Analysis of Some Articles on Finance

April, 2015

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Redefining financial institutions. Written by Jagdev Kenth.

Jagdev Kenth, in an article written in April 2015 on how financial institutions are changing and becoming better evolved in their day to day activities, highlighted some major ways in which this evolution can be seen and the changes it has impacted on the society.

One of the ways was through digitalization and technological advances. Technology has changed previous interactions between the institutions and their clients from the traditional ways that forced you to avail yourself to the banks and other institutions when you needed to get something from them, to a point where the world has become a global village. This is the sense that you can transact anything you want at very low costs from anywhere in the world. Provided technology is available. Social networks such as Facebook and Twitter have ventured into the business and are bringing in new sources of capital and investments into the financial sector. I therefore goes without saying that the world of IT has been invested in well. Some of the ways that costs have been lowered include E-payments and onine trading. It is however noted that some banks are still lagging behind in respect of technology.

Another way in which the financial institutions are redefining themselves is through changing of the business operating model pressures. The regulatory commissions in the past demanded transparency from the institutions as they dealt with clients in the traditional operations. This forced the institutions to focus on the key clients which created the platform for service providers such as the online platforms. In response to this, the institutions decided to disintegrate and disengage the previous solid movements to smaller manageable ones that could be of service to everyone and hence cover all the requirements needed.

Technology is paramount in any financial organization. In the olden days, things were sloand tedious to keep up with. There were so many errors that could go undetected due to staff getting too tired while they work or manipulation of the client bases and the ability to hide faults and get away with them. With technology, the financial world is getting better in that employees have an added assistance that makes them work efficiently. They can keep track of everything they do and have systems put in place that can help them detect errors and do away with them. It also helps the clients to get services efficiently. They can get services wherever they are at the required time and done according to their expectations. If they need to talk to someone who manages them and their accounts, they can do that easily and in the comfort of their offices or wherever they are. It goes without saying that technology has made the financial world a better place for everyone especially the clients who are responding well to it. Jagdevs article is deep, conclusive and true since all institutions in the world are changing or edging towards the changes that will make them be better service providers to all of their clients.

Feb 12th, 2015.

EQUITY MARKETS: Still not cheap. Written by Buttonwood.

According to Buttonwood, the writer of this article, it is of paramount importance that we ask ourselves whether our equities, cheap as they seem to be as compared to bonds are really cheap or they become expensive and a rather bad choice to someone in the long run, as they can fall drastically when the company is not doing well. The Credit Suisse Global Returns Investment yearbook suggests that when you get past the point of picking a good discount rate, the rest is easy to determine. However, another thing that should be considered is the point that the value of the equity when compared to the total sum of all the cash flows should be equal. Conventionally, if you pick a high interest rate, it implies that you as an investor should not jump into taking the equity brought forward as it is dangerous. An equity with a low rate however, should be considered as it shows that it may rise over time, optimistic equities, is the word that is appropriate in describing the low rate equities.

Equities have been used by financial companies among other companies to raise funds for the smooth running of the companies affairs by borrowing from the public or private shareholders. They can be risky especially when the companies that have offered equity go under the drain or lose their attractiveness. However, in the business world, no investment is ever secure. We just have to find that which will bring us returns the way we want them to appear at the end of the day. Bonds are known to be a safer way to invest in since they will always yield results in the end. They can never go wrong when it comes to paying their dues. Risk averse people are always advised o try this type of investment first before they venture out to try others such as equities. In the nd however, it depends on how one is keen on their finances. Equities are always given by the companies that have been registered by a securities exchange body. They give updates on a daily basis and can therefore guide one on what areas to place their money and be sure it will be safe. As if that is not enough, there are experts who are trained and skilled in giving advice on the same subject. In my opinion, investors should not only use the discount rate in relation to future forecasts in order to come up with the conclusions of which equities equities to invest in. Reason being there are new accounting ways that have been used currently, which will be combined, in order to make a conclusive statement. Another reason is because the equities are usually valued low towards the end of the financial years so that the companies could surpass their targets by the end of the following year. Other players in the game such as bulls could have changed the rates to a very attractive percentage while they kept the forecasts unchanged leading to unbiased information.

The findings of Buttonwood were relevant to the studies but lacked the proof that showed that the method was the best and that it was not penetrable.

July 11th, 2015.

The debt trap. New York times.

Debt is money lent with a promise to pay back with a schedule. The borrowers hope that the project they invest in, grows in size and be able to pay back the money lent. Lenders also have high hopes that they will get back their money when the economy is at boom. However, a problem arises when the economy does not meet the expectations. This leads to the involvement of the government as the lenders cut back the involvement in the lending activities due to borrowers inability to pay them back their dues.

