Asian Financial Markets

Instructors

ITO, Takatoshi

Credits / Language / Semester

2Credits / English / Winter

Objectives/Overview

This course will give an overview of history, function, and future prospects of the financial markets in Asian countries (mainly ASEAN-10, Japan, Korea, China, and India). How financial supervision and regulation should be formed will be examined too.
Japanese and Asian financial markets went through fundamental changes in the late 1990s. The Japanese banking crisis and the Asian financial crisis in 1997-98 were instrumental in causing changes. Since the Asian crisis was such a huge event that changed the course of the Asian financial markets and policies, the first four sessions will be dedicated to analysis of the crisis. It is so timely to look back to the experiences, now that we have a different kind of crisis in the different parts of the world now.
One of the many reasons why Asian countries fell into a currency crisis was their short-term external liabilities were larger than foreign reserves. In order to reduce vulnerabilities, Asian countries increased foreign reserves and decreased external liabilities. The build-up of foreign reserves, which meant they intervened not to appreciate the exchange rate, was remarkable and drew some criticism from trading partners.
Another reason for the crisis was a de facto fixed exchange rate regime that countries had before the crisis. It tended to encourage capital inflows that took advantage of higher interest rate in Asian emerging market economies, without exchange rate risk. After the crisis, most Asian countries adopted flexible exchange rate regime.
Japan created an integrated supervision agency, FSA, in 1998 to enhance the regulatory framework. An enhanced regulatory power to temporarily nationalize weak banks was successful in resolving the banking crisis by 2003. Some large banks failed, others decided to merge. Both banking and securities sectors became more consolidated. Penetration of foreign financial institutions increased across the board. Japanese markets were still large and the yen was the most widely used Asian currency in the world.
The weight of the Chinese financial institutions and markets has increased globally. Now, the three largest banks in the world are all Chinese. The capitalizations of large Chinese companies are greater than their Western counterparts. Some political and economic forces behind these advances will be examined.
Financial developments and financial supervision in Asian countries other than Japan and China will be documented and analyzed, asking the question of whether they are more resilient to external shocks now.

Teaching Methods

Organization of each session:
(A) Discussion of topics that are introduced in the lecture of previous week.
① Students are supposed to have read the reading assignment
② Students are not allowed to open laptop computers, but participate in discussion with full attention
(B) Introduction of next week’s topic

Grading

Grade Policy: Class participation (attendance, discussion and presentation) (30%); a midterm exam (25%) and a final exam (45%). The proportion is different from pre-announced on in the hardcopy.
Exams are “closed-book,” paragraph-essay type.

Reference Books

Books and journal papers are assigned (as above)

Notes on Taking the Course

Prerequisite: Macroeconomics (GraSPP), or an equivalent intermediate-level macroeconomics course.

Related Resources

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