China interest rates

In the last months, the Bank of China has surprised investors globally by raising interest rates. On October 20^th, it raised key rates for the first time since it cut rates in December 2008.

Since then, the Bank of China has raised the rates a second time, announced on December 22^nd increasing its benchmark deposit rate to 2.75% and the one-year lending rate to 5.81%.

Why?

The main reason for this sudden increase in rates was to keep inflation under control, which has shown an increase over the last 8 months. The consumer price index rose 5.1% in November, reflecting this inflation.

China’s economy has been rising steadily at an average rate of 10% even with the current recession, which in turn also fuelled the economic engine and drove prices up.

This increase in interest rates indicated that China is determined to fight against stubborn inflation, soaring house prices and a floating economy that is pumping out exports and accumulating huge amounts of foreign exchange reserves.

What effect does it have?

China’s raise in interest rates took many investors by surprise and has had a big effect on global economies.

First of all, the change in these rates caused many investors to assume that China could slow and crimp global economy. This meant that many investors lowered their expectations on the second largest economy and removed bets on raising economies like China itself. This pushed the dollar up since money flowed back to the USA.

However, a decrease in other currencies could be seen as the Euro, the Australian dollar and others went down. The Chinese Yuan decreased in value.

Another effect of this change in interest rate is on the stock market. Now, as interest rates rose, the Chinese banks presented a new method for saving money that had before not been so attractive. The new alternative to saving money affected stocks as the Chinese demand decreased. the Dow Jones Industrial Average lost 1.5% to close at 10978.62 after the first increase in the rates

Chinese demand plays a great role in setting commodities prices. The prices of commodities, therefore, went down. Oil prices suffered their biggest decline in eight months, losing more than 4% to $70.49. Gold fell 2.63% to $1335.10 after having set a record high the week before.

The DAX

The DAX (Deutscher Aktien IndeX, formerly Deutscher Aktien-Index (German stock index)) is a blue chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange.

The Nikkei 225

The Nikkei 225 is a stock market index for the Tokyo Stock Exchange (TSE). It is  daily calculated daily by the Nikkei newspaper. It is a price-weighted average of 225 Japanese companies which are reviewed once a year.

Exchange rates

An exchange rate is the price at which one currency can be traded for another.

Exchange rates are determined by the supply and demand of one currency. In this case, factors affecting the demand are the interest rates in different countries, future views on a currency and the trade situation of a country (is it mostly importing or exporting?)

A strong currency, for example, is good for importers as it will make selling products in that country cheaper. For the exporter, it is bad as it makes products more expensive abroad, resulting in fewer sales.

The value of a currency is determined by those who buy and sell a currency. This could be companies aiming to make the highest profits, governments to maintain the currency at a certain level or foreign tourists like you and me.

The foreign-exchange markets (Forex) attract trillions of dollars every year as speculators try to guess trends in currency movements. However, this market is considered the most unpredictable and changing market of all.

Reasons for Regulations

IGCSE BS: Reasons for Regulations

Marketing

Marketing

Securitization, the risk business

Securitization is the process were you turn debt into securities(instruments such as bonds, options, shares ect)

How can this work?

The banks rather than lending cash based soley on their deposits, bundle up the mortage debt they are issuing into packages and sell them to other investors. In this way they can take the mortage debt off their books, and in this way they are able to lend more money and bigger mortages without being limited by their size.

Securitzation promised to spread the risk of the debts around the financial system to those more willing to take it. The problem was, however, a problem called disintermediation, or in plain english, by eliminating the realtionship between borrower and lender, there is a greater likelihood that  whoever who buy a package of debts will not appreciate the true risk they are taking on.

This disconnection was one of the main causes of the financial crisis of the 2000s.

Manpower

Manpower

The pigs

The PIGS are Portugal, Italy, Greece and Spain. Ireland are also counted to these on some occasions. These countries are said to be the weakest in the European Union.
These countries have the following characteristics:

• slow or negative economic growth
• rising unemployment 
• deteriorating public sector finances and higher government debt
• relatively high inflation or even deflation
• a high deficit in trade 
• relatively low labour productivity
• a falling part on global trade

Futures

What are they?
A future is a contract that compromises the buyer to buy an asset at a certain price at a given time in the future.
It is one of the most common types of derivatives. Usually, equity stock, commodities and currencies are the underlying ( the asset actually traded).


What is the point?
The point of these contracts is to speculate with the price of these assets and make the most profit out of that risk.
For example, coffee is one of the most traded commodities. The supply of this product is affected by many factors, of which many can be quite unpredictable. If a future contract is made, the seller will ensure that when he sells the coffee, he will have enough money to pay their bills. The buyer of the contract will be speculating about the price of coffee, and hoping to get the coffee at a lower price.

Futures on Prezi

Deflation

Deflation is a decrease in general prices of goods and services. It occurs when inflation rate falls below 0%.

It increases the value of the value of exchange and allows one to buy more goods with less money. Deflation can be disastrous for economies as it encourages people to save as goods will be cheaper in the future. The poor demand causes prices to decrease more. As no-one is willing to invest companies’ profits decrease and the whole economy goes crashing. Deflation also inflates the cost of debt and so enriches creditors at the expenses of debtors.

