Although the British pound suffered earlier in the week from a large Bank of England loan, the currency has been lifted due to a survey taken by UK manufacturers. The results of the survey, which inquired about their order books, showed that manufacturers were more successful this month than they've been in over a decade. Analysts did not expect such a promising report, as it proved that the UK is handling global credit problems better than most countries. According to Forbes:
The Confederation of British Industry revealed that a balance of +9 pct of firms polled reported that their order books were above normal in August - the highest level for more than 12 years.
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Promising Survey Strengthens Pound
Investment in European Stocks Weakens Yen
While the US had a rough day yesterday, European stocks performed well enough to tempt investors away from the yen. Though a stable currency, the yen is a low-yielding investment and traders are ready to try their hand at a riskier venture with European stocks. There is no word yet on how this may affect Wall Street. According to Forbes:
This has pushed the yen down as investors make tentative steps back to engaging in the risky carry trade - where investors sell low-yielding currencies such as the yen to buy higher-yielding ones elsewhere. With no US data due this afternoon, how equities fare on Wall Street is likely to determine whether the rise in risk appetite can be sustained.
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ECB suggests rate hike
The European Central Bank met today to discuss the near-term future of European monetary policy. As analysts expected, the ECB left rates unchanged. The body also reinforced analysts’ expectations by hinting it would raise rates at its next meeting, which is scheduled to take place in March. In fact, credit markets have already priced in a 25 basis point rate hike at such a time. While Jean-Claude Trichet, president of the ECB, announced that the performance of Euro-zone economy supported a tightening of monetary policy, he cautioned pundits not to expect multiple rate hikes. Euro bulls are eagerly awaiting the rate hike, which represents a step towards narrowing the interest differential between the EU and the rest of the developed world. Forbes reports:
“The press conference has effectively endorsed the markets expectation for an interest rate rise at the March meeting, without giving further clues as to the likely progression of rates thereafter,” said a …senior FX strategist.
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About Forex
Images by : fortex.com
The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is by far the largest market in the world, in terms of cash value traded, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions. The trade happening in the forex markets across the globe currently exceeds $1.9 trillion/day (on average). Retail traders (individuals) are currently a very small part of this market and may only participate indirectly through brokers or banks and may be targets of forex scams.
According to David Krutz from the Financial Times website (Published: October 9 2006 20:48) " The foreign exchange market will have doubled in size in just three years next year, thanks to increased participation by fund managers and pension funds, says research out on Monday. TowerGroup, a financial services research consultancy, said it expected total global average daily volumes on the FX market to exceed $3,000bn in 2007. FX volumes, which rose from $1,770bn in 2004 to $2,000bn last year, were set to rise to $2,600bn this year and $3,600bn next year, as foreign exchange became accepted as an asset class in its own right according to TowerGroup.
Wikipedia.org
US Dollar Strong in Monday Asian Trade
Reports from Tokyo indicate that the US dollar is holding steady in Asia as of Monday morning. After receiving promising reports from the west, recent fears about the US credit problems have alleviated and risky trades have resumed in Asia. Since then, the dollar has strengthened considerably. The Philippine Star reports:
The better US economic news slightly pared back market expectations that the US Federal Reserve will cut its benchmark interest rate next month, dealers said.
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Bad Credit Threatening US Economy
And, the Federal Reserve has lent billions of dollars to banks from its "discount window," normally associated with bailouts for struggling financial institutions. The Fed this month issued a statement that the risks to the economy have risen considerably and traders ramped up their expectations the Fed would cut targets for interest rates this year.
The tumult in the financial markets has led businesses to revisit their interpretation of the housing boom earlier this decade and the easy credit that fueled it, NABE said. The proportion of surveyed members who call it a "serious national bubble" more than doubled from two years ago to 29 percent, the group said.
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Yen Descends to Record Low
The Japanese Yen has slid to a record low against the Euro, with no obvious end in sight to the wounded currency’s multi-year decline. The basis for the continued yen weakness is the expectation that Japan will hold interest rates at current levels until the end of the summer, a notion that was reinforced by the Bank of Japan yesterday. As a result, carry traders, who categorically fear volatility, can feel confident that a continued low interest rate environment will support the viability of the Yen carry trade in the short-term. However, there are a few risks in the horizon, namely that Japan’s economy and stock market are outperforming and could prompt a series of rate hikes in the fall and lure Japanese capital back to Japan. DailyFX reports:
The rallies are becoming overextended of course and the risk of some action by the Japanese government is increasing, but until carry traders have a reason to bail, they probably will not.
