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It therefore pays foreigners to invest in South African money market products. When our exchange rate is strong we funndamental therefore expect lower interest rates. Likewise a weakening currency will result in higher interest rates. This was clear during when foreigners removed large funds out of the country.
The Fundamental analysis forex tutorial Bank's main function is monetary policy.
Policy decisions are made with the objective of achieving low and stable inflation over the medium term. Other major roles are maintaining financial fundamental analysis forex tutorial stability and promoting the safety and efficiency of the payments system. The Bank is an active participant in financial markets, manages the country's foreign tutoriap and issues currency notes.
The information provided by the Tutorial fundamental analysis forex Bank includes statistics - for example, on interest rates, exchange rates and money and credit fundamental analysis forex tutorial - and a range of publications on its operations and research. More 1 lot forex equal the functions of the Reserve Bank will be discussed under Monetary Policy.
One of the most reliable indicators for investors funxamental interest rates. Interest rates are merely the price of money. Like all prices, interest rates are determined by the interaction of supply and demand.
The greater the demand for anything, the higher the price and vice versa.
lightspeed trading options As the demand for money increases, interest rates should also increase. Fundamental analysis forex tutorial rates react to the economic cycle, rising during boom periods when money is in demand for business expansion etc. High interest rates are negative for profits, and because the market will generally anticipate this, it will peak well in advance of interest rates.
As a result, the two cycles fored not synchronised. The direction of interest rates could give you a valuable lead to future stock market movements. Generally speaking, when interest rates rise, money fundamental analysis forex tutorial otherwise would have found its way to the JSE is likely to be directed toward interest-bearing investments.
fundamental analysis forex tutorial The move away from the stock market has the effect of lower share prices. Furthermore, as valuations are done using a discount rate linked to interest rates, higher interest rates will cause lower stock market valuations.
A third impact of higher interest rates is companies pay higher interest and consumers pay higher interest consumers will have less money to spend on analysis forex tutorial fundamental productstherefore profits decline. Lower company binary option scalping software mean lower share prices.
Higher interest rates are negative for the stock market and lower interest rates are positive for the stock market. The monetary authorities can influence the economy by influencing interest rates. For example, if they believe that a boom is getting out of hand, they allow interest rates to rise and keep them as high as is necessary to put a lid on the economy.
Anyone with a home loan will realise how painful such sustained high interest rates can be!
There is a multitude of different interest rates in the economy. Darden stock options for employees basic fundamental analysis forex tutorial is between short and long term interest rates.
For instance, the interest rate paid on a cheque or savings account is an example of short-term rates. They apply to money which is "on call" or available immediately.
Interest earned on a fixed deposit of three years is an example of a long-term interest rate. Usually long-term interest rates are higher than short-term interest rates because money is tied up for longer and therefore the lender trading technical signals a better tutorial forex fundamental analysis for not being able frex put his money to other uses.
By controlling the amount of TB's on offer at its weekly auctions, the government can, in fact influence the Repo rate and thus also other rates in the money market. To understand how this works, let us suppose that the government increases the rate at which it re-discounts Wnalysis. This would mean that the banks have to raise their rates since they have fundamental analysis forex tutorial pay more to have them re-discounted by the Reserve Bank.
Thus short-term interest rates should rise. Treasury bills are used to drain liquidity from the banking system. The authorities may decide that there is too much money available, and therefore reduce the money supply, which is a means for the authorities to manage the economy. For purposes of ensuring low inflation, not only fundamental analysis forex tutorial quoted or nominal level of interest rates should be taken into consideration, but also real interest rates. A real interest fibonacci sequence forex is calculated in the simplest way by deducting the inflation rate from the nominal interest rate.
To use a simple example: International comparisons of interest fundamental analysis forex tutorial should be done on the basis of real rates, not nominal rates.
This is the market in which bankers acceptances, treasury bills and other short-term financial instruments are discounted and traded. It has no physical floor but operates through the activities of institutions such as banks and the Reserve Bank. One of the major reasons for the existence of the money market is to allow financial institutions such as banks to either:. Inflation is the phenomenon of prices increasing from year to year or alternatively, the decline in the purchasing power of paper currencies.
In the long term, inflation is caused by governments increasing analysis forex tutorial fundamental money supply faster than the growth of GDP.
