Cases In Finance

What is Quantitative Easing 3+?

Way of affecting the price of money interest rates are close to zero there is : Quantitative Easing (QE) central bank creates new money to keep long term interest rates low aim is still to bring down interest rates faced by companies and households

How it works
Create Money

Demand increase-? Recession end

Buy Assets

Cheaper borrowing ->greater spending

Price rise ->yield fall

In your opinion do you believe QE3 will be a success?

Based on Keynes theory Works best when the whole economy is in recession Good corporate earnings and high productivity of labor Fiscal policy- taxation more effective Monetary policy effects those who have assets like stocks, real estate. Due to globalist ion carry trade

What is the effect on bond yields and how does it effect the market?
Bond yields will lower Bond demand will increase -> price will increase-> yield falls. Cost of money reduces

The US also implemented Operation Twist to flatten the yield curve? What is this process and how effectives has it been?

buying longer-term Treasuries and simultaneously selling some of the shorter-dated issues it already held in order to bring down long-term interest rates. Long term bonds-> prices up-> yield down-> From September 2011 through June of 2012 It has not been effective Unemployment cant be solved by reducing cost of capital Corporates are booking profit slowly-> expanding>translate into jobs in future-> corporate tax to lower deficit

What may be the long term effects on the Dollar?

Dollar would lose value Imports will become expensive Trade deficit worsens External debt would increase as value of dollar reduces

 Any inflationary effect expected in the domestic US markets? Is there a possibility of Keynesian Liquidity trap? The liquidity trap occurs when the demand for money becomes perfectly elastic (horizontal on a graph). Short term interest rates have come close to zero (since late 2008) and at this point increase in supply (through QE) might not increase the demand for dollar. So ,YES.

 The Effects on international commodity prices especially metals ? (Prices of commodity have corrected after last quantitative easing ended in June 2011 before that they were continuously increasing during QE period.) Prices of metals would increase : 1. Inflation (increased supply of dollar) 2. Economic growth (effect of QE)

 What position Long or Short would you take on Copper? Long(as prices would increase in future): 1. Inflation 2. Increased economic activity 3. Housing projects- good demand in china, india, brazil

 What are your views on Gold price movements, upward or downward and why? Give 2 views- one for a very short term position as a trader and one for the Long term as a fundamental investor. Traders view: Gold prices would go upwards in this period of uncertainty (safe investment) till the time economy is not in good shape. Investors view :Correction in prices After some time people would invest in other assets (when economic scenario improves), this would decrease the demand for gold.

Which speculative position on Gold would you take for the longer term? In your opinion Is financialization of gold a good thing or it may have negative impact in terms of volatility etc? Short: As the economic environment becomes sttable investors would invest in other asset classes than gold. Financialization: Reduced storage risk and transportation risk. It has definitely increased the volatility in gold(more trading, no attachment).

Effect on oil prices and its impact on both emerging and developed markets
The producers of oil as well as other commodities typically sell their output in a worldwide market priced in U.S. dollars. Thus, they care about the current and expected future purchasing power of the dollar and how that will translate into goods and services back home. But QE has been associated with higher inflation and dollar depreciation, which combines to erode the purchasing power of the foreign producers of commodities. Thus, some of the rise in the nominal price of oil has been to catch up with that erosion. Nonetheless what is true is that lower interest rates spur economic growth, and thus, oil demand. Oil prices have become the new interest rates, capping growth when Central banks insist on flooding the market with liquidity, the inflated prices of commodities like oil tends to stall the whole economy. Figure:- (S&P price index in blue) (Crude oil prices in red)

In your opinion should countries be focussing on drilling for expensive Shale oil or sand oil based on issues in North Africa, West Asia, Irans Hormuz pass etc or you believe traditional oil will get cheaper in the longer run?
The amount of economically recoverable oil shale is unknown. The various attempts to develop oil shale deposits have succeeded only when the cost of shale-oil production in a given region comes in below the price of crude oil or its other substitutes. Mining oil shale involves a number of environmental impacts, more pronounced in surface mining than in underground mining. They include acid drainage induced by the sudden rapid exposure and subsequent oxidation of formerly buried materials, the introduction of metals including mercury into surface-water and groundwater, increased erosion, sulfur-gas emissions, and air pollution caused by the production of particulates during processing, transport, and support activities. In 2002, about 97% of air pollution, 86% of total waste and 23% of water pollution in Estonia came from the power industry, which uses oil shale as the main resource for its power production

Factors affecting Treasury Bills

Demand Supply Liquidity Credit risk/Default Risk Economic condition Inflation Rate

Economy Back on Track

Unlimited buying of debt promised by ECB GDP debt ratio to increase to 100% but will Fiscal Policy needs to be aligned

US-Stronger or Weaker?
High Debt Emergence of China

22.Would the QE3 have a positive or negative effect in European Union recovery? The impact is very bleak It will depend on the level of credit and economic growth it spurs Euro might not survive as the highly geared nations may be forced to leave under the pressure of deflation And as the qe3 is more transparent and benchmarked it will boost investor confidence

23.Would you be betting big on the carbon Credit market in the future? Yes / no and why?
No As the govts across the world are not totally committed towards it Also, the are trying to formalize a new treaty which will focus on emission target cuts after 2020 Also, the EU as increased the carbon quotas for the industries and this is the final year of kyoto protocol.

Question 24
Prior to 2008, china used do sterilization by Selling bonds in OMO. After that by increasing the reserve requirement. Chinese bank are incurring losses due to it But it is keeping inflation at moderate rate Also locking in most of the money without any use.

Question 25
The surge in Chinese home prices and loan growth over the past five years has surpassed extremes seen in Japan before the Nikkei bubble popped in 1990. Construction reached 12pc of GDP in China last year; it peaked in Japan at 10pc. Also the population of china is aging multiplying the effect The forex reserve of china will increase.

Question 26
Yes the changes are expected to happen. With USD and Euro showing weakness and depreciating in value the countries are changing the composition of their forex reserves. Gold is the one safe alternative. Also many are looking at the prospects of Sovereign Wealth Funds.

Question 27
I will go long on the debt instruments As the yields are already very high and the economies have already bottomed out. The yields are expected to decrease in future thereby raising the bond prices. Here one can earn from both capital appreciation and interest income received