Int'l Finance, Dana's Bloggy Blog

Intellectual Growth: A Blog Portfolio Paper

dcapps — Tue, 01 May 2007 04:48:49 +0000

One word: blogging. Some savvy internet users delight in the word. To them blogging represents a venue of communication where they can combine intellectual and creative powers to reach others. To them blogging is a stage for expression about anything and everything; an escape, a procrastination from dealing with life’s more tedious activities. Yet to others such a strange word might as well be a traditional dance performed with wooden shoes. To me, blogging has transformed from the latter to the former during the past semester in which we were required to blog about issues pertinent to international finance. My blog, once awkward and unsure, has come to be a paradigm of my own intellectual progress. In order to illustrate the intellectual growth I have experienced in Econ 482 I have selected several blogs from the past semester. In this one final blog for the course, I will explain why I picked them and exactly how they represent my growth.

In order to accurately explain the blogs I chose, it is necessary to divide them into two categories. The first category I would like to explicate is “Ruble Blogs.” In the beginning of the semester we were asked to track a currency, and I chose the Russian Ruble. In the beginning I merely stated the exchange rate, however by the end of the class I was able to explain
Russia’s exchange rate on a more global level. Now I understand how exchange rate fluctuation is influenced by political factors as well as economic indicators such as GDP growth rates, inflation rates, interest rates, money supply, etc! Blogs five, six, seven, ten, and eleven, in chronological order, show how all of this really complicated “stuff” is just not so complicated anymore–quite exciting! Another exciting role of these blogs is that they stood as a basis for my paper on exchange rate determination, which is perhaps the culmination of my understanding of the ruble’s path over the past 17 years. Yet more importantly my ruble blogs represent analytical skills I have acquired over the semester that can be virtually related to any currency! Perhaps this will one day translate into personal investment opportunities? A future career path!? A research topic for Econ 300!!?

Although the ruble blogs show an evolved understanding of concepts crucial to international finance, my second category proves to be much more versatile and stimulating! My second category consists of blogs I would like to term “Free Thoughts Blogs.” These entries have no limit. They touch on issues directly referenced in class and on our wiki, as well indirectly perceived notions. Although blogs one and two are sub-par entries, they can be compared to later entries to show increased enthusiasm and knowledge about our subject. Blogs three and four represent my elevated participation in class as they are a direct product of class lecture and discussion. They also use out-side of class research to explain the concept at hand. Blog number eight, one of my favorite blogs, was also a product of class discussion, however I was able to create this entry with out out-side research—it all came from my very own brain! This shows my capacity to combine my academic knowledge with a bit of creativity. Blogs nine, twelve and thirteen are in response to different group presentations. They represent knowledge as well as questions I fathomed concerning the given concepts. Finally, blogs fourteen and fifteen are comments I posted on other student’s blogs. They fit this category due to their inquisitive, free-thinking nature.

Although blogging has been beneficial to my academic understanding and interest in international finance it could not have occurred with out the other aspects of our class. On top of having perfect attendance, I feel like I took an active role in class discussion and lectures this semester. I challenged myself to step out of the box and ask questions or pose answers when appropriate. I was also an avid user of our class wiki, regularly reading and making my own posts. However, I have to admit that I was not always punctual with my wiki assignments. This mostly occurred because I lacked understanding of the given assignment and was not able to address the problem at hand until later, after I acquired necessary knowledge.

Over all, blogging and the wiki have been surprisingly useful tools throughout the semester. At first, I thought they would be dull and tedious to use, yet now I am quite fond of both! It is particularly rewarding to look back on all the work we have done as a class and have something solid to show for it. This might be nerdy to admit, but I actually came to a point where I was blogging to procrastinate from doing the work for other classes.

To conclude, blogging, specifically, has been an important tool in forcing my self to re-think about issues discussed in class and on the wiki. Come to think of it, by blogging I was forced to contemplate and further research our topics, yet never really felt like I was studying…Nice trick Dr. Greenlaw!

