Economics General Flashcards
How and why does the Australian Reserve Bank perform its International Market Operations?
▪️ The Reserve Bank operates in the foreign exchange market on a regular basis •to meet the foreign exchange needs of its clients and •to assist with domestic liquidity management.
▪️ The Reserve Bank may enter the foreign exchange market •to address disorderly market conditions or •gross misalignments of the value of the Australian dollar.
▪️ These foreign currency assets, held are invested almost entirely in •high quality sovereign debt, •gold and •liabilities of the International Monetary Fund.
Why is the US dollar one of the most traded currencies in the world?
▪️ Firstly, the US is the world’s largest economy and a powerhouse in international trade.
▪️ Secondly, the US dollar is the world’s primary ‘reserve currency’, held by central and commercial banks for the purposes of international transactions and investment – estimated to make up nearly 63% of currency reserves by volume.
▪️ Thirdly, many commodities are priced in dollars, including gold, oil and copper.
(The US dollar is the number one most traded currency globally, accounting for a daily average volume of $2.2 trillion)
Thinking of Donald Trump and China, are Trade Deficits good or bad?
▪️ They are neither good nor bad.
▪️ It all depends on the “current account surplus”, … and/or whether the country’s currency has reserve status. (11/18)
What is the rank order of world GDP?
(Wikipedia citing IMF 2017)
World $79 trillion
1 United States - $19 trillion
2 China - $12 trillion
3 Japan - $4 trillion
4 Germany - $3 trillion
5 United Kingdom - $2 trillion
6 India - $2 trillion
7 FRANCE - $2 trillion
8 BRAZIL - $2 trillion
9 ITALY - $1 trillion
10 CANADA - $1 trillion
11 South Korea - $1 trillion
12 RUSSIA - $1 trillion
13 AUSTRALIA - $1 trillion
14 Spain - $1 trillion
15 Mexico - $1 trillion
16 Indonesia - $1 trillion
17 Turkey - - $849,480 billion
18 Netherlands - $825,745 billion
19 Saudi Arabia - $683,827 billion
20 Switzerland - $678,575 billion 21 Argentina - $637,717 billion 22 Taiwan - $579,302 billion 23 Sweden - $538,575 billion 24 Poland - $524,886 billion 25 Belgium - $494,733 billion 26 Thailand - $455,378 billion 27 Iran - $438,300 billion
28 UAE - $432,612
29 Austria - $416,845 billion
30 Norway - $396,457 billion
31 Nigeria - $376,284 billion 32 Israel - $350,609 billion 33 South Africa - $349,299 billion 34 Hong Kong - $341,659 billion 35 Ireland - $333,994 billion
36 Denmark - $324,484 billion
37 Singapore - $323,902 billion 38 Malaysia - $314,497 billion 39 Philippines - $313,419 billion 40 Colombia - $309,197 billion 41 Pakistan - $303,993 billion 42 Chile - $277,042 billion 43 Bangladesh - $261,374 billion 44 Finland - $253,244 45 Egypt - $237,073 46 Vietnam 220,408 47 Portugal 218,064 48 Peru 215,224 49 Czech Republic 213,189 50 Romania 211,315 51 Venezuela 210,085
52 NEW ZEALAND - $201,485
53 Greece 200,690 54 Iraq 197,699 55 Algeria 178,287 56 Qatar 166,326 57 Kazakhstan 160,839 58 Hungary 152,284 59 Angola 124,209 60 Kuwait 120,351 61 Morocco 109,824 62 Ukraine 109,321 63 Ecuador 102,311 64 Puerto Rico 98,805 65 Slovakia 95,938 66 Sri Lanka 87,591 67 Ethiopia 80,874 68 Kenya 79,511 — Syria[n 3] 77,460/Na 69 Guatemala 75,661 70 Dominican Republic 75,018 71 Oman 74,274 72 Myanmar 66,537 73 Luxembourg 62,393 74 Uruguay 58,415 75 Panama 61,838 76 Costa Rica 58,056 77 Sudan 58,239 78 Bulgaria 56,943 79 Croatia 54,516 80 Belarus 54,436 81 Tanzania 51,725 82 Lebanon 51,457 83 Macau 49,802 84 Slovenia 48,868 85 Uzbekistan 47,883 86 Lithuania 47,263 87 Ghana 47,032 88 Serbia 41,471 89 Democratic Republic of the Congo 41,441 90 Azerbaijan 40,670 91 Jordan 40,487 92 Côte d'Ivoire 40,360 93 Tunisia 40,275 94 Turkmenistan 37,926 95 Bolivia 37,122 96 Bahrain 34,895 97 Cameroon 