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Outline for 2011 T6 GEM FY Elective: Global Financial Markets
GBUS 7602a and 7602b
Instructor: Frank Warnock
2:45-4:10pm or 4:30-5:55pm
IN THIS CLASS, LAPTOPS MUST REMAIN CLOSED AND MOBILE DEVICES MUST BE PUT
AWAY.
•
Currencies that are allowed to float have moved sharply the past few
years. What explains recent currency movements, and what will the likely
directions be for the rest of 2011 and beyond?
• Long-term U.S. interest rates, near historical lows, have risen
sharply. What are the likely movements of
long-term rates in 2011 and 2012?
• Yield curves in many industrial countries have recently steepened
quite a bit, with the U.S. yield curve being about as steep as it ever
gets. Are we in for a sustained, strong global recovery, or are double-dip recessions
on the horizon?
• Are currency crises predictable?
• How do we think about commodities—especially oil and gold—as asset
classes? Where are gold and oil prices headed in 2011 and 2012?
• For an emerging market of your choosing (or mine), where are the
currency, bond rates, and equity prices headed over the next year?
In Global Financial Markets, we will tackle these issues and more. The
main objective is to develop the technical skills that enable students
to improve their understanding of current conditions—we
primarily use "real-time" cases and very current data—in global financial
markets, especially those for currencies and interest rates. We focus on
global financial markets, but because interest rates and exchange rates
are driven by, among other things, the state of the economy, and in turn
impact future economic performance, students can use this course to
solidify their knowledge of global economics.
Throughout, our thinking will be anchored in models—technical notes will
both elaborate on the models and help the students translate them into
actual data series—but our applications will be from the real world. The
anchoring in theory is important: In your careers you will come across
many ‘fad’ explanations for why the past didn’t turn out as planned or
why the future will be different. With the experience of applying a
small toolkit of theory to many situations, you will have the ability to
examine fad explanations—indeed, any explanation—within a tight logical
framework.
The course will include cases, technical notes, outside readings
from the Street and elsewhere, current data to analyze, and guest
discussion leaders. Your course grade will be 50% participation and 50%
final exam.
AGENDA IS SUBJECT TO
CHANGE. IF IT DOES, YOU WILL BE NOTIFIED.
Assignments
Class 1 (April 11)
Economics and Forecasts
Outlook 2011: A Pivotal Year Ahead (The Bank Credit Analyst,
62 (7))
Class 2 (April 12)
Long-term U.S. Interest Rates
The Determinants of Interest Rates (UVA-BP-0489);
Greenspan’s Conundrum and Bernanke’s Nightmare" (UVA-BP-0544
rev. March 2011);
How Dangerous is U.S. Government Debt? The Risks
of a Sudden Spike in U.S. Interest Rates? (CFR’s
Capital Flows Quarterly, 2010 Q2)
Class 3 (April 13)
The Information Content of the Yield Curve
The Determinants of Interest Rates (UVA-BP-0489), pages
9-13;
The Yield Curve
and Growth Prospects (UVA-GEM-0106 rev April 2011)
Class 4 (April 14)
Euro Area Divergence
Eurozone Convergence, Divergence...and Then What? (UVA-GEM-0107); Fairy Tales of the US Bond Market (Morgan Stanley);
Does the Treasury-Bund Spread Have the X-FAYRE Factor? (Morgan Stanley);
MS FAYRE Value Calculator.xls (Morgan Stanley)
Class 5 (April
18)
Parity Conditions as Predictors of Exchange Rate Movements?
Exchange Rate Models (UVA-BP-0496
rev May 2011); ERModels.xls
Class 6 (April 19)
The USD in the Long Run
Global Asset Allocation: Whither the U.S. dollar? (UVA-F-1591
rev. March 2011);
Two Myths about the U.S. Dollar (CFR’s Capital Flows Quarterly, 2010 Q3)
Class 7 (April 20)
The USD in the Short to Medium Term
Prospective Capital Flows and Currency Movements: U.S. Dollar v. Euro
(UVA-BP-0545 rev. April 2011)
Class 8 (April
21)
Currency Crises
Currency Crises in the UK and Hong Kong (UVA-GEM-draft)
Class 9 (April 25)
Commodities as an Asset Class: Gold
Global Asset Allocation: All That Glitters? (UVA-F-1646)
Class 10 (April 26)
FX Hedging
Hedging Currency Risks at AIFS (HBS 9-205-026)
Eurozone Debt Crisis
Virtual Guest Alan Ahearne (special advisor to Ireland's finance
minister, on the board of the Irish Central Bank)
Class 11 (April 27)
The USD
Guest Virtual Appearance by Marc Chandler (Global Head Currency Strategy, BBH)
Class 12 (April 28)
The USD in the Short to Medium Term
Guest: Jeremy Fand (FX Strategist, Tudor Investment Corp)
Class 13 (May 2)
Commodities as an Asset Class: Oil
Guest:
Trevor Reeve (Deputy Associate Director, Federal Reserve Board)
Global Asset Allocation:
Crude Calculations (UVA-F-1647)
Class 14 (May 3)
Country Presentations
Class 15 (May 4)
Country Presentations
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