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International Finance

Central Banks

Are public institutions that have a monopoly over issuing money in a particular currency.

- Colombia: Banco de la República.

- U.S.A: Federal Reserve (FED)

- Europe: European Central Bank (ECB)

Monetary Policy: There two main forms

Bank regulation

Unconventional M.P:

- Quantitative easing: Central Bank buys longer-dated assets.

- Forward guidance: Is a verbal assurance from a central bank to the public about its intended monetary policy

Conventional M.P:

- Interest Rates: Lowering interest rates (Expansionary)

Increasing interest rates (contractionary)

The basis points is the unit of measure that the banks use to move the rates (1/10.000)

Mutual funds

the roles of the mutual funds are:

- Fund manager

- Shareholders

- Auditor

- Directors

Types of mutual funds

- Fixed income funds.

- Index funds.

- Balanced funds.

- Money market funds.

- Funds of funds.

NAV ( Net asset Value) is the value of a fund´s assets

Bonds

Are a financial debt instruments used by publics and private entities. The bonds are traded in the second market.

The elements of a bonds are:

- Issuer (borrower)

- Bondholder (lender)

- Face value

- Coupon

- Bond prices

- Yield to maturity

- Par - Premium - discount

- Bullet bonds

Banco de la República bonds are TES.

The FED bonds are T-bills (Treasury bills)

Derivatives

Topics related to the movie "The big short"

- Asset Backed commercial paper: Put assets as collateral of a debt ( In the case of the movie was to use mortgage sub-prime as collateral of a security)

- Mortagage Sub- prime: Mortgage with floating rate.

- CDO (Collateralized debt obligation): Put a set of debt instruments as collateral.

Rating agencies: Standard and poor´s, Moody´s and Fitch. From here concepts like:

- Junk

- Investment (sure)

- Speculative

- Default

Long: When an share is bought hoping that it increases the value.

Short: When I benefit from the decline in the price of shares (The situation in which the protagonists of the movie earn money)

Swaps

Are a derivative contract through which to parties exchange financial instruments

Hedging: cover the risk of the interest rate

Interest rate swaps:

When the DTF goes up, the bank win.

When the DTF goes dow, the bank loses.

The Libor is like the DTF but in Europe

Options

A derivate through which two parties agree upon the right, but not the obligation, to buy (call), or sell (put) an asset

In the money: winner

At the money: neutral

Of the money: loser

European options: close position any day.

American options: close one day in specific

Bull market: when the market rises.

Bear market: when the market is going down