Economics II - DrWaleKesh

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Currency Exchange Rates: Understanding Equilibrium Value 14 Topics

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a. calculate and interpret the bid–offer spread on a spot or forward currency quotation and describe the factors that affect the bid–offer spread

b. identify a triangular arbitrage opportunity and calculate its profit, given the bid–offer quotations for three currencies

c. explain spot and forward rates and calculate the forward premium/ discount for a given currency

d. calculate the mark-to-market value of a forward contract

e. explain international parity conditions (covered and uncovered interest rate parity, forward rate parity, purchasing power parity, and the international Fisher effect)

f. describe relations among the international parity conditions

g. evaluate the use of the current spot rate, the forward rate, purchasing power parity, and uncovered interest parity to forecast future spot exchange rates

h. explain approaches to assessing the long-run fair value of an exchange rate

i. describe the carry trade and its relation to uncovered interest rate parity and calculate the profit from a carry trade

j. explain how flows in the balance of payment accounts affect currency exchange rates

k. explain the potential effects of monetary and fiscal policy on exchange rates

l. describe objectives of central bank or government intervention and capital controls and describe the effectiveness of intervention and capital controls

m. describe warning signs of a currency crisis

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Economic Growth and Investment Decision 13 Topics

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a. compare factors favoring and limiting economic growth in developed and developing economies

b. describe the relation between the long-run rate of stock market appreciation and the sustainable growth rate of the economy

c. explain why potential GDP and its growth rate matter for equity and fixed income investors

d. contrast capital deepening investment and technological progress and explain how each affects economic growth and labor productivity

e. demonstrate forecasting potential GDP based on growth accounting relations

f. explain how natural resources affect economic growth and evaluate the argument that limited availability of natural resources constrains economic growth

g. explain how demographics, immigration, and labor force participation affect the rate and sustainability of economic growth

h. explain how investment in physical capital, human capital, and technological development affects economic growth

i. compare classical growth theory, neoclassical growth theory, and endogenous growth theory

j. explain and evaluate convergence hypotheses

k. describe the economic rationale for governments to provide incentives to private investment in technology and

l. describe the expected impact of removing trade barriers on capital investment and profits, employment and wages, and growth in the economies involved

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Olawale Keshinro

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27 Topics

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