Economic environment Flashcards
5 trends in investment markets
Politics - Interest rates currencies, QE.
International relations
Speculative fashions - greater fool theory (expected price rises despite fundamentals).
Socio-economic issues - Longer life, birth rates down, aging pop, increased demand for services.
Tech change - Key being to bring advances to economic production
Globalization
- Can buy goods from anywhere in world
- Emerging markets benefit from capital and tech from developed world
- Dangers with political/economic stability
Business cyles (10 years approx)
Recovery - GDP rises
Boom - economy grows at speed
Slowdown - GDP falls compared to last 1/4
Recession - 2 successive quarters of declining GDP
What is fiscal and monetary policy?
Fiscal - Use of gov spending and tax to influence economy
Monatary policy - via interest rates and money supply
Money supply
M0=narrow money - Notes and coins in circulation plus banks operational deposits with BOE
M4=broad money - Notes & coins in circulation plus the bank accounts of UK residents with UK banks and building societies and deposits created by banks and building societies through lending activity
Inflation measures
Was always RPI but now CPI used for macro purposes.
CPIH includes owner occupiers’ housing costs and council tax.
inflation effect on investments
cash - variable rates rise and fall with inflation
fixed interest - income fixed ususally. But can get inflation linked gilts
Equites - seen as an inflation hedge usually. Profits should increase in line with inflation.
Exchange rates
Real exchange rate takes account of inflation
Current account surplus means country exports more than it imports.
Visible trade =
Invisible trade =
Visible trade = goods
Invisible trade = services
Current account
Made up of good and services import and export
Current account balance = net goods and services PLUS net receipts of income generating assets from overseas.
A deficit means more goods/services have been imported than exported.
Persistant deficit puts pressure on currency.
Capital account
Records all money for investment in and out of the country.
Surplus occurs when overseas investment is more in the UK than the UK makes abroad.
If there is a deficit, BOE foreign currency reserves used to finance it.
Demand
Factors include - price, income, subs, other goods, taste.
Inverse relationship between price and Q (law of demand).
When a price change only has small demand impact then its price INELASTIC
Supply
Affected by - price, cost of inputs, alts, events
Types of employment
Frictional - Casued by changes in economy that lead to temporary unemployment
Structural - Such as industries dying out
Cyclical - in line with business cycle
