...|ELECTRONIC ASSIGNMENT COVERSHEET |[pic] | |Student Number |32477916 | |Surname |Helliwell | |Given name |James Maxwell | |Email |Jhel8204@uni.sydney.edu.au | | | | |Unit Code |BUS290 | |Unit name |International Financial Markets and Institutions | |Enrolment mode |External | |Date |10/4/2014 | |Assignment number |1 ...
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...A review of Quantitative easing Student’s Name: Institutional Affiliation: Quantitative Easing: Is it effective? Quantitative easing is an untypical monetary policy adopted by central banks to stimulate the economy and ease liquidity if other methods are ineffective. A steady and low rate of inflation is crucial for a stable and thriving economy. Without a steady rate of inflation, the economy becomes unpredictable, discouraging long-term ventures. Central banks use interest rates to control inflation (Gagnon et al, 2010). They set interest rates at which financial institutions can borrow from them. These rates trickle down to consumers in the end, thus affecting inflation. When inflation declines below a safe level for the economy, say 2 %, this is referred to as deflation. When deflation occurs to the point where there is hardly any inflation, the government may intervene by introducing money directly into the economy to achieve a desired level of inflation. This is what is referred to as quantitative easing (Rothbard, 1999). The central bank does this by buying financial assets from both banks and the private sector, and thus introducing new money into the economy. This paper investigates the efficacy of quantitative easing and its effects to the economy. Typically, central banks stimulate economies by purchasing government bonds to lower short-term interest (Krugman, 2003). However, when the central bank has lowered interest to the point that it is at zero or...
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... risk-weighted portfolio, index funds, derivatives, securitised mortgages that are supposed to spread and reduce risks. Free Market Theory, capitalism. * The last four years have seen radical changes in how financial markets operate. Since the economic crash, how have the Financial Markets changed how they function? Nationalization of banks (bailouts); G20 conference financial packages on offer; BRIC countries wanting more say/power in the global order; Quantitative Easing and LTRO (European Sustainability Fund, Troika) in Western banking. * Can this new financial system be sustained when it is so heavily dependent on Central Banking bailouts? * Hedge Funds – why is money flowing so easily into more risky hedge funds? Hedge funds are the child of volatility BAC 5014 - Investment Markets & Principles Commentators have argued that the glut of Central Bank money is underpinning the markets in a way that takes away any pretence of “efficiency” and far away from normal liquidity constraints. a) To what extent do you agree and why? b) Within this new framework Hedge Funds continue to attract new sources of finance- evaluate why might this be? How Financial Markets function normally? Financial Markets are all about the raising of capital and the matching of those who want capital, borrowers, and those who have capital, lenders (Valdez, 2000). Typically, money can be made in two different forms; raised by a bank loan in the form of commercial banking...
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...Abstract Evaluation of the Quantitative Easing (QE) stimulus package was reviewed within the framework of this research. The financial crisis that resulted after the collapse of the auto industry along with the savings and loans scandals has given rise to QE. QE can be defined as an attempt to subdue interest rates which in turn encourages spending and stimulates the economy. The U.S. is currently on round three of the QE program. Research of QE seemed important as it has been extended three times. This research attempted to answer what the role of QE is in our economy and what the effects are on our business sector. Also, whether or not this stimulus is actually helping the U.S. was called into question. The preliminary data did not support that QE was actually helping as the results have been very slow or non-existent. Whether it is or is not helping may not be seen for years to come. The role of QE to stimulate the economy has been very slow as well and the results on the business sector have only increased the price of gasoline as well as other commodities. The increased costs have been passed on to the consumer which has not aided in stimulation of the economy. Overall, QE has not afforded many benefits and has done nothing more than subdue interest rates, slow the decline in Gross Domestic Profit (GDP), increase transportation costs, and devalue the U.S. dollar. Table of Contents Introduction………………………………………………………………………………………..4 Literature...
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...23 2013 Too Easy When the Fed decided to unwind the Quantitative Easing Program, the economy got a jolt. When the Fed pours money into the economy it usually stimulates the economy and spurs some growth hopefully. Quantitative Easing is basically an unconventional monetary policy used by banks or central banks to stimulate the national economy when standard monetary policy has become ineffective. A central bank implements quantitative easing by buying financial assets from commercial banks and other private institutions, thus increasing the monetary base. This is distinguished from the more usual policy of buying or selling government bonds in order to keep market interest rates at a specified target value. These policies also contributed to the improvements in market confidence and the bottoming out of the recession in the second half of 2009. Quantitative easing may cause higher inflation than desired if the amount of easing required is overestimated, and too much money is created by the purchase of liquid assets. In November 2010, a group of conservative Republican economists and political activists released an open letter to Federal Reserve Chairman Ben Bernanke questioning the efficacy of the Fed's Quantitative Easing program. The Fed responded that their actions reflected the economic environment of high unemployment and low inflation. These Republican economists were dead right, as the banks had no idea what was flying with zero oversight. The same can be said about...
