abu yahya's definitions
(FINANCE) using financial derivatives to guarantee against losses. Typically used by non-traders, such as companies engaged in international commerce, to protect themselves against foreign exchange risk (i.e., the possibility that a customer's currency will decline in value).
BILL: You know, I think that financial derivatives are just a huge sinkhole. The people who trade them are just a bunch of wankers who move bits of paper around but add nothing of value.
ANNA: Well, they do provide some important benefits.
BILL: Name one.
ANNA: Covering risk, for one. If you're an airline, you need those aviation fuel options.
ANNA: Well, they do provide some important benefits.
BILL: Name one.
ANNA: Covering risk, for one. If you're an airline, you need those aviation fuel options.
by Abu Yahya April 15, 2010
Get the covering riskmug. (ECONOMICS) money that is used by a business to buy fixed capital or circulating capital. For a very new company or a company expanding extremely quickly, finance capital can sometimes be used to pay workers (before revenues overtake operating costs).
Finance capital can be borrowed from a commercial bank, raised by an investment bank (through an issue of stock; see initial public offering) or though a bond issue, commercial paper, or even a repurchase agreement.
Finance capital can be borrowed from a commercial bank, raised by an investment bank (through an issue of stock; see initial public offering) or though a bond issue, commercial paper, or even a repurchase agreement.
by Abu Yahya September 25, 2010
Get the finance capitalmug. (ECONOMICS) seasonally adjusted annualized rate.
Economic statistics are often reported as rates of change from month to month, or quarter to quarter. However, some months, such as November and December, have very high retail sales, while May through September have very high home sales. For this reason, data is sometimes "seasonally adjusted" to offset ordinary seasonal variations.
The US Federal Reserve System reports changes in GDP from quarter to quarter in annualized form; so, for example, during the last quarter of 2004, US GDP was (about) $3,044.6 billion. But it was reported as an annualized (and seasonally adjusted) $11734.9. If you divide that by 4 you get 2957.8, which reflects the fact that the Fed shaved 86.8 billion off its estimate of economic activity for 2004Q4 and reallocated it to Q1 & Q2.
The reason the Fed (and everyone else) does this is to measure economic change separately from the usual seasonal change in business activity.
Economic statistics are often reported as rates of change from month to month, or quarter to quarter. However, some months, such as November and December, have very high retail sales, while May through September have very high home sales. For this reason, data is sometimes "seasonally adjusted" to offset ordinary seasonal variations.
The US Federal Reserve System reports changes in GDP from quarter to quarter in annualized form; so, for example, during the last quarter of 2004, US GDP was (about) $3,044.6 billion. But it was reported as an annualized (and seasonally adjusted) $11734.9. If you divide that by 4 you get 2957.8, which reflects the fact that the Fed shaved 86.8 billion off its estimate of economic activity for 2004Q4 and reallocated it to Q1 & Q2.
The reason the Fed (and everyone else) does this is to measure economic change separately from the usual seasonal change in business activity.
In Brazil, household spending continued to ease to 0.8% quarter-to-quarter (3.1% SAAR) from 1.4% q/q (5.6% SAAR) in Q1 2010, and investment lost momentum, increasing 2.4% q/q (9.8% SAAR) compared with 7.3% q/q (32.4% SAAR) in Q1.
{Nouriel Robuini, "RGE's Wednesday Note - Brazil's Economy Exhales" (10 Sep 2010)}
{Nouriel Robuini, "RGE's Wednesday Note - Brazil's Economy Exhales" (10 Sep 2010)}
by Abu Yahya September 8, 2010
Get the SAARmug. (FINANCE) a financial derivative that entitles the owner to buy a fixed amount of X for a fixed price (the strike price) by a specific date in the future. If this is an equity derivative, X is referred to as the underlying stock.
A call option allows one to reap profits from an increase in price of a traded item without actually buying the asset itself. Since it is an option, one is not compelled to exercise it if it not advantageous to do so; however, the party that initially issued the option (i.e., the one who "wrote" the option) is legally obligated to honor the option.
When the strike price of a call option is more than the current market price of the asset (i.e., its "spot price"), then it has no intrinsic value and is "out of the money."
A call option allows one to reap profits from an increase in price of a traded item without actually buying the asset itself. Since it is an option, one is not compelled to exercise it if it not advantageous to do so; however, the party that initially issued the option (i.e., the one who "wrote" the option) is legally obligated to honor the option.