Debt can be dealt with in three ways. One of them is inflation. Inflation can be arrived at by increasing the nominal GDP to make the ratio of debt to GDP small. This practise has however been very hard to achieve due to the low rate of inflation in the world. This is due to the reason that not many countries control their own inflation. Defaulting is another way. It is a good method only that defaulting always shifts the liability to a different person. The government always gets to be the last resort as this liability is placed on them while all the others have failed. This is a risky option because the burden always falls on the citizens as their taxes are always raised to cover the debts. In the article, the writer thinks that the second option, defaulting would be such a big issue that no one would willingly consider since the burden would be hard on everyone else who is the citizen. He thought that the answer to the problem is uniting under a central fiscal authority in order to share the burden. This would have an effect on the banks as they would have to keep the rates low in order to keep the system still going on.

Financial analysts conclude that the problem of national debt is a problem that everyone needs to worry about. Citizens need to know that the burden will always fall on them whether it is inflationary or deflationary in nature. Inflation would increase the cost of living as the economy would try to adjust itself in order for it to go on as it is supposed to be. Prices of substances would go up. However, the suppliers of these goods and services would continue to inflate their prices even more since they will try to cope with the rate of inflation that is there. The customers who are in the rest of the group will suffer as a result of this. Deflation on the other hand has consequences that are not as different as compared to those of inflation. The citizens will also have to pay the burden of the government by being taxed more to compensate. The solution to all of this is that the countries need to put in place bodies and systems that will see to it that they use the borrowed funds have been used in the right way that they had been borrowed for. Moreover, those that were responsible for the misappropriation if any, should be impounded and made to pay for their mistakes instead of just letting the whole country suffer as a result of very few misdoings.

This article was done with utmost care and the findings are up to date. They could be used in modern day-to-day running of the economy and also used in the rectification of debts.

July, 2015

An Introduction to the Foreign Exchange Markets by Centers For Future Education

Foreign exchange is the process by which two or more countries that are involved in world trade exchange their currencies at a price in order to make it easy for them to trade. Open trading in the forex market leads to the difference in which the prices of the currencies fluctuate from time to time.

The foreign exchange market has an impact on the economy of the countries and it is in light of this that the countries try to buy and sell the currencies of other countries in a bid to stabilize their own. Governments are therefore the biggest users of this market. They engage in this market through the use of central banks and other banking institutions that act as intermediaries. Banks get the satisfaction of getting a profit from the business. In the article, the writer pointed out that you can get the spot price and the futures contracts that you can use to engage in the market.

Also, there are two types of players in the market, peculators and hedgers. Speculators are the risk-takers in the business as they go ahead and take the risk of engaging in the business with only speculations about making a profit when the rate of exchange goes up. The writer says that this is very risky since it very easy to make a loss. It is therefore not the best option to pursue if you are just starting out. Hedgers on the other hand, are very good at covering up the risk that comes along in order to make away with the losses. At their worst, they just get the capital they put back.

Speculation and hedging can be very rewarding to both the individual participants and the country as a whole. Apart from making those countries that are involved in this trade get closer to one another, they also make sure that life goes on uninterrupted anywhere in the world. Those in need of their services always go to them at very low costs. However, the way in which the two operate is the difference. None of them is unlawful or can make one regret the choices they make if they do their research well and have the time to seek assistance from those who are professionals in the same context. Hedging will make sure you do not go at a loss at any point. If worse gets to being worst, you get your money or investment just as you gave it without losing some due to the market changes. Speculation however needs one to do a thorough research before they go along to get into the business. You should read and analyse the trends that have been taking place in the world forex market before you plunge head deep in it.

I agree with the writer as he has clearly laid out the facts that confer with the business. No ambiguity has been seen. It is advisable to hedge when you are new in the business then as you learn the perks and how to focus, you can venture deeper into the speculation lane.

References

The Economist,. (2015). Still not cheap. Retrieved 12 July 2015, from http://www.economist.com/blogs/buttonwood/2015/02/equity-markets

Topics.nytimes.com,. (2015). The Debt Trap. An Interactive Feature. Retrieved 12 July 2015, from http://topics.nytimes.com/top/news/business/series/the_debt_trap/index.html

Thectr.com,. (2015). Center for Futures Education, Inc. | Foreign Exchange, Hedging, Futures, Options, Derivatives, Speculation, Leverage. Retrieved 12 July 2015, from http://thectr.com/article.php?article=forex

Willis Resilience, Jagdev Kenth. (2015). Top 6 trends that are redefining financial institutions. Retrieved 12 July 2015, from http://www.resilience.willis.com/articles/2015/04/28/top-6-trends-are-redefining-financial-institutions/