34,006 98 Libya 31,331 99 Latvia 30,319 100 Paraguay 29,619 101 El Salvador 28,023 102 Uganda 26,349 103 Estonia 25,973 104 Zambia 25,504 105 Nepal 24,472 106 Iceland 23,909 107 Papua New Guinea 23,617 108 Honduras 22,975 109 Cambodia 22,252 110 Cyprus 21,310 111 Afghanistan 20,889 112 Trinidad and Tobago 20,300 113 Bosnia and Herzegovina 17,457 114 Laos 17,152 115 Zimbabwe 17,105 116 Botswana 16,725 117 Yemen 16,511 118 Senegal 16,057 119 Georgia 15,230 120 Mali 14,998 121 Gabon 14,467 122 Jamaica 14,290 123 Nicaragua 13,692 124 Burkina Faso 13,187 125 Albania 13,001 126 Namibia 12,558 127 Mozambique 12,345 128 Mauritius 12,273 129 Malta 12,011 130 Brunei 11,963 131 Macedonia 11,416 132 Armenia 11,037 133 Mongolia 10,869 134 Madagascar 10,557 135 Equatorial Guinea 10,069 136 Chad 9,740 137 Benin 9,410 138 Guinea 9,183 139 Bahamas 9,127 140 Rwanda 8,918 141 Kosovo 8,883 142 Haiti 8,360 143 Moldova 7,945 144 Niger 7,892 145 Republic of Congo 7,799 146 Tajikistan 7,234 147 Kyrgyzstan 7,061 148 Malawi 6,261 149 Eritrea 6,050 150 Fiji 5,054 151 Mauritania 4,985 152 Barbados 4,821 153 Togo 4,797 154 Maldives 4,520 155 Montenegro 4,405 156 Swaziland 4,030 157 Sierra Leone 3,897 158 Suriname 3,665 159 Guyana 3,591 160 Burundi 3,393 161 South Sudan 2,870 162 Lesotho 2,721 163 Timor-Leste 2,716 164 Bhutan 2,321 165 Liberia 2,140 166 Djibouti 2,082 167 Central African Republic 1,992 168 Belize 1,819 169 Cape Verde 1,728 170 St. Lucia 1,717 171 San Marino 1,592 172 Antigua and Barbuda 1,535 173 Seychelles 1,479 174 Guinea-Bissau 1,295 175 Solomon Islands 1,273 176 Grenada 1,111 177 The Gambia 1,038 178 St. Kitts and Nevis 939 179 Samoa 844 180 Vanuatu 837 181 St. Vincent and the Grenadines 815 182 Comoros 659 183 Dominica 608 184 Tonga 437 185 São Tomé and Príncipe 372 186 Federated States of Micronesia 329 187 Palau 321 188 Marshall Islands 199 189 Kiribati 186 190 Tuvalu 40
What is a currency swap?
▪️ A currency swap, sometimes referred to as a cross-currency swap, involves the exchange of
• interest
• (sometimes) principal
in one currency for the same in another currency.
▪️ Parties agree in advance whether or not they will exchange the principal amounts of the two currencies at the beginning of the transaction. The two principal amounts create an implied exchange rate…
▪️ Interest payments are exchanged at fixed dates through the life of the contract.
▪️ At maturity, the same two principal amounts must be exchanged, which creates exchange rate risk as the market may have moved.
Which are the greatest holdings of US dollar denominated debt, public or private holdings?
▪️CENTRAL BANK RESERVES held in dollar-denominated debt, are small compared to PRIVATE HOLDINGS of such debt (11/18)
What was the US interest-rate in 2015?
▪️ The all-time low was 0.25 percent on 17 December 2008. That’s effectively zero. It didn’t raise rates until December 2015.
▪️ It’s now up to almost 2.5%.
(Before this, the lowest fed funds rate was 1 percent in 2003 to combat the 2001 recession. At the time, there were fears that the economy was drifting toward deflation)
Question
And it is telling that the way to play renewed optimism is to buy stocks on the main- land. In the past, investors might have turned to Hong Kong listed shares or proxies for China’s economy, such as the Australian dollar.
What are the amounts by sector of world debt?
▪️ Non-financial companies - $68 trillion
▪️ Governments around the world - $63 trillion.
▪️ Financial institutions - $58 trillion of borrowings.
▪️ Households - $44 trillion.
(end 2017)
What is current debt levels for US, China and Australia and how do they compare with past?
(Ans from SMH and tradingeconomics.com)
▪️ US GOVERNMENT debt today - approaching $US22 trillion (around 100% US GDP)
▪️ US government debt in 2007 - $US 9 trillion, (62% US GDP).
