Global 
 Finance 

 GLOA 6101 / 46

Three Areas of Global 'Finance'2 / 46

Three Areas of Global 'Finance'1) Currency Exchanges (exchange rates) 
: $7.5 tn per day (as of 2022) 
  $1tn, if only counting over-the-counter3 / 46

Three Areas of Global 'Finance'1) Currency Exchanges (exchange rates) 
: $7.5 tn per day (as of 2022) 
  $1tn, if only counting over-the-counter2) Debt ($230 tn in 2023)4 / 46

Three Areas of Global 'Finance'1) Currency Exchanges (exchange rates) 
: $7.5 tn per day (as of 2022) 
  $1tn, if only counting over-the-counter2) Debt ($230 tn in 2023)3) Other types of money flow 
 (e.g., remittances: $860 bn in 2023)5 / 46

First, Exchange Rates6 / 46

Exchange rates7 / 46

Exchange rates= value of a currency compared to another's 
 = the price of a currency8 / 46

Exchange rates= value of a currency compared to another's 
 = the price of a currency1. nominal exchange ratesneed to know when travel abroad  : a-/depreciate)
instantaneously available
9 / 46

Exchange rates= value of a currency compared to another's 
 = the price of a currency1. nominal exchange ratesneed to know when travel abroad  : a-/depreciate)
instantaneously available
2. real exchange ratesactual costs of things
estimates (smaller or large than 1)
nominal  ×  inflation rates: under/overvalued
10 / 46

Exchange rates= value of a currency compared to another's 
 = the price of a currency1. nominal exchange ratesneed to know when travel abroad  : a-/depreciate)
instantaneously available
2. real exchange ratesactual costs of things
estimates (smaller or large than 1)
nominal  ×  inflation rates: under/overvalued
overall, considered an indicator of competitiveness11 / 46

But, what competitiveness?12 / 46

But, what competitiveness?: the price competitiveness of tradables13 / 46

But, what competitiveness?: the price competitiveness of tradablesundervaluation: good for exports ('beggar-thy-neighbor')14 / 46

But, what competitiveness?: the price competitiveness of tradablesundervaluation: good for exports ('beggar-thy-neighbor')importing a BMW 
 1 =  1
 50k ⇒  50k 
amount paid to BMW:  50k

15 / 46

But, what competitiveness?: the price competitiveness of tradablesundervaluation: good for exports ('beggar-thy-neighbor')importing a BMW 
 1 =  1
 50k ⇒  50k 
amount paid to BMW:  50k

importing a BMW 
 2 =  1
 50k ⇒  25k: sales  
amount paid to BMW:  50k
effect on US automakers?

16 / 46

So undervaluation (weak currency) is all good?17 / 46

So undervaluation (weak currency) is all good?- serious welfare/distributional effects18 / 46

So undervaluation (weak currency) is all good?- serious welfare/distributional effects- external consequences (cf. 'currency manipulator')19 / 46

So undervaluation (weak currency) is all good?- serious welfare/distributional effects- external consequences (cf. 'currency manipulator')- Only some groups would like that.20 / 46

So undervaluation (weak currency) is all good?- serious welfare/distributional effects- external consequences (cf. 'currency manipulator')- Only some groups would like that. interest groups would lobby for undervaluation (sometimes)21 / 46

So undervaluation (weak currency) is all good?- serious welfare/distributional effects- external consequences (cf. 'currency manipulator')- Only some groups would like that. interest groups would lobby for undervaluation (sometimes)Broz and Werfel (2014); Steinberg and Shih (2012)22 / 46

Let's talk about DebtAnd how it is related to development23 / 46

Is Debt = Doom ?24 / 46

Is Debt = Doom ?B/C, foreign debt = losing independence?25 / 46

Is Debt = Doom ?B/C, foreign debt = losing independence?OMG, I remember we owe China a lot !26 / 46

A quick cut-away: The Story of American Debt27 / 46

A quick cut-away: The Story of American Debt

28 / 46

A quick cut-away: The Story of American Debt

29 / 46

Aren't people still saying the US  dominance is ending?30 / 46

Aren't people still saying the US dominance is ending?

31 / 46

Aren't people still saying the US dominance is ending?

32 / 46

But aren't most debts still bad?- No: In particular, sovereign debt: sources of development fund
- Too much sovereign debt spells trouble though (i.e., 'original sin')
- the more you borrow, the harder it becomes to borrow (credit rating)
33 / 46

But aren't most debts still bad?

