International Finance
Thursday
11 June 2009
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International Finance: Today, 11.6.09
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
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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.
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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/technologyfinance-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-chinesepuzzle-why-is-china-growing-with-other-exportpowerhouses-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-berestructured.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 trade
Political links in which exchange rates are closely
tied
Propensity of a herd mentality to develop among
investors
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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
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International Finance
Review, first lecture: Economic and Financial Crisis
• Role of ideas
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International Finance
Dĕkuji
konec
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