Today’s Top Stories
- The Switch: Bowing again to the FDA, 23andMe stops issuing health-related genetic reports (Business News, Financial News, Business Headlines & Analysis - The Washington Post)
- WTO global trade deal hangs in balance (US homepage)
- WTO global trade deal hangs in balance (Europe homepage)
- WTO global trade deal hangs in balance (UK Homepage)
- South Africans Celebrate the Life of Nelson Mandela (WSJ.com: World News)
- Currencies: Dollar rallies, then pares gains after data (MarketWatch.com - Top Stories)
- 7 Things Every Great Boss Should Do (Business & Money | TIME.com)
- 'Hundreds dead' in CAR violence (BBC News - Home)
- Clean up under way after tidal surge (BBC News - Home)
- Movers & Shakers: Ulta Salon shares mark lowest close since June (MarketWatch.com - Top Stories)
- Brazil Collected $8.6 Billion in Back Taxes (WSJ.com: World News)
Other Blog Headlines
- 10 Friday AM Reads (The Big Picture)
- Paul Krugman: Obama Gets Real (Economist's View)
- Friday: Employment Report, Personal Income and Outlays (Calculated Risk)
- Twitter Digest: 2013-06-09 (Paul Kedrosky's Infectious Greed)
Category Archives: International Business
Benn Steil and Dinah Walker of The Council of Foreign Relations ask: Will Portugal Bring Down the Spanish Banking Sector (as if it weren’t doing a good enough job of bringing itself down)?
The authors provide a really interesting graphic depicting the Spanish banking sector’s nominal exposure to Portugal, …and it exceeds $70 Billion. Wow!
Although Spain’s exposure to Portugal is certainly alarming, the tidbit I found most interesting is that Spain’s exposure to Portugal is larger than France’s exposure to Greece, and Spain’s banking sector is less than half the size of France’s. That’s a mighty burden to bear for Spain, and its banking sector.
So how does Spain dig itself out from under its Portuguese burden? The authors argue that as with Greece, at some point the EU and/or the ECB will need to intervene.
Whatever the endgame, I encourage you to read the full CFR post here.
I was in Shanghai a few weeks ago attending the NYU Stern Global Alumni Conference. The conference provided an opportunity for NYU Stern alumni from all over the world to reconnect in one of Asia’s fastest growing financial centers. It also provided the opportunity for NYU to showcase its Shanghai campus and the academic programming that will begin there come September (see the NYU Stern Connect Conference page or the NYU Shanghai page for more details).
Given that most of my work deals with globalization and international expansion, I had the opportunity to present at the conference. Specifically, I unveiled version 2.0 of the institutional risk pricing algorithm (Global Acumen) that I created several years ago. For any pair of home and host countries, Global Acumen generates a risk premium that accounts for the additional risk that a company assumes when it invests in specific foreign countries. The country-specific risk premium is designed to be added to a company’s domestic cost of capital (or IRR hurdle rate) when investing in foreign markets, and can be adjusted for various contingencies.
Anyhow, those of you interested in my globalization presentation, or Global Acumen, can watch the video embedded below.
Some of you might be familiar with the Big Mac Index, an index calculated by The Economist that compares the prices of Big Macs across countries (see Economist BMI Page). The underlying idea is that, by comparing the relative cost of Big Macs, we can get a sense for whether exchange rates appropriately equalize the prices of goods across countries in the manner suggested by Purchasing Power Parity (PPP) theory. If the price of Big Macs is not equivalent across countries, some take that to suggest that currency exchange rates are out of whack – i.e., one currency is overvalued while the other is undervalued.
Irrespective of what you believe about the Big Mac Index – whether you think it truly is indicative of exchange rate imbalances, or simply exposes shortcomings of PPP theory – it has gained currency amongst economists, though admittedly, mostly as a humorous diversion.
Nevertheless, Benn Steil and Dinah Walker, bloggers at the Council on Foreign Relations, offer an “updated” version of such an index by examining the relative prices of a product that they argue is likely to be more homogenous from country to country – the Apple iPad Mini (click on the figure below to see a larger image, or visit CFR iPad Mini Index for the full story).
Compared side-by-side, the Big Mac and iPad Mini indexes differ markedly. So who has it right? Or is this just further evidence that PPP theory needs to be revisited?
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