13 Socially Responsible Careers in Finance
f you're interested in a financial career, you might be curious about how your interests can lead to reconciliation between your job and your belief system. Social finance might open the door to several solutions for your dilemma. While social financing might seem new, it's been around since the first individual took a stand against profit at any cost. A Quaker would no more finance slavery before the Civil War than a conscientious objector would finance war machines today.
Before you have an epiphany about your career goals, you might want to learn more about the various facets within social financing, the career opportunities that are open to you, and the education you may need to pursue your dreams.
Social Finance Defined
Social finance means that financial instruments are used to promote social goals. Financial instruments used to accomplish these goals include credit, savings, investments, and loans, among other devices. These tools help the poor to cope better with risk, take advantage of income-generating opportunities, to organize and to have a voice. These tools also incorporate personal values and societal concerns with investment decisions, where individuals or groups hope to support sustainable business efforts.
Social finance has, historically, belonged to governments and charitable or religious organizations; however, with a focus on global warming and with news about difficulties encountered by individuals in underdeveloped countries, the private sector has become involved in this specialized field. While some businesses and individuals seek to use funds for philanthropy, others want to contribute with an eye to profit.
So, while the social goals may seem similar among most social financiers, intents behind those goals may vary widely. For instance, a public corporation and a private individual both may want to support lower income populations. But, the corporation might want to eliminate poverty to create a new consumer pool for their products while the individual might work toward the same goal to support a belief in social equality.
Some Social Finance Careers
If you're interested in financial matters, you already know that markets have integrated to a degree, and that this integration - or globalization - means that various countries have become more interdependent. Financial capital is flowing into pre-emerging and emerging markets, where these funds help individuals and communities meet social needs.
Social finance careers have expanded to the point where you can attend a school in London that focuses solely on social entrepreneurship. Whether your interests lie in a nonprofit or for profit participation in this specialized industry, you might wonder where your opportunities lie. Some social finance positions might include:
Community Investor: The community investor works with other individuals to gather, oversee, and direct capital to community investment opportunities in local or regional areas or abroad. The communities in question usually have been under-served or overlooked by ordinary financial services. You can learn about community investing and some organizations involved with this outreach at the Social Investment Forum's Community Investing Center.
Usually, community investors report to a board of directors and, ultimately, to the shareholders of a company that organizes investing efforts. But, you can work toward becoming a venture capitalist who focuses on community potentials rather than on new businesses. Or, you can find a place within various organizations or on their boards.
Micro-Financier: Community investors can also become micro-financiers, a role that is very similar to the venture capitalist but that doesn't demand return on investment in all cases. This individual seeks to provide impoverished individuals or communities with the means to invest or borrow money for business or community development. Usually these financial transactions eliminate the need for collateral, and they carry smaller than average investment requirements.
The micro-financier may work solo or for companies that range from financial businesses to non-governmental organizations (NOGs). As a solo investor, you can also become involved with opportunities provided by micro-finance networks that focus on helping individuals as diverse as your own family members to unknown individuals in developing countries.
Nonprofit Sector: The nonprofit sector is, perhaps, the most traditional arm of the social finance network. When you work for a nonprofit organization or private foundation, you'll usually report to a board of directors or trustees, depending upon that organization's legal structure. The nonprofit sector is diverse, as it ranges from interests in the arts to animal rights.
The nonprofit sector is also the most diverse when it comes to opportunities. While some individuals are content to volunteer for nonprofit efforts, you can also seek a career as an executive or work as a freelance grant writer or project coordinator. The freelance positions may allow you to satisfy your desires to provide help for various organizations and still pay the rent.
Social Entrepreneur: Unlike venture capitalists, social entrepreneurs provide innovative solutions to difficult social problems usually without seeking personal profit. This entrepreneur is similar to the business entrepreneur in that he seeks to build something out of nothing with creativity and ambition. Social entrepreneurs, however, see people or communities in need rather than new businesses as their untapped markets.
Social enterprises include businesses that measure success by profits and by community benefits. With that said, a career as a social entrepreneur could combine the characteristics of altruistic nonprofits with for-profit micro-financing to create a hybrid social financing opportunity. The individuals involved at both ends often define whether the opportunity is for-profit or nonprofit, but in all cases the project usually helps to improve a community's social situation.
What to Expect
If you're already drawn to a financial career in accounting, investing, research, trading, banking or other areas, then you know the specific thrills you gain from your interest(s). If you want to incorporate a social angle to your career objective, you will also need to expand your skills and experience through education and work. You can expect to gain the following:
Interdisciplinary Skills: You will gain skills across disciplines, as you may need experience in other fields other than financial management. Sociology, anthropology, political science, and other studies that are listed under social sciences or humanities will help you reach your goals. You can also focus on technological, environmental, or leadership facets to social financial careers. Your interdisciplinary needs will depend upon whether you want to focus more on social or financial aspects within this field.