▪️ US CORPORATE debt today (record levels) – about 46% GDP
▪️ Australian net GOVERNMENT debt today - $350 billion (around 24 per cent of GDP)
▪️ Australian net government debt in 2007 - $0
▪️Australian Private debt to 2017 - 208.6 of GDP%
▪️Australian private debt to GDP 1995 (all time low) - 120.50%.
▪️Australian private debt to GDP 2015 (all time high) - 210.9%.
▪️Australian private debt to GDP average ‘95 - ‘17 - 170.03%.
(Private debt includes non-financial corporations and households and non-profit institutions serving households, as a percentage of GD))
▪️China gross debt today - around 300 per cent of GDP
▪️ China gross debt in 2007 - 180 per cent of GDP
What causes movements in the Australian dollar (or what influences whether people want to buy it or not)?
Some key themes that can impact the AUD/USD include:
▪️ The outlook for global growth
▪️ Movements in Australia’s commodity export prices. • This increases or lowers the nation’s terms of trade namely the amount of money the country brings in through exports relative to the amount it spends on imports
▪️ The gap between interest rates in the US and Australia
▪️ How Asian currencies such as the Chinese yuan and Japanese yen are performing
(From Commbank August 2018)
How has Trump contributed to an expansionary U.S. economy during his first term and what are the risks?
▪️ $1.5 trillion US, ($2.1 trillion) of tax cuts for business and the wealthy
▪️ A massive increase in government spending.
(11/18)
What are A Shares?
China A-shares are the stock shares of mainland China-based companies that trade on the two Chinese stock exchanges, the Shanghai Stock Exchange and the Shenzhen Stock Exchange
What are mutual funds?
Industry super funds in Australia appear to be best described as “mutual funds”.
Wikipedia says in relation to Australian super funds:
“Today, industry (superannuation) funds are non-profit mutual funds.”
I did extensive research on the nature of mutual funds and while they are commonly described in the US, in Australia, the search goes to managed funds, however I don’t think managed funds are technically mutual funds in Australia.
What countries are the countries we export most to (ie our main export markets)?
1 China - 28.3% 2 Japan - 11.7% 3 United States - 6.3% 4 Republic of Korea - 6.1% 5 United Kingdom - 4.5% 6 India - 4.5% 7 New Zealand - 3.9% 8 Hong Kong (SAR of China) - 3.8% 9 Singapore - 3.1% 10 Taiwan - 2.7% 11 Indonesia - 2.2% 12 Malaysia - 2.2% 13 Vietnam - 1.5% 14 Thailand - 1.4% 15 Germany - 1.2%
(Year 2016 Source: DFAT)
Which country is the world’s largest exporter by value?
▪️ China.
▪️ China shipped US$2.263 trillion of products worldwide in 2017
(According to stats by International Trade Centre as of November 13, 2018)
Take couple of stats from here in Margaret Gardner article
Fourth, it will further undermine Australia’s position in research and development investment relative to our economic competitors. China now invests 2.1% of its GDP in research and development – while Australia’s total investment from all sectors in research and development (government, business and research institutions) is now just 1.88% of GDP. China’s economy is ten times bigger than Australia’s, but they’re investing 30 times more than we are.
Our government only spends A$10 billion on research and development each year. Only last Friday, it was revealed Australia’s government spending on research and development was already forecast to fall this year to its lowest level in four decades as a percentage of GDP – to 0.5%. This new research funding cut only worsens this situation.
What was economically significant in the US about December 2018?
December 2018 was the worst December on record for the US since the Great Depression!
Does Germany benefit by being in the euro?
▪️ German exports are more competitive than if Germany had its own currency.
▪️ Germany has seen the strongest productivity growth in the Eurozone area. Germany has been successful at increasing output and keeping wage costs low.
▪️ If Germany still had the D-Mark, this increased productivity and low inflation would cause an appreciation in the D-Mark.
But, with Euro membership, Germany hasn’t seen this appreciation against other European economies.
▪️ Also, to non-EU countries the Euro is weaker than the D-Mark would be.
▪️ The consequence is that German export sector has done well because of improved competitiveness.
▪️ This competitiveness is reflected in a large current account surplus.
What is the level of U.S. government debt?
▪️Total US Government debt - $21.9 million as at Jan 2019
Which bodies hold the reserve currency and why?
▪️ GOVERNMENTS and
▪️ INSTITUTIONS
as part of their foreign exchange reserves.
The reserve currency is commonly used in
▪️international transactions
▪️international investments
▪️all aspects of the global economy.
What is the rank order of countries which are our largest trading partners (sum of imports and exports)?
