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Interest Rates: History And Overview
One may think of 'interest rates' as merely a concern of cutting edge modern economic news. Indeed, the rate of interest has been the obsession of the business media of recent weeks. One March 21, 2005 Business eek article proclaimed, "Pop! Goes the Auto Bubble -- with oil prices and interest rates rising! (Mandel, 2005) But in actual fact interest rates are simply the percent at which an individual is charged for borrowing money, either from a bank, a human being, or another entity such as a credit card company. Interest rates are an old institution -- once, the rate of interest was called 'usury' and banned by the church. Now charging a reasonable rate of interest for borrowing money is considered a necessary fact of modern life, particularly for large, durable goods such as cars, houses, and appliances.
Unsurprisingly, the lesser the rate of…
Mandel, Michael (21 Mar 2005) "Pop! Goes the Auto Bubble -- with oil prices and interest rates rising!" Business Week. Retrieved 28 Apr 2005 at http://www.businessweek.com/bwdaily/dnflash/mar2005/nf20050321_4309_db084.htm
Public choice theorists focus on the question of what government policies are likely to be implemented in a given political setting, rather than what policies would produce a desirable outcome if they were implemented. The conclusions of the public choice theory tend to increase skepticism towards the prospect that giving government power over various areas of human affairs will actually have beneficial results, regardless of the democratic control exercised by the citizens.
One of the basic insights that underlie the public choice theory is that good government policies in a democracy are an underprovided public good, because of the rational ignorance of the voters. Each voter is faced with an infinitesimally small probability that his vote will change the result of the elections, while gathering the relevant information necessary for a well-informed voting decision requires substantial time and effort. Therefore, the rational decision for each voter is to be generally…
Because the government uses the tax code as an instrument of social policy, the code as a whole appears to lack a coherent organizing principle. This lack of a coherent organizing principle has become magnified over time, due to the interplay between successive legislative amendments and regulatory changes to the law and the private sector responses to those amendments and changes. For instance, suppose that Congress enacts a tax credit to encourage a particular type of activity. In response, a group of taxpayers who are not the intended beneficiaries of the credit re-order their affairs, or the superficial aspects of their affairs, to qualify for the credit. Congress responds by amending the code to add restrictions and target the credit more effectively. Certain taxpayers manage to use this change to claim additional benefits, so Congress acts again, and so on. The result is a feedback loop of enactment and response, which, over an extended period of time, produces significant complexity.
The U.S. government rewards certain behavior with tax deductions or tax credits. The most famous reduction in taxes is that income used to pay mortgage interest on a personal home is exempted from taxes, if the taxpayer elects to itemize. Taxpayers who do not participate in an employer-sponsored pension plan may contribute up to $3,000 ($3,500 if age 50 or above) into an individual retirement account, and deduct that contribution from their gross income. The Earned Income Tax Credit benefits low- to moderate-income working families.
In general, the U.S. income tax is highly progressive, at least with respect to individuals that earn wage income. As of 2001, the top one percent of individual taxpayers paid approximately 23% of all federal taxes. The top five percent paid approximately 39%, and the top 10% paid 50% of all federal taxes. The bottom 20% of taxpayers paid a little over one percent of all federal taxes. Moreover, the progressivity of the U.S. tax system has gradually increased over recent decades. The top 20% of taxpayers paid approximately 56% of all taxes in 1980, and this figure gradually has risen to 65%, as of 2001. In recent years, however, a reduction in the tax rates applicable to capital gains has significantly reduced the income tax burden on non-wage income. In this regard, the general structure of the U.S. tax system has begun to resemble a partial consumption-tax regime.
This becomes more complicated when trying to determine the changes that would occur to the net present value of today's dollars, especially given the uncertainties involved with changes in the interest rate. On the one hand, the value of future dollars (i.e. today's dollars saved) is eroded by inflation, so a lower interest rate is detrimental to NPV; on the other hand, higher interest rates mean more lucrative lending and higher returns on many investment, which would mean a dollar invested today would be worth more in the future (Investopedia 2011). At the same time, higher interest rates could slow the pace of business and damage gains in the stock market, leading to diminished returns (Magnuson 2008). The effect of interest rates on the NPV, then, depends on other macroeconomic and financial effects.
The Weighted Average Cost of Capital would basically increase due to a change in interest…
CSS. (2002). Value of Annuities. Accessed 27 February 2011. http://www.getobjects.com/Components/Finance/TVM/pva.html
Investopedia. (2011). Accessed 27 February 2011. http://www.investopedia.com/
Magnuson, J. (2008). Mindful economics: how the U.S. economy works, why it matters, and how it. New York: Macmillan.
MC. (2011). Mortgage calculator. Accessed 27 February 2011. http://www.mortgage-calc.com/mortgage/simple_results.html
Interest Rate Swaps
The assertion that interest rate swaps require markets to be inefficient is inaccurate. hile swap markets benefit from some inefficiency, firms may have compelling non-financial reasons for wanting to make changes to the timing of their cash flows, which is the basis for firms undertaking swaps. For these end users of swaps, the swap is most beneficial at fair value, and that is the price at which the swap will typically be set. The counterparties are expected to agree on the expected future direction of the floating component of the swap, meaning that swaps depend more on efficient markets than inefficient markets -- the latter makes it more difficult for the counterparties to agree on fair value.
Interest rate swaps are contractual arrangements between two parties, where they agree to exchange payments based on a principal amount, for a fixed period of time (CDIAC, 2007). The most…
CDIAC. (2007). Understanding interest rate swap math & pricing. California Debt and Investment Advisory Commission. Retrieved December 6, 2011 from www.treasurer.ca.gov/cdiac/publications/math.pdf
Stern (1999). Interest rate swaps. Stern School of Business. Retrieved December 6, 2011 from pages.stern.nyu.edu/~eelton/debt_inst_class/Swap.pdf
Interest Rates and Pension Plans
The strength of private retirement plans must be maintained in the upcoming years due to the increasing number of Baby Boomers who will be retiring in the United States. Many retired Americans rely on private pensions and employer-sponsored retirement savings as a secondary source of income in addition to Social Security (Brinner 131). In addition, because the human life expectancy has increased dramatically over recent years, it is very important that policymakers encourage the growth of employer-sponsored retirement plans (Hungerford et al. 13).
Defined benefit plans are employer-provided retirement plans that provide a guaranteed retirement income (Blomquist and ijkander 32). The employer typically assumes all of the investment risk and the benefits are guaranteed by the Pension Benefit Guaranty Corporation. In the United States alone, there are approximately 50,000 defined benefit plans that cover about 23 million workers (Hungerford et al. 16)
History of Discount…
Blomquist, N.S., and H. Wijkander. "Fertility Waves, Aggregate Savings and the Rate of Interest." J. Popul Econ 7.1 (1994): 27-48.
Brinner, R.E. "U.S. Outlook Issues: Putting America's House in Order." Acad Med 64.3 (1989): 131-4.
Hungerford, T., et al. "Trends in the Economic Status of the Elderly, 1976-2000." Soc Secur Bull 64.3 (2001): 12-22.
In the article, they surveyed 69 different countries, searching for answers on what affects FDI. Where, they found that interest rates will affect FDI flow: as the cost of financing, purchasing new equipment and the strength or weakness of the economy will play an important part. In the case of Australia, this is significant because the low interest rates that they have had in place since the 1980's, have helped contribute to this capital inflow. This is an interesting point, because the interest rates were lower in Australia than China. As a result, because of the lower interest rates, Australia attracted the largest amounts of FDI.
Clearly, interest rates play a major role in determining the overall flow of investment capital. This is because higher or lower rates will affect everything from the cost of purchasing equipment to consumer activity. As a result, the level of interest rates will have…
Australia's FDI Stock up 20% to U.S. $246 Billion. (2006, July 11). Retrieved March 16, 2010 from Australian
Consulate General website: http://www.guangzhou.china.embassy.gov.au/gzho/MediaEN35.html
Lee, J. (1998). How Does Foreign Direct Investment affect Economic Growth. Journal of International Economics,
45(1), 115 -- 135.
