Financialisation is a term used to describe the increased role of the financial sector in a modern economy. Source: NYT 2013 Financialisation also refers to particular trends in the financial sector of the economy. This includes: Increased use of financial intermediaries Increased use of futures markets. For example future contracts for bonds, shares, currencies and …
Readers Question What does the size of a current account deficit / surplus say about the state of the economy? A current account deficit means that the value of goods and services imported is greater than the value of exports. A current account deficit requires capital / financial flows to finance this deficit. Despite the …
A zombie firm is a company that is currently able to stay in business but is loaded with bad debts and needs bailouts to survive. For example, a company which took on large debts but then a rise in interest rates makes these form debt repayments unaffordable and it would go under – without support …
Definition – Hot money flows refer to capital flows moving to countries with higher interest rates and/or expected changes in exchange rates. Example of hot money flows For international investors, there are substantial gains to be made from moving money between different countries with different interest rates. Suppose the EU and UK both have an …
Over time, the IMF has been subject to a range of criticisms, generally focused on the conditions of its loans. The IMF has also been criticised for its lack of accountability and willingness to lend to countries with bad human rights records. Criticisms of the IMF include 1. Conditions of loans On giving loans to …
Purchasing Power Parity PPP is a theory which suggests that exchange rates are in equilibrium when they have the same purchasing power in different countries. Purchasing power parity will involve looking at a basket of goods to determine effective living costs. The purchasing power parity is determined by dividing a basket of goods in one …
The J Curve effect a depreciation in the exchange rate can cause a deterioration of the current account in the short-term (because demand is inelastic). However, in the long-term, demand becomes more price elastic and therefore, the current account begins to improve. The J-Curve is related to the Marshall-Lerner condition, which states: If (PED x …
Definition: The Terms of Trade is the average price of exports / by the average price of imports. It is a measure of a countries relative competitiveness. If export prices rise relative to import prices, we say there has been an improvement in the terms of trade. – A unit of export buys relatively …