Readers Question: Sorry I’m really confused on how the weak oil prices affects EUR/USD currency. I’ve tried searching for articles but there are really different arguments. For EURO – Weak oil prices worsens Eurozone inflation therefore European bank ,to prevent deflation and boost economy will continue with their negative interest rates and Quantitative easing which …
A carry trade occurs when an investor borrows in one country (at a low interest rate) and invests this money in another country (which has higher interest rates.) If we assume exchange rates are stable, then this carry trade enables an investor to make a profit – and the profit could be even more if …
Currency wars are said to occur when countries seek to devalue their currency to gain a competitive advantage. However, if one country seeks to become more competitive through devaluation, it means other countries become less competitive. Therefore, they may respond by weakening their currency too. Thus, we may get a situation of competitive devaluation where …
Readers Question: After the insightful post on ‘Italian Economic Decline’, I was particularly captured by the % debt to GDP line graph of the different developed countries. The one thing that really caught my eye was Japan’s huge % debt to GDP and yet their government bond yields are consistently declining. Aren’t the markets worried …
The money supply is the amount of money in circulation measured by narrow money (MO) and broad money (M4). The money supply can rise if Central Banks print more money. Banks choose to hold a lower liquidity ratio. This means banks will be willing to lend a larger proportion of their funds. An inflow of …
A useful tool for students is the idea of an ‘economist toolkit’. This is essentially a few key ideas that can be used to help answer different questions. Let us consider a question. – Discuss the impact of an increase in interest rates? Macro-Economic Toolkit This question is quite open-ended. First of all, consider the …
Definition of investment: Investment is the addition to Capital Stock of the economy – e.g. factories, machines, or any item that is used to produce other goods and services Note saving money in a bank is not investment in economic terminology The value of capital stock depreciates over time as it wears out and is …