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Last Lecture. Institutions. Summary of material.

This lecture discusses the importance and development of institutions in the financial system, including their role, features, bottlenecks, and resolution strategies. It also covers the summary of the Finance 319 course.

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Last Lecture. Institutions. Summary of material.

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  1. Last Lecture. Institutions. Summary of material. Galina A Schwartz Department of Finance University of Michigan Business School Lecture notes

  2. Plan of Lecture • Institutions • What do we mean by institutions • Their importance • Development and evolution • Summary of Fin 319 [through connection with Financial Institutions] • Major Features of current institutions • Bottlenecks of current institutions • Conventional Summary of Fin 319 Lecture notes

  3. Importance of Institutions • Institutions? What is that? --- Economic and political structures affecting financial system --- Rules of the game & the entities implementing these rules • Importance of Institutions  Importance of the rules of the game Lecture notes

  4. How Institutions emerge and develop? --- Painfully: as children • As a response to economic needs [First, demand comes, and then supply] • Through trial and error • Institutions develop gradually: [overnight? Never!] [but sometimes: dismantled overnight] (why?) Lecture notes

  5. Major features of current institutions • Increased correlation in returns & increased probability of crisis • Globalization & Segmentation • Increased Technical Sophistication [without appropriate adjustment of the rules of the game] (so far) Lecture notes

  6. Bottlenecks of Modern Institutions • Enforcement system • Regulation and taxation of derivatives • Internet & Financial system: How reliable our information is? How to process the `informational paradise`? • Financial infrastructure in LDCs Lecture notes

  7. Finance 319 Summary (I) • Introduction and Overview of the International Financial Markets [Levich, Ch. 1 & 2] • Market Structure and Institutions [Levich, Ch. 3] • Parity Conditions [Levich, Ch. 4 & 5] • Exchange Rate Determination and Market Efficiency [Levich, Ch. 6 & 7] Lecture notes

  8. Finance 319 Summary (II) • Offshore and Onshore Markets [Levich, Ch. 9 & 10] • Crisis of Financial System [LTCM, Mexico, Asia, Russia] • Financial Derivatives [Levich, Ch. 11 – 13] • Financial Portfolios [Levich, Ch. 14 – 15] • Regulatory issues [Levich, Ch. 17] Lecture notes

  9. Main Points I • Modern financial markets are global • Regulatory, tax and monitory authorities have to account for international [not only for national] consequences of their decisions • Information is crucial • Tension of national and international interests [always existed, exists now and will persist] Lecture notes

  10. Main Points II • Know your competitive advantage [do not try to excel in everything] • Markets are more volatile than they were in the past 50 years: • Conquer them by understanding them [do not try to over smart them: it is good enough to understand them] Lecture notes

  11. Summary • Institutions are the key for functioning of economy & financial system • Bottlenecks are • Result of technological change [& political] • Resolved though altering of the rules of the game • Current bottlenecks • enforcement [international & in LDC] • derivative securities: regulation & pricing • financial infrastructure & internet • Summary of Summary? Lecture notes

  12. What is Next? • Are you happy the semester is almost over? • Happy Summer • Happy Next Job / Summer Job! • Happy Final Exam!!! • And Have a Whole Happy Millennium! Lecture notes

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