Introduction


 

This is an introductory course to the world economy from the American perspective.

Most topics are of positive nature (what is, what will happen, etc.)

Some topics deal with normative issues (what should be done about trade policies, etc.)

   

 

1. Examinations

Two exams

(mid-term and final).

 It is necessary for you to take the final examination to get a letter grade.
Sample Tests To prepare you for the exams, sample tests will be posted and reviewed in the class.
Bonus Points

1. Every once in a while, movie credits may be given. Each bonus point is worth 1% of total score.

2.Once in a while you ask an interesting question or make valuable comments (1 point).

2. Homework #1

Compare China and the United States in terms of GDP, military strength and other indices. You may list bullet points, using your own full sentences, but not copy and paste full paragraphs from the Internet.

 

3. Homework #3: Foreign Exchange Assignment

  No homework assignments will be accepted through e-mail.
 

Foreign exchange rates are published in Wall Street Journal and other newspapers. These rates are also published on the Internet. This assignment is due on the first day of the last month of this semester. (2 points)
          Each of you has $2 million idle for one semester. In this case, one would normally deposit the money in a bank to collect interest. But ignore the interest income. Assume that interest rates are equal throughout the world. If the interest rate is 9% annually, then for four months, one would get about 3% of the principal. For simplicity, ignore this interest income also. We can simply assume that capital is perfectly mobile between countries, and hence the interest rates are the same throughout the world. You have $2 million for speculative purpose only.

          The purpose of this exercise is to help you become familiar with foreign exchange transactions necessary for international trade.

  1. On September 1, convert $2 million into another currency (or a combination of currencies) using the exchange rates on September 1. (Attach copies of the quotations, Wall Street Journal, other newspapers, or Internet quotations of foreign exchange rates)
  2. On October 1, convert your foreign currency holding into some other currencies.
  3. Repeat this on November 1.
  4. On December 1, convert all foreign currencies you have into USD to determine whether you have made profits in your speculation. Whether you made money or not has no bearing on your grade.
  5. This assignment is due on December 3 (Monday)
Example

        Wall Street Journal publishes two kinds of exchange rates. The second and third columns (in US dollar columns) show the US $ equivalent, and the sixth and seventh columns (per US dollar columns) show currency per US $.
e = US $ equivalent = dollar price of a foreign currency
1/e = currency per US $ (Their price of USD, e.g., 103 yen/dollar)
To get the amount of money in a foreign currency, divide the amount of US $ by the exchange rate in the second or third column.
(i)$1 million /e = the amount of foreign currency you get.

Alternatively, you can multiply the amount of USD by the figures in the sixth/seventh column
(ii) $1 million × (1/e) = the amount of foreign currency.

The Man Who Broke the Bank of England

George Soros is a currency speculator. In one famous week in 1992, he made over $1 billion, betting against the British pound, earning him the grudging title of "the Man Who Broke the Bank of England".

          Soros' Quantum Fund makes money by anticipating economic shifts around the world. In 1992 Soros thought the British pound would lose value because of political and economic pressures. He borrowed billions of pounds and converted them to German marks. When the pound collapsed September 16, Soros repaid the pounds at the lower rate and pocketed the difference. His profit: $1 billion.

          Malaysian Prime Minister Mahathir Mohamad accused him of being a criminal. He said Soros the speculator had attacked Southeast Asian currencies to punish their governments for permitting Burmese military regime to ASEAN.

Kwan Choi, Harvey Lapan, and Kenneth Galbraith.