Mexico; How Interest ates Can Be Used to Manage an Economy
The management of the economy, undertaken with strategies from the government and decision fro the central bank, is usually undertaken with the aim of promoting and supporting a stable economy, balancing the desire for sustainable growth with the need to constrain inflation. This is an issue faced by almost all countries; inflation can be harmful to an economy, impacting not only in the internal stakeholders, but influencing the exchange rate. The control of inflation, often through the use of interest rates, may also help to stifle growth. This can be a conundrum, as stimulating growth and constraining inflation requires a very careful balance of economic policies. Mexico has been faced with this issue and in March 2013 the Banco de Mexico
made a surprise decision to reduce their interest rates from 4.5% to 4% (Trading Economics, 2013), and…
CIA, (2013), Mexico, [online] accessed 29th April 2013 from https://www.cia.gov/library/publications/the-world-factbook/geos/mx.html
Howells P.G.A, Bain, K, (2007), Financial Institutions and Markets, London, Longman
Hughes, E; O'Boyle M, (2013, April 27), Mexico Holds Interest Rates, Watches Capital Inflows, The Globe and Mail, [online] accessed 30 April 2013 from http://www.theglobeandmail.com/report-on-business/international-business/latin-american-business/mexico-holds-interest-rates-watches-capital-inflows/article11575099/
Index Mundi, (2013), United Kingdom GDP, [online] accessed 30th April 2013 from http://www.indexmundi.com/united_kingdom/gdp_real_growth_rate.html
educing operational costs is thus a key element in making microcredit less usurious. Extending larger loans to a group of individuals, so the cost of the loan is dispersed to a community, rather than used to burden a single individual is another potential solution.
The charges of usury are also rooted in the highly variable rates of interest around the world of microfinance, which can create the perception of injustice. Furthermore, some loan rates are shocking, especially for loans extended by supposedly charitable institutions and programs: "in 2007, for example, a controversy erupted around Compartamos, a Mexican MFI that was earning a 55% return on shareholders' equity by charging its borrowers interest rates around 85%" (Are microcredit interest rates excessive, 2009, CGAP). On average, the median interest rate for profitable microfinance institutions (MFI)s was about 26% in 2006. While this is around the interest rate of some credit cards in…
About microfinance. (2009). Kiva. Retrieved November 20, 2009 at http://www.kiva.org/about/microfinance#1._What_is_microfinance
Are microcredit interest rates excessive? (2009, February 25). CGAP. Retrieved November 20,
2009 at http://www.cgap.org/p/site/c/template.rc/1.26.5302/
Interest rates form the basis for valuation models around the world. They are used in almost every industry, country, and geography. Interest rates can also influence corporate and consumer behaviors. For example, depending on the inherent risk of a consumer, credit card rates determine how much an individual must pay on a month basis to the financial institution. Corporations looking to borrow funds to expand their market share must consider the variable interest rates being changed and their ability to service the debt. Even governments must be mindful of the extent of their borrowers and the corresponding impact of interest rates on their ability to services the debt. Due primarily to their importance in key elements of human civilization, interest rates are a closely watched tool by individual investors, general consumers, and corporations. Banks in particular are heavily influenced by the change in interest rates as they operate as financial…
Banking and Spreads: How Commercial Banks Utilize Spreads to Maintain Profitability
Commercial banks are institutions that provide services to their customers, including accepting deposits, cashing checks, lending money for various purposes, and providing investment products. Commercial banks are for-profit institutions, and while they rely on various sources of profit, including fees, their main source of profit is the interest rate spread (Investopedia, 2016). Interest rate spread refers to the difference between the interest rate charged by banks on loans to the private sector and the interest rate paid on various savings accounts. A simple numerical equation to describe the interest rate spread is Spread = Interest charged -- Interest paid. The interest rate paid by the bank is lower than the amount it charges to customers who have loans, and the difference between these two rates is how commercial banks derive the bulk of their income.
While a bank may…
Investopedia. (2016). How do commercial banks make money? Retrieved February 8, 2016
from: http://www.investopedia.com/ ask/answers/040215/how-do-commercial-banks-make-money.asp
Were, M. & Wambua, J. (2014, December). What factors drive interest rate spread of commercial banks? Empirical evidence from Kenya. Review of Development Finance, 4(2), 73-82.
Vasicek model is a model used in finance that depicts the development, movement or evolution of interest rates. The model is based on one single factor or source of market risk but it is useful in evaluating the pricing of derivatives or interest rates. Developed in 1977 by Oldrich Vasicek, the model also has a function in stochastic charting (Vasicek, 1977). Vasicek himself characterized it as an equilibrium within the term structure.
The formula for the model is and shows that stochastic differential equation gives place to the instant interest rate. It is the parameter of the standard deviation that allows for volatility to be determined (James, Webber, 2000).
Vasicek (1977) notes that a number of assumptions are at play in this formula -- such as the idea that spot interest "follows a diffusion process" and that it is on the spot rate that "discount bond" prices are dependent; the…
Copeland, Weston, Shastri. (2005). Financial Theory and Corporate Policy. NY:
Hull, J., White, A. (1996). Using Hull-White interest rate trees. Journal of Derivatives,
Part 1: The US Dollar
There are several advantages for a nation to have its own currency. The biggest advantage is probably that having one's own currency allows a nation to print more money, which can help it to avoid debt default (Wood, 2011). This is tied to other issues of sovereignty, and especially fiscal and monetary sovereignty, where a nation can manage the value of its currency and use the currency as a means of influencing trade, and by extension the nation's economy (Wood, 2011).
In Europe, where most nations are on the Euro, the fact that these advantages do not exist became a critical issue during the recession of 2008-2009. Several smaller Eurozone nations faced high debt loads, but were unable to do anything about those debt loads. The reason is that the Eurozone economy as a whole is driven primarily by three large industrial nations – Germany,…
Da Costa, P. (2017) Fed official: It\\'s inevitable that a controversial policy will return in the next recession. Business Insider. Retrieved September 16, 2017 from http://www.businessinsider.com/fed-official-qe-is-inevitable-when-the-next-recession-hits-2017-5
Krugman, P. (2011) The economic failure of the Euro. NPR. Retrieved September 16, 2017 from http://www.npr.org/templates/transcript/transcript.php?storyId=133112932
Ruan, H. (2013) Impact of US quantitative easing policy on Chinese inflation. University of Victoria. Retrieved September 16, 2017 from https://www.uvic.ca/socialsciences/economics/assets/docs/honours/Ruan_Ryan.pdf
Seth, S. (2015). What are the advantages of not adopting the Euro? Investopedia. Retrieved September 16, 2017 from http://www.investopedia.com/ articles/investing/043015/what-are-advantages-not-adopting-euro.asp
Defense of the Fed's New Interest-ate Policy, which was published by The Wall Street Journal on January 6th, 2013, financial reporters Frederic S. Mishkin and Michael Woodford carefully craft a justification of the Federal eserve's latest revision to its federal-funds rate target. The purpose of the article is to inform readers about the Fed's recent Federal Open Market Committee (FOMC), which resulted in the decision to keep the federal-funds rate near zero with a contingency based on the national unemployment and inflation rates. By linking the federal-funds rate target to a baseline of 6.5% unemployment, and a predicted rate of 2.5% inflation, while also providing public notice regarding its previously private policy criteria, the Fed is renewing its efforts to stabilize an economy battered by a prolonged recession. As Mishkin and Woodford state in the article, this "commitment not to raise rates in the future as soon as might have…
Mishkin, F.S., & Woodford, M. (2013, January 06). In defense of the fed's new interest-rate policy. The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424127887324274404578211832381399400.html
Yoon, A. (2013, January 28). Private mortgage market gains momentum after the crisis. The Wall Street Journal. Retrieved from http://online.wsj.com/article/BT-CO-20130128 - 711413.html
China announced on Oct. 28, 2004 the first interest rate rise in nine years. In this manner, Beijing is showing its willingness to adopt additional market-oriented reforms in order to have a tighter macro-economic control on the already overheated economy. Although the news regarding the evolution of the Chinese interest rate were contradictory, it would appear that North American economists are welcoming this interest rate increase.
The Chinese economy is rapidly becoming one of the most important in the world, with an annual 8% growth-rate, constant expansion in the preceding years and a history of twenty years of economic reforms. The global economy and especially neighboring countries such Taiwan and Hong Kong are feeling the pressure of the Chinese machine. Investors have made public their fears, since April 2004, that the economy will overheat and are now expecting the austerity measures by the Government to slow the growth and provide…
. "China economy: Beijing considers rate rise to cool economy";
EIU ViewsWire. New York: Apr 20, 2004. pg. n/a (c) 2004 The Economist Intelligence Unit Ltd.,Source: Financial Times
2. "Chinese interest rise shakes international market";
The English version of the Chinese People's Daily Online
In the contemporary financial environment, individuals who deposit money in the banks earn interest from their deposits. Similarly, commercial banks also receive interests from lodging funds with central banks. In other words, banks compensate savers by adding some percentages of the amount saved in the banks. In a sense, savers are lending their money to banks in order to be used elsewhere. In return, banks compensate savers interest incomes. Meanwhile, the interest rates are quoted as APY (annual percentage of yield) and savings account earns 3% APY. However, negative interest rates reverse this arrangement where savers or depositors are obliged to pay banks for holding their money. Moreover, central banks penalize commercial banks for depositing their funds with them. For example, The ECB (European Central Bank), some smaller European banks, and Bank of Japan have introduced the negative interest rate policy where banks, as well as other financial institutions, will…
risk management tools: interest rate futures, interest rate options, forward rate agreement and interest rate swaps.
