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Financial Services Commission (FSC) Supporting Green Finance Specialized MBA

Green growth is of primary interests for many countries. Nowadays, it has become a popular topic for many global conferences. Green finance is a new form of finance, which ranges from financial support for green growth to development of environment-considered financial derivatives and improvement of risk management methods. In fact, green finance has already caught attention from many countries. For example, in Britain and Australia, green mortgage, which gives interest rate discounts for houses with environmentally friendly facilities, is on the market, and in Canada, financial derivatives involving lower interest loans for less carbon dioxide emitting vehicles are sold. To take a corporate-level example, Barclays Capital has set up Emission Trading desks to provide such green finance services as Emission Trading brokerage, risk management using Emission Trading-related derivatives, and Emission Trading loans. Beside above instances, many other countries and companies are developing plans for green finance or already taking part in it.

Lee Ki-Su, President of Korea University, Chin Dong-Soo, Chairman of FSC, and Suh Nam-Pyo, President of KAIST (from left to right) signed the agreement on May 7, 2010

In line with this global trend, the Financial Services Commission (FSC) created Green Finance Specialized MBA support package to nurture Green Finance expertise thus improving Korea’s competitiveness in this field. The FSC has gone through selection process since March 2010, and Korea Advanced Institute of Science Technology (KAIST) and Korea University were chosen. On May 7th, 2010, FSC, KAIST, and Korea University signed an agreement in which the FSC provides financial support (500 million won to KAIST and 400 million won to Korea University) by 2013, and two schools complete preparation of the new education course and begin to provide Green Finance Specialized MBA programs in the fall semester of 2010.

In accordance with the agreement, two schools will introduce a Green Finance-specialized course in their MBA. The schools are required to secure sufficient number of full-time professors, education board, and administrative organization to provide well-prepared education programs.  Students who complete this course will be awarded ‘Green Finance Specialized MBA Certificate’. The support fund from the FSC will be used for scholarships and expenses in education courses and faculty. In order to carefully monitor the support fund and maximize the effects of the support package, the two schools are required to evaluate their own programs during the first two years, and the FSC will reflect the evaluation results into the amount of support fund afterwards.

Under this guideline, KAIST will maintain its former basic courses in the Graduate School of Finance and add a green finance course to its curriculum. The Green Finance Track will allow maximum 30 students, and will be operated in four-quarter system, of which Green Finance credit requirement is 12 out of total 54 credits. On the other hand, Korea University established Green Finance track in its Finance MBA with maximum 40 students. In each of 6 modules, students are required to take one Green Finance subject (total 13 credits in all 6 modules).

KAIST Graduate School of Finance: http://kgsf.kaist.ac.kr/default.asp?LangFlag=eng

Korea University Business School: http://biz2.korea.ac.kr/

 Amid global economic turmoil, investing in green growth is said to be a great opportunity to overcome this crisis by promoting renewable energy and other environmentally friendly and energy efficient industries. As a result, the need for fostering Green Finance is being called for by many countries including Korea. In this regard, FSC’s support package for establishing Green Finance specialized MBA will be significant first steps for Korea, aiming to become a financial world leading country.

[Neuroeconomics Series] 2. Why celebrities usually appear in Advertisement?

Jennifer Aniston on Advertisement

When you watch television or walk outside on the street, it is not hard to find advertisement with celebrities on it. Including the information of products or services in advertisement is not surprising. There is no question about it, but what is the reason that so many celebrities are shown in advertisement? The simple answer for this question is that people are interested in celebrities, and showing celebrities in advertisement possibly affects to the people who is watching the advertisement. This is very intuitive description, and looks make sense. In this article, I want to show you neuro-scientific evidences, how showing celebrities in advertisement works.

Attracting human gaze is important in advertisement. According to the work of Cerf et al. [1], people tend to easily recognize faces than other objects or letters when pictures are shown, it turns out human faces are the first viewers respond to. This is why experts in advertising want to hire actors or actresses in making commercial messages. But why actors or actresses? Because celebrities can easily catch viewers’ intention, and there is a neurological reason support this idea.

Human brain encodes data extracted from outer world. In general, neuro-scientists say there are two coding schemes in human brain. One is explicit coding and the other is implicit coding (=population coding). In short, explicit coding means that one neuron remembers one person, and population coding means that a set of neuron remembers more than 2 people. (This is not clear definition of explicit/implicit coding, but I think the description above is enough to explain the key idea of those. For more about coding scheme, please see [2].) Population coding can be expressed like the followings; Let’s assume that there are two light bulbs. You can turn on and off each of the bulbs. With those two light bulbs, we can represent four different states – on/on, on/off, off/on and off/on. While you can represent two states with two bulbs in explicit coding, you can represent four different states in terms of implicit coding. The reason why the coding scheme is important is that the coding scheme is highly related to the logical depth of computation. Human brain reacts to information explicitly coded in comparatively short time than implicitly coded information. Therefore, the brain encodes important information using explicit coding scheme. This is why people can find celebrities faster than normal people in watching movies and walking on a street. (There is a scientific evidence that there is a single neuron in brain encodes celebrities or other important people [3].) This also can be a reason that people can more easily recognize celebrities than other people.

Does advertisement can affect to your brain in making a decision?

According to those results of research above show that celebrities in advertisement attract viewer’s attention and have influence on them in neuro-scientific point of view. After watching advertisement with celebrities on it, people may learn a correlation between the celebrities and the advertisement (see cartoon above). The people who unconsciously or consciously learned the correlation will possibly think about the products or services what they saw before. This is why we can usually saw celebrities in advertisement. Many financial institutes also use this strategy in their advertisement, and this can also affect to their customers.

An advertisement of a financial institute

[1] M. Cerf, E. Paxon Frady and C. Koch. Faces and text attract gaze independent of the tast: Experimental data and computer model. Journal of Vision (2009).

[2] C. Koch. The Quest for Consciousness: A Neurobiological Approach. Roberts & Company Publishers (2004).

[3] R. Quian Quiroga, L. Reddy, G. Kreiman, C. Koch and I. Fried. Invariant Visual Representation by Single Neurons in the Human Brain. Nature (2005).

[Neuroeconomics Series] Economics + Human Brain = Neuroeconomics !

Have you ever heard about neuro-economics? Even though you never heard about it, you probably heard about economics!

What is Economics? Economics is based on many theories to explain economic effects around us. It was useful  for many companies and government to manage their organization and make their policy for many decades. But as you can easily understand, the traditional economics doesn’t look like it works well in these days. Then, why is this happened?

As you know, Economics has many assumptions based on theories and there is one biggest assumption in this academic area. That is “Human makes their decision to maximize their profit”. But do you think human really think and act in that way?

Warning signs on cigarette cases Let’s assume that you are a person who smokes every single day studying Economics. You will go to a convenient store to buy a pack of cigarette. Every time when you try to buy it, you continuously see a warning sign written on the box. You do know that smoking can kill you and do acknowledge that cigarette is very harmful for you. And probably you will have to spend most of your money to cure yourself after you got a cancer because of smoking, but still you are smoking. You are major in economics but that doesn’t change anything to you. You just think that smoking is your habit and you want it because you like it.

In traditional Economics point of view, you cannot explain what is going on here. You are major in economics and you are a person who want to maximize your profit because you are rational and well-educated person. However, you will never quick smoking just because of the reason that you are a person who are an expert in economics.

The basic problem is that we human are not a person who is always rational and try to maximize profit. We are not a machine which is for making money. We all know this fact, but the classical economics doesn’t accept this. In the principle assumption of economics, we, human, are rational and those who try to maximize profit. This is why neoclassical economists start concentrating on neuroeconomics.

What is neuro-economics? Neuroeconomics is a combined Human Brainword from neuro(n) and economics. Neuron is one type of basic unit in biological cells and neuroeconomics means that neo-classical economics which consider human factors in their theory in economics. Then what is the biggest difference between economics and neuroeconomics?

Neuroeconomists claim that we, human, are not rational and don’t always try to maximize their profit. They also claim that people try to maximize their utility, but that is not totally corresponded to their financial profit, which can be personal pleasure, political belief, self-esteem and so on. With this kind of the concept, they claim that they can explain more about the economical events which cannot be explained with classical economics.

In next time, I will show you basic theories with fun examples in neuroeconomics. This will help you to understand more about economical events what you couldn’t understand with the traditional economics. In the later articles in this series, I will show you how can this can be applied to the financial policy and government level policy making.

[Risk Management Series 1] Why we have to know about the risk management?

A global recession hit the world and the many countries are trying to escape from the recession. The problem is HOW. Traditionally, governments make a decision in changing interest rate and make policies to help companies in their country. Though the financial policies can be after-solution for the companies, but it cannot be before-solution for them. Many financial experts says the risk management can be a solution for them, but does it really helpful for the companies? 

What is the risk management? Risk management means managing the risk, as it stands. The risk is defined as the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events (cited from Wikipedia.com).  Some economists says that the beginning of the global recession is triggered by the failure of state-of-art financial product from global financial institutes. 

The state-of-art financial product is very similar to a gambling. I will show you a very simple example with a coin tossing. In a coin tossing, you have to pay $1 to get a right to toss a coin. If the coin shows the front side of it after tossing then you will get $2, but in case of the back side then you have to pay additional $1. This is the basic structure of a coin tossing.

 Now, I will use the interest rate of mortgage loan than a coin tossing. If the interest rates fluctuate less than 10% then you will get $1,000,000, and you will lose $1,000,000 if it fluctuate more than 10%. Just imagine that you are the player of this game. In your experience, you do know that the interest rate of mortgage loan never fluctuate more than 7% since the last 30 years, so you might think that you want to join this game. But after you joined the game, there was an unexpected event was happened and the interest rate fluctuated more than 15%. As you know, you have to pay $1,000,000. This is not exactly same what happened in real world, but a quite similar example happened in our world.

 This is why many people says risk management has to be done. If you knew the future interest then you might not participated in the game. Predicting the future is very difficult as you already know, but we can prepare for the future by using historical data and measuring current status. As you can see from the gambling example, historical data cannot fully protect you from the future events. But still historical data can help you in risk management and this is also used in many companies.

 In the next series, I will show you the risk management in our world and why government level risk management is crucial in modern society.