- China - 24%
- Japan - 9.4%
- United States - 9%
- Republic of Korea - 7.2%
- India - 3.6%
- New Zealand - 3.6%
- United Kingdom - 3.5%
- Singapore - 3.3%
- Thailand - 3.0%
- Germany - 2.7%
(Year 2017 Source: DFAT)
What is the evidence that foreign investors are about to buy more Chinese shares and bonds?
There is more to foreign buying of Chinese stocks than a revival in risk appetite.
Global investors own just 2-3% of Chinese stocks and bonds, well below the country’s weight in world GDP.
Foreigners buying financial assets in China is tricky, but has become a lot easier.
MSCI (Morgan Stanley Capital International is speeding up the inclusion of China A-shares in its emerging— market index and will quadruple their weighting this year.
Next month Bloomberg Barclays is adding China to its main bond index.
Other providers of bond indices are likely to follow suit.
Analysts at MorganStanley expect a marked acceleration of foreign capital flows into Chinese shares and government bonds this year in response.
What are the advantages to a country of being a Reserve Currency?
▪️The government and citizens can borrow cheaply:
(The world’s need for dollars has allowed the U.S. government and Americans to borrow at lower costs, granting them an advantage in excess of $100 billion per year).
▪️ Imports are cheaper:
(People in the U.S. can purchase imports and borrow across borders more cheaply because they do not need to exchange their currency to do so)
▪️ Easier to run trade deficits:
(Having the reserve currency makes it somewhat easier for the United States to run higher trade deficits with greatly postponed economic impact). ( 11/18)
Chicago School
Chicago School
What are the three prongs of Abenomics and with what success?
Prime Minister Shinzo Abe’s three-pronged approach, dubbed “Abenomics” and launched in 2013, combines
▪️fiscal expansion
▪️monetary easing
▪️and structural reform.
▪️ After four years of heavy stimulus, the country has begun to see moderate growth but growth remains tepid.
▪️ Abe’s hefty stimulus package, focused on building critical infrastructure projects, such as bridges, tunnels, and earthquake-resistant roads. (11/18)
Who holds the $21.21 trillion of US government debt?
▪️ US Investors - $6.89 trillion (32.5%)
▪️ US Government - $5.73 trillion (27%)
▪️ US Federal Reserve - 2.38 trillion (11.2%)
▪️ Foreign Investors - $6.21 trillion (29.3%)
So, some 70% of the national debt is owned domestically. A shade under 30% is owned by foreign entities.
The US investors are private and state pension funds as well as individual investors and they are the biggest holders. They owned $6.89 trillion in debt and absorbed about four-fifths of the increase over the past year.
▪️China - $1.18 trillion (5.6% of total US debt) ▪️Japan - $1.03 trillion (4.9% of total US debt) ▪️Brazil - $300 billion (1.4%) ▪️Ireland - $300 billion (1.4%) ▪️UK - $274 billion (1.3%) ▪️Switzerland - $237 billion (1.1%) ▪️Luxembourg - $220 billion (1.0%) ▪️Cayman Islands - $197 billion (•9%) ▪️Hong Kong - $196 billion (•9%)
The Chinese government or Chinese investors likely own EVEN MORE U.S. debt, purchased through entities in other countries such as Hong Kong, Luxembourg or the Cayman Islands, all of which are havens for tax shelters.
Notably, Russia has slashed its Treasury holdings to a mere $15 billion from a peak of $153 billion in mid-2013 amid worsening tensions with the U.S.
So far there’s little evidence that other countries will follow suit to strike back at the U.S. amid ongoing trade disputes. Many need or want Treasury bonds and notes as a safe place to park their savings.
(All above from Marketwatch.com 23 August 2018)
What is the role of the Reserve Bank of Australia?
▪️The Bank conducts the nation’s monetary policy and issues its currency.
▪️It seeks to foster financial system stability and promotes the safety and efficiency of the payments system.
▪️It also offers banking services to government.
What was the value of bonds at end 2018 purchased by the Fed to lift economic growth?
More than $4.5 trillion as part of an effort to drive down mortgage rates and lift economic growth.
How were Australia’s exports going as at June 2018 considering the trade war?
▪️Exports climbed 2.6 percent on a pick-up in a broad range of goods from iron ore and gold to farm and manufactured items.
▪️Imports fell 0.7 percent as a pullback in petrol outweighed strength in transport and telecoms equipment.
▪️The windfall owed much to China, which has been hoovering up Australia’s iron ore and coal output even as trade tensions with the United States have escalated.
▪️Analysts noted that much of Australia’s exports to China are primary products used in the Asian nation’s domestic economy rather than for re-export (ie perhaps less likely effected by US tariff situation).
▪️There has also been NO sign of a slowdown in the rapid growth of Chinese tourism or the flow of students from the country.
Why is the China Yuan so little traded eg even behind Australia?
Check this.
