THE FORCE OF FINANCE: FROM GLOBAL TO REGIONAL AND LOCAL FINANCIAL FLOWS Fikret ČAUŠEVIĆ The School of Economics and Business, University of Sarajevo The CBBiH – SEESOX, St Antony’s College High Level Workshop Sarajevo, 6 June 2014

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 2 BEGINNINGS OF CREATING A LARGE GAP BETWEEN FINANCIAL AND REAL FLOWS: THE CLINTON AND BUSH ADMINISTRATIONS

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 3 CHANGE IN THE US NOMINAL GDP AND NASDAQ INDEX: THE CLINTON ADMINISTRATION (Base indices: 1992=100)

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 4 CHANGE IN THE US NOMINAL GDP AND NASDAQ INDEX: THE BUSH ADMINISTRATION (Base indices: 2001=100)

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 5 CHANGE IN THE PRICE OF AVERAGE HOME IN THE UNITED STATES: (Base indices; 2000=100)

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 6 THE MINSKY CASE: FINANCIAL INSTABILITY HYPOTHESIS STABILIZING AN UNSTABLE ECONOMY

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 7 NOTIONAL VALUE OF OTC TRADED CONTRACTS IN FINANCIAL DERIVATIVES AND WORLD GDP (in trillions of USD)

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 8 TOTAL CLAIMS OF INTERNATIONALLY ACTIVE BANKS in trillions of USD

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 9 THE “NEW” FINANCIAL TRILEMMA The financial trilemma arises from the impossibility of satisfying simultaneously the three following goals: -Financial stability -The development of international banking -National systems of supervision and oversight of banking operations.

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 10 BASEL III IMPLEMENTATION EU BANK RECOVERY AND RESOLUTION DIRECTIVE (BRRD) FROM BAILING OUT TO BAILING IN WHAT IS HQLA IN THE WORLD OF TODAYS INTERNATIONAL FINANCE? VERY IMPORTANT ISSUES FOR ALL OF US

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 11 THE US PUBLIC DEBT AND GROSS DOMESTIC PRODUCT ( in trillions of USD )

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 12 CHANGE IN PUBLIC DEBT OF EURO-ZONE COUNTRIES: (in % of GDP) 60 % GDP 60 % GDP

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 13

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 14 MONEY – WHENCE IT CAME, WHERE IT WENT

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 15 CHANGE IN ASSETS OF THE FEDERAL RESERVE SYSTEM 31 December 2007 = 100

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 16 Rp = R* + [(R m – R*) / S m ] x S p PORTFOLIO AND CAPITAL MARKET: THEORY AND PRACTICE – HOW TO DIVERSIFY PORTFOLIO(s)? Ri = R* + [(R m – R*) (R im S i /S m )]

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 17 CHANGE IN THE DOW JONES INDUSTRIAL AVERAGE AND FINANCIAL TIMES STOCK EXCHANGE 30 June 2008 – 31 March 2013

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 18 CHANGE IN THE DOW JONES INDUSTRIAL AVERAGE AND DEUTSCHE AKTIEN INDEX (DAX) 30 June 2008 – 31 December 2013

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 19 CHANGE IN THE DOW JONES INDUSTRIAL AVERAGE AND DOW NIKKEI 225: 30 June 2008 – 31 December 2013

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 20 CHANGE IN THE DOW JONES INDUSTRIAL AVERAGE AND THE SHANGHAI SHENZEN CSI 30 June 2008 – 31 December 2013

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 21 ASSETS OF THE EUROZONE MONETARY FINANCIAL INSTITUTIONS A S S E T S January 2010 (billions of EUR) January 2012 (billions of EUR) January 2014 (billions of EUR) 1. Credit to general government Credit to other euro-zone residents Loans Bonds Shares and equities Net external assets Residual

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 22 CREDIT ACTIVITY OF THE BANKING SECTOR IN BOSNIA AND HERZEGOVINA - milions of KM YEAR Loans to enterprises Change in % Loans to households Change in % Loans to governments in BiH Change in % , , , , March , , June , , , Sept , , , Dec , , , July , , , Decembar , , , Source: The Central Bank of Bosnia and Herzegovina

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 23 STRUCTURING AND RESTRUCTURING PORTFOLIOS OF THE REGIONS SMALL OPEN ECONOMIES’ FOREIGN EXCHANGE RESERVES HAS BECOME A RATHER DIFFICULT TASK

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 24 EONIA: January March June September December

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 25 YIELDS ON TREASURY BILLS AND BONDS OF SELECTED EURO-ZONE COUNTRIES (in percents) Maturity GermanyFranceThe NetherlandsBelgium ’ ’ ’ ’ ’ ’ ’ ’14 3 mths mths year years years years years years years

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 26 OUTSTANDING LOANS OF SELECTED COUNTRIES IN EURO-ZONE AND THE WESTERN BALKANS WITH THE IMF – December 2013 Country’s quota in millions of SDR Outstanding loans in percents of the quota Greece 1, ,192 Portugal 1, ,913 Ireland 1, ,502 Bosnia and Herzegovina Macedonia, FYR Serbia Source: The International Monetary Fund -

Fikret Čaušević - The CBBiH- SEESOX St Antony's Workshop 27 EXTERNAL DEBT AND PUBLIC DEBT TO GDP RATIOS OF THE FORMER YUGOSLAV COUNTRIES AND ALBANIA – December 2013 C O U N T R Y External debt to GDP ratio (in %) Public debt to GDP ratio (in %) A B C D 8361 E 6733 F 6246 G 64 H 279