Interest Rate Futures
An interest rate futures contract is a financial derivative. It allows the buyer of the contract to lock in a future investment rate. Like all derivatives, interest rate futures are based on an underlying security, which is a debt obligation that moves in value as interest rates change (Ord, 2011).
The interest rate future is a contract between the buyer and the seller in which they agree to the future delivery of any interest-bearing asset. The interest rate future allows the buyer and seller to lock in the price of the interest-bearing asset for a future date.
Some examples of underlying instruments of interest rate futures include:
Treasury bills in the case of Treasury bill futures traded on the Chicago Mercantile Exchange (CME)
Treasury bonds in the case of Treasury bond…
Chance, D.M. (2008). Introduction to interest rate options. Louisiana State University. Retrieved December 7, 2011 from: http://www.bus.lsu.edu/academics/finance/faculty/dchance/Instructional/TN01-02.pdf
Farlex Financial Dictionary. (2009). Interest rate option. Retrieved December 7, 2011 from: http://financial-dictionary.thefreedictionary.com/Interest+Rate+Option
Holton, G.A. (2007). Forward rate agreement. Retrieved December 7, 2011 from: http://www.riskglossary.com/link/forward_rate_agreement.htm
Holton, G.A. (2007). Interest rate swap. Retrieved December 7, 2011 from: http://www.riskglossary.com/link/interest_rate_swap.htm
On January 29th, 2016, the Japanese government instituted a negative interest rate for the first time in history. The stated objective of this policy is to "encourage banks to lend, business to invest and savers to spend," but the policy has come under heavy criticism. It is, ultimately, a high-risk policy that essentially takes Japan into uncharted waters (euters, 2016). To suggest that this policy is unorthodox is an understatement, but it highlights the rather unique position that Japan is in with respect to its economy. Economists in particular will be observing what happens with this policy closely, because it is a new situation, and the impacts can only be theorized at this point. This paper will outline the context for this decision, and analyze whether it not this is a good move by the Bank of Japan.
Background on the Japanese Economy, 1940s to 1980s
Understanding how this…
Einhorn, B. (2016). Abenomics? How about Kurodanomics? NewWeek Retrieved April 22, 2016 from http://www.bloomberg.com/news/articles/2016-02-18/japan-abenomics-how-about-kurodanomics
IndexMundi.com (2016). GDP real growth chart, Japan. IndexMundi.com. Retrieved April 22, 2016 from http://www.indexmundi.com/g/g.aspx?c=ja&v=66
Jones, R. (2005). Japan's economy. OECD Observer. Retrieved April 22, 2016 from http://www.oecdobserver.org/news/archivestory.php/aid/1511/Japan_s_economy.html
Kobayashi, K. (2009) The G20s blind spot: President Obama must squarely face the bad asset problem. Vox EU. Retrieved April 22, 2016 from http://voxeu.org/article/lessons-japan-s-failed-fiscal-stimulus
Fed Policy Change
The most recent Fed policy change was the decision to raise rates by 25 basis points. It is expected that the Fed will raise rates three more times (probably by the same amount) in 2018 and there are roughly 60% odds that the Fed will raise one more time this year (perhaps in December). However, I do not expect this trend to continue, because the debt of the nation is so great that it is simply unserviceable. If rates are raised, the interest owed on the debt will increase and that means more money going just to pay the interest on the loans the country has racked up. At the same time, pension funds and other types of funds are chasing yield in risky markets (the stock market is at an all-time high this year) because they cannot earn enough in interest by purchasing bonds (since rates…
Negative Effect of the Euro
The major issue facing the euro as a single currency is the potential problems that EU nations may face in absorbing future economic shocks. This is largely due to the fact that unlike most monetary unions, the euro will not be governed by a central fiscal policy since most member states are reluctant to give up control of taxation and expenditure policies. To compensate, euro countries are bound to observe fiscal guidelines laid down by the Maastricht Treaty of 1992 and the Stability and Growth Pact drawn up in 1997.
The Maastricht Treaty defined criteria that entails annual budget deficits held to 3% of GDP and the gross debt-to-GDP ratio reduced to 60% in order to avoid excessive borrowing by member states. Subsequently the Stability and Growth Pact defined the penalty sanctions to be imposed on defaulting nations. The EU believed that these measures would…
Atkinson, Mark. "Rate rises in Europe weaken euro." The Guardian. October 6, 2000. Guardian Unlimited Web site. URL:
Dailey, Chris. "Fiscal Policy in the Eurozone." University of Dublin Web site. URL:
Concluding Statement of the IMF Mission on the Economic Policies of the Euro Area." June 27, 2001. International Monetary Fund Web site. URL:
The History of the Interest Rate
Research the history of the prime interest rate since 1980.
Create a chart that shows the changing interest rate and depicts the economic and political conditions, factors, and reasons for the changing interest rate. Include a written summary of your findings. Your response should be 2-3 paragraphs (5-7 sentences).
The History of the Interest Rate
The prime interest rate peaked on 19 December 1980 at 21.50% from where it gradually declined 4% over the next four months before rising again to 20.50% by mid-1981. However, this marked the end of high interest rates, as from that point on the Fed took a sharp turn downward. By 1985, interest rates were at 10%. By 1992, they were at 6%. They flirted briefly with a return to 10% till 2000, whereupon the bursting of the tech bubble/dotcom bubble precipitated a further decline4% by 2003followed…
8 for August, 2008, the most recent available (next release is October 20th). This represents a decline over the previous month, and the lowest level of the year. Over the past three months, this index has trended down. In June this was at 102.0, then 101.3 in July. Prior to that the level it had been stable all year (either 101.9 or 102.0).
In terms of individual components, the following components were up: average weekly unemployment initial claims, stock prices, manufacturing new orders (consumer goods) and index of consumer expectations. Of these, it should be noted that the stock prices are lower than at any other point this year except for July. Average weekly unemployment initial claims rising is a negative component, so a rise will reduce the leading indicators index. Manufacturing orders represented a slight increase but is well down for the year. Therefore, only consumer expectations made a…
But when the Fed declared a moratorium on its consistent hikes in 2006, not everyone cheered. Said one economist: "According to their statement, the main reason is that the Fed believes inflation is destined to fall even in the absence of further monetary tightening. I find both good news and bad news in that rationale. The good news is that the Fed is looking ahead, acting on a forecast, rather than just opening the window, taking the economy's temperature and deciding what to do. The bad news is that inflation forecasts are not very accurate. And the other bad news is that if the Fed expects a weak economy to drag inflation down appreciably, it must be pessimistic about the outlook for growth" ("Commentary: The pros & cons of unchanged interest rates," Nightly Business Report. PBS.com, 2006). Little had really changed in the economy, said some economists, the Fed was…
Commentary: The pros & cons of unchanged interest rates." Nightly Business Report.
PBS.com. 14 Aug 2006. [18 Jul 2007] http://www.pbs.org/nbr/site/onair/transcripts/060814d/
Fed lifts interest rate to 3.75%" BBC News: Business. 20 Sept 2005. [18 Jul 2007]
interest paid at the beginning of a loan period than at the end of the loan period?
Whether an equal total payment plan is adopted or an equal principle plan, in both cases the interest paid at the beginning of a loan repayment period is more than at the end. This is because the interest is calculated on the amount that is loaned. When the first payment is made then a specific principle amount that the borrower has paid for is deducted from the total loan given. Thus the total amount loaned reduces and hence the interest on the new amount is lesser for the second payment.
Using an example of an equal principle plan, if a borrower borrows $10,000 for a repayment plan of 10 years at the rate of 10% per annum, the premium will be divided equally in 10 parts. Which means that each year $1,000 will…
These high costs will lead to a considerable decrease in the amount of investments in the housing market and will decrease the demand for real estate.
