Week 5 — Lectures 8 & 9, Reading 4

We're discussing the following for week 5:

Lecture 8: Eurodollars, Parallel Settlement

Lecture Notes
Eurodollar time deposits help us think about using balance sheets to line up cash inflows and cash commitments. The forward rate agreement (FRA) and the forward exchange contract give us some practice using implicit balance sheet arrangements to describe derivatives. The failure of forward interest parity (FIP) and uncovered interest parity (UIP) presents a mystery.

Lecture 9: The World That Bagehot Knew

Lecture Notes
An international monetary system is more straightforward when there's an international monetary standard. In the 19th century, that standard was gold. What insights can we draw from Bagehot's time to apply to the globally financialized world of today?

Reading 4: Chapter VII of Lombard Street by Walter Bagehot

Study Questions
Bagehot rule. Though divided into an Issue Department and a Banking Department starting midway through the 19th century, the Bank of England managed the equivalent of a single centralized reserve through the second half of the 19th century. Connects up with Lecture 9.

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