Archive for the "World Economy" Category
The latest EU developments generated untold number of talks about its further prospects. The most probable outcome, though allowing for other alternatives, was the prophecy of imminent breakout of the Eurozone idea per se. An imaginary scenario was wisely baptized as Eurogeddon. Quite an artistic term appeared in the end of 2011, the time when European leaders had one summit after another and Mario Draghi gave speeches at least once a week. Since then the situation worsened in Europe. Greece rescue scenario is dimming against the background of Spain economic issues. European Union is sinking deeply into recession during perilous economic times and the only reasonable outcome could be the deliverance from fragile economies the entity is saddled with. However, France and Germany indignantly deny the possibility of such perspective. Nevertheless, any of the teetering states were supported by the strongest members and the governments had to impose more austerity measures. Investors are waiting for Greece and Portugal default, unemployment rate is growing in Spain and it seems to be impossible to deal with these circumstances. In order to initiate growth within these countries, the EU has to inject as much money as it cannot afford now.
What will happen with the European currency then? If the Eurogeddonists are right, it will face a collapse. The countries that came to grips with the default would better come back to their national currencies in order to devaluate it. Such outcome is possible only if they exit the European Union. Both financial and political experts are anticipating the EU disintegration suggesting that troubled countries will inevitably leave the Union which will result into crumble of the whole entity like a house of cards. The euro rescue will be too extravagant for the rest of the Eurozone members while return to the national currencies will be the only game in town. Until the EU pays dividends to its major regulators (Germany and France), it will exist. But even now it is possible to observe that teetering countries are trying to extract money from the rest. It is stipulated by the terms of the Union but is not beneficial for more prosperous countries.
The world is watching this situation and, of course, it is not indifferent to its outcome. But it becomes apparent not in the ability to help but in the euro discredit. Despite the probability of prolonged period of stagnation in the region, the euro stability is doubtful.
The global financial crisis is at the top of world community’s agenda today. Economic experts, politicians and people without financial literacy discuss it. There are a lot of anecdotes about crisis in the Internet. People are concerned about it, experts are analyzing it, but there is no clear forecast of the way the crisis will affect economic situation in Russia and ruble stability.
It was not long ago when the country managed to shake off the effects of the economic crisis in 2008-2009. Now in 2012 we observe its second wave. The first one resulted in the devaluation of Russian national currency. Particularly, Central Bank pushed the value of the ruble downwards and provoked the price growth. Step by the step the Bank’s authorities reduced the value of the ruble making possible to keep the situation under their control. They gave enough time for people to exchange and so prevented the ruble from collapse. Thus Russians could secure their funds by transferring them into another currency. Tight attachment to oil prices makes Russia vulnerable in case of insecure global financial condition. Since the first wave of financial meltdown came unexpectedly, the second one was quite anticipated as a lot of countries kept a watchful eye on their financial security after having a bad experience. Eurozone has been among the hardest hit by the global economic crisis in 2012. It resulted in debt growth, higher unemployment rate and unresolved situation with Greece. European officials have not found a solution to the financial crisis yet. But attempts to work out policy tools in response to the recession will enable to feel the pulse of current economic condition. How can it influence Russia? The only signs we can observe today are lower oil prices, which keep falling despite the ruble rescue measures of the Central Bank. But if oil prices continue to decline, CBR’s funds will soon exhaust. It would lead to severe inflation with its high food prices and currency collapse.
While Russia takes efforts to regulate oil and raw material prices, it remains vulnerable from global economy policy’s fluctuations. The fact is Russia is not the world’s importer of industrial products. It makes the country dependant from Europe and the United States. The country’s budget is directly related to foreign demand for oil. So now experts can say nothing but agree that financial crisis will remain through 2013. Only time will tell whether we will face default.