Put another fundamental analysis forex tutorial, money is simply a symbol of these goods and services produced by and owned by the whole economy. Sooner or later the prices will rise. Inflation is measured by measuring prices.Fundamental analysis for forex: an introduction
A very common measure is the Consumer Titorial Index CPIwhich measures retail prices and expresses anaylsis result as an index figure. Inflation is then the annual percentage increase in the index. From to the South African inflation rate has ranged between 10 and 20 per cent.
It has been brought down to less than 10 per cent per annum since From fundamental analysis forex tutorial investment volume indicator trading system of view, inflation is most important as an indication of where interest rates are heading.
When inflation is on the rise, tutorial fundamental analysis forex rates will follow as the monetary authorities use higher interest rates as a tool to fight inflation. Likewise when inflation decreases interest rates should also decrease. The central aim of all the Reserve Bank's policy actions is low inflation.
Low inflation means that fundamenal will lose value only slowly, if at all, over a period of time.
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Money serves three functions, namely:. These three functions analysis tutorial fundamental forex money make it essential that the value of money should remain as stable as possible. No modern market economy can function well if its currency continuously loses value. Inflation is a continuous decline in the value of fundamental analysis forex tutorial. This will be reflected in the ever-increasing prices of all goods volume indicator trading system services.
It is important that price inflation should be contained at its lowest possible level for the people of a country to have faith and confidence in the value of the money they use.
Low or zero inflation does not imply that the prices of goods and services will not change at all. Prices in a market economy will always change in response to changes in relative scarcities.
A change in relative scarcity means that something becomes either less or more available than before. To use an example: However, this stock options crossword a change in the relative scarcity of Billabong products and not the result of general price increases.
Low inflation means that the continuous rise in the general price level, i. A precondition for the efficient fundamental analysis forex tutorial of a market economy is that producers and consumers must be able to identify changes in the relative prices of goods and services.
The identification of changes in relative prices allows producers and consumers to take appropriate economic decisions which ensure the most efficient allocation of productive resources, especially in respect of the use of labour fundamental analysis forex tutorial machinery and the purchase of goods and services. A serious problem occurs when all prices rise continuously.
Producers and consumers can then take wrong fundamental analysis forex tutorial because they cannot distinguish properly between the changes in relative prices reflecting relative scarcity and price increases that form part of an ongoing inflationary process. Economic efficiency is sacrificed and scarce resources may not necessarily be used efficiently during periods of continuous high inflation.
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High rates of inflation inevitably lead to a decline cloforex the efficient binary options rainbow of a market economy and in the medium to longer term, ofrex a lower rate of growth of the economy as fundamental analysis forex tutorial whole and, therefore, also to less employment creation. Although it is sometimes stated publicly that higher inflation will create jobs, this is not true.
Higher inflation destroys jobs in the long run. It is true, however, that policies aimed at lowering inflation might have a short-term negative effect on job creation.
Apart from disguising changes in relative scarcity, other important disadvantages of inflation are:. The Reserve Bank's approach is to lend money to banks at such an interest rate that enables inflation to be brought and kept under control.
We have looked at the economic background and some of the issues that are important. We saw that the need may arise for the government or monetary authorities to intervene in the natural course of economic events. Now we will look forrx how governments intervene in the economy to analysie and achieve certain desired goals such as growth and employment. For example, in a situation where the economic boom gets out of hand, driving up prices to unacceptably high levels and perhaps putting a strain on the balance of payments, the government may step in to "cool" down the fundamental analysis forex tutorial.
The need to manage binary options video course economy thus arises either from constraints imposed on the economy such as analysis tutorial fundamental forex balance of payments constraint or the desire to improve performance.
Open-market operations entail the buying and selling of government securities by the Reserve Bank in the open market at the Bank's discretion fundamental analysis forex tutorial order to influence conditions in the money market or the level and pattern of interest rates. The transactions concerned are termed operations in the open market because the Bank is prepared to deal with any interested party.
Although these transactions are primarily undertaken to achieve long-term monetary objectives, a secondary objective may be to iron out temporary dukascopy forex contest market fluctuations caused, for example, by tax payments to the Exchequer, other changes in the Government's balances with the Reserve Bank, or changes in the Bank's fundamental analysis forex tutorial gold and other foreign reserves.
If these operations are conducted with the private non-bank sector, they will influence the money supply directly if deposits at banks are used to pay for the operationbut also indirectly by affecting the cash reserves of banks as well as the need for Reserve Bank accommodation, which, in turn, may influence interest rates. Similar money-market effects may fundamentao obtained from the Reserve Bank's analysis forex tutorial fundamental of securities to banks.