The Blogs:

http://dcapps.wordpress.com/2007/01/17/first-assignment/
http://dcapps.wordpress.com/2007/01/20/uh-this-seems-kinda-tedious/
http://dcapps.wordpress.com/2007/02/02/10/
and comment #3
http://dcapps.wordpress.com/2007/02/19/the-russian-ruble-feb-17/
http://dcapps.wordpress.com/2007/02/25/nail-biter-invest-in-the-ruble/
http://dcapps.wordpress.com/2007/04/02/the-ruble-as-of-april-1st/
http://dcapps.wordpress.com/2007/04/08/the-ultimate-portfolio/
http://dcapps.wordpress.com/2007/04/09/more-on-the-finance-boys-video/
http://dcapps.wordpress.com/2007/04/10/crucial-econ-stats-for-the-rublewhere-do-i-find-time-series-data-for-russian-inflation-rates/
http://dcapps.wordpress.com/2007/04/24/the-end-of-yeltsin-the-end-of-ruble-blogs/
http://dcapps.wordpress.com/2007/04/24/20/
http://dcapps.wordpress.com/2007/04/26/a-world-currency/
http://bshapiro.wordpress.com/2007/03/19/us-economy/#comments
http://dclen9sj.wordpress.com/2007/03/23/cramers-take-on-hedge-funds-etc/#comments

A World Currency!?

dcapps — Thu, 26 Apr 2007 21:43:39 +0000

First of all, that Visa commercial was really corny…I’m still “tee-heeing!!” Yet it definately made a good point. Using several different currencies, whether you are a big time securities dealer, or just an intrigued tourist can be quite confusing, and those transaction costs….aaaaahh TEDIOUS! Thank goodness for Visa?

Though this type of Visa card promises to manage currency exchange for you, you still have to pay for the service in the form of high interest rates. Also, a user of this type of credit may tend to be less responsible by ignoring exchange rates. For example, I might take a big trip to Europe and forget that the dollar is down against the Euro and over spend! Yikes!That being said, a single world currency is definately another way to eliminate the hastle and confusion that comes along with using multiple currencies. Think of how simple investing would be! No exchange rates! Okay, so this is not completely realistic as it ignores social and political differences across the globe, but it does raise some other important questions. How would purchasing power parity and interest parity be affected? Tax rates and transportation costs? Would we just say good bye to options and futures? Although the world is not ready for this right now, maybe someday? Dare to dream!

Maybe You’re into that Sort of Thing

dcapps — Tue, 24 Apr 2007 19:09:32 +0000

On Monday our “Currency Areas” group was explaining that a reason for currency areas is due to tastes and prefernces. They explained that it is possible for different countries to have different unemployment and inflation goals. Perhaps a certain country would prefer high levels of inflation. In reference to this, I belieive the direct quote was, “Maybe you are into that sort of thing.” Haha guys.

This morning, while brushing my teeth of course, I contemplated this issue, and although I could not think of a specific country that directly promotes high inflation, it is reasonable that a country might perfer a little bit of inflation if their unemployment has reached their subjective detrimental level.

I also thought of an example for tastes and preferences involving the U.S. Where the U.S. seems to have an affinity for overwhelming trade deficits (we love our stuff!), most countires are adverse to such large deficits due to potential harmful effects they can have on an economy. Also cultural differences come into play here. We Americans just love to spend where as other cultures, say Japan?, love to save!

The End of Yeltsin, The End of Ruble Blogs

dcapps — Tue, 24 Apr 2007 18:13:38 +0000

Today, former Russian president, Boris Yeltsin died–which I think merits a final blog about the ruble. Although Yeltsin was a very controversial figure, as the first elected president of Russia his time in office had a significant impact on the performance of his national currency. During his time in office he promoted democracy and an open market economy, and also promoted freedom of the press. However, it is debated that his interests were not always pure as it is likely that he manipulated the media for his own gain and also permited looting of state industries as the private sector took over. According to the Wall Street Journal he will be remembered mostly “[...]for presiding over the country’s steep decline.” Decline of the Russian economy through the 1990′s can be represented by the ruble, which was characterized by steep inflation. In 1998 the ruble was redenominated in attempt to fight inflation, however this neglected the underlying, fundamental economic problems, and when the Asian financial crisis hit, Russia, too, took a beating. Russia’s own financial crisis ensued, and after much political turmoil Yeltsin agreed to decline from office. Yeltsin died from heart failure at the age of 76.

This information was taken from a Wall Street Journal article titled, “Former Russian President Boris Yeltsin Dies at 76, ” published today, April 23, 2007.