Say your TV was broken and you needed a new one. At the same time the inflation rate is falling below 0%, so there is now deflation. You could go and buy the TV now, or wait until next week where it would cost you less. Obviously, you decide to wait, so the TV company makes no money. It doesn't spend any money either, as it follows the same thought that you had. You can see that deflation is really a threat to economies as it can discourage people from spending.

The WB

The World Bank is an international financial institution that provides loans to developing countries for capital programmes. The World Bank has a stated goal of reducing poverty. By law, all of its decisions must be guided by a commitment to promote foreign investment, international trade and facilitate capital investment.

President Robert B. Zoellick

Human Needs and Rewards

Human Needs and Rewards

Inflation

Inflation is a rise in general prices of goods and services in an economy over a period of time. Each unit of currency buys fewer goods and services. Inflation erodes the purchasing power of money. There is a loss of real value in the value of exchange.

Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum. 

Inflation is usually caused by demand and the amount of money people have at their disposal. Inflation encourages people to spend rather than save, which only pushes the prices higher again.

Production

Production

Abrercrombie & Fitch

I just came home from America right now. I was in New York and Boston with my family. One of the things that impressed me the most, is the the effect that Abercrombie & Fitch has on so many tourists. As any other European tourist, I went shopping on Fifth Avenue, and there was a massive cluster of people at one point. As I tried to find out what was happening, hoping to see so kind of great celebrity, I realized people were actually waiting in line to go in and have their photograph taken with some hot guy standing at the door. I find it quite unbelievable that people make the same cue for A&F as for the Empire State.

The question is: How did Ambercrombie&Fitch (and Hollister) make so many people attracted to their stores? It can hardly be the slightly overpriced hoodies and jeans. A&F believes in a brand image of young, hip buyers that have a great lifestyle. The advertising campaigns have nothing to do with clothing or even accessories, however.

What is it about this ad that would make you buy the product (which isn't even displayed here)? A&F is all about marketing and the power of a brand image. You would go buy there only for the fact of being able to carry one of those nice A&F bags everyone has, to show your friends the photo of you and the model at the door, or just to say you where there. Is it sexuality attracting humans again? Or the "innovative" idea of placing men on the adverts rather than women?

However, A&F's theory of maintaining a high quality "luxury" brand image has some consequences. Especially in times like these, of economic crises, people don't depend so much on fashionable clothes sold by a hot model, but watch out for prices. The overprices clothing items sold by A&F are no longer such a great attraction to the average person.

Greek crisis

On December 2009, the world's three main credit ratings agencies, Fitch, Standard & Poor's and Moody's, downgrade Greece's debt.

Later on Greece admitted the size of its debt – nearly 13 percent of its annual gross domestic product, or four times the amount EU budget rules allow

Today, German Chancellor Angela Merkel met her Greek counterpart George Papandreou to discuss Greece’s financial crisis, as tensions rise over whether Germany will provide crucial support to an EU bailout for the heavily indebted Mediterranean country.

The chinese .com share

Baidu  It is something like the Chinese Google, and at the moment it is the most successful Chinese Internet Company. Growing fast: Qtrly Revenue Growth (yoy):111%, Qtrly Earnings Growth (yoy):400%.

Baidu.com has the same business model of Google, and it is actually gaining Chinese market share from Google. China daily: “market share of Baidu rose from 51 percent in August 2005 to 62 percent in Beijing, Shanghai and Guangzhou, the three largest cities in China, while that of Google fell to 24 percent from 33 percent “

Baidu has still great room to grow revenues. It has very small revenue (108.04M) for the main search engine of the second largest Internet market in the world (. This revenue can grow very much as Chinese advertisers start investing more to gain Chinese customers who are become more affluent.

Camper

Camper is one of the most  international companies based in Mallorca. Lorenzo Fluxa founded the company in 1975 after inheriting a shoe factory from his father, Antonio Fluxa, a mallorcan shoemaker. Nowadays, Camper operates 52 company-owned stores around North America, Europe, Asia and Australia, as well as distributing to thousands of independently-owned multi-brand retailers. The company motto is "imagination walks",  the company's philosophy of "the luxury of  simplicity".

The sun share

Right now First Solar is the hottest alternative energy company in the world and according to an article by Steve Gelsi of MarketWatch, First Solar is getting close to the point of providing an alternate source of electricity at the same cost as conventional electricity without the use of governmental subsidies. This is due to their proprietary thin film semiconductor technology that enables First Solar to attain the lowest manufacturing costs in the industry. In 2006 First Solar engaged in an initial public offering raising $302.7 million in net proceeds. Those who were fortunate to invest in the initial public offering have been “sunkissed” as their investment has skyrocketed from $20 to over $200: a more than tenfold increase.

Ibex 35

The IBEX 35 (a contraction of Iberia Index) is the benchmark stock market index of the Bolsa de Madrid, Spain's principal stock exchange.

the index is administered and calculated by Sociedad de Bolsas, a subsidiary of Bolsas y Mercados Españoles (BME), the company which runs Spain's securities markets (including the Bolsa de Madrid).

