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Very often, we associate the dawn of modern financial theory with
Harry Markowitz who in the 1950s introduced the formal mathematics
of probability theory to the problem of managing risk in an asset
portfolio. The 1970s saw the advent of formal models for pricing
options and other derivative contracts, whose primary purpose was
also financial risk management and hedging. But events in the 1990s
made it clear that effective risk management is a critical element
for success, and indeed, for long term survival, not only for
financial institutions, but also for industrial firms, and even for
nonprofit organizations and governmental bodies. These recent
events vividly show that the world is filled with all manner of
risks, and so risk management must extend far beyond the use of
standard derivative instruments in routine hedging applications.
The articles in this volume cover two broad themes. One theme
emphasizes methods for identifying, modeling, and hedging specific
types of financial and business risks. Articles in this category
consider the technology of risk measurement, such as Value at Risk
and extreme value theory; new classes of risk, such as liquidity
risk; new financial instruments and markets for risk management,
such as derivative contracts based on weather and on catastrophic
insurance risks; and finally, credit risk, which has become one of
the most important areas of practical interest for risk management.
The second theme stresses risk management from the perspective of
the firm and the financial system as a whole. Articles in this
category analyze risk management in the international arena,
including payment and settlement risks and sovereign risk pricing,
risk management from the regulator's viewpoint, and risk management
for financial institutions. The articles in this volume examine the
"State of the Art" in risk management from the standpoint of
academic researchers, market analysts and practitioners, and
government observers.
Ratings, Rating Agencies and the Global Financial System brings
together the research of economists at New York University and the
University of Maryland, along with those from the private sector,
government bodies, and other universities. The first section of the
volume focuses on the historical origins of the credit rating
business and its present day industrial organization structure. The
second section presents several empirical studies crafted largely
around individual firm-level or bank-level data. These studies
examine (a) the relationship between ratings and the default and
recovery experience of corporate borrowers, (b) the comparability
of credit ratings made by domestic and foreign rating agencies, and
(c) the usefulness of financial market indicators for rating banks,
among other topics. In the third section, the record of sovereign
credit ratings in predicting financial crises and the reaction of
financial markets to changes in credit ratings is examined. The
final section of the volume emphasizes policy issues now facing
regulators and credit rating agencies.
In a little over one decade, the spread of market-oriented policies
has turned the once so-called lesser developed countries into
emerging markets. Many forces have been responsible for the
tremendous growth in emerging markets. Trends toward
market-oriented policies that permit private ownership of economic
activities, such as public utilities and telecommunications, are
part of the explanation. Corporate restructuring, following the
debt crisis of the early 1980's has permitted many emerging market
companies to gain international competitiveness. And an essential
condition, a basic sea-change in economic policy, has opened up
many emerging markets to international investors. This growth in
emerging markets has been accompanied by volatility in individual
markets, and a sector-wide shock after the meltdown in the Mexican
Bolsa and Mexican peso, resulting in heated debate over the nature
of these markets. Emerging market capital flows continue to be the
subject of intense discussion around the world among investors,
academics, and policymakers. Emerging Market Capital Flows examines
the issues of emerging market capital flows from several distinct
perspectives, addressing a number of related questions about
emerging markets.
The business of credit ratings began in the United States in the
early 1900s. Over time, credit ratings have gradually taken on an
expanding role, both in the United States and abroad and in
official financial market regulation as well as in private capital
market decisions. However, in 1999 the Bank for International
Settlements (through its Committee on Banking Supervision) proposed
rule changes that would provide an explicit role for credit ratings
in determining a bank's required regulatory risk capital. Once
implemented, this BIS proposal (often referred to as Basel 2) would
vastly elevate the importance of credit ratings by linking the
required measure of bank capital to the credit rating of the bank's
obligors. With these regulatory changes under active discussion,
research into the role for ratings and rating agencies in the
global financial system is particularly apropos.