When the strike price of a call option is more than the current market price of the asset (i.e., its "spot price"), then it has no intrinsic value and is "out of the money."
Buying a call option is one way to take a long position on the underlying asset.
Writing a call is a way to take a short position.
Writing a call is a way to take a short position.
by Abu Yahya April 15, 2010
Get the call optionmug. the gap between revenues and expenditures for a government (over a given period of time); often referred to as a public deficit or fiscal deficit. In many cases, a country has administrative subdivisions that also run significant fiscal deficits, e.g., India or Argentina. The sum of state, local, and federal deficits would constitute the internal deficit of those countries.
On very rare occasions the term is applied to the deficit run by private enterprise as well as by government; in such a case, the definition is understood to mean the total debt of a country that is held by its own citizens.
On very rare occasions the term is applied to the deficit run by private enterprise as well as by government; in such a case, the definition is understood to mean the total debt of a country that is held by its own citizens.
Some of the largest internal deficits in the world are experienced by countries with large external surpluses. Japan in the mid-'00's was a classic example.
(See external deficit)
(See external deficit)
by Abu Yahya February 14, 2009
Get the internal deficitmug. *noun*; the tendency for the public to want to hold income in cash relative to its willingness to hold it as interest-bearing savings (bonds).
The liquidity preference is analogous to a supply curve for lendable funds. If the price for lendable funds--that is to say, the interest rate--is high, then the amount be be large. If the interest rate is low, then the public will be more inclined to hoard income as cash.
Income held as cash is not spent on goods and services, so if the amount increases abruptly then there will be a recession. If it is held in some interest-bearing form, then it can be spent on fixed capital, thereby increasing output and employment.
During a recession, if the liquidity preference is high, a lot of money is going to be held as cash. One could free up some cash for job-creating investment by raising interest rates, but that would eradicate a lot of business opportunities. So monetary authorities monetize debt instead, creating a new supply of credit to replace the savings lost by falling interest rates.
The liquidity preference is analogous to a supply curve for lendable funds. If the price for lendable funds--that is to say, the interest rate--is high, then the amount be be large. If the interest rate is low, then the public will be more inclined to hoard income as cash.
Income held as cash is not spent on goods and services, so if the amount increases abruptly then there will be a recession. If it is held in some interest-bearing form, then it can be spent on fixed capital, thereby increasing output and employment.
During a recession, if the liquidity preference is high, a lot of money is going to be held as cash. One could free up some cash for job-creating investment by raising interest rates, but that would eradicate a lot of business opportunities. So monetary authorities monetize debt instead, creating a new supply of credit to replace the savings lost by falling interest rates.
...An individual’s liquidity preference is given by a schedule of the amounts of his resources, valued in terms of money or of wage-units, which he will wish to retain in the form of money....
John M. Keynes, *General Theory of Employment, Interest, and Money* (1936), Ch.13
John M. Keynes, *General Theory of Employment, Interest, and Money* (1936), Ch.13
by Abu Yahya March 3, 2009
Get the liquidity preferencemug. *noun*; global economic collapse; in the USA, this began in 1929 and persisted to 1939; most other industrialized countries emerged from the Depression earlier.
During the Great Depression, unemployment reached over 25% in the USA, and those who had jobs suffered severe wage cuts. The index of industrial output fell over 53% from its high in July '29, while trade and capital markets plummeted to mere fractions of their former levels.
*What Happened*
_____________________________________
Many people imagine that the Stock Market Crash (Oct '29) and the Great Depression are the same thing. However, it took another three years for employment, bank failures, and declining industrial output to run its course.
In 1929 the USA had 25,000 banks. By 1933, 10,000 had either failed or been merged with another to avoid failure. At this time there was no FDIC, so depositors mostly lost their money.
Another phenomenon was plunging prices: the consumer price index fell 25% during the first four years. For businesses, this was a disaster, and forced them to lay off millions.
The Great Depression made farms in much of the Southwest unviable; ruined farmers fled to California or Washington, and their abandoned farms succumbed to the Dust Bowl. This was the single largest ecological disaster in recorded history.
*How It Happened*
_____________________________________
There are basically three main explanations for the Great Depression.
1. During the 1920's, there was a huge and growing disparity between rich and poor. The incomes of the great majority rose much more slowly than productivity, but this was masked by increased borrowing. People were able to borrow because the market value of their assets was larger than what they owed; but when a rash of defaults occurred, then the market value of assets plummeted, and people owed more than their assets were worth. Businesses had to lay off workers, which further reduced aggregate demand.
