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International Finance

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International Finance. Western Michigan University, Haworth College of Business ... Unemployment. Exports. Bankruptcy, non financial firms ... – PowerPoint PPT presentation

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Title: International Finance


1
International Finance
  • Good afternoon
  • Dobré odpoledne

2
International Finance
  • At end of each day PowerPoint slides placed on
    course web site.
  • Google homepages balik prague
  • http//homepages.wmich.edu/balik/VSE/

3
International Finance Today, 8.6.09
  • Lecture 1400 to 1550.
  • Break 1550 to 1610 (ask about topics).
  • Lecture 1610 to 1730
  • Research topics (1730 to 1800)

4
International Finance Tomorrow, 9.6.09
  • Lecture 900 to 1045.
  • Break 1045 to 1100.
  • Lecture 1100 to 1200
  • Break 1200 to 100
  • Lecture 100 to 300

5
International Finance
  • Robert Balik

6
International Finance
  • Robert Balik
  • First visit to Czech Republic in 1994
  • Fulbright Scholar at Silesian University 1995
    1996
  • Fulbright Specialist at Silesian University 2006
  • Attended conferences in Czech Republic 1998
    2004.

7
International Finance
  • Western Michigan University http//www.wmich.edu/

8
International Finance
  • Western Michigan University, Haworth College of
    Business
  • http//www.wmich.edu/business/

9
International Finance
  • Stryker, Headquarters, Kalamazoo, Michigan, USA
  • http//www.stryker.com/en-us/index.htm

10
International Finance
  • Linet, Slaný, Czech Republic, Manufactures
    Hospital Beds.
  • http//www.linet.com/

11
International Finance
  • Kalamazoo, Michigan, USA

12
International Finance
  • Kalamazoo, Michigan, USA

13
International Finance
  • Chicago Symphony Orchestra, Dvorák Festival
  • http//www.cso.org/main.taf?p3,11,6CategoryIDdv
    orakSeasonID0809

14
International Finance
  • Chicago Symphony Orchestra, Dvorák Festival

15
International Finance
  • Two parts
  • Classroom lectures (more than teacher talking)
  • Research paper
  • Grading
  • 50 based on lectures
  • 50 based on research paper

16
International Finance
  • Students
  • How many only 1 finance class?
  • How many 2 or more finance classes?
  • Students How many work 20 or more hours per
    week?

17
Education Big Picture
  • Learn discipline (economics, finance, marketing,
    etc)
  • Develop motivation to be a self learner. Why?
  • Skills needed change.
  • Will change type of job.
  • Have certain skills (for example computer).
  • Features of software program.
  • When to use these features.
  • How to design.

18
Education Role of teacher
  • Facilitator, points the direction.
  • More time grading and assisting than lecturing.
  • Motivate students.

19
Teacher, Facilitator, Blogs
  • BaselineScenario
  • http//baselinescenario.com/
  • Simon Johnson, Economics Professor, MIT, IMF
  • Economists View
  • http//economistsview.typepad.com/
  • Mark Thoma, Economics Professor, Oregon
  • The Conscience of a Liberal
  • http//krugman.blogs.nytimes.com/
  • Paul Krugman, Economics Professor, Nobel Prize,
    Princeton, Op-ed New York Times.

20
PowerPoint Does it make us stupid?
  • http//www.itsunderstood.com/docs/PowerPointMinife
    sto.pdf
  • http//www.kmentor.com/socio-tech-info/2004/01/doe
    s-powerpoint-make-us-stupid.html

21
Visualize Information Charts Tables
  • Stephen Few, Perceptual Edge
  • http//www.perceptualedge.com/

22
Research Paper
  • Choose topic
  • No later than tomorrow, 9.6.09
  • At least four complete pages (using double
    spacing and not counting page with references)
  • Draft no later than 2359 Monday, 15.6.09
  • Can discuss on Tuesday, 16.6.09, 900 to 1400
  • Deadline for final version is Saturday, 20.6.09
    (must submit grades by 22.6.09)
  • Paper format
  • Submit electronically
  • Use Microsoft Word 2003

23
Research Paper
  • Paper format See pdf file, link on course web
    site
  • Draft
  • Use Editor Serenity Software
  • Use tablet computer
  • Return three files
  • 2 from Editor
  • One Word
  • http//www.serenity-software.com/

24
Research Paper
  • Research
  • Can start with Wikipedia
  • Use google
  • Relate to issues discussed in class
  • Be consistent with what is discussed in class
  • Consult with teacher check e-mail.
  • 8.6.09 through 8.12.09 (Monday through Friday)
  • 16.6.09 (Tuesday)
  • 18.6.09 through 20.6.09 (Thursday through
    Saturday)

