second, the course analyses governments’ available policy choices to influence the level and volatility of the relative price of its currency and how these choices differ for higher income and lower income economies. Third, the course examines exchange rates as a source and conduit of global financial instability. Fourth, the course focuses on the risk and exposure for investors and firms arising from exchange rate market volatility. It examines the valuation of currency instruments and their use in strategies to hedge that exposure. It also analyses the structure, trading and organisation of the forex market and its central role in international finance. 

The course incorporates theoretical, empirical, policy and institutional dimensions. The teaching approach emphasises the intuitions at the core of the quantitative aspects. It also discusses how the historical evolution of research in this area has resulted in the currently used theoretical frameworks.

An integral part of the course is a group research project on an assigned topic.

For interested graduate students outside the Departments of Finance, Accounting and Finance and Management, and for interested graduate students in the Diploma in Accounting and Finance,  the course is available subject to some background in economics and/or finance and subject to permission from the course leader.  Please email Dr Bertero (e.m.bertero@lse.ac.uk) information on your undergraduate degree and university, previous exams you have taken in finance and economics and the motivation for wanting to take this course.