An Introduction to Global Financial Markets

References (71)

1. 9.4 Largest private equity firms, total funds raised, 2006-11
2. 9.6 Largest private equity transactions
3. 2013 11.2 sterling/dollar exchange rates, 1972-2014
4. 3 sterling/deutschmark exchange rates, 1960-2002
5. 4 Dollar/euro options terms 11.5 Central bank foreign exchange surveys: Daily foreign exchange dealing 12.1 Euro rates against eurozone currencies 12.2 Key characteristics of the eurozone and Eu, 2013 12.3 Timeline of events associated with eurozone debt crises, 2010-12 12.4 Legislation impacting on the Eu financial sector 12.5 structural indicators for Eu15 banking industry, 1985-2013
6. 1 xyz Ltd, call options, 27 March 13.2 xyz Ltd, call options, 27 March 13.
7. £1.80 and £2.00 calls for April, july and October 13.4 xyz Ltd call options, 6 june 13.5 Breaking down premium into intrinsic and time value for the july £1.80 strike call 13.6 Main stock index, options and futures markets in Europe 14.1 ICE futures Europe contracts -some examples 14.2 Top 30 derivatives exchanges, 2013 15.1 notional amounts outstanding of OTC derivatives by risk category and instrument in billions of dollars 15.2 Derivative instruments traded on organized exchanges, by instrument 16.1 stock market capitalization of EAGLEs and nest countries 16.2 size and ownership of China's equitized commercial banks 16.3 Top 20 Chinese banks by tier 1 capital, 2013 16.4 Top 20 Chinese banks by total assets, 2013 16.5 Foreign banks in China 2004-12
8. 6 Top 10 Indian banks by assets, 2013 16.7 Total premiums for life and non-life insurance, China and India, 2013
9. REFERENCES Allen, F., Babus, A., and Carletti, E. (2009) Financial crises: Theory and evidence, Annual Review of Financial Economics, 1, 97-116. Detailed analysis of financial crises from a theoretical and empirical standpoint.
10. Barclays Capital. (2011) Life Goes On: The European Stress Test, Barclays Capital Equity Research, 18 July. Brokers report on the performance of European banks and EBA stress tests.
11. Demirgüç-Kunt, A., Kane, E., and Laeven, L. (eds) (2008) Deposit Insurance Around the World, MIT Press, Cambridge, MA. Outlines the features of deposit insurance systems in developed and developing countries. European Central Bank (ECB). (2011) Financial Stability Review, June, Frankfurt, ECB. Analysis of the risks faced by eurozone countries as well as the EU.
12. Caprio, G., Demirgüç-Kunt, A., and Kane, E.J. (2008) The 2007 meltdown in structured securitization: Search- ing for lessons, not scapegoats, World Bank Policy Research Working Paper, WPS4756. Pros and cons of securitization.
13. Caprio, G., and Honohan, P. (2014) Banking crises, in Berger, A., Molyneux, P., and Wilson, J.O. (eds) The Oxford Handbook of Banking (2nd edn), OUP, Oxford. Excellent review of the banking crises by two distin- guished scholars.
14. Goddard, J.P., Molyneux, P., and Wilson, J.O. (2009a) The financial crisis in Europe: Evolution, policy responses and lessons for the future, Journal of Financial Regu- lation and Compliance, 17(4): 362-80. Review of the impact of the crisis in Europe.
15. Goddard, J.P., Molyneux, P., and Wilson, J.O. (2009b) Crisis in UK banking: Lessons for public policy, Public Money and Management, 29(5): 277-84. Review of the impact of the crisis in the UK.
16. Herring, R., and Carmassi, J. (2014) The corporate structure of international financial conglomerates: complexity and implications for safety and soundness, in Berger, A., Molyneux, P., and Wilson, J.O. (eds) The Oxford Handbook of Banking (2nd edn), OUP, Oxford. Review detailing the increased complexity of financial firms.
17. Lewis, M. (2010) The Big Short: Inside the Doomsday Machine, Allen Lane, London. The author (of Liar's Poker fame) approaches the problem of the banking collapse by talking to those clever enough to bet against the system and asking why they did it. Very clear, very revealing and even frightening, particularly the role of the rating agencies.
18. Litan, R.. and Bailey, M. (2009) Fixing Finance: A Road Map for Reform, Brooking Institution, Washington, DC. Proposals for reform of the financial system.
19. Milne, A. (2009) The Fall of the House of Credit, CUP, Cambridge. Racy insights into the credit collapse.
20. Philippon, T. (2009) An overview of proposals to fix the finan- cial system, www.voxeu.org/index.php?q=node/3076. More discussion on potential reform options for the financial system post crisis.
21. ▼ Figure 11.1 US dollar/UK pound rates,1971-2014 Source: Federal Reserve Bank of St Louis, stlouisfed.org, http://research.stlouisfed.org/fred2/series/ DEXUSUK/#.
22. Sterling/deutschmark exchange rates, 1960-2002 Month Year Sterling/deutschmark rate 1960 11.71 1980 4.23 Feb. 1987 2.85 July 1989 2.76 Oct. 1990 2.95 (ERM target)
23. Sept. 2002 3.13 (Equivalent -introduction of the euro) Source: Federal Reserve Bank of St Louis, stlouisfed.org.
24. REFERENCES BIS (Bank for International Settlements). (2013) Triennial Central Bank Survey of Foreign Exchange and Deriva- tives Market Activity, BIS, Basel. Definitive 3-yearly survey of the global foreign exchange market. BIS (Bank for International Settlements). (2010) Triennial Central Bank Survey of Foreign Exchange and Deriva- tives Market Activity, BIS, Basel. Definitive 3-yearly survey of the global foreign exchange market.
25. Euromoney FX Survey 2014, May, http://www.euromoney. com/Article/3338848/Euromoney-FX-survey-2014- results-revealed.html.
26. De Grauwe, P., and Decupere, D. (1992) Psychological Barri- ers in the Foreign Exchange Market, discussion paper no. 621, January, CEPR, London. Technical paper analysing behavioural features of the foreign exchange market. Pakko, M.R., and Pollard, P.S. (2003) Burgernomics: A Big Mac™ Guide to Purchasing Power Parity, Federal Reserve Bank of St Louis, St Louis. Classic explanation and analysis of the Big Mac index. Although the origins of the crisis are varied and complex, a number of factors have been identifi ed as major causes of the eurozone crisis, as shown in Box 12.5. Experiences vary from country to country, with Greece and Ireland being the worst aff ected. Ireland's problems, for instance, mainly emanated from the government's bailout of the banks that had lent excessively to property developers. In Greece, the problems emanated mainly from generous pensions and other welfare benefi ts that could not be 2008 2009 2010 2011 2012 2013 2014 2015
27. ▼ Table 12.3 Timeline of events associated with eurozone debt crises, 2010-12
28. Feb. 1992 Maastricht Treaty signed by 12 members of the European Community: establishes European Union (EU), commits members to 'irrevocable' monetary union. Convergence criteria include rules for public defi cit < 3% GDP, debt < 60% GDP.
29. Sept. 1992 ERM (European Exchange Rate Mechanism) crisis forces devaluations of Italian and UK currencies and later, Irish and Spanish currencies. When crisis threatens more counties in 1993, ERM is weakened by considerably widening bands in which exchange rates fl uctuate.
30. June 1997 Stability and Growth Pact (SGP), proposed by Germany, imposes fi nancial penalties on countries that violate 3% defi cit rule.
31. Jan. 1999 Euro becomes currency in Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain. ERM II replaces ERM.
32. Jan. 2001 Greece enters eurozone.
33. Nov. 2003 Germany and France announce that they have violated SGP defi cit rule.
34. Mar. 2005 EU fi nance ministers relax SGP defi cit rule.
35. Oct. 2009 New Greek government of PM George Papandreou announces defi cits have been much higher than reported.
36. Jan. 2010 EU report condemns 'severe irregularities' in Greek government's accounting, announces public defi cit in 2009 was 12.7% GDP.
37. Apr. 2010 EU revises Greece's 2009 public defi cit up to 13.6% GDP and Ireland's 2009 public defi cit up to 14.3% GDP. May 2010 EU and International Monetary Fund (IMF) provide €110 bn. rescue package for Greece. May 2010 EU establishes European Financial Stability Facility (EFSF) with initial capital guarantees of €440 bn. European Central Bank (ECB) launches Securities Market Program (SMP) to buy Greek, Irish, Portuguese bonds over the next 9 months.
38. Nov. 2010 EU and IMF provide €85 bn rescue package for Ireland.
39. Jan. 2011 Estonia enters eurozone.
40. May 2011 EU and IMF provide €78 bn rescue package for Portugal. July 2011 EU Summit starts to plan second rescue package for Greece, plans to force EU banks to accept 'voluntary' 50% haircut on Greek bonds.
41. Aug. 2011 ECB resumes SMP, buying Irish, Italian, Portuguese and Spanish bonds.
42. Nov. 2011 Greek PM George Papandreou resigns, replaced by Lucas Papademos. Italian PM Silvio Berlusconi resigns, replaced by Mario Monti. Papademos and Monti are 'technocrats' -not politicians.
43. Dec. 2011 ECB cuts repo rate (interest rate on repurchase agreements -loans to banks collateralized by bonds) to 1% per year and eases collateral rules.
44. Dec. 2011 - Mar. 2012 EU leaders negotiate treaty that includes new rules to control defi cits, signed by all EU members except the UK and Czech Republic in March. Treaty requires ratifi cation by at least 12 countries by 2013. Only countries that ratify treaty will be eligible for rescue packages.
45. Mar. 2012 EU and IMF fi nalize second Greek rescue package of €130 bn. Enough bond holders agree to 53.5% face-value haircut with restructuring that lengthens maturities and reduces interest payments (for a total haircut of 75%) to allow the Greek government to invoke CACs (collective action clauses) that force settlements on all bond holders. Th ese CACs are controversial because they were introduced retroactively by Greek government.
46. Source: Kehoe, T.J., Arellano, C., and J.C. Conesa. (2012) Chronic Sovereign Debt Crises in the Eurozone, 2010-12, Federal Reserve Bank of Minneapolis Economic Policy Papers, May 29, https://www.minneapolisfed.org/research/economic-policy-papers/chronic-sovereign-debt- crises-in-the-eurozone-20102012. FurtHer reading
47. Chisholm, A. (2004) Derivatives Demystified: A Step-by-Step Guide to Forwards, Futures and Options, John Wiley & Sons, New York. Introductory to intermediate guide to derivatives.
48. Hull, J.C. (2014) Options, Futures, and Other Derivatives (9th edn), Prentice Hall, Upper Saddle River, NJ. Classic but advanced text on derivatives products. An industry standard guide.
49. Dunsby, A., Eckstein, J., Gaspar, J., and Mulholland, S. (2008) Commodities Investing: Maximizing Returns Through Fundamental Analysis, John Wiley & Sons, New York. Investor guide focusing on commodity investment and derivative strategies. Intermediate text.
50. Fabozzi, F.J., Fuss, R., and Kaiser, D.G. (2008) The Hand- book of Commodity Investing, Frank J. Fabozzi Series, John Wiley & Sons, London. Advanced text outlining various derivative strategies in commodity markets.
51. REfERENCES Bank for International Settlements (BIS). (2009) 79th Annual Report (1 April 2008 to 31 March 2009) BIS, Basel. Provides excellent insight into global banking and financial markets, including derivative activity. Bank for International Settlements (BIS). (2014a) Semian- nual OTC Derivatives Statistics at end-June 2014, BIS, Basel. BIS statistics on OTC derivatives activity. Bank for International Settlements (BIS). (2014b) Statis- tics on Exchange Traded Derivatives, September, BIS, Basel. BIS statistics on exchange-traded derivative instruments. fURTHER READINg Chisholm, A. (2010) Derivatives Demystified: A Step-by-Step Guide to Forwards, Futures and Options (2nd edn), John Wiley & Sons, Chichester. Introductory to intermediate guide to derivatives.
52. Flavell, R. (2010) Swaps and Other Instruments (2nd edn), John Wiley & Sons, Chichester. Focuses on the pricing REFERENCES BBVA Research. (2012) EAGLEs Economic Outlook: Annual Report 2012, BBVA Research, Madrid. Reports on the prospects for the EAGLEs.
53. BBVA Research. (2014) EAGLEs Economic Outlook: Annual Report 2014, BBVA Research, Madrid. Reports on the prospects for the EAGLEs.
54. Bootle, R. (2003) Money for Nothing: Real Wealth, Finan- cial Fantasies and the Economy of the Future, Nicholas Brealey, London. Predictor of the crash in property and asset prices. Good on the impact of deflation.
55. Friedman, G., and Lebard, M. (1991) The Coming War with Japan, St Martin's Press, New York. Argues that post- Cold War economics and politics will lead to conflict between the US and Japan. International Monetary Fund (IMF). (2011, 2014) World Economic Outlook: Slowing Growth, Rising Risks, IMF, Washington, DC. Short-term forecasts for the global economic and financial system. KPMG. (2013) Mainland China Banking Survey, KPMG, China. Martin, M.F. (2012) China's Banking System: Issues for Congress Congressional Research Service Report for Congress, February 20, Washington, DC: Congress PricewaterhouseCoopers. (2014) Foreign Banks in China 2013, PwC, HK. Eighth review and survey of foreign banks operating in mainland China.
56. Swiss Re. (2014) World Insurance in 2013, Swiss Re, Zurich. Survey of global insurance markets, with facts and figures on insurance usage country by country.
57. Xing, Y. (2011) China's High-Tech Exports: Myth and Reality, National Graduate Institute for Policy Studies (GRIPS) Discussion Paper No. 11-05, SSRN: http://ssrn. com/abstract=1865013 orhttp://dx.doi.org/10.2139/ ssrn.1865013. FURTHER READING Avery, M., Zhu, M., and Cai, J. (eds) (2009) China's Emerging Financial Markets: Challenges and Global Impact, John Wiley & Sons, Singapore. Analysis of China's banking and financial system by leading bankers, businesspeo- ple and policymakers.
58. Shah, A., Thomas, A., and Gorham, M. (2008) India's Finan- cial Markets: An Insider's Guide to How the Markets Work, Elsevier, Amsterdam. Written by Indian finan- cial market practitioners, it looks at the pros and cons of investing in India.
59. REFERENCES Cox, W. (2014) Silver to Gold: What You Need to Know About Precious Metal Investing, Ashwood & Scott Publishing, London.
60. Davidson, P. (2009) The Keynes Solution: The Path to Global Economic Prosperity, Palgrave Macmillan, Basingstoke. Discussion of how we use Keynesian policy to get out of the economic mess caused by the credit crisis.
61. Furrer, B., Hoffman, V., and Swoboda, M. (2009) Banking & Climate Change: Opportunities and Risks, SAM Group Holding, Zurich. Covers an array of financial climate change-linked products and services.
62. Guttentag, J. (2007) Shortsighted About the Subprime Disas- ter, Washington Post, May 26, F02. Explains disaster myopia. Guttentag, J., and Herring, R.J. (1986) Disaster Myopia in International Banking, Essays in International Finance No. 164, Princeton University Press, Prince- ton, NJ. Insightful and detailed discussion of disaster myopia. Herring, R.J. (1999) Credit risk and financial instability, Oxford Review of Economic Policy, 15: 63-79. Inter- esting policy study review of credit risk issues in the financial sector. House of Lords. (2012) European Banking Union: Key Issues and Challenges, Report House of Lords (HL) Paper 88, 12 December 2012 HMSO, London.
63. Knight, F.H. (1921) Risk, Uncertainty, and Profit, Hart, Schaffner & Marx/Houghton Mifflin, Boston, MA. Classic study that distinguishes between risk, where a probability can be attached to an outcome, and uncer- tainty, where it cannot.
64. Saunders, A. (2014) Is Basel Turning Banks into Public Utilities. Available at SSRN: http://ssrn.com/abstract=2475627 or http://dx.doi.org/10.2139/ssrn.2475627
65. Skidelsky, R. (2009) Keynes: The Return of the Master, Penguin Allen Lane, New York. Classic insights into Keynesian views on financial crises by his pre-eminent biographer.
66. Stern, N. (2006) The Economics of Climate Change: The Stern Review, CUP, Cambridge. A report published by the UK government that examines the impact of global warming on the world economy.
67. TheCityUK. (2013) Islamic Finance, TheCityUK, London.
68. FURTHER READING DeYoung, R., Evanoff, D.D., and Molyneux, P. (2009) Mergers and acquisitions of financial institutions: A review of the post-2000 literature, Journal of Financial Services Research, 36(2): 87-110. Detailed review of the financial sector M&A literature.
69. Garmaise, M.J., and Moskowitz, T.J. (2006) Bank mergers and crime: the real and social effects of credit market compe- tition, Journal of Finance, 61: 495-538. Interesting study that correlates bank M&A activity with increased crime.
70. Hoepner, A.G., and Wilson, J.O. (2010) Social, environmen- tal, ethical and trust (SEET) issues in banking: An over- view. Available at http://papers.ssrn.com/sol3/papers. cfm?abstract_id=1686240. Detailed and interesting review of the SEET literature.
71. Maloney, M. (2008) Rich Dad's Advisors: Guide to Investing in Gold and Silver: Protect your Financial Future, Grand Central Publishing, New York. Guide to investing in gold and silver.