...this crisis began in Thailand and that I was reading the business section of Manila Bulletin and one of the headlines was the sudden depreciation of Thailand Baht against the USD. Little did everyone know that a few days later our Philippine Peso would suffer the same fate. Had I known I would have converted all my pesos into USD. Many of the leaders in the Southeast Asian countries, notably the then Malaysian Prime Minister Mahatir Mohammad blamed the Asian financial crisis to currency speculators. Mahatir specifically single out US financial wizard George Soros as the one who was to be blamed for the crisis contagion. Allegedly, Soros speculated heavily against the Malaysian Ringgit and other affected Malaysian currencies. Thus in a matter of days, these Asian currencies plunged against the US Dollars. Should we really blame the market speculators for the cause of the financial crisis in Asia in 1997? According to the author of the article, we should not blame the currency and equity speculators. I agree with him that the Asian Crisis was primarily caused by...
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...Joshua Penn Dr. Stacy Thorne Engl 1301 4/23/2012 Is Obama Really To Blame? Like millions of Americans, I own a car. In order for a car to work though, it depends on gasoline. Gasoline is a commodity that has seen violent swings in prices for the last decade. The current price of gas at my local Quik Trip is $3.63. This price has been as low as $2.99 and has been as high as $3.99 in the last four months alone. Many of my fellow G.O.P. brothers and sisters will have you to believe that President Obama is solely to blame for these price hikes. This is the furthest from the truth. There are many reasons that our prices at the pump are increasing, many of which the President has little power to change. As was previously stated, gas is a commodity. As such it is affected by market trends. Gas prices are also affected by external issues on which the President has little say. The first thing that you learn when you take an economics course is the theory of supply and demand. Think of a child’s seesaw. The recession depressed oil demand, which depressed gas prices. As the global recovery takes hold, more people are working and driving. This is being felt not only by American’s, but by the entire world. Until supplies catch up to the demand we will be looking at even higher prices at the pump. According to Benoit Faucon, “The bottom line for demand: Global consumption of oil and liquid fuels should increase by about 1.3 million barrels a day in the third quarter from...
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...The Food Crises: A quantitative model of food prices including speculators and ethanol conversion Marco Lagi, Yavni Bar-Yam, Karla Z. Bertrand and Yaneer Bar-Yam New England Complex Systems Institute 238 Main St. Suite 319 Cambridge MA 02142, USA reviewed by: C. Peter Timmer - Cabot Professor of Development Studies emeritus. Harvard University Jeffrey C. Fuhrer - Executive Vice President and Senior Policy Advisor. Federal Reserve Bank of Boston Richard N. Cooper - Maurits C. Boas Professor of International Economics. Harvard University Thomas C. Schelling - Distinguished Professor of Economics emeritus. University of Maryland (Dated: September 21, 2011) Abstract Recent increases in basic food prices are severely impacting vulnerable populations worldwide. Proposed causes such as shortages of grain due to adverse weather, increasing meat consumption in China and India, conversion of corn to ethanol in the US, and investor speculation on commodity markets lead to widely differing implications for policy. A lack of clarity about which factors are responsible reinforces policy inaction. Here, for the first time, we construct a dynamic model that quantitatively agrees with food prices. The results show that the dominant causes of price increases are investor speculation and ethanol conversion. Models that just treat supply and demand are not consistent with the actual price dynamics. The two sharp peaks in 2007/2008 and 2010/2011 are specifically due to investor...
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...happens when other factors are at work? The laws of supply and demand indicate “Quantity demanded rises as price falls, other things constant”. Or alternatively: “Quantity demanded falls as price rises, other things constant” (Colander 84). For some, it is easy to blame the speculators and separate them from the laws of supply and demand. In reality, speculators only changed who purchased the future supply. They did not change the principle fact that there was a shortage, albeit an artificially created one, but still a shortage. Until 2000 US energy futures were traded only on regulated exchanges within the US and they were subject to great oversight by the CFTC in order to detect price fixing and fraud. Recently, there has been a very large growth in trading contracts that look like futures contracts and are structured exactly the same. The only difference, these contracts are traded on an unregulated market. This unregulated OTC electronic market was exempt from CFTC oversight by a provision inserted in the late hours of the 106th Congress. Enron and many other large traders lobbied congress for this passage. By buying large quantities of futures contracts and pushing the prices higher speculators have given oil companies the incentive to buy even more oil and put it into storage. The following graph shows the volume of activity for the S&P 500 since 1970 (www.economagic.com). Note the spike in the mid 1980’s then the steep increase. According to John Harvey...