As far as the current status of the ruble, today’s exchange rate is 25.769 rubles to the dollar. Four years ago there were 31 rubles to the dollar, and the ruble has been steadily depreciating ever since. Yet, this should probably be viewed as a good thing for Russia, being that the dollarized currency has long been over-valued.

Rest in peace, Boris Yeltsin!

Crucial Econ Stats for the Ruble…Where do I find time series data for Russian Inflation rates!?

dcapps — Tue, 10 Apr 2007 21:22:58 +0000

I’m working on my paper about the Russian Ruble right now, and in the process have been compiling crucial statistics inorder to see what affects the Russian exchange rate. The statistics you see here in are listed from 1992 to 2004 (because I’m in the library which does not let you check out these books, but also does not give access to word or excel) Here are the stats. Feel free to oooh and awww.

1. Imports from principal countries (These are the cumulative exports made per annum from 47 countries and regions considered ”principal” by the U.N. They are noted in millions of U.S. dollars):

36984.0, 32806.0, 50518.0, 61147.0, 61147.0, 67619.0, 58996.4, 40429.0, 3921.3, 41882.9, 46177.0, 57346.5, 75580.7

2. Exports to principal countries (These are the cumulative exports made per annum from 47 countries and regions considered ”principal” by the U.N. They are noted in millions of U.S. dollars):

42376.3, 44297.3, 67642.0, 81137.0, 88703.0, 87368.0, 74160.0, 74663.0, 103092.7, 100653.0, 106711.8, 133655.7, 181633.8

“Russian Federation.” 1996, 2000, 2004 International Trade Statistics Yearbooks. New York: United Nations. 2004.

3. GDP at current prices, 1997-2003 (This is the Gross Domestic Product in millions of U.S. dollars at nominal prices for each given year.):

404941, 270953, 195908, 259718, 306618, 345605, 433490

4. GDP per capita, 1997-2003 (This is the Gross Domestic Product per capita in U.S. dollars):

Russia: 2748, 1845, 1339, 1784, 2116, 2399, 3026

U.S.: 29923, 31261, 32672, 34253, 34788, 35676, 36924

5. Growth Rates, 1997-2003 (This is percent real rate of growth):

Russia: 1.4, -5.3, 6.4, 10.0, 5.1, 4.7, 7.3

U.S.: 4.5, 4.3, 4.1, 3.8, .3, 2.4, 2.9

Gross Domestic Product and Gross Domestic Product Per Capita. Statistical Yearbook. New York: United Nations. 2005.

6. Discount Rate, 1995-2004 (This is the rate that describes the real expected return of an investment, measured in percent per annum at the end of each period).

Russia: 160.0, 48.0, 28.0, 60.0, 55.0, 25.0, 25.0, 21.0, 16.0, 13.0

U.S.: 5.20, 5.0, 5.0, 4.5, 5.0, 6.0, 1.25, .75, 2.0, 3.15

Rates of Discount of Central Banks. Statistical Yearbook. New York: United Nations. 2005.

7. Current Account, 1997-2003 (This is the portion of the Balance of Payments which records transactions in goods, services, income, and current transfers. Theses statistics were aquired by subtracting the current transfer debits from the credits. They are measured in millions of U.S. dollars.):

Russia: -356.0, -337.0, 601.0, 71.0, -817.2, -750.3, -385.4

U.S: -40410.5, -48443.4, -46755.3, -55684.2, -46581.0, -59380.6, -67438.5

8. Capital Account, 1997-2003 (This is the portion of the balance of payments which records capital transfers, acquisition or disposal of nonproduced, nonfinancial assets, and transactions in final assets and liabilities. These stats were found by subtracting the capital account debits from the credits and are measured in millions of U.S dollars.):

Russia: -796.0, -382.0, -326.0, 10675.0, -9377.9, -12396.0, -995.0

U.S.: -1044.1, -740.7, -4841.8, -1768.1, -1082.2, -1259.2, -3078.8

Summary of Balance of Payments. Statistical Yearbook. New York: United Nations. 2005.

9. Inflation Rate????? So I have been looking every where for this data, and still can’t find it. Charlotte Jones could not even find it. I’m about ready to follow suit and make some statistics of my own. Suggestions?