3. Elasticity of interest rates
The elasticity denotes whether or not the interest rate curve can be moved from a point to another and adjusted to the market requests based on the demand and supply for housing loans. The elasticity of the interest rate has been widely discussed by specialized economists, their opinions on the subject varying. In 1998, economists Robert liss and David Smith concluded that "the elasticity of interest rate volatility, the coefficient linking interest rate volatility to interest rate levels, is 1.5.." Furthermore, in regard with the highly elastic interest rates and low elastic interest rates, the two economists stated that "a moderately elastic interest rate process can capture the dependence of volatility on the level of interest rates, while highly…
Bliss, R.R. And Smith, D.C., 1998, The Elasticity of interest rate volatility: Chan, Karolyi, Longstaff, and Sanders revisited, Federal Reserve Bank of Atlanta, Working Paper 97-13a
Wikipedia, The Free Online Encyclopedia, November 2006, Interest Rate, http://en.wikipedia.org/wiki/Interest_rate,last accessed on November 25, 2006
Bliss, R.R. And Smith, D.C., 1998, The Elasticity of interest rate volatility: Chan, Karolyi, Longstaff, and Sanders revisited, Federal Reserve Bank of Atlanta, Working Paper 97-13a
International Monetary Econ
The rates obtained were as of market close on November 25, 2011. Historical rates are difficult to obtain online so this approach is more realistic. The spot rate for USD/JPY is 77.13 and the spot rate for USD/GBP is 0.64399 (Oanda.com, 2011).
The six-month forward rate for USD-JPY is 75.39 and for USD-GBP is 0.6279. The 6-month T-bill rates are for the U.S. 0.05%; for the UK 0.53% and for Japan 0.0%.
If covered interest rate parity holds, then there should be no arbitrage opportunity in trading forwards of these currencies. So for USD-GBP we have the following:
(1 + r£)/(1+r$) = (£/$f)/(£/$s)
For this relationship, interest rate parity does not hold. For the USD-JPY relationship we have the following:
r¥)/(1+r$) = (¥/$f)/( ¥/$s)
/ 1.0005 = 75.39/77.13
0.999 = 0.977
For this relationship, covered interest rate parity also does not hold.
If I have $10,000, my…
Spot rates from Oanda.com. (2011). Retrieved November 25, 2011 from http://www.oanda.com/currency/converter/
Forward rates from ForexPros.com. Retrieved November 25, 2011 from http://www.forexpros.com/currencies/gbp-usd-forward-rates
US Treasury rate from Yahoo! Finance. Retrieved November 25, 2011 from http://finance.yahoo.com/bonds
UK Treasury rate from The Financial Times. Retrieved November 25, 2011 from http://markets.ft.com/research/Markets/Bonds
Significance of Interest to the economy:
Interest rates keep on changing with the passage of time; the rates which were present a month ago are quite different from the current rates. This is because the interest rates change with the change in the growth of the economy. The expectations of lenders and borrowers regarding the future prices also affect the interest rates (Trainer, 2012).
The interest rates in U.S. are affected by the values of the dollar, by foreign interest rates and also by the close examination of the monetary policy actions which are taken by the Federal eserve. In our market economy a great role is played by the interest rates. Interest rates work just like traffic signals. The way in which the signals direct the traffic on intersecting roads, similarly interest rates manage the flow of money to borrowers from savers. Usually in the fund movement,…
Trainer, R. (2012). The Basics of Interest Rates. Federal Reserve Bank of Newyork. Taken from: http://ecedweb.unomaha.edu/ve/library/boir.pdf
Risk Institute. (2012). Sources and effects of interest rate risk. The Principles for the Management of Interest Rate Risk. Taken from: http://riskinstitute.ch/138860.htm
Federal Funds Rate
The federal fund rate was part of the solution, comprised in the Federal Reserve Act of 1913, to centralize the banking system and gain public control of the money supply, inflation, and economic growth. The banking crisis of 1907 was a result of decentralized, unregulated banking that caused confusion with private bank notes being used as currency. There were occasional episodes of monetary mismanagement where the money supply was not appropriate to fulfill the needs of the economy. Too much money caused rapid inflation where too little money stunted economic growth by hindering production and the exchange of goods and services. There were no nationally consistent banking policies and no one entity had control to implement policies until the Federal Reserve Act of 1913 became a national law.
The Federal Reserve System was created with the Federal Reserve Act of 1913 with a oard of Governors to…
Amadeo, K. About.com U.S. Economy. 24 Jan 2012. Article. 14 Aug 2012.
Bankrate.com. How the federal funds rate affects finance. n.d. article. 15 Aug 2012.
Bofah, K. What Effect does the Fed Fund Rate Have on Stock Prices. n.d. Article. 15 Aug 2012.
Madrick, J. "Paul Volcker, Jimmy Carter, and Ronald Reagan." Madrick, J. Age of Greed. New York, NY: Alfred A. Knopf, 2011. 160-176. Book.
Balancing Mortgage ates
Problems Faced While Balancing Mortgage ates
In general terms the monetary policies that contradict themselves mostly involve the process of changing the amount and level of the supply of money in a particular country. When it comes to talking about the expansionary monetary policy, it means that it expands and increases the flow and supply of money, then the impact it has on the monetary policies is that the flow or supply money decreases and hence so does the currency (Fisher, 1932).
Expansionary Monetary Policy
In the U.S., when the government wants to increase the supply of money, it can do so with a combination of three points.
By purchasing various securities from the open market which are also known as the open market operations
It can also be done by lowering the discount rate by the federal government.
It can also be done by lowering the…
Easton, B.H. (2011). Growth and Recessions of Economic Output: 1861-1939 (website tba)
Economic Committee (1932) Report.
Eggertsson, G.B. & Krugman, P. (2010). Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach
Eisner, Robert (1988). How real is the Federal Deficit? New York, The Free Press.
Exchange Rate Volatility on Trade Flows
Exchange Rate Volatility
Impact on International Trade Flows
Exchange Rate Volatility
Impact on International Trade Flows
Trade Flow Responsiveness
The dissolution of the Bretton-oods system in 1973 introduced a new era for international markets. No longer would the exchange rates be pegged and fluctuating exchange rates changed the game for international trade and investment. The newly introduced increase in volatility in the foreign exchange markets also increases the risk of uncertainty for all international transactions. The floating rates produce new complexities that have implications for any individual or organization who buys sells, makes, or trades goods or currencies. These implications directly affect nation's balance of trade; however they also literally indirectly affect every individual's lives in one way or another.
The exchange rate volatility has had mixed theories produced by academia in terms of its effects on trade flows.…
BAHMANI-OSKOOEE, M., & KARA, O. (2003). Relative Responsiveness of Trade Flows to a Change in Prices and Exchange Rate. International Review of Applied Economics, 293-308.
Bahmani-Oskooee, M., & Wang, Y. (2008). IMPACT OF EXCHANGE RATE UNCERTAINTY ON COMMODITY TRADE BETWEEN THE U.S. AND AUSTRALIA. Australian Economic Papers, 235-258.
Cheong, Chongcheul, (2004) "Does the risk of exchange rate fluctuation really affect international trade flows between countries?." Economics Bulletin, Vol. 6, No. 4 pp. 1?8
Hegerty, M.B.-O. (2007). Exchange rate volatility and trade. Journal of Economic Studies, 34 No. 3, 211-255
Exchange Rate Fluctuations
Forex's opening trade on February 14, 2012 for the U.S. Dollar- Euro was one Dollar for .7593 Euros (Google Finance.com. February 14, 2012). Over the period covering the "Great Recession" and the subsequent recovery, the Euro has moved in a yo-yo pattern, at times buoyed by a weak dollar policy of the U.S., and alternately battered by a flight to safety as investors seek the relative strength of the world's reserve currency. Most recently the Dollar- Euro trade has seen the impact of a contagion sovereign debt crisis which has caused vicissitude swings in the currency trade. At the core of these movements however, is the fundamental question of what are the causes and factors of exchange rate fluctuations, and ultimately who are the beneficiaries?
Causes and Factors of Exchange Rate Fluctuations
hen discussing the exchange rate there are two components; the nominal exchange rate and the…
When discussing the exchange rate there are two components; the nominal exchange rate and the real. The former referring to "the rate at which a person can trade the currency of one country for the currency of another" (Mankiw, G.N. 2004), while the latter is " the rate at which a person can trade the goods and services of one country for the goods and services of another" (Mankiw, G.N. 2004). While the nominal exchange rate of one Dollar for .7593 Euros (Google Finance.com. February 14, 2012) garners the headline attention, it is the real exchange rate which is "a key determinant of how much a country exports and imports" (Mankiw, G.N. 2004). The practical application of the exchange rate is the appreciation or depreciation of a currency and the impact of that move on the affordability of goods and services.
