Professor's Voice

Michiru Sakane

International finance covers many pressing issues in today’s globalized economy. What will happen to the US dollar-Japanese yen exchange rate? How does the US monetary policy affect the world economy? Is the current rate of the Chinese yuan optimal? How did European countries adopt the Euro as a common currency? Should all European countries adopt the Euro? What was the international effect of the 1997 Asian currency crisis? What is the optimal exchange rate policy to avoid currency crises in emerging market economies? The questions are endless. My course gives students a solid foundation in economic theories to answer them.

In the first half of the course students learn basic theoretical models of exchange rate determination and the economic consequences of exchange rate policies. I use diagrams that indicate money and asset market equilibriums. Of course the reality is complicated but simple diagrams help students understand the theories. In the latter half of the course we apply theories to current issues. Take for example the recent heated debates on the Euro. I ask students to consider the benefits and costs of adopting a common currency. Adoption is beneficial because it reduces international transaction costs in trades and financial transactions. However, it also reduces the independence of monetary policies, which involves new costs. To enhance students’ understanding, I introduce a graph with two curves representing, respectively, the benefits and the costs of joining the common currency area. The intersection of the two curves determines the optimal level of economic integration. In addition to graphical analysis, I also use game-theoretic approaches. For example, to understand the mechanism of currency crises, I introduce a simple game with two traders in the economy and one central bank that has the foreign reserves.

Having acquired analytic skills, students are ideally positioned to address such policy questions as the possibility for Asian countries to form an optimum currency area. Students are also informed enough to avoid being misled by partial information and uninformed views. By the end of the course I am always surprised at the value of the students’ insights into pressing questions in international finance!

Student's Voices

This course taught me how a government’s policy affects a country’s output under a fixed exchange rate system, how central bank intervention affects the currency, and why EU members adopted the Euro as common currency. I especially like the case studies of currency crises because they showed how theories are applied to dynamic and rapidly expanding markets.
Degree student from Taiwan

Even though I had only studied basic macroeconomics, I soon got the hang of this course. It really helped me understand current events in the international world. The course connected theory with reality, such as studying past financial crises. The assignments let me check that I correctly understood the lessons. I definitely enjoyed this course and am thinking to specialize in finance.
Exchange student from France
This course deepened my understanding of the fundamental macroeconomic theories and analyses that are relevant for international transactions. It was particularly intriguing to evaluate core models and strategies to assess their applicability in the contemporary global context. The course was challenging, but Professor Sakane’s humorous comments made for a relaxed atmosphere in class.
Sophomore majoring in International Business and Economics