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...every trading day. Basically, fluctuation is caused by demand and supply of the currency. As in any market, price rises with shortages of supply and increases in demand. Price falls with reduced demand and increased supply. Figure 1.1 Demand curve The demand curve for Australian currency shows the quantity of Australian Dollar (AUD) that buyers are willing to purchase at each possible exchange rate. Demand arises from several sources * Exports – Foreigners who wish to buy Australian goods and services * Foreign tourists and international students in Australia * Australians firms borrowing abroad * Foreigners investing in Australia (capital inflow, e.g. assets, dividends etc) * Current transfers into Australia * Speculators who expect the value of AUD to rise The curve is downward sloping (Figure 1.1 – blue) since it is reasonable to expect that the cheaper the price of the local currency, the greater would be the demand for the currency by the rest of the world. Supply Curve (red) Supply curve for Australian currency shows the quantity of AUD supplied by Australian citizens at each possible exchange rate. Supply will be determined by: * Imports – Australians who wish to purchase foreign goods and service * Australian tourists and students going abroad * Australians lending overseas * Australians investing overseas (capital outflow, e.g. investing in assets, dividends, etc) * Current transfers made out of Australia...
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...10 Business Snapshot 1.1 Hedge Funds CHAPTER 1 Hedge funds have become major users of derivatives for hedging, speculation, and arbitrage. A hedge fund is similar to a mutual fund in that it invests funds on behalf of clients. However, unlike mutual funds hedge funds are not required to register under U.S. federal securities law. This is because they accept funds only from ®nancially sophisticated individuals and do not publicly oer their securities. Mutual funds are subject to regulations requiring that shares in the funds be fairly priced, that the shares be redeemable at any time, that investment policies be disclosed, that the use of leverage be limited, that no short positions be taken, and so on. Hedge funds are relatively free of these regulations. This gives them a great deal of freedom to develop sophisticated, unconventional, and proprietary investment strategies. The fees charged by hedge fund managers are dependent on the fund's performance and are relatively highÐtypically 1 to 2% of the amount invested plus 20% of the pro®ts. Hedge funds have grown in popularity with over $1 trillion being invested throughout the world. ``Funds of funds'' have been set up to invest in a portfolio of other hedge funds. The investment strategy followed by a hedge fund manager often involves using derivatives to set up a speculative or arbitrage position. Once the strategy has been de®ned, the hedge fund manager must: 1. Evaluate the risks to which the fund is exposed. 2. Decide...
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...Ch.7 Question 2, 4, 7 2.) In order for a derivatives market to function most efficiently, two types of economic agents are needed: hedgers and speculators. Explain. A speculator attempts to profit from a change in futures price. To do this, the speculator will take a long or short position in a futures contract depending upon his expectations of future price movement. A hedger, on the other hand, wants to avoid price variation by locking in a purchase price of the underlying asset through a long position in the futures contract or a sales price through a short position. In effect, the hedger passes off the risk of price variation to the speculator, who is better able, or at least more willing, to bear this risk. 4.) How can FX futures market be used for price discovery? The futures market is useful for price discovery by obtaining the markets forecast of the spot exchange rate at different future times. FX forward prices are an unbiased predictor of future spot exchange rates, the market anticipates if a currency will appreciate or depreciate. Since the futures contracts have an expiration cycle, there are different contracts that expire at different periodic date in the future. Futures contract displays a chronological pattern from settlement prices from past CD future contracts. The pattern provides information about the relative future value of a currency against another because there are steady appreciating and depreciating pattern, although it may be mixed...
