Download presentation
Presentation is loading. Please wait.
1
INBU 4200: International Financial Management Professor Michael Palmer Leeds School of Business Fall Semester, 2010
2
The Environment of International Finance Background: When did the global financial crisis begin? Important regional and country by country variations to the current crisis: – Response of economies to the global credit crisis, the resulting recession, and the current cycle: – Economic growth rates (GDP) – Response of unemployment to recession – Response of Central Banks – Performance of financial markets to the global credit crisis and current cycle: – Bond Markets (yields and spreads) – Cross country differences in corporate debt costs – Flight to Safety (Risk Aversion) during the crisis – Policies and Attitudes of Governments – Fiscal policy debate today (stimulus versus debt reduction) – Attitudes of governments towards regulation of financial markets Changing nature of the foreign exchange market (1960s versus today)
3
Background: Global Credit Crisis (Peak in Oct 2008) TED Spread: 3 month Euro-dollar rate minus 3 month US T-bill rate (i.e., interbank spread over default free rate) Fed Funds Rate: Interbank Lending Rate in United States
4
Economic Response Varied from Country to Country U.S.: 3Q08 Marks the Beginning of a Recession China: Only a Slowdown in GDP Growth
5
Variation in Economic Growth Rates
6
G7 Countries During the Recession
7
Note, CIS refers to the former Soviet Republic (includes: Russia, Ukraine, Belarus, Georgia) Variation in Growth Rates Among Emerging Countries
8
Variation in Current GDP Growth Rates (% Change in GDP from previous quarter at annual rate) North America: – United States:+2.4% (2q) – Canada:+6.1% (2q) – Mexico:-1.4% (1q) Asia: – Japan:+0.4% (2q) – South Korea:+6.0% (2q) – China:+10.3 (2q) Europe: – Germany:+9.0% (2q) – Greece:-5.8% (2q) – Britain:+4.5% (2q)
9
Response of Unemployment During the Recession
10
Contrast of Central Bank Policies in the Current Cycle Quantitative Easing and Low Interest Rates Slowing Credit Growth and Raising Interest Rates
11
Differences in Central Bank Rates in the Current Cycle
12
Bond Market Responses to Central Bank Policies and Economic Outlook US: Low Bond Interest Rates Australia: High Bond Interest Rates
13
Cross Country Differences in Corporate Debt Costs 2000 (August 16) United States:7.42% Australia:7.59% Canada:7.00% Euro Area:6.21% Japan:2.37% Switzerland:4.65% United Kingdom:6.48% 2010 (August 19) United States:4.63% Australia:6.32% Canada:5.80% Euro Area:3.16% Japan:1.06% Switzerland:1.35% United Kingdom:5.55%
14
Flight to Safety (Risk Aversion): Impact on Government Yields
15
Flight to Safety (Risk Aversion): Impact on Exchange Rates Yen (JPY) throughout the Global Crisis: at a 15-year High Dollar (USD) during the Greek Crisis Against the Euro (EUR)
16
Bond Yields and Spreads Today Differences in Government Yields Yield Spreads in Europe, July 2010
17
Fiscal Policy and Regulation Issues Fiscal policy reactions: – United States versus Western Europe – Continued stimulus versus Debt reductions. U.K. Deficit: 10.3% of GDP (3.6% in 2008); U.S.: 8.8% of GDP (2.4% in 2008) Attitudes of governments towards regulation of financial markets: – United States/United Kingdom versus Continental Europe (Germany and France)
18
Changing Structure of the Foreign Exchange Market: The Yen (JPY) 1950 – 1970: Bretton Woods Era
19
Exchange Rates Today: The Yen 1971 – 2008, After Bretton Woods
20
Text Book: Madura 9 th Edition10 th Edition
Similar presentations
© 2024 SlidePlayer.com. Inc.
All rights reserved.