Financial Performance of Greece Economy - Essay Example

Project 2: For a currency of your choice and a that you select, plot the Treasury yield curve and comment on its shape. Assess with an example as to whether (synthesized) forward rates can be useful in predicting future spot rates Finance has a great significance in every country's development and progress. Financially strong countries can establish themselves as a strong and unite nation. Finance helps a lot in solving number of problems of any country. United States is one of the strongest super powers of world. With the aid of finance number of factors can be change. World wars and other local wars highly affect a market and it gives a bad impact on currency and bond of country. They badly affect on asset pricing. During Second World War it has been observed that bond prices of Australia, Japan and United States were badly affected. Other historical events also have a great significance on bonds and other assets. Important events urging U.S civil war has also showed a great impact on bond pricing and asset pricing. Wars highly affect markets and capitals as a result of which bond pricing and assets pricing faces downfall. The New York central exchange is one of the largest bond markets in world and its number of traded issues increased from 1000 to 6000. Currency has a great significance in country's economy. In past few years U.S dollar has faced lots of rise and downfall, same its rise and downfall highly affects U.S economy. Every currency's value and its related factors have direct impact on country's economy. In the past few years, U.S dollar has been declining and facing troubles in international market with which U.S current account deficit has expanded. U.S. dollar declining and current deficit are linked together tightly. Internal and external environment highly affect on country's currency. Same in case of U.S. dollar in past few years U.S economy and U.S political issues highly affected its currency, that is the only reason U.S dollar is facing number of problems about rates in international market. Deficits only exist if a currency moves above its real exchange rate and such deficit can be removed by real depreciation. Short fall, high returns and other deficit affected a lot on U.S dollar and its rates. These are the basic facts by which U.S dollar has faced a mark able decline in past few years. All above mentioned factors have influenced dollar rate in past few years. All over, the recent and current situation U.S economy has influenced a lot in U.S economy and U.S deficit in past few years. Dollar is an official currency in several parts of world. Dollar also refers as "smaller unit, seneiti, equates to "cent". In number of countries dollar is used as official currency for inner and outer money transaction. In finance, yield curve is a relationship between currency rates and its maturity dates. Treasury securities are closely concerned with yield curves and it is usually plotted on graphs. The curve is commonly known as "the yield curve". Term structure of interest rates" There are three types of yield curves: normal yield curve, steep yield curve, flat or hampered yield curve, inverted yield curve. There are number of theories for yield curve some of them are as follows: Market expectations (pure expectations) hypothesis, Liquidity preference theory, Market segmentation theory, preferred habitat theory. Chosen Currency: Dollar. U.S dollar in an official currency of United States of America, it is generally donated as "$". It is divided in 100 cents. Below is a yield curve of U.S dollar according to rates and date. Yield Maturity Fig: 1. Yield Curve is closely related to economic situations and it also helps a lot in obtaining future economic rates and market activities. This interest line helps a lot in examining the interest rates according to recent currency value and according to its maturity date. The yield curve is specially deigned keeping in mind the needs and current requirements. Yield curve shows current currency decline or rise in form of graph and plotted line. Due to current international market situation and United States economic condition, these days dollar is facing new and difficult changes. Beside economic changes, other changes are also involved in it. An inverted yield curve is specially designed or introduced keeping in mind the basic needs and requirements of current economic situation. Also, it helps in predicting upcoming economic changes in a field. The common representation of the yield curve is denoted by function P which is defined on all future times t, such that P (t) represents the value today of receiving one unit of currency to years in the upcoming future. The slope of yield curve is important the greater the slope, the greater the gap between long term rates and short term rates. The above graph is of US dollar between Borrowing period and yield (%). The plotted line curve is important in order to predict and observe the gaps between short and long term rates. The above graph shows the comparative yields of securities in a particular class, which includes treasury securities. In this graph, market yield is plotted on vertical and borrowing period is plotted in horizontal direction. Horizontal and Vertical axis shows Borrowing and yield percentage respectively (Richardson, 2001). With the aid of yield graph, comparison between short term rates and long term rates are made more easily. This U.S dollar curve for treasury securities is measured from 3 months to 30 years. Co-operate bond, mortgage backed bonds are defined as yield spread usually measured in basis points over treasury factors. The yield curve upward to the right shows the condition and status of currency because long term investments pay higher yields as compare to short term investments and all borrowers would like to pay premium for long term funds. When ever the yield curve is positive, no radical changes in rates could be expectable. Yield to maturity quotes varies from investor actual return. In any case, if P is defined for future t then we can easily compute yield of any currency for borrowing money for some period by using formula: Y(t)=(1/P(t))1/t -1. P is defined as discount factor function. Yield curves are drawn on the basis of