Economists cite multiple factors for the movement of currencies relative to one another: inflation differentials, interest rate differentials, current account deficits, public debt, and political stability-economic performance (Investopedia.com. July 23, 2010). In the context of the Dollar-Euro trade, only a few of these factors directly play into the determination of the exchange rate. Inflation differentials mean very little due to the fact that Eurozone inflation year over year is averaging 2.748%, while the U.S.is averaging 2.96% (Global Rates.com. 2012). If there were a significant differential in inflation, lower inflation nations would have comparably stronger currencies. Interest rate differentials also have negligible impact in the Dollar-Euro currency trade. The Federal Reserve and European Central Bank have kept short-term interest rates under one percent for several years to encourage borrowing and liquidity. A large differential would indicate the country with higher rates would experience higher capital inflows and a currency appreciation. Both the Eurozone and U.S. run considerable current account deficits, the former 100 billion U.S. dollars in 2011 (Feldstein, M. November 30, 2011), while the latter experienced a 110 billion deficit in the third quarter of 2011 (U.S. Department of Commerce. 2012).
It is the last two factors which explain the largest movements in the Dollar/Euro trade; debt issuance and political stability and economic growth. The 800 pound gorilla in the room is that the Eurozone is in the midst of sovereign debt crisis which has poisoned the well of economic growth across the European economies. Greece, Spain, Portugal, Ireland and others are rife with high debt to GDP ratios which are strangling private sector opportunities. Germany and France remain the stalwarts of the EU economy, yet even these engines of growth are suffering from the ever increasing debt burden of ECB bailouts and the concomitant surge in possible sovereign credit defaults. While the U.S.
fixed and floating exchange rates mechanisms are the exact opposites of one another, the advantages of one are generally the disadvantages of the other. Anyhow, in order to be able to evaluate for each case in part its positive and negative aspects, we should start with defining each, as most of the advantages and disadvantages derive there from.
The fixed exchange rate mechanism refers to a mechanism where "the government (central bank) sets and maintains the official exchange rate)
." The key word in this mechanism is pegging, which means that the currency has a price set against a major currency of the world and that the central bank ensures that this rate is kept throughout the entire period the currency is pegged.
The main advantage in this case refers to stability. Indeed, a fixed exchange rate mechanism helps eliminate or speculative activity on the respective currency. With no more…
1. Heakal, Reem. Fixed and Floating Exchange Rates. February 2003. On the Internet at http://www.investopedia.com/ articles/03/020603.asp
2. Fixed and Floating Exchange Rates. (2003). On the Internet at http://www.tutor2u.net/economics/content/topics/exchangerates/fixed_floating.htm
Heakal, Reem. Fixed and Floating Exchange Rates. February 2003. On the Internet at
International Monetary System and Exchange ate Policies
A report/essay: chapter 17, multinational companies. select topic research write: Multinational vs. domestic financial management exchange rates international trade international monetary system exchange rate policies trading foreign exchange european monetary union interest
rate parity/purchasing power parity international capital structures.
The international monetary system and exchange rate policies
International Monetary systems
These are a set of rules and that regulate how international trade and payments are handled. It facilitates the exchange of capital, goods and services among countries. However, this system does not have a physical presence but, it consists of interlacing rules and procedures and is influenced by the market of foreign exchange. An example of an international monetary system is the International monetary fund. These interlacing rules and procedures are referred to as exchange rate Policies.
Exchange rate policies
These are rules that officials of public finance from different nations have developed…
Eichengreen. (2011). Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System
Goyal, M., Raman, Wang, and Ahmed; . ( 2011). Financial Deepening and International Monetary Stability.
Michael C. Ehrhardt, & Eugene F. Brigham. (2011). Corporate Finance (4th ed.): Cengage.
OECD. (2011). The Effects of Oil Price Hikes on Economic Activity and Inflation.
Theoretically speaking, there is only one factor affecting the exchange rate of a country adopting a floating exchange rate regime: the supply and demand of the respective currency on the international market. In this sense, if demand exceeds supply, then the value of the currency will go up and the respective currency will appreciate. On the other hand, if supply exceeds demand, the currency will depreciate and the price of the currency will decrease.
Starting from this statement, however, we can discuss several different factors that make the demand and supply vary, affecting thus the exchange. First of all, we have the level of the interest rate in a country. If the interest rates are higher, then foreign investors will choose to enter the national capital markets, purchase local currency and invest in local bonds or T-bills, which bring high returns, due to high interest rates. This mechanism will lead…
1. Fixed and Floating Exchange Rates. (2003). On the Internet at http://www.tutor2u.net/economics/content/topics/exchangerates/fixed_floating.htm
2. S Johnson (July 2004). Dollar falls as data put focus on U.S. deficit. Financial Times
3. Fixed and Floating Exchange Rates. (2003). On the Internet at
Fed aises Key ate Again"(Henderson, 2005), which appeared in The Washington Post, outlines the reasons Federal eserve officials recently implemented a short-term interest rate increase. The current federal funds rate stands at 4%, the highest level since 2001, and reflects a quarter percent increase. Furthermore, this raise is the twelfth consecutive one since June 2004 (Henderson, 2005) and is, as Federal eserve officers note, only one in a series of anticipated increases. The next raise is likely to take place at the end of January 2006, bringing the federal funds rate to 4.5%. However, certain analysts expect increases in December. Some specialists claim a projected rate of 5.5% by July of next year, which they say will conclude the cycle of increases. Naturally, with Greenspan retiring at the end of January, the proposed raises are speculative as Bernanke has yet to demonstrate his intentions as the future Federal eserve Chairman.…
BBC News (2005, Nov.1). 'Fed Raises U.S. Interest Rate to 4%'. BBC News.
Henderson, Nell (2005, Nov. 1). 'Fed Raises Key Rate Again'. The Washington
Managing Financial isk including Currency Exchange ate isks
Deere and Company are suffering as the string dollar is impacting negative on sales in the Euro zone. The firm is suffering not only due to the exchange rate, but also the high level of competition from other European firms that are operating in the Euro.
If companies operate across international boarders they will face risks associated with exchange rate movement. In the case of a strong home currency, this will make the goods more expensive to purchase if the pricing is based in the home currency. The basing of the price on the dollar, even if it is converted to Euro's effectively passes the risk to the purchaser. The impact can be the price becoming uncompetitive, especially when there are firms that are basing their pricing structure on the same currency as the purchasers.
The firm may deal with the…
Howells P.G.A, Bain, K, (2007), Financial Institutions and Markets, London, Longman
WalMart, (2014), WalMart Annual report, accessed at http://stock.walmart.com/annual-reports
forward discount in predicting exchange rate modifications. The conclusion of the literature review is that the forward discount is a biased predictor and that are two possible explanations for this situation. One cause would be the presence of a time varying risk premium, and the other the failure of agents to make rational expectations (the inability to use all available information in an efficient manner).
The forward discount puzzle (as a predictor of exchange rate modifications) is a very discussed puzzle in the international finance literature, since its importance is quite high. As a result, numerous studies have concentrated on this issue, i.e. On the causes on the bias. Some authors (Fama, 1984), believe that this problem is traceable to the existence of a time-varying risk premium. Others connect it to learning effect (Lewis, 1989) or irrationality (Bilson, 1981) the "peso problem" (Krasker, 1980),
The "peso problem term" was introduced…
Beng, G.W. And W.K. Siong. (1993) Exchange Rate Expectations and Risk Premium in the Singapore/U.S. Dollar Exchange Rate: Evidence from Survey Data Applied Financial Economics, 3(4), pp. 365-73.
Bilson, John F.O., (1981) The Speculative Efficiency Hypothesis, Journal of Business, 54, pp. 435-452
Cavalgia, S.W., F.C. Verschoor and C.C.P. Wolff (1993a) Further Evidence on Exchange Rate Expectations Journal of International Money and Finance, 12 (1), pp. 78-98.
Cavalgia, S.W., F.C. Verschoor and C.C.P. Wolff (1993b) Asian Exchange Rate Expectations Journal of the Japanese and International Economics, 7(1), pp. 57-77.
Managing exchange rate risk can be a daunting task for many international firms attempting to expand overseas, acquire new companies, or simply manage its cash flows. Globalization has created a dynamic environment in which competition can arise to disrupt entire industries. Aspects such as technology, pharmaceuticals, banking, and automobiles have all experienced rapid change as a result of globalization and the competitive forces that underline it. As a result, companies, particularly smaller firms, have a higher propensity to experience volatile earnings overtime. Aspects that impact one sector of the globe can have a residual impact on other areas of the individual firm or industry. Managing exchange rates is therefore a viable option for firms to reduce volatility in earnings while subsequently managing its cash flows from operations. Below, is a 5 step program which could be implemented by a firm attempting to manage its exchange rate risk after an…
1. Jorion, Philippe (2009). Financial Risk Manager Handbook (5 ed.). John Wiley and Sons. p. 287. ISBN 978-0-470-47961-2.