More on the Finance Boys’ Video

dcapps — Mon, 09 Apr 2007 19:26:48 +0000

As I posted comments on the wiki pertaining to the video we recently watched I noticed some interesting questions raised by Brandon and thought I’d take a stab at unraveling some confusion.

Brandon had written:

“My article pertained to some risky business ventures (i.e. doing business with countries that the United States would not do business with) in which China engaged. I remember the lecturer discussing hedge funds and selling “long-short” to cover the risk by reducing volatility. Since investors are worried about some of the recent investment undertakings in China, would hedge funds cover that risk premium enough to continue investing with China? I guess if you could go over the pros and cons of hedge funds again, that might help me understand the concept more clearly in trying to see if it would be appropriate for this China scenerio.”

In response to Brandon’s post, a pro of hedge funds is that they are not directly regulated by institutions such as the SEC which means they can follow more intricate investment strategies than securities like pension and mutual funds. Because they are relatively unlimited, these funds can be sold long or short. Selling long means that the holder of the fund is also the owner. The holder’s goal is to increase returns, or profit, by selling high and buying low. On the other hand, short selling occurs when the holder is not necessarily the owner of the security, but a borrower of it. When they predict that its value is going down they sell it only to buy it back at a lower price and keep the difference. In this way managers of hedge funds try to maximize returns. However there is risk associated with both of these endeavors, and as it seems to me, selling both long and short are ways to take advantage of asset volatility. Maybe this is what was meant by “long-short” in the video? Also, It is important to remember that Hedge funds are meant for investors who have incredible sums of financial capital, and thus try to reduce risk by making investments that are not closely correlated with the general market. Perhaps this is the type of investment that investors are seeking in China? However, it is hard to say because I’m still foggy as to the actual investments that are taking place in the “China scenario.” Brandon, can you enlighten me bit more on this specific topic? Thanks!

I hope these ramblings were helpful!

The Ultimate Portfolio?

dcapps — Sun, 08 Apr 2007 16:07:00 +0000

So as I was brushing my teeth this morning I couldnt help but contemplate the spectacular phenomenon we have been studying: portfolio diversification. I had previously asked:

“If diversification is so specactular, (as it must be, the math can’t lie) then how come there is not a mutual fund that is infinitely diversified? The obvious answer is that it would be infinitely hard to manage. However, isn’t it possible that some smart brain could develop a computer program capable of managing such funds?”

However, in class I found out that investing in every single existing security does not maximize portfolio diversification because diversification depends on a mix of both regions and industries. If one was to have an infinitely diversified portfolio, the securities within the porfolio would not perfectly balance eachother out, rather high concentrations of a single industry and region may occur. Therefore, an infinitely diversified portfolio or mutual fund is just not desirable.

On the other hand, if this is true, then a portfolio of maximized diversification stands to be the most desirable, as it should theoretically garner the highest average returns. This leads me to pose another idea: Perhaps one could create a computer program that would look at all the existing securities in the world, as well as instantly account for ones entering and leaving the market. Then, the program, based on the mathematics behind diversification, would pick an array of investments which maximize diversification. Thus the ultimate porfolio/mutual fund is born!

Wow, and now tell me if I’m getting carried away, but think of the consequences! Demand for the ultimate mutual fund would increase, leading also the price of this investment to increase. Demand for other funds would decrease and thus become cheaper. So what would follow from this? Any ideas?

A final note–perhaps it is important to remember that portfolios are not static, so maybe the “ultimate” portfolio is going to change daily!? Or would a computer program, in a sense, artificially change preferences and expectations, and thus funnel investments to a very narrow collection of funds leading just a few to statically sit “on top?”

This is all I have on the topic for now. I’m going to go eat a sandwhich. Let me know if I’m nuts.

The Ruble as of April 1st

dcapps — Mon, 02 Apr 2007 03:29:47 +0000

Lately I have been reading about several factors that hint at a turn around for the Russian economy. For organization’s sake I’ve listed them below.