Through the daily refinancing of the banks' liquidity requirement, the Reserve Bank can indirectly influence the cost at which money is made available to commercial fundamental analysis forex tutorial. The daily refinancing of the bank occurs by way of a daily tender, where the banks will sell financial assets in exchange for cash fundamental analysis forex tutorial the Reserve Bank, but they will bid tender for this cash. This system, introduced in Marchis called the repo system where stock options startup company have to buy back repurchase the assets they sold to the Reserve Bank.
The Repo is conducted when the banks have a need for cash, but at times there may be a surplus of funds in the market and then the Reserve Bank will conduct a reverse Repo. The average rate at which all forex fundamental tutorial analysis banks tender for the cash that the Reserve Bank provides, is called the repo rate.
This rate has replaced Bank rate which was a rigid rate set by the Reserve Bank.
By fundamentao, the repo rate is variable, far more flexible and is determined by the market i. The Reserve Bank estimates the banks' need for liquidity forex news trading pdf by varying forex fundamental tutorial analysis amount of liquidity it makes available at the daily tender, it signals monetary policy and thus indirectly influences the Repo rate. The Repo fundamental analysis forex tutorial affects the level of short-term market rates.
For example, if the Repo rate is high, the banks raise the interest rates at which they lend money to their customers. This causes a rise interest rates and eventually helps to control inflation by stemming the ttuorial demand for credit and disciplining the amount of money in the economy. The Reserve Bank plays a very important role in determining the state of the South African business cycle.
While they cannot cause the cycle, the Reserve Bank certainly can reduce the impact of a downturn or severely lessen an upturn.
They do this by fundamental analysis forex tutorial use of monetary policy. Monetary policy involves the deliberate manipulation of interest rates by the Reserve Bank in order to achieve certain policy goals.
The Bank's primary objective is monetary stability and balanced economic growth. We have seen that the Reserve Bank does this mainly through the manipulation of the rediscount rate of Treasury Bonds TB'sthe so-called Repo rate. The rise in the repo rate quickly affects all other interest fundamental analysis forex tutorial and thus has a knock-on gcad binary options throughout the economy.
It was once thought that inflation was an inescapable consequence of economic growth. As more money was pumped into an economy, so the theory went, prices would rise. Since then, economists realise that it is possible to have growth without inflation. Inflation will only rise where money ttutorial created without an equal increase in the production of goods and services.
Central banks the world over are now pursuing "sustainable economic growth" by keeping fundamental analysis forex tutorial rates at relatively restrictive levels i. It has generally been established that the central bank of a country should concentrate on monetary stability, which encompasses the control of inflation and maintaining the currency at a reasonably stable level against the currencies of major trading partners.
Inflation damages the technique de trade option binaire in a variety of ways by eroding some of a currency's most important functions, i. Inflation also hits the poor the hardest, e. Inflation therefore widens the gap between the rich tutorial forex fundamental analysis the poor and is yutorial divisive for any country with already wide income disparities.
It is therefore important to understand that low and stable inflation is a prerequisite for achieving sustained growth.
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Over the long term, it is true that inflation results from increasing forxe money supply more quickly than the economy is fundamengal in real terms. However, in the short term the "velocity of circulation" can reduce or increase the level of inflation. Analysis tutorial fundamental forex velocity of circulation is literally the speed with which money moves in the economy. There are also other important goals of monetary policy such as controlling money supply.
This is also mainly accomplished through the sale and purchase of short- and long-term government stock, in the so-called open market operations of the Reserve Bank and through changes in interest rates. By using interest rates as a prime tool of monetary policy, the authorities can lower the rate of economic growth, while the economy is in a boom, by allowing fundamental analysis forex tutorial rates to rise and to stay abalysis for as long stock options spreadsheet excel it is necessary to reduce economic activity.
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This will encourage people to start spending less and to begin saving. On the other hand, if the economy is in a recession, interest rates may be kept low in order to stimulate spending and investment.
There is no guarantee that either policy- of high or low interest rates will do the trick, particularly not analysis forex tutorial fundamental the short term.
Low interest rates, for example, will not necessarily lead to higher investments since there are other factors at work, such as the level of confidence, which effect decisions about investing.
Similarly, in a boom period, if interest rates are kept high, people and businesses may not curtail their expenditure. For various reasons they may continue to spend at a high rate despite the high options strategies using time decay rates. Critics of monetary policy often point to the massive harm that is done fundamental analysis forex tutorial the economy by keeping interest rates high for a long time in terms of business closures and analyiss cuts.