2. Bartram, Sohnke M. (2006). "The Use of Options in Corporate Risk Management." Managerial Finance 32 (2): 160 -- 181
Exchange Rate Crisis
Exchange rate crises are quite common phenomena in the economic world. From the 1994 Mexican crisis and the 1997 Asian crisis to the 1999 Argentine crisis, currency crises have occurred with a somewhat remarkable frequency. Also, known as currency crises or balance of payments (BOP) crisis, exchange rate crises occur when a country's monetary authority (central bank) has inadequate foreign exchange reserves to sustain its set exchange rates. This is usually caused by trade shocks, persistent budget deficits, foreign interest rate shocks, political uncertainty, banking system weaknesses, and moral hazard problems. An exchange rate crisis is often symbolised by factors such as hyper-inflation, banking crisis, devaluation, and economic recession, clearly indicating the dire consequences a currency crisis can have on the economy. More importantly, an exchange rate crisis can easily spread beyond the national boundary, underscoring the need for measures to prevent the crisis. This paper discusses…
Changes in the spot rate of exchange between two countries can occur as the result of a change in the relative interest rates in those countries, a change in the balance of trade between those countries and changes in the inflation rates in those countries (Van Bergen, 2015).
The two that are most closely followed are the differences in the interest rates, and the differences in the inflation rates.
A forward is a contract that is written between a party and a counterparty, to exchange currency in a set amount at a set rate in the future. This is proprietary between the parties. A future is publicly-traded. So while it also sets a future date and price for a currency, it is publicly traded, the dates do not change, and the amount is fixed -- to increase the amount you have to buy or sell more futures.…
Van Bergen, J. (2015). 6 factors that influence exchange rates. Investopedia. Retrieved December 23, 2015 from http://www.investopedia.com/ articles/basics/04/050704.asp
exchange rate risk can be hedged. The current cost of the room is £50 per day, which is: 50 * 1.50 = $75.00. For a consumer, the easiest way to hedge this risk would be to purchase pounds today, so that the cost of those pounds is locked in. The transaction is a money-loser because of the time value of money, except that in this situation the nominal amount of pounds is locked in, so the nominal amount of pounds needed will not change. Only the opportunity to make interest on that money changes. For £50 and one year, this amount is negligible, but for larger transactions the time value of money is significant and important, making this an undesirable option.
If the transaction was larger, it could be hedged on the futures market or with interest rate swaps. A forward contract could also be purchased. Futures have a downside…
Investopedia. (2011). How are futures used to hedge a position. Investopedia. Retrieved March 27, 2011 from http://www.investopedia.com/ ask/answers/06/futureshedge.asp
"Foreign exchange forward." (2010). Montego Data. Retrieved March 27, 2011 from http://www.montegodata.co.uk/consult/fx/fxforward.htm
IMF and World Bank in global financing and exchange rate fluctuations
he International Monetary Fund plays a crucial role in the world's economy, especially in global financing and exchange rate fluctuations. However, its influence ranges well beyond those disciplines.
he main responsibility of the International Monetary Fund is to provide loans to nations experiencing balance of payments difficulties. he International Monetary Fund's involvement allows these countries to stabilize their currencies, rebuild their international reserves, continue to import much needed goods, and generally set the stage for strong economic growth.
A country can only ask for International Monetary Fund assistance when it has a serious balance of payments deficit, as in, more money goes out than comes in, and it cannot get financing to meet its international obligations.
he general understanding is similar to the United States Bankruptcy Code, which is, no one benefits from insolvency, neither the debtor nor the…
The Bank gets about 10% of its funds from taxpayers, in the form of direct contributions from member governments.
The IFC operates partly with funds contributed directly by its member countries but mainly with funds borrowed from the IBRD. The IFC is the fastest growing part of Bank operations, with IFC investments having grown to $2.1 billion last year. Among the transnational corporations represented on the IFC Business Advisory Council are the Bank of Tokyo, Credit Lyonnaise, Treuhandanstalt, SG Warburg.
www.imf.org www.worldbank.org http://www.atu2.com/news/article.src?ID=294
This means those companies that are in industries that are exposed to tremendous amounts of volatility should be engaging in these activities. Some of the different areas they will become involved in are: currencies, stocks, futures, options and commodities. The reason why, is because these kinds of companies are often exposed to large swings that could happen at any point in time (due to adverse changes in the economy or the markets). This will have a negative effect on earnings and it will become difficult from them to make accurate projections. When a company begins using hedging, this will provide more consistent earnings stability to their business model. This is point that they can provide more stable returns to shareholders.
However, not all firms should be hedging. In some cases, this activity could be considered to be speculation. As, the hedge may not provide any kind significant benefit to the…
Thomas, M, 2005, Hedging Instruments and Risks. McGraw Hill, New York.
1555209 / .1545953
R/2 =.0059872 c) the ask price for dollars in three months is 1 / 6.435 =.1554001; therefore for FFR 1,000,000 you will receive $155,400.10 d) the bid price for francs in six months is 1 / 6.430 =.1555209; therefore it will cost $77, 760.45 for the FFR 500,000.
3. The bid from the Paris dealer would be.03/.2 =.15.
The ask from the Paris dealer would be.0335 / .202 =.1658415
4. The DEM is undervalued as of December 31, 1999. The PPP calculations for the DEM as follows:
5225 (1.05/1.025) =.5352438;.5252438 (1.045 / 1.02) =.5483624;.5483624 (1.055 / 1.035) =.5589587 should have been the value of the DEM on December 31, 1999.
5. Given the 1% mandatory profit, arbitrage opportunities exist with DEM/FFR exchanges in Frankfurt and Paris. Three point arbitrage opportunities are also possible with transactions beginning with the purchase of FFR in New York; the purchase of…
Transaction exposure risk may be defined as "cash flow risk" and is associated with the impact of FX rate moves on exposure due to transactional accounts, regarding exports, import or dividend repatriation: and FX "rate change in the currency of denomination of any such contract will result in a direct transaction exchange rate risk" (Papaioannou, 2006, p. 4), thus impacting the multinational corporation in terms of affecting the inflow and outflow of cash over a given period.
Translation risk may be defined as the FX rate risk associated with the balance sheet of a company's holdings. The notion is that exchange rates affect the value of a subsidiary in a foreign country and in instances where the subsidiary is consolidated to the parent balance sheet, the risk becomes translational. The way to measure this risk for a company is by assessing the net asset exposure and measuring it against…
Bodnar, G. (2015). Techniques for managing exchange rate exposure. Wharton/UPenn.
Retrieved from http://finance.wharton.upenn.edu/~bodnarg/courses/readings/hedging.pdf
Dohring, B. (2008). Hedging and invoicing strategies to reduce exchange rate exposure:
a euro-area perspective. Economic Papers 299, European Commission.
country can interfere in the foreign exchange markets. In many cases, the motivation for doing so lies with propping up exporters, by lowering the value of the domestic currency. While this is the most common reason for currency manipulation, it is not the only one. In some cases, currency manipulation aids in the cause of making debt disappear, lowering the value of that debt in order that it might be paid back early. This paper will discuss some of the different ways that countries can affect their exchange rates.
A freely-traded currency should reflect the economic strength of a nation, in particular the expectations for future interest rates. Where expectations for future rates are relatively low, that means that the economy is expected to perform worse. This is the case for Japan. The country has adopted a policy recently of a low yen, in order to provide some spark to…
Kim, Y. & Ying, Y. (2007). An empirical assessment of currency devaluation in East Asian countries. Journal of International Money and Finance. Vol. 26 (2007) 265-283.
Palmer, B. (2012). If currency manipulation is so great for exports, why don't we do it? Slate. Retrieved November 24, 2014 from http://www.slate.com/articles/news_and_politics/explainer/2012/10/china_currency_manipulation_how_does_it_harm_the_u_s_and_what_can_we_do.html
Staiger, R. & Sykes, A. (2008). Currency manipulation and world trade. National Bureau of Economic Research. Retrieved November 24, 2014 from http://www.nber.org/papers/w14600
The Economist. (2014). A fistful of dollars, or perhaps not. The Economist. Retrieved November 24, 2014 from http://www.economist.com/blogs/americasview/2014/04/venezuelas-byzantine-exchange-rate-system
interest and compound interest? hy is knowing the difference important? hat is the formula for determining the future value of an amount? hy is a dollar today worth more than a dollar received in the future?
