international finance wednesday 10 june 2009 1. international finance: today, 10.6.09 lecture: 9:00...

International Finance

Wednesday

10 June 2009

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International Finance: Today, 10.6.09

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: Tomorrow, 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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Current Events:• FT, 9.6.09, In April German exports:

4.8 % lower than March, 28.7 % below a year ago. Steepest since records

began in 1950• The eurozone needs to do more to shore up its banking

system in the wake of the financial crisis, the International Monetary Fund has warned in its annual health check of the European economy.

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Current Events:• Tawain: Bloomberg, 9.6.09: Overseas shipments fell

31.4% y/y in May, following a 34.3% drop in April, the ninth month of contraction. As imports fell even more (39.1%).• Tawain: Bloomberg, 9.6.09: Shipments to China fell

32.4% y/y, narrowing slightly from April. Exports to the U.S. declined 28% (33% in April). Sales to Europe fell 36.3% (37% in April).

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Current Events:• FT, 9.6.09: China is “actively considering” buying up to

$50bn of International Monetary Fund bonds, the country’s State Administration of Foreign Exchange has said.•NYTimes, 9.6.09: Arcandor (German Retail Group) had

said it would file for bankruptcy if it was denied state aid. The retailer needed government backing to renew credit lines worth up to 710 million euros ($985 million) by Friday.

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Review•Contagion versus Contago (normal backwardation).•Buying a CDS is like buying what type of option?•Why is notional value of CDS suspect?•What is difference between hedging and speculating?•What is a perfect hedge? Is it possible?•How can CDS impact bankruptcy?•Why would supplier to GM (in 08) buy a CDS?

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Review•Contagion versus Contago (normal backwardation).

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Video•Yale•14 April 2009•Richard Levin (President, Yale, Economic forecast)•Robert Shiller (Book: Animal Spirits)•John Geanakoplos (Leverage Cycle)•http://www.youtube.com/watch?v=ilApxQjhs_s

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Financial Institutions, Future:•Forces for larger size•Forces for smaller•Walmart in United States

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Financial Institutions, Future:•Role of technology•Examples of technology•Total number of people in the industry•Effect of expansion in BRIC Countries

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Innovation:•That make our lives easier (Credit & Debit cards, ATM)•Extending access to credit (CDS)

•Bernanke speech on innovation•Relate to regulation – similar to type of loans.

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Innovation (past):•Video• Start of Credit cards (MasterCard and Visa)•Kalamazoo, Michigan, USA• James A. Duncan Sr.• 1950s•Minutes: 22:30 to 31:00 discuss the creation of

MasterCard and Visa.• Link to video (may need to choose continue without

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International Finance: Trade

True/False questions, 1Trade on open account, with payment after or on delivery, is the standard way of doing business internationally among unrelated parties without an established business relationship, because this method of payment has proven its value in domestic trade.

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True/False questions, 1Trade on open account, with payment after or on delivery, is the standard way of doing business internationally among unrelated parties without an established business relationship, because this method of payment has proven its value in domestic trade.

Answer: False

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True/False questions, 2Under payment on or after delivery, most of the risks are borne by the exporter.

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True/False questions, 2Under payment on or after delivery, most of the risks are borne by the exporter.

Answer: True

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True/False questions, 3Under payment before shipment, the exporter bears only the risk of contract cancellation prior to shipment.

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True/False questions, 3Under payment before shipment, the exporter bears only the risk of contract cancellation prior to shipment.

Answer: True

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True/False questions, 4Suppose that, under payment upon delivery, the importer does not accept the goods. Then the exporter has no problem whatsoever, as he still is in possession of the goods.

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True/False questions, 4Suppose that, under payment upon delivery, the importer does not accept the goods. Then the exporter has no problem whatsoever, as he still is in possession of the goods.

Answer: False

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True/False questions, 5In international trade, there often is a relatively long time gap between production outlays and payment by the final customer. However, it does not generally matter who provides this working capital. In addition, this issue of how to finance working capital is entirely separable from the issue of how the payment is structured.

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True/False questions, 5In international trade, there often is a relatively long time gap between production outlays and payment by the final customer. However, it does not generally matter who provides this working capital. In addition, this issue of how to finance working capital is entirely separable from the issue of how the payment is structured.Answer: False, shipping goods back is expensive.

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True/False questions, 6If a firm does not have a hedging policy, the managers may insist on higher wages to compensate them for the risk they bear because part of their lifetime future wealth is exposed to exchange rate risk.

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True/False questions, 6If a firm does not have a hedging policy, the managers may insist on higher wages to compensate them for the risk they bear because part of their lifetime future wealth is exposed to exchange rate risk.

Answer: True

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General:•Web site•Incentives•Economic Forecast, end of year•Excel best practices•Job at financial institution•Evaluate portfolio of loans not 2 or 3 that are bad.•Rating agencies (conflict of interest)•Regulation: transparency and education

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international finance wednesday 10 june 2009 1. international finance: today, 10.6.09 lecture: 9:00...

Documents

credit cds bernanke

contago normal backwardation

credit cards mastercard

cds impact bankruptcy

financial crisis

credit lines worth

notional value of cds

german exports