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...The International Effects of Quantitative Easing The fiat currency system of today’s global economy makes possible one peculiar modern phenomenon: quantitative easing. Birthed from the Keynesian school of thought, quantitative easing is the hands-on method governments use to control economic growth by pumping money directly into the economy. The process begins when the central bank of a particular country prints new money in order to purchase assets—typically government bonds. The government then takes this new money and buys bonds from investors (banks, pension funds, i.e.), which increases the amount of cash in the financial system. The hope is that these financial institutions will be encouraged to lend more to businesses and individuals leading to an increase in investment and spending, and thus causing economic growth (Walker, 2014). Though reasonable in theory, it is heavily disputed whether QE has been successful at its intended purpose or actually quite harmful. Quantitative easing was first implemented on a large scale by Japan in 2001 after the Japanese economy had suffered persistent deflation (Zaidi, 2015). The traditional monetary policy of lowering interest rates to stimulate growth was not feasible, as interest rates at the time were already near zero (sound familiar?). Instead, the Japanese looked to quantitative easing to be the country’s savior. Unfortunately, rather than taking advantage of the extra cash bestowed upon them by this new policy, the financial...
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...505: Economic Environment Of Business Prof. Victor Petenkemani Case 3: Due 10/30/2014 Quantitative Easing in the Great Recession. 1. You will consider the various impacts of QE1, QE2, and QE3. What accounts for the differences in the market reactions to these three policy actions? What the Fed did * On Sept. 8, 2008, the U.S. Treasury seized control of mortgage giants Fannie Mae and Freddie Mac and pledged a $200 billion cash injection to help the companies cope with mortgage default losses. * About a week later the government bailed out American International Group Inc with $85 billion. * The Fed refused to save Lehman Brothers and the company was forced to file for bankruptcy. Some of the largest financial institutions were on the verge of collapse as the mortgage market melted down. As the crisis hit the global market, the credit freeze spread. * The Treasury and the Federal Reserve began working on a $700 billion bailout plan. * President George W. Bush signed the bailout plan into law Oct. 3. * Weeks later, on Oct. 29, the Fed cut the key interest rate to 1 percent. What was expected? The government claimed the bailout was necessary to provide stability in the economy and prevent disruption in the financial system. The interest rate cut aimed to revive the economy, help free up credit and make loans cheaper to consumers and businesses. What happened The financial markets remained in turmoil for several months. Credit remains...
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...critical, more so now than ever when the global economy is going through a turbulent phase. Basu took some time off to speak to Mint, just ahead of a key G20 meeting in Seoul, to provide an overview of how India perceives global economic trends. Articulating his thoughts on the latest round of monetary quantitative easing, he proposed a radically different long-term fix for the global economy, held out hope that the persistent domestic inflation would ease and painted a positive economic outlook ahead of next year’s Budget. Edited excerpts: What do you think is the outlook for the global economy? The outlook is best described as mixed; it changes from week-to-week, month-to-month. European unemployment has deteriorated slightly, while US unemployment has held steady at a high of 9.6% for three months. So the expectations on the global front continue to be uncertain. The somewhat risky move that the US has made with the second round of quantitative easing—something that is akin to printing money—is a gamble. It is not all negative, as some make it out to be. But it is a risky move, given the changed structure of the world economy. The relatively benign interpretation of what is happening in the world is that this is a temporary earthquake caused by the tectonic shift of economic power that is occurring beneath the surface of the world economy, marking the rise of emerging economies like India, China and Brazil. If this is indeed the case, the economic turbulence will subside...
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...QUANTITATIVE EASING: A RATIONALE AND SOME EVIDENCE FROM JAPAN This paper was prepared for the NBER International Seminar on Macroeconomics 2009. Volker Wieland thanks the European Central Bank for support as Duisenberg Research Fellow while the initial presentation for the ISOM conference in June 2009 in Cyprus was prepared. The help of Alberto Musso from the European Central Bank in collecting data on Japan is gratefully acknowledged. Helpful comments by conference participants, and in particular by Huw Pill, Vincent Reinhart, Frank Smets, Christian Thimann and Athanasios Orphanides were highly appreciated. The usual disclaimer applies. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2009 by Volker Wieland. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Quantitative Easing: A Rationale and Some Evidence from Japan Volker Wieland NBER Working Paper No. 15565 December 2009 JEL No. E31,E52,E58,E61 ABSTRACT This paper reviews the rationale for quantitative easing when central bank policy rates reach near zero levels in light of recent...
