Students are requested to address the following points:

  • There is no formal definition of what constitutes a small state, but it is generally accepted that this label  applies  to  sovereign  economies  with  populations  of  less  than  one  and  half million people (IMF). Ceteris paribus, small states are relatively more open to trade and to international  financial  flows,  compared  to  bigger  economies;  they  also  tend  to  be  less diversified  in  terms  of  production  structure  and  export  base.  Clearly  enough,  being  more open and highly specialized in terms of their production, they are also more vulnerable to external shocks (IMF, 2013).

In  the  light  of  the  above  and  considering  the  theoretical  framework  discussed  in  class, describe  the  major  pros  and  cons  of  financial  globalization.  Please  support  your  analysis with some examples (e.g. a small country like Iceland vs a big country like Italy) (25 points)

  • Despite having adopted a floating exchange rate, sometimes Central Banks (CB) are asked to intervene in the currency market to smooth out excessive FX fluctuations. There are two

major reasons for such interventions to occur:

oInternational trade and investment decisions are much more difficult to make if the exchange rate value is changing rapidly: if the exchange rate fluctuates abruptly, traders  and  investors  will  become  more  uncertain  about  the  profitability  of  their deals and will likely reduce their international activities.

oTrade deficits (CA deficits) can rise rapidly if a country’s exchange rate appreciates significantly:  a  higher  currency  value  will  make  foreign  goods  and  services relatively cheaper, stimulating imports, while domestic goods will seem relatively more expensive to foreigners, thus reducing exports.

In the light of the theoretical framework presented in class, please  clarify the relationship between the Balance of Payments (BoP) and exchange rate dynamics (please, try to support your claims making specific reference to Iceland).

Discuss the short run and long run implications of   CBs’ FX interventions on the Official Reserves Settlement (ORS). Has the ECB ever pursued this kind of interventions? Why? (25 points)

  • The concluding remarks of the study fit quite well with the Impossible Trinity issue: could you please clarify this point in the light of the theoretical framework (Trilemma) discussed in class?

Based   on   your   understanding,   which   element(s)   of   the   Trinity   should   Iceland   have controlled more ab origine? (25 points)

  • Before the crisis, Iceland BoP was characterized by profound disequilibria: a large current account deficit, combined with rising interest rates and a very strong domestic currency. The post-crisis adjustment has thus been very quick and extremely violent. Would you be able to explain why? During  the  very  same  period,  other  countries  have  experienced  abrupt  BoP adjustments (e.g. Greece): would you be  able  to spot some similarities/major differences? Please, do not forget to support your claims with examples and references to the theoretical framework discussed in class. (25 points)

STRUCTURE AND FORMAT OF THE PAPER:

Students  are  required  to  write  an  original  essay  based  on  the  assignment  above.  Students  are required   to   work   autonomously.   Essays   will   be   discussed   and   challenged   during   the   oral presentation. More than any specific conclusion, student will be assessed based on their

  • knowledge of the course program
  • ability to use economic logic
  • ability to deal with quantitative methods

The project should include:

  • Executive summary (max 1 page)
  • Introduction
  • Body of the work (assessments should be BOTH quantitative and qualitative)
  • Conclusion
  • Bibliography, Graphs and Appendixes

Format of the report:

  1. The report  should  display  a  coherent  structure:  title  page  should  include  student  name, module  name,  lecturer  name,  date  and  school  name  followed  by  contents  page,  introduction, executive  summary,  methodology,  findings,  analysis,  conclusions,  recommendations,  referencing and appendices.
  2. The report  should  be  prepared  as  a  neatly  typed  Word  document  (Times  New  Roman  12 points), with double spacing and page numbering.
  3. All reports  will  be  discussed  in  class  in  a  power  point  presentation  of  no  more  than  20 minutes. The presentation should be a summary of your work.
  4. Tables or work/data taken from other sources may be included in an appendix.
  5. All sources  must  be  referenced  in  the  text  and  a  full  bibliography  must  be  provided (including visited websites) in the Harvard style referencing system. Paraphrasing or direct quotes taken from other sources must be clearly indicated with citations. No footnoting!
  6. Students are reminded that depth, relevance and variety are the crucial elements of quality research.  (Wikipedia  is  not  considered  to  be  a  relevant  source  of  information;  any  students referencing Wikipedia will be deducted marks! Alternatively if you find information on Wikipedia use the original sources listed at the bottom of the article)
  7. Students are  reminded  to  use  valid  and  peer-reviewed  references  to  support  their  work. Websites should only be used if they represent an established source and only for facts and figures. Students should make the most of academic and practitioner books and articles.
  8. Submission should be by  the  deadline below on Turnitin.com.
  9. All work must conform to University regulations on Cheating, Collusion and Plagiarism’ as described in  your  program  handbook.  You  are  advised  to  use  the  Harvard  referencing  style  and avoid plagiarism.