ECONOMICS OF FINANCIAL AND EXCHANGE MARKETS

The course aims to understand how the financial markets react to the economic policies and the publication of macro data, by affecting the future international macroeconomic scenario. In the first part of the course, theoretical topics about the behaviour of the Authorities, that define the economic policies, and the financial markets are presented. The effects of inflation, interest and exchange rates? expectations on the effectiveness of economic policies will be analysed. The second part is based on the perspective followed by financial operators to generate their expectations.

The student have to be able to analyze the macroeconomic scenario, interpret monetary and fiscal policy interventions based on the language of the policy makers, evaluate the impact of financial market expectations on the real economy.

No pre-requirements. Knowledge of basic economic policy concepts is suggested

PART I: MACROECONOMIC POLICIES
1. ECONOMIC POLICIES: OBJECTIVES AND TOOLS
1.1 Economic policy objectives
1.2 Economic policy instruments
1.3 Effects on equilibrium
1.4 The debate between Keynesians and Monetarists on the effectiveness of economic policies

2. THE EFFECTIVENESS OF ECONOMIC POLICIES IN A CLOSED ECONOMY CONSIDERING EXPECTATIONS
2.1 Inflation expectations
2.2 Interest rate expectations

3. THE EFFECTIVENESS OF ECONOMIC POLICIES IN AN OPEN ECONOMY
3.1 Fundamentals of an open economy
3.2 Exchange rate expectations

4. EXCHANGE RATE SYSTEMS
4.1 Flexible exchange rate systems: Pure or Dirty floating
4.2 Fixed exchange rate systems: Target zones (fluctuation bands), Crawling peg, Currency board, Dollarization, Common currency. The vulnerability of the Eurozone
4.3 The role of the Dollar in the international scenario

PART II: APPLICATIONS
5. FINANCIAL MARKETS
5.1 Money market
5.2 Bond market
5.3 Equity (Stock) market
5.4 Foreign exchange (Forex) market
5.5 The link between interest rates and exchange rates

6. THE OPERATIONAL FORMATION OF EXPECTATIONS
6.1 The role of Central Banks and the interpretation of their communication: applications to the international scenario from the 2008 crisis to the present
6.2 Macroeconomic analysis of a country: annual, quarterly, and monthly data. The current scenario

At the beginning of the course in Moodle it will be available material about the highlights of the topics.

Written exam. Exercises containing several theoretical (definitions or demonstrations)and practical questions (applying the theory to the macroeconomic scenario or financial markets (for example, interest or exchange rate exercises)

written

The lecturer has a duty to ensure that the rules regarding the authenticity and originality of exam tests and papers are respected. Therefore, if there is suspicion of irregular conduct, an additional assessment may be conducted, which could differ from the original exam description.

The grade will be assigned according to the following methods:
A. scores in the 18-22 range will be assigned in the presence of:
- sufficient knowledge and ability to apply understanding in reference to the course program;
- limited ability to apply knowledge by formulating independent judgments;
- sufficient communication skills, especially in relation to the use of specific language that pertains to the course program;
B. scores in the 23-26 range will be assigned in the presence of:
- fair knowledge and ability to apply understanding in reference to the course program;
- fair ability to apply knowledge by formulating independent judgments;
- fair communication skills, especially in relation to the use of specific language that pertains to the course program;
C. scores in the 27-30 range will be assigned in the presence of:
- good or very good knowledge and ability to apply understanding in reference to the course program;
- good or very good ability to apply knowledge by formulating independent judgments;
- fully appropriate communication skills, especially in relation to the use of specific language that pertains to the course program;
D. honors will be awarded in the presence of knowledge and understanding applied in reference to the program, judgment and communication skills, excellent.

The teaching method will be frontal. Examples of application of the theory to the current macroeconomic scenario will be analyzed