25
Research Paper
  • Research
  • Economic variables (start of 2007 and as current
    as possible in 2009)
  • GDP
  • Unemployment
  • Exports
  • Bankruptcy, non financial firms
  • Financial variables (start of 2007 and as current
    as possible in 2009)
  • Stock market
  • Exchange rate
  • Bankruptcy, financial firms
  • Interest rates

26
Research Paper Serenity Software
  • http//www.serenity-software.com/

27
Topics
  • Current Economic Financial Crisis How what
    happens in U.S.A. impacts Czech Republic (or
    other countries),
  • Current and future structure of financial
    institutions worldwide,
  • Recent financial innovations and their
    importance,
  • What role does finance play in international
    trade,
  • Marketing Financial Services. What should and
    what do financial institutions do to market their
    services,
  • http//homepages.wmich.edu/balik/VSE/

28
International Finance Background
  • What is your net worth?
  • What is the price of a financial asset?
  • What is a firms primary objective?
  • For large firms who are shareholders agents.
  • What is financial leverage?
  • What is operating leverage?
  • What is Modigliani-Miller theorem?

29
What is Modigliani-Miller theorem?
  • The basic theorem states that, in the
  • absence of taxes, bankruptcy costs,
  • and asymmetric information,
  • and in an efficient market,
  • the value of a firm is unaffected by how that
    firm is financed. It does not matter if the
    firm's capital is raised by issuing stock or
    selling debt. It does not matter what the firm's
    dividend policy is. Therefore, the
    Modigliani-Miller theorem is also often called
    the capital structure irrelevance principle.
  • http//en.wikipedia.org/wiki/Modigliani-Miller_the
    orem

30
International Finance Background
  • What is systematic risk?
  • What is systemic risk?

31
What is systemic risk?
  • Systemic risk is the risk of collapse of an
    entire financial system or entire market, as
    opposed to risk associated with any one
    individual entity, group or component of a
    system. It can be defined as "financial system
    instability, potentially catastrophic, caused or
    exacerbated by idiosyncratic events or conditions
    in financial intermediaries".
  • When did this almost happen? September 2008

32
What is Efficient Market Hypothesis?
  • Efficient-market hypothesis (EMH) asserts that
    financial markets are "informationally
    efficient", or that prices on traded assets
    (e.g., stocks, bonds, or property) already
    reflect all known information, and rapidly change
    to reflect new information. Therefore it is
    impossible to consistently outperform the market
    by using any information that the market already
    knows, except through luck. Information or news
    in the EMH is defined as anything that may affect
    prices that is unknowable in the present and thus
    appears randomly in the future.
  • http//en.wikipedia.org/wiki/Efficient_market_hypo
    thesis

33
What is a bubble?
  • Real estate bubble or property bubble (or housing
    bubble for residential markets) is a type of
    economic bubble that occurs periodically in local
    or global real estate markets. It is
    characterized by rapid increases in valuations of
    real property such as housing until they reach
    unsustainable levels relative to incomes and
    other economic elements.
  • Dont know until after.
  • http//en.wikipedia.org/wiki/Housing_bubble

34
What is an externality?
  • In economics, an externality or spillover of an
    economic transaction is an impact on a party that
    is not directly involved in the transaction. In
    such a case, prices do not reflect the full costs
    or benefits in production or consumption of a
    product or service. A positive impact is called
    an external benefit, while a negative impact is
    called an external cost.
  • One of greatest externalities Global warming.
  • http//en.wikipedia.org/wiki/Externalities

35
What is too big to fail?
  • Too Big to Fail policy is the idea that in
    economic regulation the largest and most
    interconnected businesses are "too big to let
    fail." This means that it might encourage
    recklessness since the government would pick up
    the pieces in the event it was about to go out of
    business. The phrase has also been more broadly
    applied to refer to a government's policy to bail
    out any corporation. It raises the issue of moral
    hazard in business operations.
  • Examples AIG, Citicorp.
  • http//en.wikipedia.org/wiki/Too_Big_to_Fail_polic
    y

36
What is moral hazard?
  • Moral hazard is the prospect that a party
    insulated from risk may behave differently from
    the way it would behave if it were fully exposed
    to the risk. In insurance, moral hazard that
    occurs without conscious or malicious action is
    called morale hazard.
  • Other issues
  • Information asymmetry
  • Principal agent
  • http//en.wikipedia.org/wiki/Moral_hazard

