Gfedu slides economics

www.gfedu.net Economics 2017CFA二级培训项目 讲师：单晨玮 1-108 www.gfedu.net Topic Weightings in CFA Level II Content Session NO Weightings Study Session 1-2 Ethics & Professional Standards 10-15 Study Session Quantitative Methods 5-10 Study Session Economic Analysis 5-10 Study Session 5-6 Financial Statement Analysis 15-20 Study Session 7-8 Corporate Finance 5-15 Study Session 9-11 Equity Analysis 15-25 Study Session 12-13 Fixed Income Analysis 10-20 Study Session 14 Derivative Investments 5-15 Study Session 15 Alternative Investments 5-10 Study Session 16-17 Portfolio Management 5-10 2-108 www.gfedu.net Framework SS4 Economics for Valuation R13 Currency exchange rate: Economic Analysis determination and forecasting R14 Economic Growth and investment decision R15 Economics of Regulation 3-108 www.gfedu.net Reading 13 Currency exchange rate: determination and forecasting 4-108 www.gfedu.net Framework Currency Exchange Rates Spot Rate And Forward Rate Bid-Ask Spread Cross Rate Triangular Arbitrage Forward Discount And Premium Mark-to-market value The International Parity Relationships Balance-of-Payments Accounts 10 FX Carry Trade 11 Exchange Rate Determination Models 5-108 www.gfedu.net Currency Exchange Rates Warm-up  Exchange rate is simply the price or cost of units of one currency in terms of another  Nominal exchange rate: the price that we observe in the marketplace for foreign exchange  Real exchange rate: the focus shifts from the quotations in the foreign exchange market to what the currencies actually purchase in terms of real goods and services  FX real(d/f) = FX nominal (d/f) *CPIf/CPId  Changes in real exchange rates can be used when analyzing economic changes over time  When the real exchange rate (d/f) increases, exports of goods and services have gotten relatively less expensive to foreigners, and imports of goods and services from the foreign country have gotten relatively more expensive over time 6-108 www.gfedu.net Currency Exchange Rates  Example: At a base period, the CPIs of the U.S and U.K are both 100, and the exchange rate is $1.70 per euro Three years later, the exchange rate is $1.60 per euro, and the CPI has risen to 110 in the U.S and 112 in the U.K What is the real exchange rate?  Solution: The real exchange rate is $1.60 per euro * 112/110 = $1.629 per euro 7-108 www.gfedu.net Currency Exchange Rates Warm-up: FX Appreciation and Depreciation  Example: the dollar-Swiss franc rate increase from USD: CHF = 1.7799 to 1.8100 The Swiss franc has depreciated relative to the dollar– it now takes more Swiss francs to buy a dollar  An increase in the numerical value of the exchange rate means that the base currency has appreciated and that the price currency depreciated  1.7799CHF/USD to 1.8100CHF/USD  USD appreciated therefore CHF depreciated 8-108 www.gfedu.net Spot Rate And Forward Rate  Spot rates are exchange rates for immediate delivery of the currency  Spot markets refer to transactions that call for immediate delivery of the currency In practice, the settlement period is two business days after the trade date  Forward rates are exchange rates for currency transactions that will occur in the future  Forward markets are for an exchange of currencies that will occur in the futures Both parties to the transaction agree to exchange one currency for another at a specific future date 9-108 www.gfedu.net Bid-Ask Spread  The spread on a foreign currency quotation  The bid price is smaller and listed first It is the price the bank/dealer will pay per FC unit  The ask price is higher and always listed second It is the price at which the bank will sell a unit of FC  The difference between the offer and bid price is called the spread Spreads are often stated as ‘pips’  Example: the euro could be quoted as $1.4124-1.4128 The spread is $0.0004 (4 pips)  The spread on a forward foreign currency quotation  Consider a 6-month (180 days) forward exchange rate quote from a U.S currency dealer of GBP:USD = 1.6384 / 1.6407 spread = (1.6407 – 1.6384) = 0.0023 (23 pips) 10-108 www.gfedu.net Convergence Hypotheses  Whether productivity, and hence, living standards tend to converge over time  Absolute convergence hypothesis  Less developed countries will achieve equal living standards over time  Conditional convergence hypothesis  Convergence in living standards will only occur for countries with the same savings rates, population growth rates, and production functions  Club convergence hypothesis  Countries may be part of a ‘club’ (i.e., countries with similar institutional features such as savings rates, financial markets, property rights, health and educational services, etc.)  Countries can ‘join’ the club by making appropriate institutional changes Those countries that are not part of the club may never achieve the higher standard of living  Increased markets for domestic products, resulting in economies of scale 94-108 www.gfedu.net Expected Impact of Removing Trade Barriers  Benefit  Increased investment from foreign savings  Allows focus on industries where the country has a comparative advantage  Increased markets for domestic products, resulting in economies of scale  Increased sharing of technology and higher total factor productivity growth  Increased competition leading to failure of inefficient firms and reallocation of their assets to more efficient uses  The neoclassical model’s predictions in an open economy (i.e., an economy without any barriers to trade or capital flow) focus on the convergence  The endogenous growth model also predicts greater growth with free trade and high mobility of capital since open markets foster increased innovation 95-108 www.gfedu.net Reading 15 Economics of Regulation 96-108 www.gfedu.net Framework Classifications of Regulations And Regulators Types of Regulators Economic Rationale for Regulatory Intervention Regulatory Interdependencies Tools of Regulatory Intervention Regulating Commerce And Financial Markets Antitrust Regulation Cost Benefit Analysis of Regulation 97-108 www.gfedu.net Classifications of Regulations And Regulators  Regulations  Statutes: laws made by legislative bodies  Administrative regulations: rules issued by government agencies or other bodies authorized by the government  Judicial law: findings of the court  Regulators  Independent regulators are given recognition by government agencies and have power to make rules and enforce them, but