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2013/2014  KAN-CM_SU8Q  Global Financial Crisis - Understanding and managing systemic risk

English Title
Global Financial Crisis - Understanding and managing systemic risk

Course information
Language English
Exam ECTS 7.5 ECTS
Type Elective
Level Full Degree Master
Duration Summer
Course period Summer
Please check www.cbs.dk/summer for the course schedule.
Time Table Please see course schedule at e-Campus
Study board
Study Board for MSc in Economics and Business Administration
Course coordinator
  • Course instructor - Jimmy Yang, Oregon State University
    Patricia Plackett - Department of Operations Management (OM)
Main academic disciplines
  • Finance
  • Globalization, International Business, markets and studies
  • Economics, macro economics and managerial economics
Last updated on 22-07-2013
Learning objectives
At the end of the course, the student should be able to
  • Describe the causes and consequences of the recent global financial crisis
  • Understand the rationales and impact of various government bailouts
  • Explain the differences in the crisis impact across developing countries and emerging markets
  • Demonstrate a thorough understanding of the new financial architecture and the proposed financial market reforms
  • Define interest rate risk and foreign exchange risk as well as demonstrating how they can be managed by various financial instruments
  • Understand various market stabilization mechanisms present and being considered in the global financial markets as well as their pros and cons
  • Offer critical views of various government bailouts and proposed financial market reforms with theoretical perspective and empirical supports
Course prerequisites
Corporate Finance and Investments are recommended.
Prerequisites for registering for the exam
Requirements about active class participation (assessed approved/not approved)
Mandatory Mid-term Assignment: an oral group presentation in class
Examination
4-hour written exam:
Examination form Written sit-in exam
Individual or group exam Individual
Assignment type Written assignment
Duration 4 hours
Grading scale 7-step scale
Examiner(s) One internal examiner
Exam period Summer Term
Aids allowed to bring to the exam Limited aids, see the list below and the exam plan/guidelines for further information:
  • Additional allowed aids
  • Allowed calculators
  • Allowed dictionaries
Make-up exam/re-exam
Same examination form as the ordinary exam
If the number of registered candidates for the make-up examination/re-take examination warrants that it may most appropriately be held as an oral examination, the programme office will inform the students that the make-up examination/re-take examination will be held as an oral examination instead.
Description of the exam procedure
Dictionaries, financial calculator or regular calculators of any kind (but without internet access and not in mobile phones) are alowed. Students can bring a formula list of their choice. The formula sheet should be limited to one page (one sided, NOT double sided). Brief description of variables in the formula is okay, but no extended text (more than one line) is allowed.
Course content and structure

The goal of this course is to teach students the causes and consequences of the recent global financial crisis as well as its implications for global financial managers. Students will be exposed to a number of recent academic articles related to the global financial crisis and its impact on doing business in a global environment. In addition, given the excessive market volatility during and following the global financial crisis, various market stabilization mechanisms will be introduced and discussed.
Main topics:

  • Sub-prime mortgage
  • New financial architecture
  • Bank run
  • Basel II
  • Bailouts
  • Rating agency
  • International trade flows
  • Hedging instruments
  • Financial market reform
  • Market stabilization mechanisms

The course's development of personal competences:
During this course, students will develop analytical skills and adapts to different ideas and approaches. Through class discussions, presentations, and team works, students will also develop communication skills, convey respect for different perspectives, and leverage diverse contributions. With the international focus, students will be able to accommodate global differences. Critical thinking will be developed through in-depth understanding of theoretical models and empirical settings in select academic studies. 

Course plan:
  1. Introduction
  2. Overview of GFC
  3. Causes of GFC
  4. Government responses
  5. Regulations
  6. Market reforms
  7. Other consequences of GFC
  8. Managerial implications
  9. Hedging strategies
  10. Market stabilization mechanisms
  11. Comprehensive review
Teaching methods
Lectures, exercises, real-world examples and discussions, presentations, team works

Preliminary Assignment: To help students get maximum value from ISUP courses, instructors provide a reading or a small number of readings to be read before the start of classes with a related task or tasks in the first two classes in order to 'jump-start' the learning process. Read the following articles
Crotty, James, "Structural Causes of the Global Financial Crisis: A Critical Assessment of the 'New Financial Architecture'" (2008). Economics Department Working Paper Series. Paper 16. http:/​/​scholarworks.umass.edu/​econ_workingpaper/​16
Taylor, Mark P., "The global financial crisis: introduction and overview" (2010). Applied Financial Economics 20, Special Issue.
Expected literature
Required Readings (a compendium will be made available for purchase - the remaining texts will be available for download)
  1. Introduction
  2. Overview of GFC
    Taylor, Mark P., “The global financial crisis: introduction and overview” (2010). Applied Financial Economics 20, Special Issue.
    Spiegel, Matthew, ”The academic analysis of the 2008 financial crisis: Round 1” (2011). Review of Financial Studies24, 1773-1781.
  3. Causes of GFC
    Crotty, James, "Structural Causes of the Global Financial Crisis: A Critical Assessment of the ‘New Financial Architecture’" (2008). Economics Department Working Paper Series. Paper 16. http://scholarworks.umass.edu/econ_workingpaper/16
    Demyanyk, Y., Van Hemert, O., “Understanding the subprime mortgage crisis” (2011). Review of Financial Studies 24, 1848-1880.
  4. Government responses
    Cecchetti, Stephen G., “Crisis and responses: the Federal Reserve in the early stages of the financial crisis” (2009). Journal of Economic Perspectives 23, 51-75.
    Afonso, G., Kovner, A., Schoar, A., “Stressed, not frozen: the federal funds market in the financial crisis” (2011). Journal of Finance 66, 1109-1139.
  5. Regulations
    Edgar, R.J., “The future of financial regulation: lessons from the global financial crisis” (2009). Australian Economic Review 42, 470-476.
    Zingales, L., “A market-based regulatory policy to avoid financial crises” (2010). Cato Journal 30, 535-540.
  6. Market reforms
    Moosa, Imad A., “Basel II as a casualty of the global financial crisis” (2010). Journal of Banking Regulation 11, 95-114.
    Beber, A., Pagano, M., “Short-selling bans around the world: evidence from the 2007-09 crisis” (2013). Journal of Finance 68, 343-381.
  7. Other consequences of GFC
    Berkmen, P., Gelos, G., Rennhack, R., Walsh, J., “The global financial crisis: explaining cross-country differences in the output impact” (2009). IMF Working Paper 09/280.
  8. Managerial implications
    Chor, D., Manova, K., “Off the cliff and back? Credit conditions and international trade during the global financial crisis” (2012). Journal of International Economics 87, 117-133.
    Vyas, D., “The timeliness of accounting write-downs by U.S. financial institutions during the financial crisis of 2007-2008” (2011). Journal of Accounting Research 49, 823-860.
  9. Hedging strategies
  10. Market stabilization mechanisms
    Hsieh, P., Kim, Y, Yang, J.J., “The magnet effect of price limits: A logit approach” (2009). Journal of Empirical Finance 16, 830-837.
    Kim, Y., Yang, J.J., “What makes circuit breakers attractive to financial markets? A survey” (2004). Financial Markets, Institutions, and Instruments 13, 109-146.
  11. Comprehensive review
Last updated on 22-07-2013