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International Finance Thursday 11 June 2009 1. International Finance: Today, 11.6.09 Lecture: 9:00 to 10:50 Break: 10:50 to 11:00 Lecture: 11:00 to 12:00.

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Presentation on theme: "International Finance Thursday 11 June 2009 1. International Finance: Today, 11.6.09 Lecture: 9:00 to 10:50 Break: 10:50 to 11:00 Lecture: 11:00 to 12:00."— Presentation transcript:

1 International Finance Thursday 11 June

2 International Finance: Today, Lecture: 9:00 to 10:50 Break: 10:50 to 11:00 Lecture: 11:00 to 12:00 Break: 12:00 to 1:00 Lecture 1:00 to 3:00 2

3 International Finance Reminder Will answer s send before 11:59, Friday, May not have access to from Saturday, through Monday, On Tuesday, in classroom from 9:00 to 14:00 Return to USA on Wednesday, Will have access to from Thursday, onward 3

4 International Finance Reminder Web site will remain up at least until end of year. Also, other links at my web site Link: 4

5 International Finance Review: Capital Structure theory Debt and equity For financial institutions need to look at amount of debt to equity and maturity mismatch What is maturity mismatch? What else? 5

6 International Finance Review: For smaller firms trading internationally what is usually used to facilitate a transaction ? 6

7 International Finance Issue: What type of economic system does China have? 7

8 International Finance Comment: When evaluating change in, say, GDP look both at level and change? 8

9 International Finance Current Events, FT, : Sweden’s central bank on Wednesday geared up for a possible Latvian devaluation by borrowing €3bn from the European Central Bank under an existing €10bn swap agreement. The move came as Sweden’s banking regulator said that the country’s banks – which dominate the Baltic banking sector – had a strong enough capital base to withstand a financial crisis there but that nevertheless they might have to raise more capital to calm the markets. 9

10 International Finance Current Events, FT, : Latvia’s currency crisis is a rerun of Argentina’s By Nouriel Roubini After a recent failed public debt auction, the authorities in Latvia are desperately trying to prevent a depreciation of the currency, the lat. The country’s predicament is similar to the one that faced Argentina in : a severe recession driven by global financial shocks, a sudden drying up of capital inflows and the need to reduce a large external deficit worsened by an unsustainable currency peg. 10

11 International Finance Current Events, FT, (continued): Latvia’s currency crisis is a rerun of Argentina’s By Nouriel Roubini As in Argentina, the IMF initially went along – somewhat uncomfortably – with the authorities’ strong preference for not letting the currency depreciate, in spite of its significant overvaluation. But a real exchange rate depreciation is necessary to restore the country’s competitiveness; in its absence, a painful adjustment of relative prices can occur only via deflation and a fall in nominal wages that will take too long and exacerbate the recession. 11

12 International Finance Current Events: The Wall Street Journal Europe Article: Latvia's Problems Prompt Worry About Contagion 6 June 2009 "It looks like a train wreck to me. It's a crazy idea," not to devalue, says Simon Johnson, a professor at the MIT and a former IMF chief economist. Link: 12

13 International Finance Recent Event (Global Financial Crisis, ): More than $250 billion in bad assets are poisoning the balance sheets of Austrian banks, a sum equal to more than 62% of the nation’s GDP. By way of comparison, if the admittedly shaky U.S. banks held toxic assets in the same ratio to GDP, this would equal $8.7 trillion dollars in bad assets. If America’s banking disaster was on the same scale as Austria’s, it would require a dozen TARP programs to cover the holes on the balance sheets. Link: 13

14 International Finance Current Events, FT, : Baseline Scenario, blog, linklink “There Were Ratings That We Saw That Made No Sense To Us.” One of the heroes is Mabel Yu, a buy-side bond analyst at Vanguard, who couldn’t get the rating agencies to explain the ratings they were giving to structured products – and therefore refused to recommend them internally at Vanguard. Who knew? Not only do you get lower costs at Vanguard, but better fund management, too? 14

15 International Finance Current Events, FT, : Baseline Scenario, blog, linklink Comment: Rafel La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, What Works in Securities Law, The Journal of Finance, Vol. 61, Authors examine 49 countries and “find little evidence that public enforcement benefits stock markets, but strong evidence that laws mandating disclosure and facilitating private enforcement through liability rules benefit stock markets.” 15

16 International Finance Two additional Blogs, the Brads: Brad Delong Grasping Reality with Both Hands Link: Sample link at blog: finance-bubbles-crashes/ finance-bubbles-crashes/ 16

17 International Finance Two additional Blogs, the Brads, continued: Brad Setser Follow the Money Link: Sample link at blog: puzzle-why-is-china-growing-with-other-export- powerhouses-arent/ puzzle-why-is-china-growing-with-other-export- powerhouses-arent/ 17

18 International Finance University of Chicago Web Site Bastion of idea that market is best regulator Web site: Understanding the economic crisis from a variety of points of view: University of Chicago faculty provide their perspectives. Link: Example: Stock Market Efficiency Link: 18

19 International Finance University of Chicago Web Where efficient markets idea started One of founders, Eugene Fama Video 57 th Annual Management Conference, Keyword: alpha (from Jensen’s alpha) Link: 19

20 International Finance Recommendation Audio, BBC Radio Michael Sandel Harvard Professor of Government Sandel considers the expansion of markets and how we determine their moral limits Lecture 1: Markets and Morality Link: 20

21 International Finance Recommendation Economist’s View Blog Joseph Stiglitz Too big to be restructured Includes comments Link: restructured.html#comments restructured.html#comments 21

22 International Finance Recommendation Baseline Scenario Blog Simon Johnson Large banks oligarchs Can small banks do the same? Link: 22

23 International Finance Review Worlds 50 largest banks 2007 Ranked by total assets Link: 23

24 International Finance Video Nouriel Roubini Economist, New York University Known as Dr. Doom St. Petersburg International Economic Forum June 4 – 6, 2009 Select Post-crisis financial architecture, Roubini at 11:31 Link: 24

25 International Finance Financial Contagion Refers to the transmission of a financial shock in one entity to other interdependent entities Why?  Financial links whereby two entities are connected through the international financial system  Real links such as competitive trade  Political links in which exchange rates are closely tied  Propensity of a herd mentality to develop among investors 25

26 International Finance Financial Contagion (continued) Examples  Mexican Crisis ( ),  The East Asian Crisis ( ),  Russian Crisis (1998). World Bank, Details, Link: 26

27 International Finance Video Michael Lewis Writer and once worked in investment banking CNN Interview 7 June 2009 Link: 27

28 International Finance Marketing Financial Services Need sales skills Some training Some your personality 28

29 International Finance Marketing Financial Services Wal-Mart Tried but failed to get bank in USA Successful in Mexico Link, Fortune, Link: 29

30 International Finance Marketing Financial Services Banks, Educating Customers, Link: PNC Bank, United States, Leading the way, Link: You Control Your Money Link: 30

31 International Finance Marketing Financial Services Banks, Video Kiosks, IBM, Link: Royal Bank Canada Link: 31

32 International Finance Marketing Financial Services Unicredito Italiano banking group acquired majority shareholdings in seven Central and Eastern European banks One was Živnostenska Banká Used Huthwaite, Attempted to integrate training and coaching with behavioural and cultural change Project champion Need management participation throughout How employees interacted with customers 32

33 International Finance Review, first lecture: Economic and Financial Crisis Role of ideas 33

34 International Finance Dĕkuji konec 34


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