BUS-F 446 Lecture Notes - Lecture 4: Country Risk, Interest Rate Parity, Linear Discriminant Analysis
Document Summary
Class notes 2-19-14 chapters 13 and 14. For the last exam, 60% of the test was from the textbook website or the homework. U. s. historical growth was roughly 3% for the past 50 years. Data for employment, etc. , doesn"t look terrible but there"s underlying issues that haven"t changed and are a big problem. Figure 13-5: while the book says that banks are really smart for being successful at trading in foreign exchange, they basically just earn the spread and aren"t really great traders necessarily. Futures: traded on an exchange, are standardized. Futures: privately negotiated (therefore more credit risk) and customizable. Interest rate parity: in an efficient well-integrated capital market, the returns on either should be the same. View as a statement interpreting integration of markets. You would get the same return for either path. Via hedging with a futures contract, you can take the risk out of this. Sovereign risk = credit risk applied to a country.
