Introduction

E. Kwan Choi
January 12, 2009
Associate Editor, Japanese Economic Review
Associate Editor, International Review of Economics and Finance
Editor, Review of International Economics
Managing Editor, Review of Development Economics

Books Edited:

Choi, E. Kwan and Bjarne Jensen (eds.), International Trade and Economic Growth, (published by Blackwell Publishers, Oxford, UK, 1999).
Choi, E. Kwan and David Greenaway (eds.), Globalization and Labor Markets (Blackwell Publisehrs, Oxford, UK, 2000).
Choi, E. Kwan and James Harrigan (eds.), Handbook of International Trade (Blackwell Publishers, Oxford, UK, 2003)
Choi, E. Kwan and James Hartigan (eds.), Handbook of International Trade, Volume 2 (Blackwell Publishing, Oxford, UK, 2005)
Choi, E. Kwan, E. Han Kim and Yesook Merrill (eds.), North Korea in the World Economy (Routledge, 2003)

Published articles:

Reading Assignments

          Under the heading, Lecture Schedule, I have assigned one chapter for you to read each week. Ideally, you may want to read it once before the lecture. It will be somewhat easier for you to understand my lecture. A second reading could be done after the lecture.

Examinations

          Two exams (mid-term and final). To prepare you for the exams
sample tests will be posted and reviewed in the class.

triballIt is necessary for you to take the final examination to get a letter grade.

Bonus Points

  1. Every once in a while, I might ask you some bonus questions. If you answer one correctly, you receive a bonus point. Each bonus point is worth 1% of total score.
  2. If I make a mistake and you correct it, you would get a bonus point (which applies to only important subjects).

Homework #3: Foreign Exchange Assignment

          Foreign exchange rates are published in Wall Street Journal and other newspapers (Des Moines Register publishes only a few rates). These rates might be published on the Internet. This assignment is due on the first day of the last month of this semester.

No homework assignments will be accepted through e-mails.

(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%. For simplicity, ignore this interest income also. We can simply assume that capital is perfectly mobile between countries, and hence the world interest rates are the same. 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. Convert $2 million into another currency (or a combination of currencies) using the exchange rates on September 1, and hold the sum until October 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 1 (Monday)

Example

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

Alternatively, you can multiply the amount of US $ by the figures in the third/fourth column
(ii) $1 million x (1/e) = the amount of foreign currency.

George Soros

Time, August 27, 1997, p. 48

          He is a currency speculator. In one famous week in 1992, he made $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.

Note: Turlough O'Carolan was a blind Irish harper and composer. His music was much influenced by Vivaldi, a contemporaneous musician.

Kwan Choi, Harvey Lapan, and Kenneth Galbraith.