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.