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global financial accounting
Global Financial Systems Stability And Risk 1st Edition Jon Danielsson - Solutions
Consider a bank that has $100 in cash, no other assets, and no liabilities. The bank operates in a country with a
What you think about the assumption in Basel that sovereigns are risk free?
What is your view on risk weighing assets for CAR purposes?
What are the main objectives and achievements of the Basel Committee?
Can bank capital that cannot be drawn down in times of need still fulfil a useful function?
Outline the specific mechanism by which bank capital and capital regulations are pro-cyclical
What is pro-cyclicality, and to what extent are regular banking activities pro-cyclical?
What are the main two purposes of bank capital?
What is the difference between bank capital and bank equity?
What are the main challenges in banking regulations?
What are micro-prudential regulations and macro-prudential regulations? When might the objectives of these two types of regulations coincide and when might they conflict?
What is the difference between regulation and supervision?
Explain the role of strategic complementarities in how speculators all agree on whether to attack or refrain.
G model has two?
Why does the global games model only have one equilibrium while the
0s positive or negative for the economies of the affected countries?
Was the speculative attack on some European currencies in the early
(i) For what levels of en does the government definitely devalue?(ii) For what levels of en does the government definitely defend?(iii) Show how good fundamentals give the government more leverage in defending the exchange rate.
and Q =
, h =
, and that if the government devalues, it will directly move to the desired exchange rate, so that E(Δe) = (en - e).(a) Assuming that the government has a reputation of defending the exchange rate, and speculators expect that it will stick to that policy in the future, what level of the desired
For simplicity assume throughout this question that the fixed exchange rate is set at e =
Q for Δe
for Δe =
e (6)where C(Δe) is an indicator function that can take only one of two values:C(Δe) = e
, en
c(en -e) + hE(Δe)62 + C(Δe)c, h
G model by Copeland. At the centre of the model is the loss function of the government L =
Recall the
Do you think the first-generation models accurately capture speculative attacks?
Was the currency board a mistake for Argentina?
G model presented in the lecture notes. Recall the system of equations on which the model is built:log money market equilibrium mt - pt = -ait; (1)log nominal money supply mt = dt + kt; (2)log domestic credit expansion dt - dt-1 = m; (3)log PPP pt = p*t + log et; (4)log UIP it = i *t + Et-1Δet.
Consider the
Is it likely that China will have the next reserve currency?
Is it likely that the euro will become the next reserve currency?
What is a reserve currency?
Is China’s foreign exchange policy sensible?
Can a country maintain an undervalued exchange rate indefinitely?
Can a country maintain an overvalued exchange rate indefinitely?
What is a currency war, and why is it damaging?
What was the Bretton Woods system, and would you want to see it adopted now?
What is the ‘impossible trinity’?
What is a speculative attack? Do they force the government to abandon a sensible policy, or make the government see reality?
.0?
What are traditional capital controls and capital controls
Why do governments sterilise FX interventions, and mechanically how do they go about doing it?
Do you prefer fixed or floating rates?
Why is the volume of currency transactions so much higher than the volume of trade?
What is the reason why margins may increase financial instability?
What does it mean when we say mark to magic?
Explain the relationship between initial margins/haircuts and leverage.
%, what is the implied probability of default?
% to be risk-free. If Argentina issues a one-year USD bond at
Suppose the markets view a one-year bond issued by the US government at
Why is the EU so cross with the rating agencies? Is this warranted?
What are the main limitations of ratings?
What is a rating agency?
What are the main components of credit risk?
Why are interest rates and bond prices inversely related?
What are OTC assets and markets?
Is the EU right in its pursuit of a financial transaction tax?
Is narrow banking a good idea?
Is naked short selling bad?
What is the main contribution of CCPs, and how could they increase financial instability?
What are the main arguments in favour and against curbing high-frequency trading?
Is financial innovation a force for good or evil?
Carry trades(a) What are carry trades?(b) Are speculative activities such as carry trades beneficial or not to the economy?(c) How can carry trades be vehicles for contagion?
Is Nick Leeson a hero, villain or neither?
What is the real damage caused by the LIBOR scandal?
Do you think scandals like the JP Morgan ‘whale’ indicate that something is fundamentally wrong in the financial system?
7, the general trend was for deposit insurance being reduced or even abolished. Very quickly, this sentiment changed, for example, in the case of Northern Rock. Why was that, and do you think extensive deposit insurance is here to stay?
Before the crisis from
>C Derive the utility levels of both early and late agents under autarchy.(b) Design an optimal insurance contract for the two agents.
-
- l late.(a) Suppose the utility function takes the form U1c2 =
. Fraction l are early, and
, but learns it at t =
, getting U(c2)An agent does not know if she is early or late at t =
, getting U(c1)Late Prefer to consume c2 in t =
types of agents:Early Prefer to consume c1 in t =
. There are
. Agents are identical and have a wealth of $1 in t =
if withdrawn at t =
What is accounting?
and yielding r
if withdrawn at t =
, yielding
$ deposited in t =
, with
and
,
Recall the model of Diamond and Dybvig (1983).The model has three periods, t =
6, and the general view was that bank runs just did not happen in advanced economies anymore.(a) What were the underlying risk factors that ultimately caused the the failure of Northern Rock?(b) How did the reaction of the British authorities to the crisis at Northern Rock directly contribute to
7. The previous British bank run was in
The Northern Rock bank run embarrassed the British authorities in
What is the good bank – bad bank model?
0s is usually considered the‘gold standard’ in crisis resolution. Why might that be the case?
The Swedish resolution of its banking crisis in the early
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