 It is a market capitalization weighted index comprising of the 35 most liquid Spanish stocks traded in the Madrid Stock Exchange General Index, which are reviewed twice annually.

The fashion shares

Inditex, one of the world’s largest fashion distributors, has more than 4,780 stores in 77 countries in Europe, the Americas, Asia and Africa. In addition to Zara, the largest of its retail chains, Inditex has other commercial formats: Pull and Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterqüe. The Group also includes more than a hundred companies associated with the different activities in the business of textile and fashion design, manufacture and distribution.

Inditex has been listed on the Spanish Stock Exchange since 23 May 2001, after an IPO that aroused a great deal of interest among investors worldwide, with its shares being oversubscribed some 26 times over. Its shares are quoted on the main Spanish and international share indexes.

Inditex has grown dramatically in recent years, achieving a consolidated turnover in 2009 of 11,084 million euros, with a net profit of 1,314 million euros.

What are stocks?

Shares, equity, or stock, it all means the same thing; Stock represents a claim on the company's assets and earnings.

Holding a company's stock means that you are one of the many owners (shareholders) of a company and, as such, you have a claim (albeit usually very small) to everything the company owns. Yes, this means that technically you own a tiny sliver of every piece of furniture, every trademark, and every contract of the company. As an owner, you are entitled to your share of the company's earnings as well as any voting rights attached to the stock.

As you acquire more stock, your ownership stake in the company becomes greater.

But with the advantage that a stock hat  limited liability, which means that, as an owner of a stock, you are not personally liable if the company is not able to pay its debts,  but you are entitled to a portion of the company’s profits, and have a claim on assets.

Some companies pay out dividends, but many others do not.

Without dividends, an investor can make money on a stock only through its appreciation in the open market, that means that  you buy a stok and wait in the hope its  value will increase over the time with the risk of depreciation, which means that the value decrease over the time.

Central banks

A central bank is the entity responsible for overseeing the monetary system for a nation. They have a crucial role in the economy, and a wide range of responsabilities. These include issuing the nation's currency, functioning as a governemnt bank and regulating the credit system.
Most banks have the aims of achieving goals like currency stability, full employment and low inflation.

The most important Central Banks right now are:
The Fed (Federal Reserve System), led by Ben Bernanke
The ECB (European Central Bank), led by Jean-Claude Trichet
The Bank of England, led by Mervyin King
The People's Bank of China, led by Zhou Xiaochuan

Financing Business Activity

IGCSE BS: Financing Business Activity

The IMF

The International Monetary Fund (IMF) is an organization of 187 countries, working mainly together to encourage global monetary cooperation.

Its main aim are:

• to assure financial stability
• to facilitate international trade
• to promote high employment and sustainable economic growth
• to reduce poverty around the world

The IMF has three major roles in the current monetary system:

• It monitors and surveys financial and economic developments
• It helps countries with difficulties of balancing payments by providind funds
• It provides techincal assistance and training to countries that request this.

The Dow Jones

The Dow Jones is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow.

The average is price-weighted, and to compensate for the effects of stock splits and other adjustments, it is currently a scaled average.

The value of the Dow is not the actual average of the prices of its component stocks, but rather the sum of the component prices divided by a divisor, which changes whenever one of the component stocks has a stock split or stock dividend, so as to generate a consistent value for the index.

A lifetime fighting poverty with analysis rather than activism

Amartya Sen is an Indian economist who was awarded the 1998 Nobel Prize in Economic Sciences for his contributions to welfare economics and social choice theory, and for his interest in the problems of society’s poorest members.Sen was best known for his work on the causes of famine, which led to the development of practical solutions for preventing or limiting the effects of real or perceived shortages of food.

Bonds

A bond is a debt security, in which the issuer owes the bond holders a debt and, depending on the bond, is obliged to pay interest and/or to repay the principal at a later date, termed maturity. It is issued for a period of more than one year and usually by governments or big companies in order to raise capital.

The corporation receives the money from selling the bond to raise immediate money. It repays this money to the buyer or pays interest periodically. There are many types of bonds.

The bonds market is one of the biggest in economy and moves many trillions of money each year.

Ownership and Organisation

IGCSE BS: Ownership and Organisation

Nasdaq 100

The NASDAQ-100 is a stock market index of 100 of the largest non-financial companies listed on the NASDAQ. It is a modified capitalization-weighted index. The companies' weights in the index are based on their market capitalizations, with certain rules capping the influence of the largest components. It does not contain financial companies, and includes companies incorporated outside the United States.

Consumer Price Index (CPI), or how expensive everyday life is

The Consumer Price Index measures the average prices of a standard basket of consumer services and goods. Transport, food and medical care are things that are usually taken into account. So this Index shows people how expensive living is, really. When the Index is high it means that the average costs of consumer services and goods have gone up.

Last summer, taking the bus from my house to school cost me 1.70€. Now, for the same bus ride I need to pay 1.85€.

This index is also used to measure inflation as it shows the price rise or fall of products.