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...Quantitative Easing is the Federal Reserve buying bonds and assets from financial institutions in order to create a bigger market for these assets. Introducing the “Fed” as a buyer in this market artificially keeps interest rates charged. The goal of quantitative easing is to improve the economy through loans, which are made more accessible by this policy. In turn with more money being loaned, more projects will start leading to jobs and a decrease in the unemployment rate. However, the success of the program has been moderate at best, with unemployment still hovering from 7.5 to 8%. Currently the United States is in its third phase of quantitative easing (“QE”). Some people believe “third times a charm”. Many people believe “QE” is like a drug to the economy. Each time the drug is taken more is required to have the same effect. The future of this program needs to change drastically. The right ideas are there for quantitative easing however the results are not. After implementing QE1 and QE2 and not obtaining the desired results the procedures should be re-evaluated before continuing on to QE3. There are the obvious problems such as inflation and depreciation of the U.S. dollar that are caused by increasing the money supply. These issues could be overlooked if quantitative easing was drastically improving the economy, however it is not. The problem with “giving away” money is the self-interest that people inherently have. Instead of focusing on stimulating the economy, people...
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...Managerial Economics & Quantitative Methods To what extent is there an asymmetric information problem between your company and your customers? Use an example of a product you sell that consumers will not be able to detect the quality of before they buy it. What are some of the methods you may use to resolve this problem? Do warranties always signal quality? The company I am working for is Coca-Cola Hellenic Business Service Organization that main aim is to deliver accounting and financial services to all entities in the Coca-Cola Hellenic Organization that are stand as our Customers. We are responsible for 29 countries for Accounts Payable, General Accounting, Collection and Disputes and HR. Now, from this year we are taking over the Purchasing Administration from all countries. There are many examples of the asymmetric information problems between BSO and Hellenic companies. Mainly they are in the field of quality and timing of the work done. Unfortunately, our Customers were and are completely unaware of the quality of our products and services we offer before we completely take over the responsibilities for them. To resolve this issue we do the following actions before we take over particular department and responsibility: Make all accounting and financial processes standardized that means that we design operational procedures and flows in advance. After the Customers agree with the processes. They are designed for all countries and are followed from...
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...According to the article On Quantitative Easing, the Federal Reserve decided to take the route of Quantitative easing to lower the interest rate and boost the economic growth. In order to fund this buy back, the Fed has the ability to create money. In addition to its previous holding of bonds, the Fed has almost quadrupled its holding to $ 4 trillion which makes Quantitative easing the most massive economic stimulus program in the world. As a result of this QE program, the banks had more lending capability which made the interest rate they charge from borrowers to drop and formed the basis for other rates also. As a result of money supply in the market the value of dollar came down and therefore the investors got attracted to the stock market. On December 18, 2012 the Fed declared that it would cut down its buy back because its economic targets were being met now. This followed Ben Bernanke’s announcement on June 19, 2013 that Fed was considering Tapering which created a panic amongst investors who started selling the bonds and shifted their investment to stocks. In my opinion the course of action taken by the Fed is justified. QE managed to achieve some of its goal. It restored trust in bank and its operation by removing the subprime mortgage from the balance sheet of the bank. It kept interest rates low, thus reviving the real estate market. It promoted economic growth and also stabilized U.S economy. It provided the funds which in turn provided confidence to pull the economy...
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...Question 1. (a) Explain what you understand by each of the following terms. In each case give an example relating to the financial markets to illustrate your answer. • asymmetric information • moral hazard • quantitative easing (QE) Asymmetric information In the financial market, asymmetric information is a situation in which economic agents involved in a transaction have different information. It happens in the transaction when the buyer has more information than the seller, or contrary, as when a private motorcycle seller has more detailed...
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...this lesson in its entirety for educational purposes, so long as this copyright notice is included on all copies. Liber8 ® Brought to You by the Research Library of the Federal Reserve Bank of St. Louis Economic Information Newsletter Fiscal and Monetary Policy in Times of Crisis March 2011 “We [policymakers] have been bold or deliberate as circumstances demanded, but our objective remains constant: to restore a more stable economic and financial environment in which opportunity can again flourish.” —Federal Reserve Chairman Ben S. Bernanke, August 25, 2009 The recent financial crisis and recession prompted unconventional and aggressive actions by monetary and fiscal policymakers. Monetary policymakers turned to quantitative easing. Fiscal policymakers increased government spending and reduced taxes. To better understand these widely debated actions, it is helpful to know the underlying intent of the decisions and the separate functions of monetary and fiscal policy. Before the 1930s, “classical” economists generally believed economic downturns would correct themselves with little or no government intervention. However, the Great Depression caused many economists and policymakers to rethink classical economics and give more importance to policy...
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... 44055574 The two objectives of the FOMC are to maximum employment and price stability. With the inflation at around 2% and the latest unemployment rate being 5.9%, it is time for the Fed to start to return the monetary policy back to normal. In September of 2012, Fed chair Ben Bernanke announced an indefinite program of $40bn per month in asset purchases. Some feared this quantitative easing would never come to an end. However, under new chair, the Fed plans to stop quantitative easing. The Fed’s balance sheet is around 4.4 trillion, up from 900 billion before the crisis; this was caused by the bond purchasing . At this point in the economic recovery, the growth and job creation has some momentum, which can be expected to continue without this stimulus. The issue with this monetary policy is that it may in fact be creating asset bubbles similar to those that contributed...
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