37
International Finance
  • Current Crisis
  • Ideas
  • Political (economic financial policies)
  • Financial
  • Economic

38
International Finance
  • What not to blame for crisis
  • Greed
  • Stupidity
  • Irresponsibility
  • Why? Always present

39
International Finance
  • Video
  • http//economistsview.typepad.com/economistsview/v
    ideo/
  • Joseph Stiglitz
  • Robert Solow
  • Robert Johnson
  • Title 100 Days and the Road Ahead
  • April 29, 2009
  • 26 minutes and 41 seconds

40
International Finance
  • Joke about economist
  • USSR
  • May day parade
  • Mikhail Gorbachev
  • Men in suits behind the last artillery pieces.
  • Who are they?
  • Our most powerful weapon.
  • Economist.
  • Have you seen the damage they can do?

41
International Finance
  • Illustration of what has happened
  • http//www.portfolio.com/news-markets/national-new
    s/portfolio/2008/11/11/The-End-of-Wall-Streets-Boo
    m

42
International Finance
  • The End
  • By Michael Lewis
  • Video
  • http//paul.kedrosky.com/archives/2009/01/29/video
    _michael_l.html
  • Importance of finance
  • Mention of Iceland
  • How to think about saving
  • 3 minutes and 15 seconds
  • Joke How to make a small fortune?
  • What questions to ask.

43
International Finance
  • Mikhail Gorbachev, Washington Post, 7.6.09
  • The "Washington Consensus," the dogma of free
    markets, deregulation and balanced budgets at any
    cost, was force-fed to the rest of the world.
  • But then came the economic crisis of 2008 and
    2009, and it became clear that the new Western
    model was an illusion that benefited chiefly the
    very rich.
  • http//www.washingtonpost.com/wp-dyn/content/artic
    le/2009/06/05/AR2009060501966.html

44
Crisis, Evidence, Anecdotes
  • In United States Chrysler, Ford and General
    Motors were frequently described as the Big
    Three.
  • Chrysler and General Motors have gone bankrupt.
  • Why not Ford?

45
Crisis, Evidence, Anecdotes
  • GM's application on June 1, 2009 for Chapter 11
    protection from its creditors, triggered the
    biggest industrial bankruptcy in history. Until
    2008, when it was overtaken by Toyota, GM was the
    world's biggest carmaker, producing well over 9
    million cars and trucks a year in 34 different
    countries. It has 463 subsidiaries and employs
    234,500 people, 91,000 of them in America, where
    it also provides health-care and pension benefits
    for 493,000 retired workers. In America alone, it
    spends 50 billion a year buying parts and
    services from a network of 11,500 vendors and
    pays 476 million in salaries each month
    (Economist)

46
Crisis, Evidence
http//www.voxeu.org/index.php?qnode/3421
47
Crisis, Evidence
http//www.voxeu.org/index.php?qnode/3421
48
Crisis, Evidence
http//www.voxeu.org/index.php?qnode/3421
49
Crisis, Evidence
http//www.voxeu.org/index.php?qnode/3421
50
Crisis, Evidence (continued previous page)
http//www.voxeu.org/index.php?qnode/3421
51
Crisis, Evidence
http//www.voxeu.org/index.php?qnode/3421
52
Crisis, Evidence (continued previous page)
http//www.voxeu.org/index.php?qnode/3421
53
Crisis, Evidence
http//www.voxeu.org/index.php?qnode/3421
54
Crisis, Evidence (continued previous page)
http//www.voxeu.org/index.php?qnode/3421
55
Crisis, Evidence, Response
http//www.voxeu.org/index.php?qnode/3421
56
Crisis, Evidence, Response
http//www.voxeu.org/index.php?qnode/3421
57
Crisis, Evidence, Response
http//www.voxeu.org/index.php?qnode/3421
58
International Finance
  • Simon Johnson
  • Professor MIT
  • Lecture
  • 2.12.08
  • Seminar Series Real Time Deep Dive into the
    Global Crisis as it Evolves
  • Europe
  • About 30 minutes
  • Starts at 37 minutes
  • http//mitsloan.mit.edu/newsroom/video-johnson.php

59
International Finance
  • Joseph Stiglitz
  • Nobel Prize Economics
  • Nobel Laureate Meetings at Lindau
  • August 2008
  • 49 minutes and 30 seconds
  • http//lindau-nobel.de/LecturesOnline.AxCMS?Active
    ID1173
  • Scroll down to Stiglitz lecture
  • Click on image to start video
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