Impact of interest rates on exchange rates

September 19th, 2012

Change of interest rates may lead to ambiguous reaction of traders and have some consequences for a national currency. On the one hand, interest rates change should be in direct proportion to the change of exchange rates; on the other hand, every rule has an exception.

Let’s examine the information in details.

It is beneficial for investors to put money in a country at high rates of return, making demand for national currency grow and currency rates rise. However, such system does not always work.

Firstly, it is expensive for entrepreneurs to take out a loan, so they are forced to set higher prices for their goods. Undoubtedly, national currency devalues.

Secondly, during the financial crisis most investors are afraid of investing as unjustified risk may lead to considerable loss. So investors prefer either to wait till it is over or to buy currencies with the lowest interest rates. It inevitably leads to drop in price of the national currencies with high interest rates.

Thus, any changes on the foreign exchange market as well as the change of interest rates have direct and indirect influence on the exchange rate. In order to interpret the economic events correctly, it is necessary to be well-informed about major events, read articles, look through the specialized forums, and analyze the situation on the foreign exchange market.

The Giant’s Story So Far

September 13th, 2012
The Giant’s Story So Far
“A journey of a thousand miles begins with a single step.” -Laoze
It was not so long ago since China was referred to as the “sleeping giant.” Its secluded existence and its rich culture which has been passed down to thousands of generations, known only to those within, has just been broken free a few decades ago.
After the giant opened its door to world, opportunities swiftly entered. One of the many which are given the opportunity to show itself to the outside world is the Yuan. The Chinese currency which may be literally translated as “round object” is originally a round and silver coin used in Qing Dynasty. It slowly made a scene after its debut by showing a very promising growth.
But according to the most recent news,its growth had come to a slow pace. One of the main issue which surrounds the change is the economic slow-down of China. The import slid last month and the cooling of industrial production are the main contributors of this unfriendly situation. The targeted economic growth, which is the lowest in 22 years, may not be met.
However, interventions may be put into action. According to Chinese Premier Wen Jibao, “ Be it monetary or fiscal, we still have ample strength,” The strength which amounts to a billion yuan will be used for preemptive measures which will be directed to fight against bad loans and shackle the inflation.
Another issue is currently swerving like a vulture over the Chinese economy. News of “shadow” banks are arising and may result to a social unrest. The victims are continuously increasing and the public is quickly losing its trust to investments thus slowing the money circulation. Private capitals are now stagnant because of this.
Despite the pessimistic prediction of experts and alarming incidents, the Chinese Premier is still confident that the economic development will go as planned.

A journey of a thousand miles begins with a single step.” -Laoze

It was not so long ago since China was referred to as the “sleeping giant.” Its secluded existence and its rich culture which has been passed down to thousands of generations, known only to those within, has just been broken free a few decades ago.

After the giant opened its door to world, opportunities swiftly entered. One of the many which are given the opportunity to show itself to the outside world is the Yuan. The Chinese currency which may be literally translated as “round object” is originally a round and silver coin used in Qing Dynasty. It slowly made a scene after its debut by showing a very promising growth.

But according to the most recent news,its growth had come to a slow pace. One of the main issue which surrounds the change is the economic slow-down of China. The import slid last month and the cooling of industrial production are the main contributors of this unfriendly situation. The targeted economic growth, which is the lowest in 22 years, may not be met.

However, interventions may be put into action. According to Chinese Premier Wen Jibao, “ Be it monetary or fiscal, we still have ample strength,” The strength which amounts to a billion yuan will be used for preemptive measures which will be directed to fight against bad loans and shackle the inflation.

Another issue is currently swerving like a vulture over the Chinese economy. News of “shadow” banks are arising and may result to a social unrest. The victims are continuously increasing and the public is quickly losing its trust to investments thus slowing the money circulation. Private capitals are now stagnant because of this.

Despite the pessimistic prediction of experts and alarming incidents, the Chinese Premier is still confident that the economic development will go as planned.

Stephen Stevenson

Do traders pay income taxes?

September 12th, 2012

There is no secret that trading is potentially profitable activity and therefore taxable. However, the issue remains vague while there is no question that any other employees are supposed to pay income taxes. So we will shake off the fog of obscurity and find out whether traders have to pay taxes.

Firstly, it should be noted that traders should pay income taxes according to the laws of the country they live in. In Russia revenue from Forex deals is taxable and Forex market is an official source of income. Therefore, just hypothetically, traders must pay 13 percent of their currency market earnings. However, when you think of the practical aspect of the matter, you can see some details that refer to no articles in the tax code.

It is not clear how tax administration will control the revenue of traders if they do not use their VAT number while trading on Forex. So if a trader does not file a tax return, tax officials will not receive his/her revenue information. It could be seen only when the trader will cash large sum of money or make a big purchase. Then tax inspectors would become interested in the source of income and demand an explanation. The trader risks being fined for tax evasion. Another question is how exactly 13 percent income tax is calculated. There is no consensus on this point.

There are also the ways of keeping money invisible for authorities. For example, the funds on Webmoney accounts are not taxable as they are considered non-bank currency in Russia. So tax officials should take it into consideration in order to improve the taxation and remove barriers from trading on Forex market.
In conclusion, it is up to you, whether to file a tax return or not, because only you are responsible for it. In any case, you should see that your actions are legal and weigh your risks.

Euro’s Answered Prayer – Unlimited Bond Buying

September 6th, 2012

The world has watched as euro’s untold fate unfolds. Nations, prominent and influential individuals of the financial plane, optimistic and pessimistic investors, down up to even the commoners had been scrupulously observing the currency’s dire situation. The every tick is guarded by the watchful eyes of the financial guard dogs. Alerting everyone whenever something is fast approaching, whether be it good or bad.

The whole world bear witness on euro’s graceful downfall. The debt crisis which lay euro on its sickbed is slowly decaying the prominent alliance as rumors of bailouts sprout like mushrooms. But not all is lost. A glimpse of hope in a form of a bank is trying to put a halt to the threat.

Just a few months ago, Mario Draghi, the current president of European Central Bank (ECB) announced its willingness to provide whatever assistance that euro will require. The unyielding support had not come unnoticed as ECB’s every step is being watched.

Though real plans of euro’s salvation is still to be lain to the public, certain actions had already been taken. The knight, who has yet to prove its true might, had parried the current decrease by announcing its plan for unlimited sterilized bond buying to suppress the crisis.

ECB’s latest move lifted the spirit of investors and permitted an optimistic atmosphere. As a result, the currency gained from the spiced up investors as it rose against its competitors.

But not everyone in ECB supports its cause. The president of the Deutsche Bundesbank, Germany’s central bank, considered resigning because he sees it as a loss cause if carried out without proper support. The threat had put more pressure on Draghi to take an another glance on the plan. Rumor has it that Jen Weidman was dissuaded by German government from leaving the position but still his stand on the topic is still steadfast. The involved chief didn’t confirm its authenticity.

Stephen Stevenson

From philosopher to multimillionaire

September 5th, 2012

George Soros: “I always had a strong feeling that I am an exceptional person.”

Is it possible that an ordinary trader can have an influence on the economic climate of the whole country? Trader can do anything he dares! This is the philosophy of a quite modest Gorge Soros who became immodestly well-off on Forex and went down in history of the international exchange market as “the man who broke the Bank of England.” A famous combination with the British pound made him prominent all over the world. The genius deal helped Soros to make the way from philosopher to millionaire just in some weeks.

George Soros is a son of Hungarian immigrants of Jewish background. His mother, Elizabeth Sutz came from a well-off family, while Soros’ father, Tivadar Shvartz, was not so reach but had an extraordinary mind and outstanding personality. That was a man, who went to the front on his own accord as he “did not want to lose such opportunity”, but not because of true or artificial patriotic feelings. Probably, Soros inherited his extraordinary mind, bravery and thirst for risk and interesting life from his father.

Black Wednesday – that is how was called the day of September 16, 1992. After a successful currency speculation deal, a 42-year old fantasist posed a threat to economic situation in the Great Britain. Having opened a short position for pound sterling totaling more than 10 bn US dollars, Soros earned more than 1.1 bn dollars in a day! He lost a lot during his trading career but the luck went with him. Soros’ strategy can be called a bearish one as he was selling shorts. Soros is ambiguous and contradictory person who does not favor long term investments: all his deals are of short and of speculative nature.

Being a financier by profession, Soros had passion for philosophy and even developed a theory based on the ideas of Karl Popper. It was called Theory of Reflexivity and posited that currency value is formed due to its expectations and one can put a pressure on them. However, Soros appeals to intuition and tries to develop with the help of hypnotizers. Despite a huge working experience on currency market, successful trader admits that he is still emotional about both bad and good deals. But he does not advise to give way to emotions.

Three years of economics school, internship in London Arbitrage, attempts to earn on investments and, finally, worthy life of a millionaire who can afford writing books and sharing experience, doing charitable work and even participating in the political life of the country. All this is the American dream as it is and the life of the most successful trader in Forex history George Soros.