Part 4: Financial Markets

Mortgage markets and the foreign exchange market are two of the important financial markets discussed in Part 4. Readings for Part 4 cover subprime mortgages, the role of carry trades in exchange rate swings, the difficulty of predicting exchange rates, sterilized foreign exchange market intervention, the pros and cons of dollarization, and growing financial power of sovereign wealth funds.

1. Chapter 12:
   "The Rise and Fall of Subprime Mortgages." Danielle DiMartino and John V. Duca, Economic Letter 2(11), Federal Reserve Bank of Dallas, November 2007.
2. Chapter 13:
   "Interest Rates, Carry Trades, and Exchange Rate Movements." Michele Cavallo, FRBSF Economic Letter No. 2006-31, Federal Reserve Bank of San Francisco, November 17, 2006.
3. Chapter 14:
   "On the Rotation of the Earth, Drunken Sailors, and Exchange Rate Policy." R Owen F. Humpage, Economic Commentary, Federal Reserve Bank of Cleveland, February 15, 2004.

"Dollarization Explained." Stephen Slivinski, Region Focus, Federal Reserve Bank of Richmond, Fall 2008, 2-5.

"Raising Capital: The Role of Sovereign Wealth Funds.” Anna L. Paulson, Chicago Fed Letter, No. 258, Federal Reserve Bank of Chicago, January 2009.