First of all, Gazprom, one of the world’s leading energy companies, also Russia’s largest company, said its net profits rose 91% in the last year. However, operating costs rose as well and due to the high demand for gas in Europe (its main client) the company had little incentive to keep costs low. http://online.wsj.com/article/SB117140954134007734-search.html?KEYWORDS=russian+ruble&COLLECTION=wsjie/6month
Also, stock fo rthe Russian bank, OAO Sherbank, increased by 8.8 billion, Russia’s second largest sell ever. Shares were sold for 89,000 rubles ($3,394). This also pushed the bank’s market value above that of Germany’s Deutsche Bank. This was mostly influenced by the increase of petrodollars (as discussed in the previous point), which boosted salaries all over the country. An interesting characteristic of this occurance is that no shares were sold through foreign stock exchanges. This may be due to the next point… http://online.wsj.com/article/SB117209623926515342-search.html?KEYWORDS=russian+ruble&COLLECTION=wsjie/6month
Putin recently announced a new law that is expected to strengthen the ruble: public financial matters will now all be stated in terms of the ruble, rather than foreign currencies. This move is expected to garner respect for the ruble, which has indeed had a hard life. Hopefully, it will entice Russians to invest in their own currency, rather than the dollar or euro. http://online.wsj.com/article/SB117449708286944264-search.html?KEYWORDS=russian+ruble&COLLECTION=wsjie/6month

These are just a few points that express optimism for the ruble. Further poltics and consumer confidence issues are discussed in the following article, (which rehashes a bit of what I’ve already said, although does include some interesting tid bits about the public’s reception of Putin):

http://online.wsj.com/article/SB117375184348934997-search.html?KEYWORDS=russian+ruble&COLLECTION=wsjie/6month

Finally, today, April 1, 2007, there are 25.9960 rubles to the U.S. dollar. The last time I reported there were 26.1825, before that 26.2215, and before that it was 26.4 (This information is from XE.com.) . It appears that the ruble is slowly depreciating, yet this may be due appreciation of the dollar as the American economy struggles with recent problems linked defaults in the mortgage market and the drastic fall in the stock market.

Nail Biter? Invest in the Ruble!

dcapps — Sun, 25 Feb 2007 16:41:43 +0000

I recently found an article in the Wall Street Journal that blends our latest topic, “Portfolio Theory and Capital Flows” with my research on the ruble! Called, ” Emerging Funds: Russia ETFs” the article discusses Russia’s emerging capital markets, and their rising appeal to investors. In 2006 the Russian economy expanded 6% and Russian stocks remain relatively inexpensive, making investment attractive to those willing to take big risks and enter a volatile market. Because of this companies, such as Van Eck Global, plan to offer exchange traded funds that will invest only in Russian securities, as opposed to “BRIC” stocks (Brazil, Russia, India and China). These securities just so happen to be dominated by energy–oil and gas companies! YIKES this could be good or bad! It seems to me that as long as energy prices don’t sky rocket this could be a lucrative investment. However, if energy prices should go crazy, as they have tended to do in our recent history, then we might see some investors stepping out on to window ledges. Also it is important for investors to remember that this is Russia, land where portfolios decrease and rise up to 30% a year.

Now what ramifications may this have for the Russian ruble? If investment in Russia does increase, rising capital inflows should allow the economy to continue expansion. The ruble should appreciate, but perhaps policy will allow for it to stabilize.

Currently there are 26.1825 to the U.S. dollar. Last week the rate was 26.2215, and before that it was 26.4….sooooo it might be wise to purchase your rubles quick!

The exchange rates were taken from XE.com and the article is from section C15 of the Wall Street Journal, February 1, 2007.

The Russian Ruble, Feb. 17

dcapps — Mon, 19 Feb 2007 05:10:12 +0000

I have been tracking the ruble using www.XE.com. Today the exchange rate is 26.2215 rubles to the dollar, slightly down from February 12, when it was 26.40 rubles to the dollar.

Here is some random information (obtained from www.wikipedia.org) on the ruble for your learning delight:

The ruble can be divided into 100 kopeks, the current rate of inflation is 9 percent, and the central bank of Russia is the Bank of Russia. Like Russia, the ruble has a complicated, dynamic history–it’s structure often changing and evolving, whether a change in name or actual, physical appearance.

After talking to Pavel, a fellow economics student who studied abroad in Russia, I learned that Russia is removing capital controls on it’s currency this year, and last summer made the currency convertible- meaning they can sell goods abroad for rubles instead of euros.