International Financial Markets an der Copenhagen Business School | Karteikarten & Zusammenfassungen

Lernmaterialien für International Financial Markets an der Copenhagen Business School

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GDP

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measures the value of goods and services produced in an economy in a given period

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Expansion & Recession

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Expansion is a phase in the Business cycle which indicates growth in the economy. An economy is considered to be in the expansion phase when GDP typically has grown for two or more consecutive quarter. Economic characteristics are:

  • Increasing employment
  • Increasing Consumer Confidence
  • Low interest ratees
  • Increasing production
  • bullish sentiment

Recession: vice versa


The recession is the stage that follows the peak phase. The demand for goods and services starts declining rapidly and steadily in this phase. Producers do not notice the decrease in demand instantly and go on producing, which creates a situation of excess supply in the market. Prices tend to fall. All positive economic indicators such as income, output, wages, etc., consequently start to fall.

 

Characteristics of recession

  • Recessions are often shaped by fear psychology and therefore by strong risk aversion and low investment activity
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Root cause of the Business Cycle? (accord. Keynes)

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Keynes states, it is instability in the human psychology which is the root cause of the fluctuating business cycle

INSTABILITY arises because excessive optimism and euphoria can easily be replaced by doubt about the future

  • In booms, doubt can easily arise about the future profitability of investments
  • recessions are shaped by fear psychology and therefore by strong risk aversion an low investment activity


=> concept of 'bounded rationality': human decisions are never fully rational. In Keynes view there would be fewer crisis and more stability had our decisions been based on rational analysis

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Economic Indicator

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An Economic Indicator is a piece of economic data, usually of macroeconomic scale, that is used by analysts to interpret current or future investment possibilities. 

The indicator also helps to judge the overall health of the economy.

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The Conference Board Leading Economic Indicator (LEI)

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Composite index of Leading, Coincident, and Lagging Index


Leading Index: points to future trends and turning points and tend to shift in advance of the Business Cycle

  • average weekly working hours
  • building permits
  • ISM new orders index


Coincident Index: identifies those that are in the process of developing and define the Business Cycle

  • highly correlated with GDP
  • useful assesing the current pace of the economy
  • tracks turning points in the business cycle


  • manufacturing and trade sales
  • personal income less transfer payments
  • employees on nonfarm-payrolls


Lagging Index: confirms that turning points in economic activity actually have occured and tend to change direction after the coincident series

  • average duration of unemployment
  • consumer price index for services
  • commercial and industrial loans
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Composite Indexes

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The emphasize the cyclical pattern in the data and de-emphasize the voilatility of individual indicators, economic indicators are combined into  composite indexes

  • There is not the one indicator which can make a solid prediction about both pace & direction of the economy
  • clear and more convincing than the behaviour of any individual component
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TESTE DEIN WISSEN

Diffusion Indexes

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… provide implications about the widespread about a particular business cycle movement, and measures the breadth of that movement

It measures the number of compnent increasing in a given month

  • index value of 70 means that 7/10 components were rising
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good economic indicators...

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… are statistically and economically robust!


CONFORMITY - the series must conform well to the business cycle

CONSISTENT TIMING - the series must exhibit a consistent timing pattern over time as a leading, coincident or lagging indicator

ECONOMIC SIGNIFICANCE - cyclical timing must be economically logically

STATISTICAL ADEQUACY - data must be collected and processed in a statistically reliable way

SMOOTHNESS - month-to-month movements must not be too erratic

CURRENCY - the series must be published on a reasonably prompt schedule

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The Financial Crisis

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With the term "the great Recession/ Financial Crisis" it is referred to the sharp decline in global economic activity which is considered as the most severe economic and financial meltdown since the great depression, from December 2007 until June 2009.

  • Global trade dropped by 25%
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Causes of the FC

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  • opportunistic & speculative housing market with booming housing permits due to low interest rates
  • housing prices skyrocketed due to high demand
  • Credit Bubble burst --> subprime mortage lenders were failing on their loans
  • excess supply lead to housing bust of 20-30%
  • huge debt decreased consumer spending
  • collapse of the financial sector and insurance companies
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The way out of the FC

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Extensive fiscal & monetary stimulus


Government (Expansionary Fiscal)

  • tax cuts
  • open market operations
  • American Recovery & Reinvestment Act 
    • economic stimulus
    • spurring consumer spending
    • indstill confidence needed to boost the economy
    • restore trust in the financial system
  • TARP to bailout banks & stop a collapes


FED (Expansionary monetary)

  • lower interest rates. However, were already pretty low at the time -->
  • Quantitative Easing is a strategy by central banks to increase the money supply
    • the FED purchases government bonds from the market to increase money supply and encourage lending and investment to stimulate growth


Aftermath~CBO:

  • Stimulus was succesful and let to an increase in GDP already by Q3 in 2009
  • created employment
  • stabilized the leverege to household income ratio
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International Trade

International Finance
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International trade focuses on transactions involving movement of goods and services across nations.


International finance focuses on financial or monetary transactions across nations.

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  • 5271 Karteikarten
  • 53 Studierende
  • 18 Lernmaterialien

Beispielhafte Karteikarten für deinen International Financial Markets Kurs an der Copenhagen Business School - von Kommilitonen auf StudySmarter erstellt!

