The Revived Bretton Woods System: The Effects of Periphery Intervention and Reserve Management on Interest Rates & Exchange Rates in Center Countries

In this paper we explore some implications of the revived' Bretton Woods system for exchange market intervention and reserve management in periphery countries. Financial policies in these countries are seen as a component of a more general portfolio management policy in which the formation of an efficient domestic capital stock is a key objective. Because intervention in financial markets is an important part of their development strategy, intervention in exchange and financial markets has, and we argue will continue to be, large and persistent enough to generate predictable deviations of exchange rates and relative yields in industrial country financial markets from normal cyclical patterns. We argue that management of the currency composition of international reserves by emerging market governments and central banks is unlikely to alter these conclusions.

The role of chief risk officer in adoption and implementation of enterprise risk management-A literature review

Recently many companies view risk management from a holistic approach instead of a silo- based perspective. This holistic approach is called Enterprise Risk Management (ERM). Indeed, ERM is designed to assess the ability of board of directors and senior management in managing total portfolio of risk faced by an enterprise. Based on relevant literature Chief Risk Officer (CRO) is one important factor which may influence companies in deciding whether to adopt an ERM. The role of the CROs is to work with other managers to set up an effective and efficient risk management system and disseminate risk information to the entire enterprise. The main purpose of this paper is to provide a comprehensive overview of the influence of CRO on adoption and implementation of ERM. It was found that presence and quality of CRO are important determinants of ERM adoption and implementation. This research clarifies that there is a lack of research in respect of the effect of CRO in implementation of ERM in developing countries. This study is useful for companies which wants to adopt ERM or wants to improve the stage and level of ERM implementation in their companies

The possibilities and consequences of investment decisions by stepwise optimization

The paper deals with the application of stochastic optimization principles for investment decision making. The authors present the investment management system based on an adequate portfolio model. For optimal portfolio construction and stock selection, the method of stochastically informative expertise and ranging is used. Investment portfolios in equity and currency markets are formed considering investor risk tolerance and risk preference level, as well as an individual utility function. Investment portfolios are constructed according to three criteria: return, risk, and reliability. The markets of Germany, the USA, and China, as well as foreign exchange markets, are analysed. The results reveal the efficient investment possibilities in the mentioned markets, allowing to reach investment return substantially exceeding market index return. Along with that, an innovative stochastic clustering methodology for investment assets is proposed. The obtained results are of great value for individual as well as institutional investors and are a suitable means to form efficient investment strategies in financial markets

Reforming finance in transitional socialist economies : avoiding the path from shell money to shell games

In the late 1980s, transitional socialist economies (TSEs) in Central and Eastern Europe were only somewhat more sophisticated than shell money systems: savings books or currency had to be used for most transactions and there was no risk assessment, information monitoring and acquisition, or portfolio management. The TSEs have moved toward a two-tiered banking system but they lag in the development of competitive, market-based financial systems. In several TSEs the financial system seems to be part of a shell game to hide the losses of the real economy. The authors argue that rapid, successful economic reform requires putting the shell game to an end. They review several contentious issues of financial reform in the TSEs, especially issues involving macrofinance, corporate finance, the internal debt problems, and the need to build efficient banks. The authors contend that the banks should be"cleaned up"when they are privatized, to prevent the quick reemergence of debt problems. They believe that either of the proposed alternatives for shaping financial systems in the TSEs - very highly capitalized banking or narrow banking - would minimize the need for future support. Either alternative would reduce leverage in the TSEs and provide more financial stability. But taking concerns about moral hazard to an extreme - prohibiting debt finance - could starve new firms for credit and limit economic growth.Economic Theory&Research,Financial Crisis Management&Restructuring,Environmental Economics&Policies,Banks&Banking Reform,Financial Intermediation

A review of portfolio planning: Models and systems

In this chapter, we first provide an overview of a number of portfolio planning models which have been proposed and investigated over the last forty years. We revisit the mean-variance (M-V) model of Markowitz and the construction of the risk-return efficient frontier. A piecewise linear approximation of the problem through a reformulation involving diagonalisation of the quadratic form into a variable separable function is also considered. A few other models, such as, the Mean Absolute Deviation (MAD), the Weighted Goal Programming (WGP) and the Minimax (MM) model which use alternative metrics for risk are also introduced, compared and contrasted. Recently asymmetric measures of risk have gained in importance; we consider a generic representation and a number of alternative symmetric and asymmetric measures of risk which find use in the evaluation of portfolios. There are a number of modelling and computational considerations which have been introduced into practical portfolio planning problems. These include: (a) buy-in thresholds for assets, (b) restriction on the number of assets (cardinality constraints), (c) transaction roundlot restrictions. Practical portfolio models may also include (d) dedication of cashflow streams, and, (e) immunization which involves duration matching and convexity constraints. The modelling issues in respect of these features are discussed. Many of these features lead to discrete restrictions involving zero-one and general integer variables which make the resulting model a quadratic mixed-integer programming model (QMIP). The QMIP is a NP-hard problem; the algorithms and solution methods for this class of problems are also discussed. The issues of preparing the analytic data (financial datamarts) for this family of portfolio planning problems are examined. We finally present computational results which provide some indication of the state-of-the-art in the solution of portfolio optimisation problems

Collateralised loan obligations (CLOs) : a primer

The following descriptive paper surveys the various types of loan securitisation and provides a working definition of so-called collateralised loan obligations (CLOs). Free of the common rhetoric and slogans, which sometimes substitute for understanding of the complex nature of structured finance, this paper describes the theoretical foundations of this specialised form of loan securitisation. Not only the distinctive properties of CLOs, but also the information economics inherent in the transfer of credit risk will be considered, so that we can equally privilege the critical aspects of security design in the structuring of CLO transactions

Asset securitisation as a risk management and funding tool : what does it hold in store for SMES?

The following chapter critically surveys the attendant benefits and drawbacks of asset securitisation on both financial institutions and firms. It also elicits salient lessons to be learned about the securitisation of SME-related obligations from a cursory review of SME securitisation in Germany as a foray of asset securitisation in a bank-centred financial system paired with a strong presence of SMEs in industrial production. JEL Classification: D81, G15, M2