Download VSE10June09

International Finance
Wednesday
10 June 2009
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International Finance: Today, 10.6.09
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: Tomorrow, 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
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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International Finance
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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International Finance
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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International Finance
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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International Finance
Review
•Contagion versus Contago (normal backwardation).
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International Finance
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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International Finance
Financial Institutions, Future:
•Forces for larger size
•Forces for smaller
•Walmart in United States
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International Finance
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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International Finance
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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International Finance
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
plugin)
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International Finance: Trade
True/False questions, 1
Trade 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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International Finance: Trade
True/False questions, 1
Trade 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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International Finance: Trade
True/False questions, 2
Under payment on or after delivery, most of the
risks are borne by the exporter.
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International Finance: Trade
True/False questions, 2
Under payment on or after delivery, most of the
risks are borne by the exporter.
Answer: True
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International Finance: Trade
True/False questions, 3
Under payment before shipment, the exporter
bears only the risk of contract cancellation prior to
shipment.
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International Finance: Trade
True/False questions, 3
Under payment before shipment, the exporter
bears only the risk of contract cancellation prior to
shipment.
Answer: True
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International Finance: Trade
True/False questions, 4
Suppose 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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International Finance: Trade
True/False questions, 4
Suppose 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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International Finance: Trade
True/False questions, 5
In 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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International Finance: Trade
True/False questions, 5
In 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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International Finance: Trade
True/False questions, 6
If 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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International Finance: Trade
True/False questions, 6
If 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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International Finance
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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