Treasury Foreign Exchange and Financialization

Treasury Foreign Exchange and Financialization Case study: COUNTRY RISK ANALYSIS AND MANAGING CRISES: TOWER ASSOCIATES Journal Articles: Ertürk, I. (2003) "Governance or Financialisation: The Turkish Case", Competition and Change, December Vol.7 No.4 Gabor, D. (2010) “(De)Financialization and Crisis in Eastern Europe”, Competition and Change, December Vol. 14 No.3-4 Kaltenbrunner, A. (2010) “International Financialization and Depreciation: The Brazilian Real in the International Financial Crisis”, Competition and Change, December Vol. 14 No.3-4 Questions: 1. a) Find the U.S. inflation rates between 2002 and 2007 from the IMF website and calculate the Purchasing Power Parity (PPP) exchange rates for Countries A, B, C and D in the case study. (The inflation rate in each country in the case can be calculated from the Consumer Price Index. For Example: Inflation in 2003 for Country A = 14.7%=((132.9-115.9)/(115.9)) ) b) Did Purchasing Power Parity theory hold in these countries? Which currencies are over- or under-valued against the US dollar? c) Find the U.S. dollar lending rates (prime rate) between 2002 and 2007 from the IMF website or the U.S. Federal Reserve website and calculate whether International Fisher Effect (IFE) theory held between the exchange rates of Countries A to D and the US dollar. d) Based on your PPP and IFE calculations above in which countries do you expect a significant depreciation or appreciation (convergence to the PPP equilibrium rate) in the near next three to five years? 2. In the case study, Susan from Tower Associates is not familiar with the financialization literature. Discuss how financialization can be a possible cause of country crises by referring to the arguments and evidences in Ertürk (2003), Gabor (2010) and Kaltenbrunner (2010). i) Word limit is 2,000 words – excluding numerical support and references. ii) You should mark your estimated word count in the cover sheet. iii) Numerical support should appear as tables in the body text of a Word or pdf document. Appendices should be used only when absolutely necessary. Under no circumstances send Excel or other spreadsheets. Needless to say that you are encouraged to refer to your personal experiences and other relevant sources in answering the assignment questions. All borrowings from other sources should be put in quotations and the academic citation rules should be observed. Such borrowings should not be extensive.