Major Forces Shaping the U.S. Economy Essay Example for Free

Major Forces Shaping the U.S. Economy Essay Three issues will shape the economy’s performance the next 18 months. To what extent will consumer spending slow? What is the outlook for business expenditures? Will the Federal Reserve go too far in raising rates? Commentators and pundits are prone to say that consumers are â€Å"in great shape,† |†still going strong,† â€Å"resilient,† and so on. While it is easy to get caught up in this optimism, there is a need to focus more on the finances that underlie this spending. On a basic analysis, it will quickly become apparent that household finances are stretched to the point where slowdown can be expected, perhaps a significant slowdown, in consumer spending the next 6-12 months. Some of the reasons behind such a possibility are: Interest Rates: With the overall cost of credit rising since 2004, Americans with large outstanding balances on their credit cards, home equity loans, and adjustable rate mortgages are starting to feel the pinch. The Explosion in Household Debt. For years, Americans have been spending far more than what they have been earning. With borrowing costs historically low and home equity values increasing, consumers piled up on debt to finance a level of consumption that far exceeded their income growth. In the last five years, Americans have increased their total outstanding debt by $5 trillion. (To put that number in context, corporate sector debt jumped by about $1 trillion in that time frame, while federal government debt rose by $1. 3 trillion). That $5 trillion in additional liabilities brought total outstanding household debt to a record $11. 8 trillion. Servicing this massive liability was certainly easier when interest rates were low. But after a steady rally of rising rates, the burden of carrying those IOUs has now gotten much harder. Gasoline Costs. In addition to servicing that huge debt, Americans will need to part with more money for gasoline in coming months. A few other reasons on this line are: Rising Healthcare Costs Marginal Growth in Real Income Tougher Personal Bankruptcy Laws A Boost to Savings because of Rising Interest Rates The cumulative effects of these factors will depress consumer spending the second half of the year and probably through the first half of 2007. What is the Outlook for Business Expenditures: Since consumer outlays make up 70% of all U. S. economic activity, the expected slowdown in household spending will have a palpable impact on the economy. Fortunately, what will keep the economy out of any serious trouble is business spending. Driving capital expenditures this year will be strong profits, high capacity utilization rates, strong foreign demand for U. S. products, global competitive pressures, and that the cost of capital remains relatively low. Will the Federal Reserve Go Too Far in Raising Rates: So long as the Fed does not go too far in raising rates, a level that can be defined as above 5. 50%, the threat of recession is nil this year and next. Led by weaker consumer spending a softer housing market, U. S. economic activity can slow markedly in the second half of 2006 and last through the first half of 2007. However, strong business expenditures and a pick up in exports will keep the economy out of any serious trouble. Of course, should the economy suddenly be sideswiped by a serious external shock, the threat of recession becomes more real. The severity and timing of the downturn will depend on the nature of the shock. While there are numerous risks that bear close watching — such as the war in Iraq, the Israeli-Palestinian talks, North Korea, 2006 hurricane season, Venezuela, Nigeria —the threats that have the greatest probability of materializing involve Iran, a terrorist strike on Saudi oil facilities, and an Avian flu human pandemic (Baumohl).

why parrot repeat :: essays research papers

Why Parrots Repeat A long, long time ago before human even roamed the earth animals here alone. There were all different types of them, from big to small, fat to skinny and brave to cowardly. There were also groups of animals, based upon there personalities just like us today. The way that you look made no difference, just the way you acted. For example, the lions were very brave and loyal and the turtles were cowardly and shy. Then there were the parrots. They were also like the turtles because they were cowardly but not shy. They love to make fun of others. They had huge mouths. Every time they could insult one of their fellow animals they would. In this one incidence the warthogs we just minding their own business while playing soccer out in the fields (the warthogs were a sort of uneducated animal, but nice at the same time, as long as you were kind to them they would do anything for you). They parrots saw them playing as they were and immediately started to make fun of them. They called them names like â€Å"fatty† and â€Å"slowpoke.† This upset the warthogs so much that they went to the mammoth, the king animals, and told him what the parrots had done. So at the next town meeting the mammoth talked to the parrots about their behavior towards their fellow animals. The mammoth said â€Å"Parrots why must you be so cruel to all of the animals?† all the parrots did was laugh and then told the mammoth to take it easy because they were just having a little fun. Then the mammoth replied back quickly and said that next time they insulted their fellow animals that he would go straight to Zaron, the god of all the animals. The parrots could only imagine what would happen to them if Zaron found out about this, because all knew about he was the same god would made the flies attracted to feces. After hearing this they seemed to be afraid. The parrots held back their comments for a while but eventually it came back out.   Ã‚  Ã‚  Ã‚  Ã‚  On one rainy day the sloths were trying to get to there homes as fast as they could but we know that it would take them a while. Even when all the other animals were safely in there homes the sloth’s still had miles to go before they could get dry.

Stereotype and Prejudice Marjorie

Title: Prejudice Prejudice Marjorie W. Davis PSY/285 February 28, 2012 Michael Ford Abstract Our discussion is about how does society confirm prejudicial attitudes? How does ones social identity contribute to prejudice? How do emotions encourage prejudicial attitudes? What cognitive processes influence prejudice? Our text has explained competition; competition is an important source of frustration that can fuel prejudice. When two groups compete for jobs, housing, or social prestige, one group’s goal fulfillment can become the other group’s frustration. PrejudiceSociety confirms prejudice by what you possess and how much money you have. If you are not in a certain bracket such as (high class or middle class), you are considered poor. Prejudice helps justify the economic and social superiority of those who have wealth and power. Of course they will not give a chance at credit to buy a house, car, or start a business. Society, also confirm prejudice by the way you dress o r the car you drive. Society confirms prejudicial attitude by focusing on personal individuality and Independence, as opposed to becoming a team with neighbors and friends.I am so glad that God looks at the heart and man looks at the outer appearance. One's social identity contributes base on a realization of limited environmental control. The more you believe that you can impact your environment or social status, the less roll social identity plays Emotions really affect prejudicial attitudes because most of the time people make decisions based on their emotions. Emotions of fear and sadness or joy and gladness, which can cause you to project feelings in a hurtful way, rather than in a helpful manner Cognitive process influence prejudice through stereotyping, which cause prejudice.This can be a result of the normal ways in which we simplify and organize the world. Stereotypes are the social scripts we have in our heads about others and the roles we believe they should play in our s ocially constructed world. It is important to have the understanding of the basic concepts of prejudice and racism, and how to lessen their destructive effect (Rosado,  1995-2012). Reference Rosado, C. (1995-2012). Critical Multicultral Pavilion Research Room. Retrieved from http://www. edchange,org/multicultral/papers/caleb/racism. html

Todays financial environment - Free Essay Example

Sample details Pages: 8 Words: 2490 Downloads: 10 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? INTRODUCTION Todays financial environment is highly risk prone. The volatility of economic variables such as interest rates, exchange rates, commodity prices etc has increased because of the increased internationalization of businesses. In order to have a stable business a firm must identify and manage its risk carefully. Risk is defined as the doubtfulness of returns. Any firm faces two types of risks. Business risk Financial risk A business risk includes the risk of competition, risk of a new technology hampering the business of a firm and risk of failure of a strategic decision made by the management. It is the responsibility of the manager of the organisation to identify and prevent these risks from affecting the organisation. A financial risk includes the risk of non payment of loan given to a debtor or the risk that a purchased asset or security is not liquid. A financial institution takes the responsibility of the financial risk and lets a firm concentrate on the business risk. Don’t waste time! Our writers will create an original "Todays financial environment" essay for you Create order MANAGING RISK There are many financial instruments available in the market by which a firm can manage the financial risks. It depends on the firms management capabilities to choose the right combination of these instruments to protect itself from such risks. The most commonly tool by firms is the derivatives. There are basically 3 types of players in the market today that use derivatives. Hedgers: They want to reduce their financial risk and can tolerate some costs to prevent loss in case of unfavourable changes in the market situation. Speculators: They forecast the future movement of the markets and want to make profits using derivatives. Arbitrageurs: their aim is to make risk less profit by trading in two or more markets (or contracts) at the same time. Thus, derivatives help in transferring risk from hedgers to speculators or arbitrageurs. CURRENCY MARKETS The currency market is called foreign exchange market. The traders in currency markets are Exporters, importers, banks etc. Foreign exchange rate is defined as the value of the foreign currency with respect to the value of the domestic country. A trade in currency market is done in currency pairs like US Dollar-INR contract. The first currency in a currency pair is called a base currency and the second currency is called the terms currency. An exchange rate can be interpreted as the amount of terms currency that a buyer must pay to obtain one unit of base currency. Thus, a USD-INR rate of Rs. 50.083 means that Rs. 50.083 must be paid to get 1 USD. Changes in Foreign exchange prices are very fast. Any price fluctuation is expressed as appreciation or depreciation of one currency relative to the other i.e. a change of USD-INR rate from Rs. 50 to Rs. 50.083 means that USD has appreciated and the INR has depreciated because now, a buyer of USD will have to pay more INR to b uy 1 USD than before. FACTORS THAT AFFECT EXCHANGE RATES There are many factors that affect exchange rates. Economic policies: The economic policies followed by the government affect the exchange rate. For example, if a country has balance of payment surplus then it will have favourable exchange rate. Rates: Interest rates: if the interest rate of a country rises then investors from other countries would want to invest in that country. So the demand for domestic currency and hence its value will increase. Inflation rate: High inflation rate reduces export and thus the demand of the domestic currency also reduces. Hence, the currency depreciates. Exchange rate policy and Central Bank interventions: The most important factor affecting the exchange rates is the Exchange rate policy of the country. Sometimes Central bank also intervenes to control the demand or supply of domestic currency. Political stability: Stability of government of a country also affects the exchange rate. Speculation: Speculation also affects exchange rate movements. If the currency of a country is speculated as overvalued, people will take out their money from that country resulting in reduced demand for that currency and depreciating its value. ANALYSIS OF INR The value of any currency does not remain stable for a long period of time.There is a number of factors that affect its strengthening/weakening. The factors that have a direct influence on value of a currency are: Stock market of India There is a positive correlation between Indian rupee and stock market index because as the stock market index rises, more investors would like to purchase stocks and thus demand for Indian rupee will increase resulting in appreciation in its value. In the Graph1(appendix), an upward moment of Sensex has resulted in an upward moment in the price of the Rupee (INR) and made it much stronger in the comparison of US Dollar. Global currency trends INR is related to currencies of many other countries especially USD and EURO. The relation between dollar and rupee in Graph 3 is that when the dollar get stronger the rupee is gets weak and when the rupee get stronger the dollar falls.Thus, dollar and rupee are inversely proportionate to each another. In Graph 4,we can see that when euro is at strong position,INR is showing recovery sign against its base currency (dollar). crude oil India is a big importer of crude oil and the value of INR gets highly affected by the increase in the prices of the crude oil.Graph 2 shows prices of crude and rupee from 26th June, 2008 to 26th June 29, 2009. CURRENCY DERIVATIVE PRODUCTS A currency derivative is a contract between the sellers and buyers whose values are calculated from the underlying-the Exchange Rate. The main purpose of Currency derivatives is hedging, although they can also be used for speculation. There are many types of derivative contracts. The 4 main are forward, future, option and swap. FORWARD: A future contract fixes the exchange rate between the two parties. This rate is carried forward to a fixed future date. Thus, both the parties can avoid exposure to risk in case of fluctuations in market. At the time of contract the exchange rate is decided, called as forward exchange rate or forward rate. FUTURE: Future contracts are similar in functionality to forward contract. The differences between future and forward contract are given in the table below. SWAP: Swap is an instrument in which the 2 involved parties agree to privately exchange cash flows in the future according to a prearranged formula. The currency swap means swapping both principal and interest between the parties. The cash flows in both directions are in different currencies. In a swap normally three basic steps are involved: Initial exchange of principal amount Ongoing exchange of interest Re exchange of principal amount on maturity. OPTIONS: Currency option gives the holder a right to buy or sell a given amount of foreign exchange at a fixed price for certain duration. The holder does not have to compulsory buy (call) or sell (put), rather he has an option to do so. A trader in currency market has three choices through the spot market or derivatives market. He may exchange the currency at current by entering into a spot transaction. If he wants to exchange the currency at a future date, he may: Enter into a futures/forward contract, where he agrees to exchange the currency in the future at a price decided now. Buy a currency option contract, wherein he commits for a future exchange of currency, with an agreement that the contract will be valid only if the price is favourable to the participant. PRICING OF FUTURES CONTRACTS Interest rate parity theory states that the currency margin is dependent on the prevailing interest rate for investment in the two currencies. The forward rate can be calculated by the following formula: Rh and Rf are simple interest rate in the home and foreign currency respectively. If we consider continuously compounded interest rate then forward rate can be calculated by using the following formula: STRATEGIES IN CURRENCY MARKET CURRENCY FUTURES FOR HEDGING There are 2 ways in which hedging which can be done by a firm in currency market: Short-Hedge Short position means that a party agrees to sell the base currency and receive the terms currency at the pre-specified exchange rate in future. A short hedge involves taking a short position in the futures market. This is done by a party that already owns the base currency or is expecting a future receipt of the base currency. long-Hedge Long position means that a party agrees to buy the base currency and pay the terms currency at the pre-specified exchange rate in future. A long hedge involves taking a long position in the futures market. This is done by a party that needs base currency in future to make some payment. CURRENCY FUTURES FOR SPECULATION Speculators can also use future contracts if they anticipate that the spot price in the future will be different from the prevailing futures price. If a speculator anticipates an appreciation in base currency, he will hold a long position in the currency contracts to make profit when the exchange rates move up as per his expectation. If he anticipates a depreciation of the base currency, he will hold a short position in the futures contract so that he can make a profit when the exchange rate moves down. CURRENCY FUTURES FOR ARBITRAGE Arbitrage is the strategy in which the trader takes advantage of price differential of the same or similar product between two or more markets. The profit is the difference between the market prices of the products. An arbitrageur has access to both the markets and will identify price differences in the two markets for a product. If in one of the markets the product is cheaper, he will buy the product from that market and sell in the costlier market and thus make risk-less profit. In currency market an arbitrageur can enter into both a forwards and futures contract if he identifies any mispricing between them. If one of them is priced higher, the same shall be sold while simultaneously buying the other which is priced lower. On January 1, 2008, an Indian company enters into a contract to import 1,000 barrels of petroleum with payment to be made in USD on July 1, 2008. The price of each barrel of petroleum has been fixed at USD 100/barrel .The prevailing exchange rate of 1U SD = INR 39.41 .So, the cost of one barrel of petroleum in INR works out to be Rs. 3941.The USD is expected to appreciate and the company decides to do nothing about it. If on July 1, 2008 the exchange rate becomes 1USD=INR 43.23 then the company will have to pay Rs.4323 for one barrel of petroleum. Hedged: Consider that the company had purchased a USD/INR futures contract when the USD was expected to appreciate. This would have protected the company because strengthening of USD would lead to profit in the long futures position, which would counter the loss in the physical market. TESTING HEDGE EFFECTIVENESS A hedge is said to be effective if the derivative contract matches with the risk being hedged i.e. all critical terms of the derivative correspond to the critical terms of the risk. It is very important to select the right hedge effectiveness methodology. If a wrong selection is made it could mislead the firm. Many accounting standards (IAS39, FAS133) exist for hedge accounting but they only specify general guidelines and are very flexible. There are 3 main methods to measure hedge effectiveness: Critical Term Match Method Dollar-Offset Method Regression Analysis Companies should assess both the past and future hedge effectiveness. This would make sure that loses/gains of a derivative will contribute to earnings at the same time as the loses/gains associated with the hedged item. The Critical Term Match Method According to Critical Term Match Method a hedge is considered perfect if critical parameters in of hedged item and derivative contract match. For example, an interest rate swap is considered a perfect hedge if the parameters like Notional amounts, Terms, Payment and fixing dates, Amortisation schedules, Reference rates, Day conventions in both loan (hedged instrument) and swap (hedge) are identical. The limitation is that these terms do not often match. Thus, other methods must be applied. Dollar-Offset Method It is the easiest way to assess hedge effectiveness .In this method, the change in the value of the derivative is compared to the change in the value of the hedged item. If the ratio takes a value within a range of 80-120 percent the derivative is said to be highly effective. The disadvantage of this method is that it is often difficult to achieve high effectiveness consistently, from period to period. Regression analysis Regression analysis is a statistical technique that shows relationship between two or more variables. A derivative is said to be highly effective if the price (or interest rate or currency exchange rate) associated with the hedged item has a close relationship to the price associated with the hedging derivative. Simple regression explains the relationship between two variables and the correlation coefficient which quantifies the closeness of the relationship. Correlation coefficients may range in value from -1.0 to +1.0. A clear definition of hedging objectives is given i.e. defining the underlying hedged item and then the risk to be hedged. The definition of risk must include: Performance metric: like cash flow Risk class: like interest rate risk, foreign exchange risk, etc Amount of the underlying being hedged Desired risk characteristics: Step 2 In this step the hedging instrument and the hedge ratio are defined. The hedge ratio determines how many units of the hedging instrument are used to hedge one unit of the underlying. Ideally, one should select the optimal hedge ratio, corresponding to the maximal reduction in risk. Step 3 The objective is to select the method for evaluating hedge effectiveness. The choice of method comprises 7 dimensions: Reference exposure: Should the hedging instrument be compared to the underlying hedged item or to the Ideal hedge item. Fair value approach: how should changes in fair value be evaluated? Historical data to be used Method of applying historical data Maturity treatment Basis for comparison Type of effectiveness test Step 4 This is the implementation step in which actual evaluation of the effectiveness test is done to perform. Step 5 This is the interpretation step. The effectiveness results are interpreted in the context of the hedging objectives. CONCLUSION In the currency market a trade between two parties in currency pair is done. There can be many reasons for an investor to trade. He might invest to avoid exposure to risk (hedge), to make profits based on his prediction (speculation) or to make risk-less profits (arbitrage).The four instruments available for hedging are forwards, future, option and swap. It is very important for a firm to test the effectiveness of the hedging instrument in order to make the right choice. The 3 main methods to measure hedge effectiveness are Critical Term Match Method, Dollar-Offset Method and Regression Analysis. REFERENCES NCFM Currency derivatives. HEATâ„ ¢: A framework for evaluating hedge effectiveness.