First Student Response:
Interest in financial terms is when your initial investment yields benefits. You invest an amount and a percentage of that basic investment turns into financial surplus. You gain funds through your investment. There are two types of interest: simple interest and complex interest (Buckelew). Simple interest is when the amount gained does not change. There is a formula which goes I (interest) = P (principle) multiplied by r (rate of interest) and multiplied again by t (time). So the interest you get is based on the amount you put in, the rate of interest, and the time you leave your interest to grow. Compound interest is more complicated than this. In…
Buckelew, B. The spreadsheet in mathematics explorations. The University of Georgia.
Retrieved from http://jwilson.coe.uga.edu/EMT668/EMAT6680.2004.SU/Buckelew/assignment12/assignment12.html
Lane, M.A. The time value of money. Business Finance Online. Retrieved from http://www.zenwealth.com/BusinessFinanceOnline/TVM/TimeValueOfMoney.html
Simple vs. compound interest calculation. (2013). Accounting Explained. Retrieved from http://accountingexplained.com/misc/tvm/simple-compound-interest
International Crime Rates
International Crime Rates: Germany, France, and Kingdom of Saudi Arabia & the United States of America
The legal systems in the United States, Germany, France, and Saudi Arabia are different due to the differences in the U.S. crime rate and due as well to the differences in the Criminal Justice systems of Germany, France and Saudi Arabia. What factors can be said to cause the difference in crime rates? Does the integration of culture and religion in Saudi Arabia really result in reduced crime rates?
The basic of structure in court systems throughout the world or the universal structure is characterized by courts being divided by lower, mid, and higher levels of courts. There are evident and not so evident differences and variations with this basic structure of organization. There are four types of criminal justice structures of organization. Those are:
Cummings, Milton C., Jr. & Wise, David (1982) Democracy Under Pressure: An Introduction to the American Political System. CAT. 81-80036. I.S.B.N. 0-25-5273434. Harcourt Brace Jovanovic, Inc.
New Standard Encyclopedia (1984) Vol. IV, VII, XI, XVI. Standard Education Corporation. Chicago (1984)
The U.S. Encyclopedia of History (1967) Vol. IV, VII, XI, XVI. Curtis Pub Co Philadelphia -- New York. (1959)
American Heritage Collection (1959) American Heritage Publishing Company.
Contrary to what is often seen on the nightly news programs, there are still many people in this country and throughout the world who want to live in safe places and who would be interested in making their town better. Often, they do not know what they can do to improve the poorer parts of town, so they simply choose not to live or work there. This only leads to the decay of those areas and the rising crime rate. While unfortunate, it is not entirely unexpected. However, urban revitalization has begun in a lot of cities and towns, both big and small, in recent years. Although the economy has slowed some of that, there are still many areas where it is moving forward. This will, in time, lower the number of sexual assaults and other crimes in those revitalization areas. If more people would help to improve their neighborhoods,…
Chu, James A. (1990). Dissociative symptoms in relation to childhood physical and sexual abuse, Am. J. Psychiatry.
Coons, P.M. (1994). Confirmation of childhood abuse in childhood and adolescent cases of multiple personality disorder and dissociative disorders not otherwise specified. Journal of Nervous and Mental Disease, 182, 461-464.
Finkelhor, D. (1990). Early and long-term effects of child sexual abuse: An update. Professional Psychology: Research and Practice, 21, 325-330.
Jarvis, T.J., & Copeland, J. (1997). Child sexual abuse as a predictor of psychiatric co-
Pension Plan eplacement ates
Public Pension eplacement ates
The portion of monthly pre-retirement income that will be replaced by monthly pension plan funds is called the pension plan replacement rate (Quadagno, 2011). In the United States, the majority of pre-retirement income replacement comes from Social Security payments (Quadagno, 2011). The actual replacement rate for wage earners with lower incomes is higher than for those who have had higher wages during their working years (Quadagno, 2011). But overall, wealthier recipients of Social Security payments still achieve higher income replacement (Quadagno, 2011). "By 2030, a worker who retires at age 62 will receive only 70% of the whole retirement benefit, and workers who want to receive the maximum benefit will have to wait until they reach age 67" (Quadagno, 2011, p. 10). How does this compare with the situation in other countries? Comparing prior earning replacement rates for Greece and the United…
Current and Prospective Theoretical Pension Replacement Rates. (2006, May 19). Social Protection Committee (SPC), European Commission: Employment, Social Affairs, and Inclusion. Retrieved http://ec.europa.eu/employment_social/
Nektarias, M. (). Financing public pensions in Greece. SPOUDAI, 50 (3-4), University of Piraeus.
Nelson, R.M., Belkin, P., Mix, D.E. (2011, August 18). Greece's Debt Crisis: Overview, Policy Responses, and Implications. Washington, D.C.: Congressional Research Service. Retrieved http://www.fas.org/sgp/crs/row/R41167.pdf
The increased expectation of lawful income will reduce the temptation of illegitimate activity.
This is referred to as the 'motivation effect. The opportunity effect is a long- term influence that is positively correlated with crime, while the motivation effect is more short-term and has a negative correlation with crime. Thus, in years when people increase their spending by very small amounts or reduces it altogether, notably quickly. In contrast, during year when people rapidly increase their expenditure, property crime tends to grow less rapidly or even fall.
In relation to San ernardino, Miguel (2006) argues that with the recent renewal of the city by industries, the unemployment rate has been reduced to a large extent. The number and value of goods available as a result of this growth in income can be linked to the upsurge in robbery cases in homes and public places such as banks.
Economic growth, unemployment…
Becker, Gary 1999, Crime and Punishment: An Economic Approach, Journal of Political Economy
Becker, Gary and Murphy, Kevin 1999, A Theory of Rational Addiction, Journal of Political Economy
Richardson, Isaac, (2009) Participation in Illegitimate Activities: A Theoretical and Empirical Investigation, Journal of Political Economy
Ehrlich, Isaac 1975, The Deterrent Effect of Capital Punishment: A Question of Life
Managing Exchange ate isk
For a number of multinational corporations, currency fluctuations can pose an extreme risk for them. This is because of sudden changes and dramatic amounts of volatility inside the marketplace can have a negative effect on their bottom line results. When this happens, there is a realistic possibility that these challenges could negatively impact their financial position and ability to compete inside many different markets. (Berger, 2011)
In the case of Fed Ex, the company has operations around the globe and is one the larger overnight package delivery services. This means that sudden shifts in the currency could negatively impact their earnings. To fully understand the overall scope and the way they are able to deal with these challenges requires focusing on how this impacts their operations, options financial managers can use to manage it and the benefits / drawbacks of these strategies. Together, these elements will…
Fed Ex. (2013). Yahoo Finance. Retrieved from: http://finance.yahoo.com/q/pr?s=FDX+Profile
Fed Ex First Quarter Results. (2012). IPC. Retrieved from: http://www.ipc.be/en/Newsroom/General%20news/FedEx%20reports%20first-quarter%20results
Berger, A. (2011).Case Study Fed Ex Corporation. Nordstadt: Verlag.
Grady, G. (2010). Foreign Exchange Risk Management Methods. E Zine Articles. Retrieved from http://ezinearticles.com/?Foreign-Exchange-Risk-Management-Methods&id=3047383
Public administration is one of the constructs upon which every government functions. It incorporates the concepts of administrative responsibility and public interest upon which the idea of ethical obligation and the dilemma brought about by the privatization of government functions ride. Anytime the electorate cast their votes and express their preference for one candidate over another, they do so in the expectation that the candidate will work towards satisfying the public's interests, rather than their own, and that they will use their positions to help people, rather than dominate them. This expectation is, however, not often given the significance it deserves, despite the fact that it advances from the party that stands to either benefit or lose directly from a public administrator's actions.
The Concept of Public Interest
Although it is difficult to give an explicit definition of the constituents of public interest, experts have repeatedly referred to it as…
CAPAM Featured Report. (2010). Ethical Dilemmas in the Public Service. CAPAM. Retrieved from http://win2vin.files.wordpress.com/2013/09/ethical-dilemma-good-one.pdf
Holland, D., Nonini, D.M., Lutz, C., Bartlett, L. & Frederick-McGlathery, M., Guldbrandsen, T. & Murillo, E. (2007). Local Democracy under Siege: Activism, Public Interests, and Private Politics. New York: New York Press.
Starling, G. (2007). Managing the Public Sector (8th ed.). Boston, MA: Cengage Learning.
Stillman, R. (2009). Public Administration: Concepts and Cases. Boston, MA: Cengage Learning.