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...is the contract size of one EUR contract. (Q. 2) Do problem 1 again assuming you have a long position in the futures contract. Answer : Solution: $1,700 + [($1.3126 - $1.3140) + ($1.3133 - $1.3126) + ($1.3049 - $1.3133)] x EUR125,000 = $562.50, where EUR125,000 is the contract size of one EUR contract. (Q. 3) (MINI CASE: THE OPTIONS SPECULATOR) A speculator is considering the purchase of five three-month Japanese yen call options with a striking price of 96 cents per 100 yen. The premium is 1.35 cents per 100 yen. The spot price is 95.28 cents per 100 yen and the 90-day forward rate is 95.71 cents. The speculator believes the yen will appreciate to $1.00 per 100 yen over the next three months. As the speculator’s assistant, you have been asked to prepare the following: 1. Graph the call option cash flow schedule. + - 2. Determine the speculator’s profit if the yen appreciates to $1.00/100 yen. (5 x ¥1,000,000) x [(100 - 96) - 1.35]/10000 = $1,325.00. 3. Determine the speculator’s profit if the yen only appreciates to the forward rate. Since the option expires out-of-the-money, the speculator will let the option expire worthless. He will only lose the option premium. 5*1.35 = 4. Determine the future spot price at which the...
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...interest rates as today’s biggest threat to the stock market. Mostly rising interest because higher interest makes riskier assets less attractive yet they make less risky assets more attractive (Gad, 2013). Bud Haslett, head of risk management and derivatives for the CFA Institute, mentions that derivatives can decrease risk substantially if used properly to hedge risk exposures but if used improperly, many problems can be caused. Mr. Haslett also mentions how companies that hedge against price or rate fluctuations have the advantage of more consistent cash flow (Brin, 2011). Speculators make bets or guesses on where they hope or think the market is headed. If they believe a stock may be overpriced, they might possibly short sell that stock and wait for the price to hopefully decline so they can buy the stock back to receive a profit. Speculation can be extremely risky simply because speculators are vulnerable to both the downside and upside of the market (Sargeant, 2014). In the business world we consider hedging as a shield to protect our investments. The Word of God can also be considered hedging because we use His word as a shield to protect us. Psalm 5:11(KJV) states, “But let all those that put...
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...Chips theory A absolute Chinese stock market speculate theory To be an investor especially a speculator who must know how to compete with others, we should both deal with hundreds of operation every year, in market coupled with thousands of up to date news everyday and compete with other speculators which makes market like a game. The reason why Chinese speculators call it as chips theory, is partly in response to serious market manipulation that market is more like a casino ,partly because game theory foundation. Along with security price fluctuate in secondary market, different trading volume appears in different price section which is formed to different buying cost region on one stock. [pic] However, when the stock price increase to $14, investor F joins in and buys 3 shares from investor C which transaction price is $14. Regardless of who make the deal, the chips position changes. [pic] The essence of chips theory is analysis how the chips (stock) exchange from smart capital to speculators or on the contrast direction. The smart capital is the most likely to be the institution investor such as mutual fund ,hedge fund, and pension fund ,who have power to influence the market in developed countries’ stock market, and is those who engage in manipulate the price to earn amazing profit from market manipulation in China. In contrast to developed countries’ well-regulated secondary market, it should be noted that analyzing how chips (stock) transfer from smart capital (manipulator)...
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...& go through an open market operation by buying gov. bonds.( & vice versa if CB seeks to adopt a tight monetary policy). *In addition to the public`s demand for money for TRANSACTIONS that is affected by the general price level & real GDP..., do speculators demand money? Yes, as they try to achieve profits from the fluctuations in the market price of bonds, ie they buy bonds, when their market price is low & sell bonds ,when their market price is high, thus achieving profits. However, what determines the market price of bonds? the following example helps you to understand: If a bond promises to pay $100 ONE YEAR from NOW, & the interest rate was5%, WHAT IS THE MAXIMUM AMOUNT OF MONEY YOU ARE READY TO PAY NOW for that bond?ie what is its market price? We have to calculate the PRESENT VALUE of the $100 by using the following equation: Present value = Return / 1+5% 95.24 = 100 / 1.05 What do you notice? We notice that there is an INVERSE relation between the interest rate & the market price of bonds ( its present value).. THAT IS ,when interest rate rises price of bond falls & vice versa. When market price of bonds falls, interest rate rises & vice versa. SO THE SPECULATORS DEMAND FOR MONEY IS AFFECTED BY THE INTEREST RATE. Example: IF THe interest rate RISES (ie price of bonds falls)...