available prices in bond market or money market. Curves are usually built from the money market on the basis of prices of "cash" from today's LIBOR rates, which helps in determining the "short end" of the curve i.e. for t 3m. In upcoming years, due to international market crises it has been observed that U.S dollar will loose its popularity and its rates would fall. A graph of recent interest rates helps a lot in predicting upcoming changes in currency and in market and it is usually arranged by maturity. Example: A positive yield curve always presents typical situation of currency where rates are higher on long term maturity securities. On the other hand, negative yield curve always reflects higher rates for short term obligations rather than long term obligations. National savings and national investments play an important role in United States economy. The main driven factors behind U.S. currency have shifted in past few years. The U.S. current account deficit as percent of GDP has increased a lot in recent years. Recently a popular view held in media and public policy circles, this is one of the most important reasons of U.S dollar in international market (Pain, 2000). A U.S. government is relied on foreign investment these days in order to reduce deficit in U.S. economy. In recent days, there is a great change and increasing value of dollar has been observed but due to internal economy condition it's easy to say that in upcoming few months dollar will be in great trouble in international market. There is a strong need of removing unbalancing from domestic economy in order to retain dollar's status and position in international market. Readdressing U.S. economy imbalances is little difficult and it is not easy to state that how it could be done in low pain. The graph shows the balance and relationship of demand in market. There is a high demand which can be easily observed having a look on yield curve i.e. its upward slope is a good symbol for U.S. economy. Policies have great impact on currency's rates and position in international market. In order to resolve misbalancing and declining issues it is really very important that U.S currency should be free from all bias increasing domestic issues (Seyyed. 1991). Recent days, bond market is growing up but it can be clearly stated that it would fall in few days. Interest rates have also a high impact on currency value high interest rates has a great significance in country's economy. There is a need of implementing strong measures in order to maintain the status and solve financial crises in order to create free and fair environment for business. The fall in real exchange rate in U.S and the rise in real exchange rate will surely increase formal external demand because interest rate will fall. The size and changes will entirely depend on monetary policy reaction. The fall in interest rate will surely increase external demand and also reduce it latterly. Project 3: With the reference to the Greek Stock Market, pick up any blue-chip stock and for a date of your choice comment as to whether it is under priced or overpriced based on a "fundamentals" and crossover (short/long moving average) strategies. Financial assets are really important for any company's development and position in market. Financial assets and currency position has a great significance in country development and status in international market. World economies and countries inner status impacts a lot in country's currency and its value in international market. Greek stock works under Athens stock market information. Blue chip is a type of security in stock market. It is a stock of well established company providing stable earnings and no liabilities. Blue chip term is derived from a word casino; blue chip refers to stock or security in stock market. It must belong to well established company providing stable earning and zero liabilities. Stock should be in stable condition offering overseas and foreign investors to invest in certain currency. There are number of companies poses greatest market capitalization, some of them are as follows: Exxon Mobil United States Oil and gas :403,366, Petrochina China Oil and gas :325,320, General Electric United States Conglomerate: 253,674, Microsoft United States Software: 243,687, Wal-Mart United States Retail :235,605, Procter & Gamble United States Consumer goods :211,460 ,Industrial and Commercial Bank of China Banking :208,397, Berkshire Hathaway United States Non life Insurance:202,901, China Mobile China Telecommunications :198,558, Johnson & Johnson United States Health care :193,602 In past eras, Greek economy faced number of challenges and issue regarding relative currencies and their reputation in international market. Recent years has bought number of changes in all markets including international markets. New trends, and terminologies has been introduced and it changed the shape of this world. Every currency and its reputation have a great impact on international dealings. Internal relation and status of countries affects a lot in country's development and status. Greek economy has achieved impressive goals in past few years, investors and Greek bond market share holders are enjoying capital gains and investors are looking forward to invest more due to current situation of market. Recent years has bought number of changes and new trends in international market. Share holders are likely to invest more in Greek stock market. Overseas investors are also looking forward for investment on low interest rates. Weaknesses are also involved in Greek economy from number of years. Overseas investors are also taking advantage while being exposed to losses due to weakening of Greek currency. There is a large room of development and improvement in Greek economy. There are number of driven forces behind capital gains being made in the path of inflation due to which number of countries fall markedly. Inflation affected a lot on developed and under developed countries economy. Inflation has affected a lot in number of countries economy. In recent few years a mark able change is noticed in economy of United States (Laxton, 1998). Inflation has affected badly to United States. In recent years, a tremendous change has been noticed in Greek economy and United States economy. