PRELIMINARY SYLLABUS INTERNATIONAL CAPITAL MARKETS SYLLABUS, SPRING 2019

Transcription

1 SLOAN SCHOOL OF MANAGEMENT MASSACHUSETTS INSTITUTE OF TECHNOLOGY PRELIMINARY SYLLABUS INTERNATIONAL CAPITAL MARKETS SYLLABUS, SPRING 2019 T,Th 10:00-11:30, E Professor Jonathan Parker Office: E Phone: Teaching assistant: Leonardo Elias Administrator: Jonathan Cowin Office: E Phone: Office hours are listed on Canvas Financial markets are global. Whether you work in a startup, a multinational, an investment bank, or do portfolio management, this course prepares you to invest and operate in global markets, including how to: Understand the international sections of the Economist, FT, and WSJ Identify determinants of returns and short-term drivers of exchange rates, as well as forecast their long-term trends Assess a country s growth prospects, sovereign risk, and monetary policy Understand the determinants of import and export competitiveness Hedge exchange rate risk, and manage through a currency crisis Develop international diversification and trading strategies, and manage financial operations across global markets This course is designed to give a working knowledge of the most essential components of international financial management, focusing on international financial markets, institutions, and instruments. The topics we cover include: drivers of international trade in goods, currencies, and financial assets; international financial instruments; hedging currency risk in theory and practice; determination of spot and forward exchange rates; international trading strategies; sovereign risk; and lessons of recent global financial crises. The class lectures are interactive and include discussion of current events. The class combines theoretical economic concepts and applied financial topics. We will make use of: Class lectures and discussions Guest speakers (renown asset managers or financial institutions managers) Handouts, traditional media, and finance blogs, as well as one core textbook Page 1 of 5

2 1B1 3B3B Publications from financial institutions and leading think-tanks Case studies (e.g. about currency crises, hedging, vulture funds) and problem sets 3B3BCourse Materials Class notes: Lecture notes will be available in class, and after class on the course website. Textbook: International Financial Management, by Geert Bekaert and Robert Hodrick, 3rd Edition, Cambridge University Press, There is a less expensive on-line version. Course reader: Contains case materials and additional required readings. Course website: will be maintained on Stellar, with links to non-textbook, readings. Class announcements, office hours, and problems and solutions will be posted here. Handouts: Additional readings and news articles handed out or posted on the course website; interesting international financial news may sidetrack us from our scheduled programming. BCourse Requirements and Grading A prerequisite for taking this course is or equivalent. Doing well in this course requires, in roughly equal parts: i) developing conceptual thinking about global markets, ii) learning the institutional and legal settings, and iii) understanding payoffs of different strategies and instruments. Grades will be computed as follows. Participation (25%): having read the assigned readings prior to class, being prepared to discuss them, participating, and not violating the class rules of conduct (below). Problems, written assignments, and case solutions (35%). Required assignments to be turned in with each case, and required exercises consisting of analytic and numerical questions that apply topics from the course. Address confusion about cases or exercises with your classmates or in office hours in real time well before the end of the class. Midterm (15%). In class March 14 th. Final exam (25%). As scheduled during Sloan exam period. Makeup exams are only given in unusual and exigent circumstances, and if arranged before the scheduled exam (except emergencies). Grades can be appealed in writing only, by submitting a statement explaining the mis-grading. The work will be irreversibly re-graded (possibly down). 4B5CReview sessions (voluntary) There are no weekly recitations for the course, but there will be one review session prior to the midterm conducted by the teaching assistant, and two review sessions prior to the final exam: one in-class the last week covering lectures and readings, and one on problem sets and solutions. Conduct The class will observe MIT start and end times, and none of us should arrive late, leave early, or come and go during class. During class, nametags are to be displayed and the class should receive our full attention. As per Sloan policy, cellphones must be turned off, and laptops and PDAs closed. Students may receive permission to be absent, arrive late, or leave early, with advance notice and a valid reason. The class will follow MIT's policy on religious observances, but please clear any conflicts in advance, particularly for issues beyond MIT standard policies. Sloan Values You are responsible for upholding Sloan s mission, values and code of conduct. There is no tolerance for cheating and plagiarism. If you have any ambiguity about what is permissible, ask Page 2 of 5

3 Course Outline I. Introduction to global capital markets; what drives globalization, global interest rates, and capital flows? Multinational corporations, global market participants, international goods markets, international financial markets, globalization as a risk factor, benefits of international trade, comparative advantage, balance of payments accounting, international capital flows, the determination of global rates of return BH: Chapters 1 and 4 Teaching note on national saving and investment Bernanke, Ben The Global Saving Glut and the U.S. Current Account Deficit, Sandridge Lecture, Virginia Association of Economics, Richmond, VA, 2005; Ben S. Bernanke, Why are interest rates so low? Parts 1 4, Brooking Institution Blog, March - April 2015 Stanley Fischer, Why Are Interest Rates So Low? Causes and Implications Speech at the Economic Club of New York, Oct 17, 2016 A paradigm shift in markets? BIS Quarterly Review, December 2016 In class debates: Why are global interest rates so low? II. III. Feb Guest Lecture Lisa E. Mattingly, Director of Research, Global Asset Allocation at Fidelity Investments Global asset allocation and the global economy today Currencies and exchange rates Bid-ask spreads, market structure, triangular arbitrage, real exchange rates, exchange rate systems, what is a currency, the role of central banks BH Chapters 2, 5, 8.9 Dagfinn Rime and Andreas Schrimpf, The anatomy of the global FX market through the lens of the 2013 Triennial Survey BIS Quarterly Review, Dec 2013 Michael Moore, Andreas Schrimpf and Vladyslav Sushko, Downsized FX markets: causes and implications BIS December 2016 Chapter 5, Money and Inflation in Mishkin, Frederic, Macroeconomics: Policy and Practice, Addison Wesley, 2012 Velde, François R. Bitcoin: A primer Chicago Fed Letter, December 2013 In class debate: is Bitcoin a currency? IV. Exchange rate determination Page 3 of 5

4 Purchasing power parity, determinants of supply and demand and long-run dependence on productivity and inflation, BH: chapter 8 The Big Mac Index: Optional readings: Lane, Patrick, Currency Comeback: Why the financial crisis helps the dollar The Economist, November Angelo Ranaldo and Paul Söderlind, Safe Haven Currencies Review of Finance V. March 15: Midterm VI. Exchange Rate Investment Strategies Covered and uncovered interest rate parity conditions, the carry trade BH: chapters 6 and 7 Gyntelberg, Jacob and Andreas Schrimf, FX strategies in periods of distress, BIS Quarterly Review December 2011 Data analysis: exchange rate trading strategies Optional readings: Burnside, Eichenbaum, and Rebelo, Carry Trade and Momentum in Currency Markets, NBER Working Paper 16942, April 2011 VII. Global equity investing Global diversification, global equity investments strategies BH: chapter 13 In class data analysis: global equity market trading strategies Andrew Ang, Asset Management, Chapter 3, Mean Variance Investing VIII. IX. April 10: Guest speakers: Ed Bullister, Director of Reseach, and David Souza, Portfolio Manager, P/E Investments Exchange rate risk in portfolio management TBA Exchange Rate Forecasting Forecasting exchange rates, exchange rate volatility BH Chapter Page 4 of 5

5 X. Managing exchange rate risk Hedging with exchange forwards, exchange rate swaps, and exchange rate futures BH Chapters 3, 9, 17, and 20 Case: Hedging at AIFS XI. XII. April 26: Guest speaker Arvind Rajan, Managing Director, Head of Global and Macro, PGIM Fixed Income, Prudential Financial Emerging market investments and emerging market debt TBA Currency crises: country analysis, financial, banking, and sovereign risks Currency risks and opportunities in fixed exchange rate regimes, exchange rate regimes, government intervention, optimal currency areas, speculative attacks, fundamental country analysis, sovereign crises BH: chapters 10.5, 14 Mathias Drehmann, Total credit as an early warning indicator for systemic banking crises BIS Quarterly Review, June 2013 Case: Capital Controls in Chile in the 1990s(A) and (B), HBS case Case: Creditor Activism in Sovereign Debt: Vulture or Market Backbone? HBS case XIII. May 15 Guest speaker: Sadeq Sayeed, Chairman, Metage Capital Limited: Global asset allocation and the financial crisis TBA Page 5 of 5