Ratings, Rating Agencies and the Global Financial System brings
together the research of economists at New York University and the
University of Maryland, along with those from the private sector,
government bodies, and other universities. The first section of the
volume focuses on the historical origins of the credit rating
business and its present day industrial organization structure. The
second section presents several empirical studies crafted largely
around individual firm-level or bank-level data. These studies
examine (a) the relationship between ratings and the default and
recovery experience of corporate borrowers, (b) the comparability
of credit ratings made by domestic and foreign rating agencies, and
(c) the usefulness of financial market indicators for rating banks,
among other topics. In thethird section, the record of sovereign
credit ratings in predicting financial crises and the reaction of
financial markets to changes in credit ratings is examined. The
final section of the volume emphasizes policy issues now facing
regulators and credit rating agencies.
Very often, we associate the dawn of modern financial theory with
Harry Markowitz who in the 1950s introduced the formal mathematics
of probability theory to the problem of managing risk in an asset
portfolio. The 1970s saw the advent of formal models for pricing
options and other derivative contracts, whose primary purpose was
also financial risk management and hedging. But events in the 1990s
made it clear that effective risk management is a critical element
for success, and indeed, for long term survival, not only for
financial institutions, but also for industrial firms, and even for
nonprofit organizations and governmental bodies. These recent
events vividly show that the world is filled with all manner of
risks, and so risk management must extend far beyond the use of
standard derivative instruments in routine hedging applications.
The articles in this volume cover two broad themes. One theme
emphasizes methods for identifying, modeling, and hedging specific
types of financial and business risks. Articles in this category
consider the technology of risk measurement, such as Value at Risk
and extreme value theory; new classes of risk, such as liquidity
risk; new financial instruments and markets for risk management,
such as derivative contracts based on weather and on catastrophic
insurance risks; and finally, credit risk, which has become one of
the most important areas of practical interest for risk management.
The second theme stresses risk management from the perspective of
the firm and the financial system as a whole. Articles in this
category analyze risk management in the international arena,
including payment and settlement risks and sovereign risk pricing,
risk management from the regulator's viewpoint, and risk management
for financial institutions. The articles in this volume examine the
"State of the Art" in risk management from the standpoint of
academic researchers, market analysts and practitioners, and
government observers.
In a little over one decade, the spread of market-oriented policies
has turned the once so-called lesser developed countries into
emerging markets. Many forces have been responsible for the
tremendous growth in emerging markets. Trends toward
market-oriented policies that permit private ownership of economic
activities, such as public utilities and telecommunications, are
part of the explanation. Corporate restructuring, following the
debt crisis of the early 1980's has permitted many emerging market
companies to gain international competitiveness. And an essential
condition, a basic sea-change in economic policy, has opened up
many emerging markets to international investors. This growth in
emerging markets has been accompanied by volatility in individual
markets, and a sector-wide shock after the meltdown in the Mexican
Bolsa and Mexican peso, resulting in heated debate over the nature
of these markets. Emerging market capital flows continue to be the
subject of intense discussion around the world among investors,
academics, and policymakers. Emerging Market Capital Flows examines
the issues of emerging market capital flows from several distinct
perspectives, addressing a number of related questions about
emerging markets.
This is a reprint of a previously published book. It consists of a
series of papers by experts in the field on how the exchange rate
volatility of the 1980s affected the financial policies of
international firms.
The deregulation of financial markets in various nations in the
1980s brought about a qualitative change in their operation and a
greater degree of integration among these markets. These changes
enabled the free flow of financial resources across borders, which
allows private and public institutions in each economy the ability
to draw on the strengths of foreign markets to meet their
individual needs. But many observers in Japan, Europe, North
America and elsewhere fear that the new freedom has contributed to
a greater instability in individual markets and the transmission of
fluctuations to other markets. The introduction and individual
chapters in this 1994 book examine the ramifications of these
trends.
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