This is the second edition of the internationally renowned textbook for undergraduate and MBA students in international finance, international monetary economics and international economics. It provides a comprehensive coverage of both traditional and modern theories relating to the balance of payments and exchange rate determination. Similarities and differences between the major theories are highlighted, and each theory is followed by a critical appraisal which examines its contribution, limitations and real-world relevance. An evaluation of the empirical evidence on the theories discussed is a major feature of the book. This edition is fully revised and updated with new material covering derivative instruments such as swaps, options and futures, as well as updated coverage of the Euromoney and Eurobond markets.