Lecture 14

Lecture 14 - Lecture#14: Regulation of Capital Flows There...

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Lecture#14: Regulation of Capital Flows There are new faces of global finance: o Many new players (G20) o Many more international Banks (Chinese Banks, Swiss, etc) These banks have more international offices o Many more types of investments Stocks, Bonds, Mutual Funds, More derivatives, Loans, Currency You’ve multiplied the number of ways to invest o Technical Barriers are eliminated: Can occur at any volume and any speed o If you add these factors together, the sheet volume of money floating around the world. ~Currency Exchange and the “floating currency” is the reason for this. Speculative Attacks: o You can essentially force a currency to rise/drop by the use as another country as a peg. China has a low beg (low exchange rate to the dollar), so you can convert to Chinese money, and then to the Thai baht. o You can regulate trade, but you really cannot regulate currency exchange. Currently the exchange rate, and the type of currency, is based on the sovereignty of the individual country. o Pegged currencies arguably give China a comparative advantage, etc, but they help promote currencies that are not pegged. Tom Friedman and the Electronic Curve: Inward Investments o Investors can now invest into the stock markets into other countries. This creates a “heard” because international investors are just following the popular mass
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Lecture 14 - Lecture#14: Regulation of Capital Flows There...

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