China's Interests in Iran
The following hite Paper is an examination of the prospects and pitfalls for China in pursuing further economic opportunity through its investment in the future of Iran. As the two nations proceed with the explicit intention of further entwining prospects both economically and diplomatically, China must move forward with care and precision. As the discussion here will demonstrate, its opportunities and the level of commitment already pursued are quite ample, but it will also be necessary for China to take a more active role in helping to reign in some of Iran's behavioral excesses if it is to enjoy the benefits of this relationship. And quite to the point, it will also appear to be in the best interests of Iran to accommodate calls for a more moderate disposition in world affairs if it is to benefit from the opportunities presented by China. The mutuality of…
China Knowledge Online (CKO). (2009). Iran, China to strengthen energy cooperation. China Newswires.
Daraghi, B. (2009). Iran signs $3.2-billion natural gas deal with China. Los Angeles Times. Online at http://www.latimes.com/business/la-fg-iran-china15-2009mar15,0,4516210.story?track=rss
Hiro, D. (2005). Iran's Nuclear Ambitions. The Nation. Online at http://www.thenation.com/doc/20050912/hiro
ICS. (2003). History: The Islamic Revolution of 1979. Iran Chamber Society. Online at http://www.iranchamber.com/history/islamic_revolution/islamic_revolution.php
circle around. I am interested in exploring the tensions between the stated goals and the process of achieving them. The readings in this course have demonstrated that there are many pitfalls within the community building community itself. Some of these are as black as white as: who is the most important factor in a mobilizing effort -- the individual or the group. Some of the tensions, like those about roles and the future, are more nuanced and are answered with a well it depends. At the heart of my response to this course is the recognition that there are and always will be competing objective in a world with limited resources. And that despite those limitations the objective is to find ways to adapt and evolve while retaining the human connections to one another that allow us to effectively problem solve so that we may all live well. To that…
Cooper, P.J. "The Duty to Take Care:President Obama, Public Administration, and the Capacity to Govern." Public Administration Review 71.1 (2011): 7-18. http://dx.doi.org/10.1111/j.1540-6210.2010.02302.x
Corbin, Julia. "Connect The Dots for Putnam and Denhardt Readings." Colleague Paper.
Pages 1-4. September, 26, 2011.
Denhardt, Robert B. (2008) Public Administration: An Action Orientation. Belmont, CA:
National Interest as a key determinant in Foreign Policy
National Interest and Foreign Policy
National Interest Defined:
The national interest is, very simply, the objectives of a country ranging from the macro goals i.e. economy, military to the micro goals like social use cyber space. National interest is an integral part of international relations as it is a concept based out of the realist school of though. This will be discussed in more detail in the paper.
Foreign Policy Defined:
Foreign policy, very simply, is the strategy that guides all international dealings and associations of a country
When dealing with national interest, one has to wonder about the degree to which domestic politics is vital for the comprehension of that country's foreign policy. Domestic politics is not of immense significance; this has been depicted by an eminent assumption related to structural realism, global association. The systemic vigour of the global…
Bond, J.R., and R. Fleisher. 1990. The President in the legislative arena. Chicago: University of Chicago Press.
Clarke, K.A. 2001. Testing nonnested models of international relations: Reevaluating realism. American Journal of Political Science 45(3): 724 -- 744.
Clarke, K.A. 2003. Nonparametric model discrimination in international relations. Journal of Conict Resolution 47(1): 72 -- 93.
Fearon, J.D. 1998. Domestic politics, foreign policy, and theories of international relations. Annual Review of Political Science 1: 289 -- 313.
Carlson, Bitterman, and Jenkins (2012) were interested in the effects of home literacy environment on a sample of preschool children with disabilities. Home literacy environment refers to a number of conditions that foster the development of reading and writing skills in children. Carlson et al. (2012) reviewed the previous research findings and determined that the frequency that parents read to their children (joint reading) has dominated this research and findings and generally finds that a significant amount of the variance in reading achievement, literacy, and language abilities can be treated to joint reading of toddlers and preschoolers. They also discuss two major categories of home literacy experiences: formal literacy experiences (activities in which parents actively teach children to read and write) an informal literacy experiences (joint reading or reading story books focusing on the story rather than the reading skills). The research has generally found that informal literacy experiences explain…
Carlson, E., Bitterman, A., & Jenkins, F. (2012). Home literacy environment and its role in the achievement of preschoolers with disabilities. The Journal of Special Education, 46(2), 67-77.
The high divorce rates in First World nations have encouraged researchers, family counselors, and religious advocates to investigate the core foundations for the creation of a successful marriage. Starting in the 1960s, evolving social context ultimately shifted the rationale in why individuals choose to marry, and over time, divorce has come to be viewed as the preferred alternative to an unhappy marriage. One main fundamental principle to achieve marital success is to recognize women desire love, while men simultaneously need respect to feel fulfilled within the relationship. Emotional intelligence within a relationship and acknowledging various marital myths also contribute to the fundamental elements of marital success. Dissociating from marital myths and misconceptions is an essential part to understanding the true foundations for a happy and successful marriage. Appreciating and understanding how attachment styles affect marital relationships is also essential. These beliefs and attachment styles contribute to the marital…
Eggerichs, E. (2004). Love and Respect: The Love She Desires, The Respect He Desperately
Needs. Nashville: Thomas Nelson.
Gottman, J. (1993). A Theory of Marital Dissolution and Stability. Journal of Family
Psychology, 7(1), p. 57-75.
suicide has been of interest from the beginning of Western civilization. For philosophers, clergy and social scientists, the subject raises myriad of conceptual, theological, moral, and psychological questions, such as What makes a person's behavior suicidal? What motivates such an action? Is suicide morally permissible, or even morally required in some extraordinary circumstances? Is suicidal behavior rational? How does suicide affect those that remain? The fictional books Virgin Suicides and Norwegian Wood address some of these topics, only to find, as in real life, that each situation differs and the ones who are left must find a way to personally resolve their confusion and move on.
The definition of suicide is confusing. People have long looked at suicide in a negative fashion, although someone who dies to save others is more likely to be seen in a better light than someone who has done so to relieve mental or physical…
Amundsen, D."Suicide and Early Christian Values." Suicide and Euthanasia: Historical and Contemporary Themes, Ed. B. Brody. Dordrecht: Kluwer, 1989.
Curtin, J. Sean. Suicides in Japan: Part 10-Youth and Rural on Rise. Glocom Platform
14, November 2005. http://www.glocom.org/special_topics/social_trends/20040813_trends_s78/
Fairbairn, G. Contemplating Suicide: The Language and Ethics of Self-Harm, London: Routledge, 1995.
Strategy to Improve the E-Mail Marketing esponse ates
A company intends to improve its email marketing system to measure its response rates from its email advertisements by carrying out the evaluation process using different combination of "two (2) options of the three (3) key factors: E-Mail Heading (Detailed, Generic); Email Open (No, Yes); and E-Mail Body (Text, HTML). Each of the combinations in the design was repeated on two (2) different occasions." (Email Attachment, 2015 p 1).
The objective of this paper is to develop the email advertising strategy to assist the company to increase the response rates.
Conducting a DOE ( design of experiment) to test a cause-and-effect relationship of the Company Business Processes
Using the data in the table 1, the paper develops graphical illustrations to test relationships of the company's business process .
Fig 1: Sum of the esponse ate by Email Body and Email Open…
Email Attachment (2015). Company Email Response Rates.
e., males and females per nurse specialty).
Variables & Measures
Variables for the study are as follows: workload management, work environment, burnout rate, and job satisfaction. In addition to these variables, instruments gauging the level of burnout experienced will be used, particularly the Maslach Burnout Inventory (MBI). An index of attitudes and perceptions on workload management, work environment, and job satisfaction will also be formulated, and will be tested for internal and construct validity.
FGD Guide / Survey Instrument
The FGD Guide will have four (4) sections, focusing on the following broad themes/topics: workload management as experienced by the discussants, work environment, burnout (concepts and experiences), and job satisfaction (as related to burnout). The survey instrument or questionnaire will also have the sections used in the FGD guide, with an additional section allotted for the Maslach Burnout Inventory (MBI).
Data analysis will make use of both bivariate and…
Ablett, J. And R. Jones. (2007). "Resilience and well-being in palliative care staff: a qualitative study of hospice nurses' experience of work." Psycho-Oncology, Vol.16.
Browning, L., C. Ryan, S. Thomas, M. Greenberg, and S. Rolniak. (2007). "Nursing specialty and burnout." Psychology, Health & Medicine, Vol. 12, No. 2.
Gawel, J. (1999). "Herzberg's Theory of Motivation and Maslow's Hierarchy of Needs." ERIC Digests Website. Available at http://www.ericdigests.org/1999-1/needs.html .
Gustafsson, G., a. Norberg, and G. Strandberg. (2008). "Meanings of becoming and being burnout -- phenomenological-hermeneutic interpretation of female healthcare personnel's narratives." Scandinavian Journal of Caring Science, Vol. 22.