Leadership Opportunities: Social financing is a means to create innovative ways to improve social environments, and this field needs creative leaders who can take the initiative in many situations. Social financing does focus on money, but that's only half the equation. The "social" aspect requires individuals who can identify unusual resources beyond money that can be used to improve an individual or community situation.
So you can write grant proposals for projects, or you can search for alternatives to funds to resolve a problem. Or, you can donate enough money to sit on an organization's board, or you can donate your time and energy to achieve the same objective. Business leadership skills like those found in organizational, nonprofit, or project management can open doors to many opportunities.
Flexibility: Careers in social financing currently may be definitive or broad and fairly undefined. You many find a way to travel the globe, or you may seek a situation where you're alone and surrounded by books and archival materials. Since this field is growing, however, you may find that your job will demand a little of both worlds and more. This flexibility is part of what many social finance employers seek, as their volunteers and employees often wear more than one hat.
An ability to flex with a situation is also defined as "creative" and "innovative," especially when unexpected situations are met with little complaint. A flexible situation can also be meaningful, as a job within the social finance sector is well suited to people who want to use their skills, talents, education, and money to bring about social change.
Global Knowledge: Even if you end up in a back office surrounded by social financing accounting books, you will learn much about how people live in other communities around the world. This global knowledge contains many advantages for a person who seeks to move up the social finance career ladder, or for the individual who eventually wants to become a social venture capitalist or entrepreneur. Without knowledge about politics, cultural influences, and other objectives that influence community development, the social financier will waste time, skills, and money.
In addition, globalization requires specialized knowledge on how countries and communities become interdependent. Whether or not you approve of globalization, the trend toward interdependence is in motion. Your can use your participation in a social financing career to support your beliefs.
Where to Begin
If a career in social financing intrigues you, you might want to conduct more research and you'll definitely want to try this field on for size. Your focus can include local volunteerism, online reading, further education, and conversations with individuals who work in the field.
Begin with Volunteerism: If you want to learn more about how "social" connects to "finance," you can volunteer to work with a nonprofit organization. Not only will you gain experience on the ground, you'll meet individuals who can help point you in a career direction. You can also expand your horizons to work in other regions as well. You can find nonprofit volunteer and career opportunities online through sites like the Nonprofit Career Network or Idealist.org.
Find Other Social Financiers: When you link up with other like-minded individuals, you can learn more about what to expect in your career aspirations. You can find these individuals locally or online through sites like the Social Edge or Changemakers.net. If you plan to head in the venture capitalist direction, you can find like-minded individuals at the National Venture Capital Association. While the individuals within this organization might not participate in social financing, they can help you gain knowledge about this investment field.
Expand Your Education: Even if you've accomplished a doctoral degree, you can always learn more. Think about expanding your education to achieve the cross-disciplinary expectations required by this industry. You might consider that school in London, or you can find similar courses in social entrepreneurship at Duke University or at Stanford. You can also take it upon yourself to learn new languages, financial skills, social sciences, and about environmental issues.
If you feel you can't take the time or money to expand your education in a campus or self-learning environment, then plan to join an organization at the ground floor or as a volunteer. Sometimes experience can count for credits in a later educational endeavor, and it always counts toward a career move when others see your participation in action or on your resume.
All social finance organizations need financial personnel. From the Red Cross to Greenpeace to other social organizations, you can find a niche that best fits your current financial skills and social goals. If you prefer to work in investments, you can learn from socially responsible funds and other investment opportunities. Sites like Social Funds or the Social Investment Forum can offer opportunities to learn about investments that range from green initiatives to funds that support minority groups. You'll also learn more about the organizations that offer these funds and investment opportunities.
No matter your direction once you get your feet wet in this field, you may learn that financial opportunities don't always lead to gluttony, lust, and depravity. Nor will they all lead to living without the needs vital to survival. Whether you lean toward nonprofit or for-profit careers in social financing, you can find an area that needs your support and interest. You may find that your new career will help you "do good" and do well.
Big Mac Index Offers Currency Valuations via PPP
The Economist just released its an updated iteration of its famous Big Mac Index, underscoring growing disparities in currency valuations. For those of you that aren’t familiar, the Big Mac Index uses the price of a McDonald’s Big Mac sandwich in different countries as a proxy for measuring purchasing power parity (ppp), that perennial staple of economics that theorizes a country’s currency and its inflation rate should move in opposite directions. Thus, where a Big Mac is observed to be more expensive than in the US, it would suggest that country’s currency is overvalued relative to the USD. Of course there are numerous other factors in the local price of a Big Mac, including raw materials and taxes, but the index still packs a pretty profound punch. Unsurprisingly, the most undervalued currencies can be found in Asia- notably the currencies of Japan, China, Thailand, Indonesia, etc. The most comparatively expensive Big Macs (and hence most overvalued currencies) can be found in Europe, especially in Scandinavia and Northern Europe.
