COM 3501 International Trade and Finance


This course focuses on international trade and international finance. International trade consists of international trade theory and policy. International trade theory deals with basis and the gains from trade, the modern theory of international trade, offer curves, Hecksher-ohilin theory, commercial policies, and economic integration. International trade policy examines the reasons for and the effects of trade restrictions and trade protectionism. Further International finance deals with international financial environment that affects giant multinationals and other firms that involved in international trade and transactions. This encompasses the study of foreign exchange markets, foreign exchange rate determination, international parity conditions, managing foreign exchange risk and exposure and optimal policy tools to manage international financial environment.

  • To understand and analyze the important concepts of international economics and the main components of international trade and international finance.
  • To understand and evaluate the effects of various trade policies on the business environment and the global economy.
  • To assist students in developing the necessary concepts and tools to analyze the current global issues/events and their impacts on the business environment and the world economy.

Upon completion of this course, the students will be able to:

  • Describe the main concepts in international economics and the main components of international trade and international finance
  • Explain the impact of each key component and analyze the critique of the applicability of models
  • Apply the international economic concepts, principles, and models to analyze global phenomena.
  • Analyze qualitatively and quantitatively basic international trade and finance problems, apply knowledge to practical situations and make wise economic decisions, and adapt to changes in business and social environments.

1. Introduction to International Economics
1.1 International Economics
1.2 Subject Matters of International Trade
1.3 Benefits of International Trade

2. International Trade Theories
2.1 Trade Based on Absolute Advantage
2.2 Trade Based on Comparative Advantage
2.3 Comparative Advantage and Opportunity Costs
2.4 The Basis and the Gains from Trade Under the Constant Costs

3. The Modern Theory of International Trade
3.1 The Production Frontier with Increasing Costs
3.2 Community Indifference Curves
3.3 Equilibrium in Isolation
3.4 The Basis and the Gains from Trade with Increasing Costs

4. Offer Curves
4.1 The Offer Curve of a Nation
4.2 The Offer Curve of the Other Nation
4.3 The Equilibrium Relative Commodity Price with Trade
4.4 The Terms of Trade

5. The Heckscher-Ohlin Theory
5.1 Assumptions of the Theory
5.2 Factor Intensity and Factor Abundance
5.3 Factor Endowments and the Heckscher-Ohlin Theory
5.4 Factor Price Equalization Theory

6. Trade Policies
6.1 Tariffs
6.2 Partial Equilibrium Analysis of a Tariff in a Small Country
6.3 The Rate of Effective Protection
6.4 The Optimum Tariff
6.5 Non-tariff Barriers

7. Economic Integration
7.1 Trade Creating Customs Unions
7.2 Trade Diverting Customs Unions
7.3 The Theory of Second Best
7.4 Dynamic Benefits from Customs Unions
7.5 Common Market
7.6 Economic Union

8. International Resource Movements and Multinational Corporation
8.1 Motives for International Capital Flows
8.2 Reasons for Existing Multinational Corporation
8.3 Problems Created by Multinational Corporation

9. Foreign Exchange Market and Exchange Rate
9.1 Functions of Foreign Exchange Market
9.2 Foreign Exchange Rates
9.3 Equilibrium Exchange Rates
9.4 Arbitrage
9.5 Spot and Forward Rate
9.6 Currency SWAP
9.7 Foreign Exchange Futures and Options

10. Foreign Exchange Risk
10.1 Foreign Exchange Risks, Hedging, and Speculation
10.2 Uncovered Interest Arbitrage and Covered Interest Arbitrage

Lectures, seminars, course manuals, workshops, assignments, self study.

  • මහාචාර්ය ඊ. දයාරත්න, අන්තර් ජාතික වෙළදාම, කතෘ ප‍්‍රකාශනයකි.
  • Chachohedes, M. (2011). International Trade Theory and Policy, McGraw Hill Kogakush Ltd., Tokyo.
  • Curves, R.E. and Jones, R.W. (1992). World Trade and Payments, An Introduction, Little Brown and Company, Boston.
  • Levi, D. M. (2012) International Finance, Fifth edition (International editions), McGraw-Hill.
  • Salvatore, D. (2012) International Economics, Macmillan Publishing Company.
  • මහාචාර්ය ඊ. දයාරත්න, අධ්‍යයන පොදු සහතික පත‍්‍ර උසස් පෙළ හා වෙනත් උසස් විභාග සඳහා අන්තර්ජාතික වෙළෙඳාම, කතෘ ප‍්‍රකාශනයකි.