2. The Great Depression began as another minor downturn, but was made much worse by the failure of the Federal Reserve to respond adequately (see Milton Friedman & Anna Schwartz). While the Fed reduced interest rates, prices fell even faster, so real interest rates soared. This made a quick recovery impossible.
3. The financial markets (combined with Fed supervision) distributed capital badly; for example, speculative ventures in growing wheat in the Great American Desert, real estate in Florida, and so on. When this arrangement of productive resources failed, it constituted an extremely large technology shock. Subsequent policy intervention tended to withhold capital and labor from the most productive enterprises, making the depression deeper.
(Explanation 3 is the New Classical economics explanation; see Harold Cole & Lee Ohanian.)
*Roosevelt Administration*
_____________________________________
Franklin D. Roosevelt was elected by a landslide in 1932, and inaugurated 4 March 1933. The White House immediately used emergency powers to close, restructure, and re-open the nation's banks. During the first 100 days of the FDR administration, Congress passed the New Deal which greatly eased the impact of the Depression on the hardest hit.
The New Deal did not significantly hasten the end of the Great Depression, because it was too small to provide a meaningful fiscal stimulus. However, it did introduce many important programs to help those affected by poverty. The Depression had ended in most of the world by 1937; the US was mostly recovered by 1939, when World War 2 broke out.
During the Great Depression, unemployment reached over 25% in the USA, and those who had jobs suffered severe wage cuts. The index of industrial output fell over 53% from its high in July '29, while trade and capital markets plummeted to mere fractions of their former levels.
*What Happened*
_____________________________________
Many people imagine that the Stock Market Crash (Oct '29) and the Great Depression are the same thing. However, it took another three years for employment, bank failures, and declining industrial output to run its course.
In 1929 the USA had 25,000 banks. By 1933, 10,000 had either failed or been merged with another to avoid failure. At this time there was no FDIC, so depositors mostly lost their money.
Another phenomenon was plunging prices: the consumer price index fell 25% during the first four years. For businesses, this was a disaster, and forced them to lay off millions.
The Great Depression made farms in much of the Southwest unviable; ruined farmers fled to California or Washington, and their abandoned farms succumbed to the Dust Bowl. This was the single largest ecological disaster in recorded history.
*How It Happened*
_____________________________________
There are basically three main explanations for the Great Depression.
1. During the 1920's, there was a huge and growing disparity between rich and poor. The incomes of the great majority rose much more slowly than productivity, but this was masked by increased borrowing. People were able to borrow because the market value of their assets was larger than what they owed; but when a rash of defaults occurred, then the market value of assets plummeted, and people owed more than their assets were worth. Businesses had to lay off workers, which further reduced aggregate demand.
2. The Great Depression began as another minor downturn, but was made much worse by the failure of the Federal Reserve to respond adequately (see Milton Friedman & Anna Schwartz). While the Fed reduced interest rates, prices fell even faster, so real interest rates soared. This made a quick recovery impossible.
3. The financial markets (combined with Fed supervision) distributed capital badly; for example, speculative ventures in growing wheat in the Great American Desert, real estate in Florida, and so on. When this arrangement of productive resources failed, it constituted an extremely large technology shock. Subsequent policy intervention tended to withhold capital and labor from the most productive enterprises, making the depression deeper.
(Explanation 3 is the New Classical economics explanation; see Harold Cole & Lee Ohanian.)
*Roosevelt Administration*
_____________________________________
Franklin D. Roosevelt was elected by a landslide in 1932, and inaugurated 4 March 1933. The White House immediately used emergency powers to close, restructure, and re-open the nation's banks. During the first 100 days of the FDR administration, Congress passed the New Deal which greatly eased the impact of the Depression on the hardest hit.
The New Deal did not significantly hasten the end of the Great Depression, because it was too small to provide a meaningful fiscal stimulus. However, it did introduce many important programs to help those affected by poverty. The Depression had ended in most of the world by 1937; the US was mostly recovered by 1939, when World War 2 broke out.
The NBER business cycle chronology dates the start of the Great Depression in August 1929. For this reason many have said that the Depression started on Main Street and not Wall Street. Be that as it may, the stock market plummeted in October of 1929. The bursting of the speculative bubble had been achieved and the economy was now headed in an ominous direction.
Randall Parker, "An Overview of the Great Depression" (2002)
Randall Parker, "An Overview of the Great Depression" (2002)
by Abu Yahya March 6, 2009
Get the Great Depressionmug.