Archive for the "World Economy" Category
Greece’s debt crisis was among key factors affecting the euro rate for the last 5 years. It is believed that the governmental debt of the Balkan country shot up in 2008 amid global financial meltdown. In 2009 public borrowing totaled 30% of the country’s GDP while the budget deficit reached 13.6% of GDP, record reading for the Eurozone. Loan agreement which stipulated debt remission and financial package to Greece in return to the implementation of austerity measures was a way out of this situation.
Greek crisis has spooked investors and evoked many tricky questions. Does the euro have a future? Can Greece exit the currency bloc? Will the EU break up? Financial markets were closely watching the unfolding of Greece’s crisis, reflecting investors’ gloomiest outlook. The euro rate has fallen several times amid the news about both high unemployment rate and public debt exceeding GDP.
It took market players 5 years to get used to Greece’s teetering economic situation and eventually investors confided in the seriousness of the IMF’s and ECB’s intentions to provide financial aid to the country despite the Greeks protests.
Nowadays the experts note that the main stage of the crisis is over. However, some headwinds are still remaining and the Balkan economy is still in recession. By 2014, Greece’s GDP is to contract 25% for the years of crisis, Ministry of Finance says. According to optimistic forecasts, budget surplus will make up 0.4% of GDP by 2013.
Meanwhile, other disputable questions, seducing investors’ minds, are on the agenda. Greece’s issue is not relevant any more.
Today the Eurozone debt crisis is the subject traders and economists have been discussing most. Month by month, forecasters paint an increasingly dark picture of a situation in the EU with a collapse of the union at worst. Greece, France and Italy with its banking crisis may be the first to leave the EU due to extremely high debt levels on the global loan market.
Spain was offered 100 billion euros as a bailout, which is equivalent to 15% of its GDP. However, despite the amount is impressive, it might be insufficient to solve the troubles of the country, even though the economic recession in Spain is far from its culmination. The situations in Spain and Ireland are identical. It should be said though that the size of Ireland’s economy is eight times as less, but it has asked for 65 billion euros.
Greece has been said to be likely to quit the Eurozone, but most experts are sure it will stay. Otherwise, the crisis will totally devour it as the national government will definitely fail to cope with it alone.
As for Spain, the country needs substantial funds to revive its economy, but Germany seems to be unwilling to give it a helping hand. What Angela Merkel proposes is uniting the banking systems, which in fact means creation of a supra-national supervisor with an aim to establish German order and discipline in the banking sector of the Eurozone.
Even though such a scenario is hardly possible to implement now, it would definitely help out the indebted countries and the Eurozone as a whole.
Bonds are securities issued by state agencies and organizations, local governments and corporations. In other words, issuers are various government institutions. In this article we are going to be exploring characteristics of bonds and what a trader should know about them.
To begin with, there are different types of bonds. They are classified according to their issuing bodies, the length of time before maturity and a variety of other factors and conditions of issuance.
Following that, almost all bonds entitle the bondholder only to receive revenue in the form of fixed interest rate, but carry no right to participate in the management of the company, as it happens in the case of purchasing shares.
Another important point is when a bond reaches maturity; a seller will pay its full face value to the investor who purchased it. The most important information, including nominal value, maturity period and coupon rate is shown on the front of each bond, so it would be impossible to change it.
And last but not least, the purchase of bonds available to anyone with Internet access. Through trading terminals you can find stock information on each issue.
As an investment tool, bonds are considered to be more secure as compared to bank deposits and stocks, because you can control your expenses and revenues. Also interest rates are lower compared with banks and other creditors. It is not necessary to wait for bond maturity; you can sell the security in the secondary market. In this case, the price will depend on the bond yield at the moment of sale and on interest rates. If current market interest rates are greater than the rates of recent bond issues, the coupon rate will be also higher; therefore, the bonds could be sold at a better price. However, when interest rates fall in the country, the market price of old bond issues will be reduced considerably.
The IMF warns of so-called “dangerous new phase” which reflects instability of global economy and impossibility of long-term planning. Such circumstances as cut of Italy’s credit rating, crisis of 2008, European economy woes, and search for money for French fragile banks make investments unsound way of money use. Investors give up believing in the abilities of major international institutions in their attempts to save the situation during perilous times as they have started to apply non-traditional measures which consequences are hard to predict. The governments are struggling to restore confidence in the budget to save world economy from collapse. Meanwhile, investors lack healthy playing field and they have to look for the signs which will guide them throughout world economy turmoil and help to guess its further direction moves. We will touch upon 5 most important aspects which signify about changes in the world of finance.
1. Rate of Growth for the Third Quarter
Second quarter was a subject to mounting concerns for investors as it could trigger new recession. However, stability in the third quarter is a reason for optimism as it is connected with the peculiarities of May-June data. Automotive industry is bottoming out; price for oil is going down. Thus, we can expect some improvements in global economy. Nevertheless, new crisis began in the third quarter on financial markets; Eurozone debt crisis has hit Great Britain as well and resulted in mass riots. In such a way, encouraging data for the third quarter could initiate economic stabilization but nobody can give a hundred per cent guarantee.
2. Eurozone Debt Crisis
Eurozone debt crisis has started in Greece, which is why the further scenario depends on Greece. Eurozone economy could be forced back into recession. Central bank can cut its interest rate in the short term. In October the ECB will be ruled by a new chairman which will definitely lead to new changes.
3. Central Banks
Currently, central banks do not have that power over economic situation on the whole as they used to have. Central banks of developed countries take a passive approach using their scant tools instead of helping the global economy which is significant of new economical woes.
The markets also reflect the high probability of recession indicating the burning issues. Investors are hesitating putting up the capital.
5. The U.S. policy
It is quite true that the USA has a great power. But even such powerful economic state cannot find the right solution for this teetering situation in the country and worldwide. Barack Obama suggests a new $447 bn plan. In general, it is aimed to trigger some relief and reduce taxes for companies. Nevertheless, the U.S. politics is actively trying to solve global economic problems.
Being the country’s largest bank, Central bank regulates the national economy climate and creates conditions for its successful development. Central banks of different countries can be called state, national, reserve or issuing.
Since Central banks deal with global movement of cash between different financial institutions, their activity greatly affects the currency rates fluctuations. Financial market by virtue of its dynamic reflects whatsoever is happening in the form of exchange rate variations.
Thus, Central bank is an active market participant: it intervenes in the foreign exchange market in order to set the reserve requirement, stabilize the benchmark interest rate and maintain the current fiscal policy.
The major banks having impact on global economy are considered to be:
-The Federal Reserve System, the Fed. It was established on December 23, 1913 as independent financial body which fulfills the functions of central bank and exerts control over the US commercial banking system. The FED activity is carried out by presidentially appointed Board of Governors. The Federal Reserve is comprised of 12 Reserve banks, the major of which, Bank of New York, is responsible for foreign financial relations.
– The European Central Bank, the ECB. This organization was created on June 1, 1998. Its main office is located in Frankfurt am Main, Germany and consists of representatives of all Euro area countries. The ECB was founded with the purpose of providing price stability within European monetary union by means of HICP growth by 2% annually (but not more than that). The ECB is discussing economic conditions, fiscal policy, and set the interest rates on its meetings.
-Bank of England (Old Lady of Threadneedle Street). Was established in 1694. In 1946 the BoE was nationalized and became an independent public organization in 1997. Its primary function is to develop financial system of Great Britain and ensure its stability.
-Swiss National Bank, SNB. Despite other banks, SNB does not apply refinance rate in order to regulate the rate of national currency. It controls fiscal policy in Switzerland and has a high level of independence.
-Japan Ministry of Finance and its Central bank is the most important political and fiscal organization in the country which can influence the market. It is even more powerful than the U.S., Great Britain, and Germany Treasury Departments. The decisions made by Japan Ministry of Finance affect the global economy and predetermine USD/JPY rate.