This is just another name for the government's tax policy. It refers to the conscious use by the forex tutorial analysis fundamental of its own spending power and ability to impose taxes to influence economic growth. The budget is the main document through which the analyzis implements its fiscal policy. By fundamental analysis forex tutorial allocating more of its income to projects such as road building or education, the government helps to provide work to contractors and others supplying goods and services it requires.
This in turn stimulates further economic activity as wage earners employed by the contracting firms spend their money. An important aspect of monetary and fiscal policy is froex they fnudamental be coordinated.
It is futile that the Reserve Bank raises interest rates fundamentql dampen economic activity if the government continues to spend at a high level. Although this sounds obvious, in practice it is harder to accomplish e. Fundamental analysis forex tutorial on the face of it the budget is merely an accounting exercise in trying to match anticipated income with planned expenditure, its significance is actually far greater.
It options strategies using time decay in fact the most important document of fiscal policy and signals the so-called "fiscal stance" of the government to the private sector.
For example, is the government adopting an expansionary analyiss to the economy or not and what is its spending priorities in fundamental analysis forex tutorial future likely to be? This allows businesses particularly to plan ahead with greater certainty. Before the British economist Keynes introduced the subject, the idea of "budget deficit financing" was a loathing to governments.
The idea was that just like a prudent household that fundamental analysis forex tutorial to live within its means, so too should the government balance its books without access to borrowing or printing money.
After Keynes the idea of deficit forex fundamental tutorial analysis became acceptable because his views about the government having to step in and spend money when the private sector was not doing so. Unfortunately some countries have become so "addicted" to deficit financing that it has assumed volume indicator trading system unmanageable proportions e. Funadmental a country runs larger budget deficits year after year, the size of the national debt grows since the government must borrow the money to finance its deficit.
Eventually the interest on the government debt becomes a major drain on the government's finances.
Like most things in life the stock market works in cycles. Analyis prices do not xnalysis go up and neither do they always go down. Furthermore it is biased in the investor's favour as the fundamental analysis forex tutorial trend is up.
As long as a country's GDP grows we are talking long term here, stock options are underwater mind the frequent quarters of negative growth that is normal tutorial forex fundamental analysis the economic fundamental analysis forex tutorialthe businesses fuelling this growth will become worth more.
A well-diversified portfolio is bound to return positive results, without Einstein fundamentxl involved in its selection at all. Maybe it will help to understand a bit more about the investment cycle. The normal economic cycle is loosely based on foeex boom-bust situation. For this explanation we will work with four phases in a cycle, starting with phase II. The reason for starting with the second phase will eventually be clear. Phase II starts with low interest rates, inflation is under control and the economy is growing at a rad stock options average rate.
Due to the low interest rates spending increases, the economy grows faster above averagebut unfortunately this leads to higher inflation.
The fear of inflation forces the central bank to influence increasing interest rates.
The object is that more expensive money will lead to a decrease iq binary option demo account spending fundamental analysis forex tutorial therefore inflation will once again be under anallysis.
During phase III interest rates increase further there is a lag between increased interest rates and subsequent lower inflation as the central bank remains worried that the strategy is not working. The higher interest rate eventually have a negative effect on spending and therefore the growing economy starts to show the first signs of slowing down moving towards average GDP growth.
In phase IV fuundamental is once again under control but the slowing economy begins to worry the central bank and interest rates start to trend tutorial fundamental analysis forex downward with the object of increasing spending in the economy.
This normally arrives a little bit too late and economic growth slows down to forex tutorial analysis fundamental a standstill, it might even occasionally slip into a depression or a recession. Phase I starts with the economy levelling off and slowly starting to grow at a faster rate albeit still below top binary option trading platforms. At the fundamental analysis forex tutorial of this phase the central bank is happy with economic growth, slaps themselves on the shoulder for their excellent fundamental analysis forex tutorial of the situation and put a halt to decreasing interest rates.
Return to phase II above for the next phase. This is more or less how the economic cycles runs, the phases are not always of equal length and certain parts might lap over to another phase.
External problems like an economic crisis in Asia will also have an effect and under such circumstances the business cycle theory might even seem redundant. Foreign Exchange trading, also known as Forex or FX trading, has gained enormous popularity in recent years among layman individuals due to the growth of online brokers and the technological development of online trading platforms.
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