Part 2 finance class summer 2010 forum nexus

Brian David Butler Professor of international finance and global entrepreneurship with Forum-Nexus Study Abroad. Guest lecturer with the IQS Business School of the Ramon Llull University in Barcelona, and the Catholic University of Milan . Previously, Brian taught finance, economics and global trade courses at Thunderbird’s Global MBA program in Miami, and worked as a research analyst with the Columbia Business School in New York City. Brian currently lives in Recife, Brazil where he is teaching classes at the university Faculdade Boa Viagem . A global citizen, Brian was born in Canada, raised in Switzerland (where he attended international British school), educated through university in the U.S., started his career with a Japanese company, moved to New York to work as an analyst, married a Brazilian, and has traveled extensively in Latin America, Asia, Europe and North America. [email_address] LinkedIn/briandbutler Skype: briandbutler

Brian Butler is a specialist in international economic analysis, and is founder of the prestigious “GloboTrends“ ( www.globotrends.com ) online economics site, which has been featured as syndicated content on Nouriel Roubini’s RGE Monitor, Emerginvest.com, Business Week Exchange, Wikinvest.com, and other leading news outlets. http:// globotrends.pbworks.com / , http:// blog.globotrends.com /

Lecture Schedule* * Does not include professional visits, *Subject to change, modification without warning ,[object Object],[object Object],[object Object],[object Object],[object Object]

Observations while in Spain… ,[object Object],[object Object],[object Object],[object Object]

Questions from visits ,[object Object]

Team Project ,[object Object],[object Object],[object Object],[object Object]

Team Project ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Group Project, “The Euro Zone – before, during and after the Global Economic Crisis”

International Finance Intro… REVIEW FROM LAST WEEK…

Borrowing $$ abroad in foreign currency = RISKY Who remembers why?

What are the benefits of “International Finance”? What are 2-3 benefits?

Benefits of Global Finance ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

What are the dangers of “International Finance”? What are 2-3 dangers?

New currency hedging problem…

Terms you need to know…. ,[object Object],[object Object],[object Object],[object Object]

Risk - in foreign currency ,[object Object],[object Object],[object Object],[object Object],[object Object],0 6 mo. $R100k

Risk - in foreign currency ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],0 6 mo. $R100k

Risk - in foreign currency ,[object Object],[object Object]

Risk - in foreign currency ,[object Object],[object Object],[object Object]

Avoiding Risk ,[object Object],[object Object],[object Object]

Avoiding Risk – tools to use: ,[object Object],[object Object],[object Object],[object Object],[object Object]

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Core of our class: ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Review from last week … continued…

Commercial Banking (business model) ,[object Object],[object Object],[object Object]

Borrow short – Lend long* time T=0 10 20 30 years Your deposits = bank “borrowing” (LIABILITY for bank) = short term (you might take out tomorrow) Home Mortgages = bank “Lending” (ASSET for bank) = LONG term (30 yrs) … .. Inherently RISKY business model!!

Borrow Short ,[object Object],[object Object],[object Object],[object Object],Lend Long ,[object Object],[object Object],[object Object]

Banks Business model = fragile Borrow short, lend long Note: this is the HEART of the issue for why banks are “ fragile ” business models .

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Review: last week we discussed… ,[object Object],[object Object],[object Object],[object Object],[object Object]

Moral Hazard ,[object Object],[object Object]

Law of Un-Intended Consequences ,[object Object]

NY times article 1999… ,[object Object],[object Object],[object Object],[object Object],NY Times, “Fannie Mae Eases Credit To Aid Mortgage Lending”, By STEVEN A. HOLMES, September 30, 1999

NY times article 1999… ,[object Object],NY Times, “Fannie Mae Eases Credit To Aid Mortgage Lending”, By STEVEN A. HOLMES, September 30, 1999

NY times article 1999… ,[object Object],[object Object],NY Times, “Fannie Mae Eases Credit To Aid Mortgage Lending”, By STEVEN A. HOLMES, September 30, 1999

Review: Solvency v Liquidity – QUIZ last week ,[object Object],[object Object],[object Object],[object Object],[object Object]

Solvent : not Solvent ,[object Object],[object Object],[object Object],[object Object],Liabilities (Borrowing, debt) Equity ,[object Object],[object Object],[object Object],Liabilities (Borrowing, debt) Equity

Solvency v Liquidity ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Solvency v Liquidity ,[object Object],[object Object],[object Object]

Solvency v Liquidity Timeline ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Liabilities (Borrowing, debt) Equity

Solvency v Liquidity Timeline ,[object Object],[object Object],[object Object],[object Object],[object Object],Liabilities (Borrowing, debt) Equity

How about a “Liquidity” crisis? ,[object Object]

How about a “Liquidity” crisis? ,[object Object],[object Object],[object Object]

The trouble during the crisis… ,[object Object]

International Finance Pyramid of promises

What “promises”? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Martin Wolf, “Fixing Global Finance”… based on McKinsey “Mapping Global Capital Markets”, 2005

What “promises”? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Martin Wolf, “Fixing Global Finance”… based on McKinsey “Mapping Global Capital Markets”, 2005

Remember 2 dangers of international finance… ,[object Object],[object Object],[object Object]

Pyramid of Promises ,[object Object],[object Object],[object Object],Martin Wolf, “Fixing Global Finance”… based on McKinsey “Mapping Global Capital Markets”, 2005

Pyramid of “promises”? ,[object Object],Martin Wolf, “Fixing Global Finance”… based on McKinsey “Mapping Global Capital Markets”, 2005

Just how big is the MOUNTAIN of promises…? ,[object Object],data from McKinsey report 2005, " Mapping the global capital market " and http://www.federalreserve.gov/releases/ Martin Wolf, “Fixing Global Finance”… based on McKinsey “Mapping Global Capital Markets”, 2005

Size of Finance… ,[object Object],Martin Wolf, “Fixing Global Finance”… based on McKinsey “Mapping Global Capital Markets”, 2005

Size of Finance… ,[object Object],[object Object],Martin Wolf, “Fixing Global Finance”… based on McKinsey “Mapping Global Capital Markets”, 2005

Size of Finance… Martin Wolf, “Fixing Global Finance”… based on McKinsey “Mapping Global Capital Markets”, 2005

Martin Wolf, “Fixing Global Finance”… based on McKinsey “Mapping Global Capital Markets”, 2005

“ PYRAMID of Promises” ,[object Object],Martin Wolf, “Fixing Global Finance”… based on McKinsey “Mapping Global Capital Markets”, 2005

“ PYRAMID of Promises” ,[object Object],[object Object],[object Object],Martin Wolf, “Fixing Global Finance”… based on McKinsey “Mapping Global Capital Markets”, 2005

Underneath that “PYRAMID” ,[object Object],[object Object],[object Object],[object Object],Martin Wolf, “Fixing Global Finance”… based on McKinsey “Mapping Global Capital Markets”, 2005

Banking is fragile… ,[object Object],[object Object]

Series of Crises This is NOT the first one!!

Series of Crises ,[object Object],[object Object],Martin Wolf book, “Fixing Global Finance”

Series of Crises – 1990’s ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],http://globotrends.pbworks.com/history-of-economic-crisis-and-currency-devaluations

Spain Crisis, recovery, EU, Euro

Spain review ,[object Object],[object Object]

Discussion on Spain… ,[object Object],[object Object],[object Object]

Homework: ,[object Object],[object Object],[object Object],[object Object]

Part 2 finance class summer 2010 forum nexus

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