Q:

GDP

A:

measures the value of goods and services produced in an economy in a given period

Q:

Expansion & Recession

A:

Expansion is a phase in the Business cycle which indicates growth in the economy. An economy is considered to be in the expansion phase when GDP typically has grown for two or more consecutive quarter. Economic characteristics are:

  • Increasing employment
  • Increasing Consumer Confidence
  • Low interest ratees
  • Increasing production
  • bullish sentiment

Recession: vice versa


The recession is the stage that follows the peak phase. The demand for goods and services starts declining rapidly and steadily in this phase. Producers do not notice the decrease in demand instantly and go on producing, which creates a situation of excess supply in the market. Prices tend to fall. All positive economic indicators such as income, output, wages, etc., consequently start to fall.

 

Characteristics of recession

  • Recessions are often shaped by fear psychology and therefore by strong risk aversion and low investment activity
Q:

Root cause of the Business Cycle? (accord. Keynes)

A:

Keynes states, it is instability in the human psychology which is the root cause of the fluctuating business cycle

INSTABILITY arises because excessive optimism and euphoria can easily be replaced by doubt about the future

  • In booms, doubt can easily arise about the future profitability of investments
  • recessions are shaped by fear psychology and therefore by strong risk aversion an low investment activity


=> concept of 'bounded rationality': human decisions are never fully rational. In Keynes view there would be fewer crisis and more stability had our decisions been based on rational analysis

Q:

Economic Indicator

A:

An Economic Indicator is a piece of economic data, usually of macroeconomic scale, that is used by analysts to interpret current or future investment possibilities. 

The indicator also helps to judge the overall health of the economy.

Q:

The Conference Board Leading Economic Indicator (LEI)

A:

Composite index of Leading, Coincident, and Lagging Index


Leading Index: points to future trends and turning points and tend to shift in advance of the Business Cycle

  • average weekly working hours
  • building permits
  • ISM new orders index


Coincident Index: identifies those that are in the process of developing and define the Business Cycle

  • highly correlated with GDP
  • useful assesing the current pace of the economy
  • tracks turning points in the business cycle


  • manufacturing and trade sales
  • personal income less transfer payments
  • employees on nonfarm-payrolls


Lagging Index: confirms that turning points in economic activity actually have occured and tend to change direction after the coincident series

  • average duration of unemployment
  • consumer price index for services
  • commercial and industrial loans
Mehr Karteikarten anzeigen
Q:

Composite Indexes

A:

The emphasize the cyclical pattern in the data and de-emphasize the voilatility of individual indicators, economic indicators are combined into  composite indexes

  • There is not the one indicator which can make a solid prediction about both pace & direction of the economy
  • clear and more convincing than the behaviour of any individual component
Q:

Diffusion Indexes

A:

… provide implications about the widespread about a particular business cycle movement, and measures the breadth of that movement

It measures the number of compnent increasing in a given month

  • index value of 70 means that 7/10 components were rising
Q:

good economic indicators...

A:

… are statistically and economically robust!


CONFORMITY - the series must conform well to the business cycle

CONSISTENT TIMING - the series must exhibit a consistent timing pattern over time as a leading, coincident or lagging indicator

ECONOMIC SIGNIFICANCE - cyclical timing must be economically logically

STATISTICAL ADEQUACY - data must be collected and processed in a statistically reliable way

SMOOTHNESS - month-to-month movements must not be too erratic

CURRENCY - the series must be published on a reasonably prompt schedule

Q:

The Financial Crisis

A:

With the term "the great Recession/ Financial Crisis" it is referred to the sharp decline in global economic activity which is considered as the most severe economic and financial meltdown since the great depression, from December 2007 until June 2009.

  • Global trade dropped by 25%
Q:

Causes of the FC

A:
  • opportunistic & speculative housing market with booming housing permits due to low interest rates
  • housing prices skyrocketed due to high demand
  • Credit Bubble burst --> subprime mortage lenders were failing on their loans
  • excess supply lead to housing bust of 20-30%
  • huge debt decreased consumer spending
  • collapse of the financial sector and insurance companies
Q:

The way out of the FC

A:

Extensive fiscal & monetary stimulus


Government (Expansionary Fiscal)

  • tax cuts
  • open market operations
  • American Recovery & Reinvestment Act 
    • economic stimulus
    • spurring consumer spending
    • indstill confidence needed to boost the economy
    • restore trust in the financial system
  • TARP to bailout banks & stop a collapes


FED (Expansionary monetary)

  • lower interest rates. However, were already pretty low at the time -->
  • Quantitative Easing is a strategy by central banks to increase the money supply
    • the FED purchases government bonds from the market to increase money supply and encourage lending and investment to stimulate growth


Aftermath~CBO:

  • Stimulus was succesful and let to an increase in GDP already by Q3 in 2009
  • created employment
  • stabilized the leverege to household income ratio
Q:
International Trade

International Finance
A:

International trade focuses on transactions involving movement of goods and services across nations.


International finance focuses on financial or monetary transactions across nations.

International Financial Markets

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