- No: In particular, sovereign debt: sources of development fund

- Too much sovereign debt spells trouble though (i.e., 'original sin')

- the more you borrow, the harder it becomes to borrow (credit rating)

Example: Moody's

34 / 46

35 / 46

How does bond work?36 / 46

How does bond work?Domestic vs. Foreign currency denomination?37 / 46

How does bond work?Domestic vs. Foreign currency denomination?Ballard-Rosa, Mosely, and Wellhausen (2021)38 / 46

Sometimes you just cannot repay the debt.39 / 46

Sometimes you just cannot repay the debt.You need a bailout: how does that work?40 / 46

Sometimes you just cannot repay the debt.You need a bailout: how does that work?Schneider and Tobin (2020)41 / 46

Remmitances42 / 46

Remmitances Debatable if it helps development43 / 46

Remmitances Debatable if it helps developmentfinancing vs. rent-seeking44 / 46

Remmitances Debatable if it helps developmentfinancing vs. rent-seeking But is there any other effect?45 / 46

Remmitances Debatable if it helps developmentfinancing vs. rent-seeking But is there any other effect?Tertytchnaya et al. (2018)46 / 46

↑, ←, Pg Up, k	Go to previous slide
↓, →, Pg Dn, Space, j	Go to next slide
Home	Go to first slide
End	Go to last slide
Number + Return	Go to specific slide
b / m / f	Toggle blackout / mirrored / fullscreen mode
c	Clone slideshow
p	Toggle presenter mode
t	Restart the presentation timer
?, h	Toggle this help

Global Finance GLOA 610

Three Areas of Global 'Finance'

Three Areas of Global 'Finance'

1) Currency Exchanges (exchange rates) : $7.5 tn per day (as of 2022) $1tn, if only counting over-the-counter

Three Areas of Global 'Finance'

1) Currency Exchanges (exchange rates) : $7.5 tn per day (as of 2022) $1tn, if only counting over-the-counter

2) Debt ($230 tn in 2023)

Three Areas of Global 'Finance'

1) Currency Exchanges (exchange rates) : $7.5 tn per day (as of 2022) $1tn, if only counting over-the-counter

2) Debt ($230 tn in 2023)

3) Other types of money flow (e.g., remittances: $860 bn in 2023)

First, Exchange Rates

Exchange rates

Exchange rates

= value of a currency compared to another's = the price of a currency

Exchange rates

= value of a currency compared to another's = the price of a currency

1. nominal exchange rates

Exchange rates

= value of a currency compared to another's = the price of a currency

1. nominal exchange rates

2. real exchange rates

Exchange rates

= value of a currency compared to another's = the price of a currency

1. nominal exchange rates

2. real exchange rates

overall, considered an indicator of competitiveness

But, what competitiveness?

But, what competitiveness?

: the price competitiveness of tradables

But, what competitiveness?

: the price competitiveness of tradables

undervaluation: good for exports ('beggar-thy-neighbor')

But, what competitiveness?

: the price competitiveness of tradables

undervaluation: good for exports ('beggar-thy-neighbor')

importing a BMW

But, what competitiveness?

: the price competitiveness of tradables

undervaluation: good for exports ('beggar-thy-neighbor')

importing a BMW

importing a BMW

So undervaluation (weak currency) is all good?

So undervaluation (weak currency) is all good?

- serious welfare/distributional effects

So undervaluation (weak currency) is all good?

- serious welfare/distributional effects

- external consequences (cf. 'currency manipulator')

So undervaluation (weak currency) is all good?

- serious welfare/distributional effects

- external consequences (cf. 'currency manipulator')

- Only some groups would like that.

So undervaluation (weak currency) is all good?

- serious welfare/distributional effects

- external consequences (cf. 'currency manipulator')

- Only some groups would like that.

interest groups would lobby for undervaluation (sometimes)

So undervaluation (weak currency) is all good?

- serious welfare/distributional effects

- external consequences (cf. 'currency manipulator')

- Only some groups would like that.

interest groups would lobby for undervaluation (sometimes)

Broz and Werfel (2014); Steinberg and Shih (2012)

Let's talk about Debt

And how it is related to development

Is Debt = Doom ?

Is Debt = Doom ?

B/C, foreign debt = losing independence?

Is Debt = Doom ?

B/C, foreign debt = losing independence?

OMG, I remember we owe China a lot !

A quick cut-away: The Story of American Debt

A quick cut-away: The Story of American Debt

A quick cut-away: The Story of American Debt

Aren't people still saying the US dominance is ending?

Aren't people still saying the US dominance is ending?

Aren't people still saying the US dominance is ending?

But aren't most debts still bad?

- No: In particular, sovereign debt: sources of development fund

- Too much sovereign debt spells trouble though (i.e., 'original sin')

Global
Finance

GLOA 610

1) Currency Exchanges (exchange rates)
: $7.5 tn per day (as of 2022)
$1tn, if only counting over-the-counter

1) Currency Exchanges (exchange rates)
: $7.5 tn per day (as of 2022)
$1tn, if only counting over-the-counter

1) Currency Exchanges (exchange rates)
: $7.5 tn per day (as of 2022)
$1tn, if only counting over-the-counter

3) Other types of money flow
(e.g., remittances: $860 bn in 2023)

= value of a currency compared to another's
= the price of a currency

= value of a currency compared to another's
= the price of a currency

= value of a currency compared to another's
= the price of a currency

= value of a currency compared to another's
= the price of a currency