International Finance, Econ 434 - PowerPoint PPT Presentation

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International Finance, Econ 434. Barry W. Ickes. World Headquarters. Global Losses in Context. World Financial Crisis. Worldwide Shock. Global Growth (in percent, quarter over quarter annualized). Industrial Production. World Industrial Output, Then and Now.

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International Finance, Econ 434

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International finance econ 434 l.jpg

International Finance, Econ 434

Barry W. Ickes

World headquarters l.jpg

World Headquarters

Global losses in context l.jpg

Global Losses in Context

World financial crisis l.jpg

World Financial Crisis

Worldwide shock l.jpg

Worldwide Shock

Barry W. Ickes

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Global Growth(in percent, quarter over quarter annualized)

Industrial production l.jpg

Industrial Production

World industrial output then and now l.jpg

World Industrial Output, Then and Now

Barry W. Ickes

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Our Stock Market, Then and Now

Barry W. Ickes

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World Stock Markets, Then and Now

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Volume of World Trade, Then and Now

Barry W. Ickes

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A Barbarous Relic?

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Pioneers of International Finance

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Core of our subject

  • Multiple fiat currencies

    • Gives rise to exchange rates

  • Facilitate international trade

  • Facilitate international risk sharing

    • Intertemporal trade

    • Gross flows are huge

  • Financial Crises are costly

    • And obviously they spillover across countries

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Gross Global capital flows relative to net flows

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World Financial Flows

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Value of World Capital Markets= 4 (World GDP)

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How Large is this?

  • Daily Forex turnover is $3.2 trillion

    • World GDP is about $54 trillion dollars per year

  • US GDP is $14.4 trillion per year

    • US exports = $1.97 trillion, imports = $2.67 trillion

      • Net exports = -$706 billion

        • By comparison total US investment in residential construction = $704 billion in 2006 before the housing bust

    • Federal government expenditure = $2.9 trillion

      • $566 billion is national defense

  • Why are foreign exchange flows so large, and what is their impact?

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Daily Forex Turnover

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  • Globalization is not new

  • But massive 2-way diversification differentiates the current from the earlier period of globalized capital markets.

    • Capital flows now from poor to rich countries

      • Why?

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Systems of International Finance

  • Bimetallism

  • Gold Standard

  • Gold Exchange Standard

  • Bretton Woods

  • Non-system

  • New Bretton Woods?

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  • Why do we use models?

    • Instructor is an _______

    • To simplify

    • To understand logically what we are talking about

    • To make testing possible

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  • Huge US Current Account Deficit

    • US uses most of world savings

  • What explains the value of the dollar?

  • Financial Crises

    • Large welfare losses

  • Optimal Currency Arrangements

    • Common currency areas, the euro

  • International Financial Architecture

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US Current Account Balance, billions of dollars

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Current Account Balance as share of GDP

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US Balance of Trade Since 1970

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Current Account and Net Foreign Wealth

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US Share of Global Savings

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Global Current Account Flows, 2005

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Current Account Balances by Regionpct of world GDP

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Current Account Balances by Region

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Currency Crises

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Argentine Crisis

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US and Argentine External Wealth

Why did the sharp decline in external wealth cause a currency crisis in Argentina but not (yet) in the US?

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Dollars per Euro

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US Dollar Index Against Major Currencies

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