Global Econ
The last four readings are on global econ, rounding out the book. WIth touching thoughtfullness, though, the last lecture is mostly "optional," translated as, "useful perhaps for Level II, so let's wait until after the test to read it."
The first two readings are about trade,. the value of free trade, \Why Tariffs Are Baaaad, balance of payments, that sort of thing.
The second two are about exchange rates, and really could have been condensed into one. It's the return of actual math, with real equations and problems and everything. But if you've made it this far, the only equations that won't be obvious are interest rate (or inflation rate) parity and the bid-ask spread.
Even though the formula isn't obvious, the idea behind interest rate parity is. Basically, if I can get 5% on my dollars and 0% on my yen, by the end of the year, the yen will be worth 5% more vs. the dollar. Figuring out what goes on with exchange rates is about 75% guesswork and witchcraft, But within that other 25%, interest rate parity is about as close to ontological certainty as we can get.
The bid-ask spread is one of those practical things, but they make it much more difficult than it needs to be. Bssically, the rule of thumb is that you use whatever number is most advantageous for the bank, and least advantageous to you. Surprised? I thought not.
Suppose this is the bid-ask table for the dollar vs. the Hungarian Forint. The Forint isn't the most liquid currency in the world, so even though the bank shares office space with the local consulate, the spread's pretty big:
| Bid | Ask | |
| Direct $/F | 1.00 | 1.25 |
| Indirect F/$ | 0.80 | 1.00 |
The book would say that the rate that's used is the direct Ask and the indirect Bid. I would say that the bank's going to give you as few Forints for as many Dollars as it can. And vice-versa. For the bank, there's always an arbitrage opportunity. That way, when you get to the test and have to work out which is which, you can reason it out.