not funded by the government and hence are politically independent  Some independent regulators are self-regulating organizations (SROs) that regulate as well as represent their members Not all SROs are independent regulators (i.e., have government recognition) Also, not all independent regulators are SROs  SROs may have inherent conflicts of interest  Outside bodies are not regulators themselves but their product is referenced by regulators 98-108 www.gfedu.net Types of Regulators Regulators Government Independent Outside agencies regulators bodies SROs Non-SROs 99-108 www.gfedu.net Uses of Self-Regulation in Financial Markets  SROs without government recognition are not considered regulators  The use of independent SROs in civil-law countries is not common; in such countries, formal government agencies fulfill the role of SROs  In common-law countries such as the U.K and the United States, independent SROs have historically enjoyed recognition 100-108 www.gfedu.net Economic Rationale for Regulatory Intervention  Informational frictions occur when information is not equally available or distributed  A situation where some market participants have access to information unavailable to others is called information asymmetry  Externalities deal with the consumption of public goods  A public good is a resource, like parks or national defense, which can be enjoyed by a person without making it unavailable to others  Since people share in the consumption of public goods but don’t necessarily bear a cost that is proportionate to consumption, regulations are necessary to ensure an optimal level of production of such public goods 101-108 www.gfedu.net Regulatory Interdependencies  Regulatory capture theory  A regulatory body will be influenced or even possibly controlled by the industry that is being regulated  The rationale is that regulators often have experience in the industry, and this affects the regulators' ability to render impartial decisions  Regulatory competition  Regulators compete to provide the most business-friendly regulatory environment  Regulatory arbitrage  Occurs when businesses shop for a country that allows a specific behavior rather than changing the behavior  Regulatory arbitrage also entails exploiting the difference between the economic substance and interpretation of a regulation  To avoid regulatory arbitrage, cooperation at a global level to achieve a cohesive regulatory framework is necessary  Even within a country, there may be a conflict between the objectives of different regulatory bodies 102-108 www.gfedu.net Tools of Regulatory Intervention  Price mechanisms Price mechanisms such as taxes and subsidies can be used to further specific regulatory objectives  Restricting/requiring certain activities Regulators may ban certain activities (e.g., use of specific chemicals) or require that certain activities be performed (e.g., filing of 10-k reports by publicly listed companies) to further their objectives  Provision of public goods or financing of private projects Regulators may provide public goods (e.g., national defense) or fund private projects (e.g., small business loans) depending on their political priorities and objectives 103-108 www.gfedu.net Regulating Commerce And Financial Markets  Regulating commerce  To facilitate business decision making Examples of regulations covering commerce include company laws ,tax laws, contract laws, competition laws, banking laws, bankruptcy laws, and dispute resolution systems  Regulating financial markets  Regulation of securities markets  Disclosure requirements  Mitigating agency problem  Protecting small (retail) investors  Regulation of financial markets  Prudential supervision refers to the monitoring and regulation of financial institutions to reduce system-wide risks and to protect investors  The cost-benefit analysis of financial market regulations should also include hidden costs 104-108 www.gfedu.net Antitrust Regulation  Antitrust laws work to promote domestic competition by monitoring and restricting activities that reduce or distort competition  When evaluating an announced merger or acquisition, an analyst should consider the anticipated response by regulators as part of the analysis 105-108 www.gfedu.net Cost Benefit Analysis of Regulation  Regulatory burden (also known as government burden) refers to the cost of compliance for the regulated entity Regulatory burden minus the private benefits of regulation is known as the net regulatory burden  Regulators should be aware of unintended consequences of regulations  Many regulatory provisions include a ‘sunset clause’，that requires regulators to revisit the cost-benefit analysis based on actual outcomes before renewing the regulation 106-108 www.gfedu.net Effects of A Specific Regulation  Regulations can help or hinder a company or industry  Regulations may shrink the size of one industry (e.g., if it is heavily taxed) while increasing the size of another (e.g., an industry receiving subsidies)  Regulations are not necessarily always costly for those that end up being regulated  Regulations may introduce inefficiencies in the market  Some regulations may be specifically applicable to certain sectors while others may have broad implications affecting a number of sectors 107-108 www.gfedu.net It’s not the end but just beginning Your life can be enhanced, and your happiness enriched, when you choose to change your perspective Don't leave your future to chance, or wait for things to get better mysteriously on their own You must go in the direction of your hopes and aspirations Begin to build your confidence, and work through problems rather than avoid them Remember that power is not necessarily control over situations, but the ability to deal with whatever comes your way 一旦变换看问题的角度，你的生活会豁然开朗，幸福快乐会接踵而来。别交 出掌握命运的主动权，也别指望局面会丌可思议的好转。你必须不内心希望不热 情步调一致。建立自信，敢于不困难短兵相接，而非绕道而行。记住，力量丌是 驾驭局势的法宝，无坚丌摧的能力才是最重要的。 108-108 ... 2-108 www .gfedu. net Framework SS4 Economics for Valuation R13 Currency exchange rate: Economic Analysis determination and forecasting R14 Economic Growth and investment decision R15 Economics. .. investment decision R15 Economics of Regulation 3-108 www .gfedu. net Reading 13 Currency exchange rate: determination and forecasting 4-108 www .gfedu. net Framework Currency Exchange Rates Spot Rate...www .gfedu. net Topic Weightings in CFA Level II Content Session NO Weightings Study Session 1-2 Ethics