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Factors which influence exchange rates
Before you undertake currency investment, it is important you understand the forces that drive exchange rates. Many of these factors are intangible and/or psychological, and, thus, are impossible to characterize. However, those factors which are generally recognized as fundamental determinants are spelled out below.
1. Inflation
A low rate of inflation, relative to other countries, implies that prices of goods in services in one country are increasing at a comparatively slow pace. These goods and services then appear cheaper in the eyes of foreigners, who increase demand. If the law of purchasing power parity holds, the nation's currency should appreciate to offset the relative decrease in prices.
2. Interest Rates
The correlation between a nation's interest rate and its exchange rate is easy to grasp. We would expect savvy investors to invest their money where, for a given level of risk, the returns are highest. Thus, when a disparity in interest rates exists between countries whose risk of default is equal, investors would likely lend to the country that was offering the higher interest rate. In order to invest in or lend to another country, one must first obtain that nation's currency. This increases demand for that nation's currency, and causes it to appreciate in value.
3. Current-Account / Trade Balance
When a country runs a current account deficit, it typically means that the nation imports more than it exports. This tends to skew the exchange rate in favor of the country that runs a trade surplus, as foreign demand for its currency must be comparatively high. In due course, the exchange rate may adjust so as to make the first nation's products affordable to foreigners, and bridge the gap between imports and exports.
4. Public (government) debt
The relationship between government debt obligations and its exchange rate is not as cut-and-dried. Basically, government borrowing to finance deficit spending increases inflation, which literally eats into the value of that nation's currency. In addition, if lenders believe there is any risk of default, they may sell the debt (in the United States, this debt takes the form of treasury securities) on the open market, exerting downward pressure on the exchange rate.
5. Political and Economic Factors
Most investors are risk-averse; accordingly, they will invest their capital where there is a certain degree of predictability. They tend to avoid investing in countries that are typified by governmental instability and/or economic stagnation. In contrast, they will invest capital in stable countries that exhibit strong signs of economic growth. A nation whose government and economy are perennially stable will attract the most investment. This, in turn, creates demand for that nation's currency and causes its currency to appreciate in value.
South Korea's dollar reserves reach all-time high
South Korea's dollar reserves have hit an all-time high of $200 Billion, eclipsing the previous record of $199 Billion, set last month. South Korea attributed the increase in reserves to interest paid by the United States on outstanding Treasury securities. However, analysts wonder if the increase in South Korea's reserves is actually an attempt by the Korean central bank to hold down its currency. The South Korean Won appreciated 15% against the USD last year, which could potentially harm its economy by eating into exports. Reuters reports:
Analysts say South Korea has not abandoned a long-held policy of curbing the won in a bid to keep its exports competitive, especially since exports have been the main driver of economic growth over the past two years.
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Japan looks to decrease USD reserves
Japan has the largest USD reserves in the world, valued at over $700 Billion. The recent appreciation of the Japanese Yen against the dollar has effectively devalued these reserves. In fact, for each Yen gained against the Dollar (i.e. a move from 105 JPY/USD to 104 JPY/USD), Japan loses over $7 Billion Dollars. As a result, Japan's central bank may follow Russia's example by shedding some of its USD reserves, and replacing them with Euros. Analysts predict that Japan will ultimately hold Euros and USD in a 1:1 ratio. Japan is feeling additional pressure as a revaluation of the Chinese Yuan looms on the horizon. If its central bank doesn't begin gradually selling off its dollar reserves now, it may find itself competing with China for buyers, which will only accelerate the decline of the dollar. Forexnews.com reports:
Japan should especially start lightening its hand from US assets before China initiates the fray when it eventually revalues its currency and sees less of a need to purchase US dollars in intervention over time
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Australia, New Zealand currencies remain strong
Investors have been flocking to the so-called Aznac (Australia and New Zealand) currencies of late, in search of high yields. Australia and New Zealand both currently offer some of the highest interest rates in the industrialized world. Moreover, analysts believe the two central banks will further tighten credit by raising interest rates in the near term. In the past, investors in search of risk-less, stable, returns simply purchased American treasury securities. However, as the USD declines, foreign investors earn negative real returns on the treasuries they hold. As a result, many are beginning to move money to other developed nations, where the risk of default is equally unlikely, but interest rates are higher. The Australian Financial Review Reports:
What looked like the long-awaited rebirth of the US dollar at the start of this year appears to have been a false signal. Investors, starved for yield elsewhere, are responding by recycling out of US dollar-denominated assets.
