Book descriptionSuccessful trading, speculating or simply making informed decisions about financial markets means it is essential to have a firm grasp of economics. Financial market behaviour revolves around economic concepts, however the majority of economic textbooks do not tell the full story.
To fully understand the behaviour of financial markets it is essential to have a model that enables new information to be absorbed and analysed with some predictive implications. That model is provided by the business cycle.
'Economics for Financial Markets' takes the reader from the basics of financial market valuation to a more sophisticated understanding of the actions that traders take which ultimately drives the volatility in the financial markets.
The author shows traders, investment managers, risk managers and finance professionals how to distil the flow of information and show what needs to be concentrated on, covering topics such as:
* Why are financial markets subject to economic fashions?
* How has the New Economy changed financial market behaviour?
* Does the creation of the euro fundamentally change the behaviour of the currency markets?
Shows how to distil the vast amount of information in financial markets and identify what is important
Demonstrates how the "New Economy" had changed financial market behaviour
Explains how to follow the behaviour of central banks
Table of contents
- Front Cover
- Economics for Financial Markets
- Copyright Page
- Contents (1/2)
- Contents (2/2)
Chapter 1. What do you need to know about macroeconomics to make sense of financial market volatility?
- The big picture
- Financial markets and the economy
- Gross national product and gross domestic product
- Monetarism and financial markets
- The quantity theory of money – the basis of monetarism
- How money affects the economy – the transmission mechanism
- The modern quantity theory – modern monetarism
- Monetarism and Federal Reserve operating targets from 1970 to the present (1/2)
- Monetarism and Federal Reserve operating targets from 1970 to the present (2/2)
- The Non-Accelerating Inflation Rate of Unemployment (NAIRU)
- Chapter 2. The time value of money: the key to the valuation of financial markets
Chapter 3. The term structure of interest rates and financial markets
- Functions of interest rates
- Determination of interest rates, demand and supply of funds
- International factors affecting interest rates
- Price and yield – a key relationship
- The term structure of interest rates
- Determination of forward interest rates
- The yield curve
- Unbiased expectations theory
- Liquidity preference theory
- The market segmentation theory
- The preferred habitat theory
Chapter 4. How can investors forecast the behaviour of financial markets? The role of business cycles
- The cyclical behaviour of economic variables: direction and timing
- The stages of the business cycle
- The role of inventories in recessions
- The business cycle and monetary policy
- How does monetary policy affect the economy?
- Fundamental analysis, the business cycle, and financial markets
- The NBER and business cycles
- How do you identify a recession?
- The American business cycle: the historical record
- The Non-Accelerating Inflation Rate of Unemployment (NAIRU) – a new target for the Federal Reserve
- What is the future of the business cycle?
Chapter 5. Which US economic indicators really move the financial markets?
- Gross national product and gross domestic product
- GDP deflator
- Producer price index (PPI)
- The index of industrial production
- Capacity utilization rate
- Commodity prices
- Crude oil prices
- Food prices
- Commodity price indicators: a checklist
- Consumer price index (CPI)
- Average hourly earnings
- The employment cost index (ECI)
- Index of leading indicators (LEI)
- Vendor deliveries index
Chapter 6. Consumer expenditure, investment, government spending and foreign trade: the big picture
- Car sales
- The employment report
- The quit rate
- Retail sales
- Personal income and consumer expenditure
- Consumer instalment credit
- Investment spending, government spending and foreign trade
- Residential fixed investment
- Non-residential fixed investment
- Inventory investment
- Government spending and taxation
- Budget deficits and financial markets
- Foreign trade
- Chapter 7. So how do consumer confidence and consumer sentiment indicators help in interpreting financial market volatility?
Chapter 8. The global foreign exchange rate system and the ‘Euroization’ of the currency markets
- What is the ideal exchange rate system that a country should adopt?
- Dollarization and the choice of an exchange rate regime
- Why do currencies face speculative attacks?
- The IMF exchange rate arrangements
- What is the current worldwide exchange rate system? (October 2001) (1/2)
- What is the current worldwide exchange rate system? (October 2001) (2/2)
- The ‘Euroization’ of the foreign exchange market
- The European Exchange Rate Mechanism: ERM II (1/2)
- The European Exchange Rate Mechanism: ERM II (2/2)
- Chapter 9. Why are exchange rates so volatile? The fundamental and the asset market approach
Chapter 10. How can investors predict the direction of US interest rates? What do ‘Fed watchers’ watch?
- Rule 1: remember the central role of nominal/real GDP quarterly growth
- Rule 2: track the yield curve if you want to predict business cycle turning points
- Rule 3: watch what the Fed watches – not what you think it should watch
- Rule 4: keep an eye on the 3-month euro–dollar futures contract
- Rule 5: use Taylor’s rule as a guide to changes in Federal Reserve policy
- Rule 6: pay attention to what the Federal Reserve does – not what it says
- Rule 7: view potential Federal Reserve policy shifts as a reaction to, rather than a cause of, undesired economic/monetary conditions
- Rule 8: remember that ultimately the Federal Reserve is a creature of Congress
- Rule 9: follow the trends in FOMC directives: how to interpret Fed speak?
- Rule 10: fears of inflation provoke faster changes in monetary policy than do fears of unemployment
Chapter 11. Derivatives: what do you need to know about economics to understand their role in financial markets?
- What are derivatives?
- Where did derivatives come from?
- Some terminology
- What is an option?
- Exchange-traded versus over-the-counter (OTC) options
- Where do option prices come from?
- Probability distributions
- Who are the market participants in the derivatives market?
- The arbitrageur’s role and the pricing of futures markets
- What are the factors influencing the price of futures?
- Futures pricing
- What is basis?
- Spot versus forward arbitrage
- What are forward market contracts?
- What are futures contracts?
- How are options priced?
- The binomial model
- What determines the value of call options?
- What is the profit profile for a call option?
- Put options
- What are the determinants of the value of a call option?
- Black–Scholes model
- Chapter 12. The new economic paradigm: how does it affect the valuation of financial markets?
- Chapter 13. Bubbleology and financial markets
- Appendix A. Diffusion indexes: their construction and interpretation
- Appendix B. The construction and interpretation of price indices
- Appendix C. Title, announcement time, and reporting entities for Macroeconomic Announcements
- Appendix D. Consumer and business confidence surveys
- Appendix E. Useful web addresses (1/2)
- Appendix E. Useful web addresses (2/2)
- Bibliography (1/2)
- Bibliography (2/2)
- Index (1/4)
- Index (2/4)
- Index (3/4)
- Index (4/4)
- Title: Economics for Financial Markets
- Release date: December 2001
- Publisher(s): Butterworth-Heinemann
- ISBN: 9780080494630
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