While Eurozone leaders are desperately trying to breathe new life into Greece’s junk economy plugging the leak with massive loans, the real threat to the euro is swelling in the North. It bears the name of Finland. The point is that the Land of Thousands Lakes expressed readiness to leave the Eurozone in case Spain’s and Italy’s debt crises exacerbate. They say better lost than found, but there is something which makes this saying misfit the situation. The point is that Finland is the only country with the AAA credit rating in the entire euro area. The Finnish economy has been commonly recognized as the most stable and competitive in the world for five years already. Apparently, it goes without saying that Finland would be a painful loss for the currency bloc. However, at a closer look, the stance of the Finnish government does make sense. Finland toils not only for itself, but for at least two other states, if not three. Greece’s cry for help was followed by that of Spain; now Italy is just about to queue up for a bailout. Moreover, eurosceptical Sweden and Norway neighbouring Finland state that a non-euro economy tends to develop faster. In addition, Finland’s main importers and raw material supplies are non-Eurozone countries, so leaving the currency bloc will hardly affect the economy of Finland. What is more, the Finnish government will be able to save the money which is now pouring into the economies of Greece and Spain in exchange for debt obligations of very doubtful liquidity. Finnish Finance Minister Jutta Urpilainen said, “Finland will not hang itself to the euro at any cost and we are prepared for all scenarios”. She also added that Finland will not pay for others. Minister for Foreign Affairs of Finland Erkki Tuomioja announced that the country has a plan to follow in case the euro collapses. It should be reminded that Finland signed a deal on securing collateral in exchange for its commitment to Greece’s second bailout. If saving the euro requires sharing the debt burden, Finland may well impede this scheme. And yet, this scenario seems to be unlikely with the Finnish Parliament growing increasingly determined to exit the euro area. Experts and economic observers have even introduced a new term for it — Fixit (Finland exit). Fixit is much more likely to happen than Grexit (Greece exit). It is not hypotheses or conflicts among Finnish political parties that make the likelihood of Fixit so clear, but real data. According to the IMF, next year the overall Eurozone debt will peak at 91% of GDP, while that of Finland will only equal 53% of GDP, which is the lowest level of debt except for Estonia and Luxembourg. Finland’s contribution to financing the debts of troubled countries is the same as Germany’s support. But being the Eurozone thought leader, the German government knows what it pays for and objectives it pursues, whereas Finland acts more like a benevolent patron backing its poor cousins and getting nothing from them but stocks of barely alive banks. Germany fully understands it and does its best to come to an arrangement with Finland. However, reaching any agreement appears to be a challenge, as Finland needs indemnity such as assets or shares in certain economic sectors of its half-live dependants. There is a risk that the “deal of the century” will span for a really long time, right up to the point when the Netherlands will also feel like joining it, which will not benefit Germany. So, it is highly possible that Germany’s sluggishness will lead to a partial or full Eurozone collapse, rather than to any fruitful arrangement.
Is there any relation between goods and currency markets?
It is worth noting that every currency unit is tied to inventories and has no value without them. Oil being an integral part of economy’s security and economic competitiveness of many countries ensures this value. The U.S. dollar directly depends on oil prices and has great influence on the international currency market.
As a rule, when oil prices rise, the dollar falls and vice versa. The same negative correlation could be seen in a currency of any country that depends on oil import. However, if it is one of major black gold exporters (Canada, for example), then oil price growth will have positive impact on the rate of national currency.
That is why oil price statistics can be a part of Forex fundamental analysis.
Added by Roman Tsepelev,
InstaForex development manager
It is of no secret, that Forex is the largest financial market in the world, the tempo of its development leaves no chance to the rivals over the globe. Forex helps thousands of people earn much money without any breaks and days-off. The point is that currency markets have multiple advantages over other markets.
The general benefits are its high liquidity, loyal prices and wide accessibility. Forex market is not a roulette game; without days-off, pauses and intermediates, Forex daily proves its profitability and success to the whole world.
In a short period of time, it is possible to earn considerable sums of money at Forex market. Evidently, this result is achieved due to the high volatility of currency pairs. Sometimes a currency pair can move by hundreds of points within several days only. But, being overwhelmed by the pursuit of money, it is necessary to remember about high risks.
Day by day, Forex market has about three billions of dollars in turnover. The most significant indicator of the liquidity is traders and buyers’ constant being on the market, they are following all market trends attentively.
Moreover, important Forex constituent is the absence of sharp and unpredictable changes on the market, even if the entire world is in panic with the currency changes.
It is understood, that currency will be sold and bought always; in this case, Forex will be opened for everybody, who tends to gain profit, non-stop. Every person knows, that when Asian session ends, European begins and so on, until it will go around the globe, attracting more and more people, reinforcing he leader positions.
Many are attracted to Forex market not only by the high cost of currency operations. Forex does not require any commission payments; there is a fixed market spread. Spread is a difference between ask and bid price, due to it the transaction cost is maximally lowered, in comparison with other markets.
Certainly, it is necessary to consider the fact, that money is the product at currency market Forex. And this excludes any shipping costs absolutely, because of the absence of the physical condition; this is another advantage, which makes Forex market with no days- off even more popular.
At first sight, the restrictions deficiency can even confuse. However, at international currency market there is one law, which is a law of supply and demand, or the simplest business law. At the same time, the majority of audit chambers and exchanges have numerous restrictions. The result of this is the absolute freedom for business development and goals achievement.
Forex, which is working without days-off, shows a marginality principle, working at its best. Due to marginality principle, each trader, even with the smallest capital, has an opportunity to earn a significantly bigger sum, since he has a possibility to make transactions, which are the most profitable for him.
Thus, if the operation has turned to be the most successful for somebody, this gives the chance to increase the initial capital sum within a few minutes. At Forex, both short-term and long-term positions are accessible, besides, it is not necessary, that the currency, which was invested, remained the same.
Now it is possible to make a conclusion: international currency market Forex, undoubtedly, has numerous advantages, due to which absolutely every interested person can become a trader. No matter where the person works, Forex market, daily and without days-off and breaks, gives a chance to everybody to work and get profit.
Added by Dmitry Golynski,
InstaForex Development manager