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Malaysia considers floating exchange rate
Malaysia's currency, the Ringgit, is currently pegged to the dollar. Some officials feel it may be undervalued by as much as 12%; accordingly, it may soon allow the currency to float. Economists are forecasting the dollar could decline an additional 30% in the short-term, which would actually leave the Ringgit overvalued, relative to the rest of the world's currencies. To make matters worse, it looks like the global economy will recede in 2008, which gives Malaysia only a few years to un-peg the Ringgit. Failure to do so, could exacerbate the effects of such a global recession on the Malaysian economy. At this point, Malaysia has two options. It could either un-peg the currency and allow to float completely, or instead gradually adjust the peg until the Ringgit stabilizes at its fair value. Forexmarkets.com reports:
"We still have a lot of reserves to defend the peg because it is undervalued. But this will not work well if the currency is overvalued. As such, the ringgit must be allowed to appreciate gradually," said the executive director of the Malaysian Institute of Economic Research.
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China loosens restrictions on capital outflow
hina's enormous capital account surplus is growing ever-wider as speculation is fueling capital inflow and convertibility restrictions simultaneously limit capital outflow. The exchange of Chinese Yuan for foreign currency is heavily regulated, and in practice, usually forbidden. In attempt to narrow the surplus, China's Central Bank has pledge to loosen restrictions on capital outflow. Now, businesses and consumers will be able to exchange their Yuan for foreign currency, on a limited basis of course. For example, Chinese insurance companies will be allowed to invest overseas, and keep proceeds earned from such investments- in dollars. This concession was made in response to rising foreign pressure to revalue its domestic currency. China continues to maintain such a revaluation will occur, but offers no timetable. Reuter's reports:
Analysts say the remarks show that Beijing is reluctant to revalue, or adjust the yuan's value, fearing that heated speculation may pose a greater danger if it rushes into change. The top policy priority is to relieve pressure on the yuan while developing a market infrastructure to help create conditions to let the yuan eventually move more freely.
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Currency trading based on deficit losing steam?
Currency trading based on the trade deficit MAY be losing steam (but, I wouldn't hold my breath). According to FXStreet.com:
"People have grown tired of the deficit issue and are looking for something else to trade on, like interest rates," said Toshihiro Azuma, forex manager at Sumitomo Trust and Banking. "But, if the trade data is worse than expected, dollar selling could resume."
He added that even if the data is within expectations, the dollar could push down to around 102 yen -- a level last seen at the end of last year -- given that a round of dollar short-covering by hedge funds appeared to have been complete
Dollar and Yen Continue to Strengthen
Despite the effects of US subprime mortgage troubles on the rest of the world, investors have scaled back risky ventures and increased the value of both dollar and yen. While this result may be inadvertent, it is much appreciated by those who have lost major funds in the stock market recently. The future doesn't look any brighter for US mortgage, either. According to Hemscott:
Housing starts sank 6.1 pct in July to a 1.381 million unit annual rate, the lowest since January, while building permits -- a more forward-looking indicator -- fell 2.8 pct to a 1.373 million rate, the lowest since October of 1996.
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Forex Becoming Popular in Jamaica
A huge turnout at the recent "Jamaica Forex Expo" shows that foreign exchange trading is becoming a widespread practice in Jamaica. This expo was organized by the Market Traders Institute (MTI), which has reportedly trained nearly 1500 Jamaicans thus far. It would seem that citizens of this impoverished nation have found a new hope for their future with the help of forex trading. According to Jamaica Gleaner News:
"Trading on the forex has been my path to financial independence," proclaimed one patron who was in attendance at the expo.
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Trading On News Releases
One of the great advantages of trading currencies is that the forex market is open 24 hours a day (from 5pm EST on Sunday until 4pm EST Friday). Economic data tends to be one of the most important catalysts for short-term movements in any market, but this is particularly true in the currency market, which responds not only to U.S. economic news, but also to news from around the world. With at least eight major currencies available for trading at most currency brokers and more than 17 derivatives of them, there is always some piece of economic data slated for release that traders can use to inform the positions they take. Generally, no less than seven pieces of data are released daily from the eight major currencies or countries that are most closely followed. So for those who choose to trade news, there are plenty of opportunities. Here we look at which economic news releases are released when, which are most relevant to forex (FX) traders, and how traders can act on this market-moving data
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