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...exchange-traded instrument with standardized features specifying contract size and delivery date. Futures contracts are marked-to-market daily to reflect changes in the settlement price. Delivery is seldom made in a futures market. Rather a reversing trade is made to close out a long or short position. 2. In order for a derivatives market to function most efficiently, two types of economic agents are needed: hedgers and speculators. Explain. Answer: Two types of market participants are necessary for the efficient operation of a derivatives market: speculators and hedgers. A speculator attempts to profit from a change in the futures price. To do this, the speculator will take a long or short position in a futures contract depending upon his expectations of future price movement. A hedger, on-the-other-hand, desires to avoid price variation by locking in a purchase price of the underlying asset through a long position in a futures contract or a sales price through a short position. In effect, the hedger passes off the risk of price variation to the speculator who is better able, or at least more willing, to bear this risk. 3. Why are most futures positions closed out through a reversing trade rather than held to delivery? Answer: In forward markets, approximately 90 percent of all contracts that...
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...Question 1 a) Not clear, depends on the risks of firms’ stocks. The news is about the individual performance of firm A and firm B, and contains no information about the risks (e.g. volatility, beta), expected future performance, historical performance, market return, thus we have no benchmark to conclude if there is market efficiency. b) Support. Market reaction to new-hired CEO from another firm is used as accurate measure of events' impact on firm value. The 2.5% increase in stock price reflects market perception of underperformance of the current CEO/expected better performance of new CEO. c) Not clear. Small firms have outperformed the market over 30 years, it can be the case that the market is efficient but the asset pricing model is wrong. Or it can also be the case that the model is correct and the market is not efficient. d) Since CAPM doesn’t capture the risk of book-to market ratio, the model might not be appropriate. But inappropriate model doesn’t indicate that the market is certainly efficient. More examination needed. Thus, not clear in this case. e) Support. Microsoft stock price reflects all available information about dividend payment. f) Not clear. The firm’s future earnings are not given in this news and thus it is not possible to evaluate whether the $20 million really reflects 10% of future earnings. Also, we don’t know the movement of existing share price. g) Not clear, depends on the risk of each fund. The news is about the performance...
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...The following figure illustrates, the excessive capital inflows united to form a vicious cycle leading to increased instability: Figure: Capital Inflows, Lending Increases, and Weaknesses Boom In Real Estate • Exports were the main factor for the economic growth of Thailand. • Value of the exports grew by 16%per year compounded. • Wealth created by exports fueled investment in residential and commercial property. • Increased demand soared the value of real estate in Bangkok. Heavy Borrowings • Construction started in such a way which was never seen in Thailand before. • Heavy borrowings from bank financed much of this construction. • As the value of property continued to rise, the banks were happily lending to property companies. Excess Of Supply • By early 1997 the boom had produced the excess capacity in residential and commercial property. • An estimated 365,000 apartments were unoccupied in Bangkok with another 100,000units scheduled to be completed till the end of 1997. • This property market has been replaced by excess supply. Deficit • To build infrastructure Thailand was purchasing from America, Japan and Europe. • Despite of strong export growth, imports grew faster. • By 1995 Thailand was running a current account deficit equivalent to 8.1% Breakdown of Financial Institutions • SomprasongLand, a Thai property developer failed to make a $3.1 million interest payment on $80 million...
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...derivative markets: Hedgers | Speculators | Arbitrageurs | * Use the market to lock in a future price & hence make their future cash flows more certain * Have an underlying position in the asset | * using the market to bet on a price change * have no underlying position in the asset | * trade on mispricing between the derivatives & spot markets or between different derivative contracts to make a profit | * spot – price today, delivery today * forward – price today, delivery at a future date * future – price today, delivery at a future date Futures: * standardized with respect to quality, quantity and maturity * Clearing house * initial margins * Variation margins (marked to market) * Cash settled * Futures are a Zero Sum Loss Game * With cash settlement, the asset is never exchanged Users of future markets Hedgers: Selling Hedge: - Worried about a fall in price, so Sell Futures If price falls, loses in the spot market, but wins on the futures. If price rises, wins in the spot market, but loses on the futures e.g. Sell SPI futures to protect your share portfolio Buying Hedge:- Worried about a rise in price, so Buy Futures If price falls, wins in the spot market, but loses on the futures If price rises, loses in the spot market, but wins on the futures e.g. An electricity generator buys coal futures to protect themselves against a rise in the price of coal Speculators To bet on a price rise – Buy Futures...
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