International Finance

Thursday

11 June 2009

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International Finance: Today, 11.6.09

Lecture: 9:00 to 10:50Break: 10:50 to 11:00Lecture: 11:00 to 12:00Break: 12:00 to 1:00Lecture 1:00 to 3:00

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International Finance

Reminder•Will answer e-mails send before 11:59, Friday, 12.6.09•May not have access to e-mail from Saturday, 13.6.09

through Monday, 15.6.09•On Tuesday, 16.6.09 in classroom from 9:00 to 14:00•Return to USA on Wednesday, 17.6.09•Will have access to e-mail from Thursday, 18.6.09

onward

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International Finance

Reminder•Web site will remain up at least until end of year.•Also, other links at my web site• Link: http://homepages.wmich.edu/~balik/

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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?

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International Finance

Review:• For smaller firms trading internationally what is usually

used to facilitate a transaction?

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International Finance

Issue:•What type of economic system does China have?

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International Finance

Comment:•When evaluating change in, say, GDP look both at level

and change?

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International Finance

Current Events, FT, 10.6.09:• 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.

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International Finance

Current Events, FT, 11.6.09:• 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 2000-01: 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.

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International Finance

Current Events, FT, 11.6.09 (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

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: http://online.wsj.com/article/SB124425206128990897.html

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International Finance

Recent Event (Global Financial Crisis, 8.3.09):•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: http://www.globaleconomiccrisis.com/blog/archives/tag/austria-financial-crisis

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International Finance

Current Events, FT, 11.6.09:•Baseline Scenario, blog, link• “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?

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International Finance

Current Events, FT, 11.6.09:•Baseline Scenario, blog, link• Comment: Rafel La Porta, Florencio Lopez-de-Silanes,

Andrei Shleifer, What Works in Securities Law, The Journal of Finance, Vol. 61, 2006. 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.”

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International Finance

Two additional Blogs, the Brads:•Brad Delong•Grasping Reality with Both Hands• Link: http://delong.typepad.com/• Sample link at blog: http://www.ritholtz.com/blog/2009/06/technology-finance-bubbles-crashes/

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International Finance

Two additional Blogs, the Brads, continued:•Brad Setser• Follow the Money• Link: http://blogs.cfr.org/setser/• Sample link at blog: http://blogs.cfr.org/setser/2009/06/09/the-chinese-puzzle-why-is-china-growing-with-other-export-powerhouses-arent/

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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: http://news.uchicago.edu/news.php?asset_id=1445• Example: Stock Market Efficiency• Link: http://www.becker-posner-blog.com/archives/2009/04/is_the_stock_ma.html

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International Finance

University of Chicago Web•Where efficient markets idea started•One of founders, Eugene Fama•Video• 57th Annual Management Conference, 29.5.09•Keyword: alpha (from Jensen’s alpha)• Link: http://www.chicagobooth.edu/mc/2009/2009coverage.aspx?video=special

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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: http://www.bbc.co.uk/programmes/b00kt7sh

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International Finance

Recommendation• Economist’s View Blog• Joseph Stiglitz• Too big to be restructured• Includes comments• Link: http://economistsview.typepad.com/economistsview/2009/06/too-big-to-be-restructured.html#comments

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International Finance

Recommendation•Baseline Scenario Blog• Simon Johnson• Large banks oligarchs• Can small banks do the same?• Link: http://baselinescenario.com/2009/06/08/small-bank-big-trouble/

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International Finance

Review•Worlds 50 largest banks•2007•Ranked by total assets•Link: http://spreadsheets.google.com/pub?key=phNtm3LmDZEOoyu8eDzdSXw

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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: http://forumspb.com/eng/search/?type=video&search=roubini&x=0&y=0

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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 tradePolitical links in which exchange rates are closely

tiedPropensity of a herd mentality to develop among

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International Finance

Financial Contagion (continued)• Examples

Mexican Crisis (1994-95),The East Asian Crisis (1997-98),Russian Crisis (1998).

•World Bank, Details, Link: http://www1.worldbank.org/economicpolicy/managing%20volatility/contagion/index.html

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International Finance

Video•Michael Lewis•Writer and once worked in investment banking• CNN Interview• 7 June 2009• Link: http://us.cnn.com/video/#/video/us/2009/06/07/gps.michael.lewis.int.cnn

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International Finance

Marketing Financial Services•Need sales skills• Some training• Some your personality

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International Finance

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

http://money.cnn.com/2008/01/28/news/international/walmart_bank.fortune/index.htm

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International Finance

Marketing Financial Services•Banks, Educating Customers, • Link: http://financialiteracy.com/Resources/Links/BankLinks.aspx

• PNC Bank, United States, • Leading the way, • Link: http://pnc.financialliteracy101.org/home/resources/modules/fl_intro.cfm

• You Control Your Money• Link: http://www.controlyourmoney.org/

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International Finance

Marketing Financial Services•Banks, Video Kiosks, • IBM,• Link: http://www.banktech.com/channels/showArticle.jhtml?articleID=208700730

•Royal Bank Canada• Link: http://econpapers.repec.org/article/eeejomega/v_3a26_3ay_3a1998_3ai_3a4_3ap_3a523-539.htm

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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, www.huthwaite.co.uk•Attempted to integrate training and coaching with

behavioural and cultural change• Project champion•Need management participation throughout•How employees interacted with customers 32

International Finance

Review, first lecture: Economic and Financial Crisis•Role of ideas

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International Finance

Dĕkuji

konec

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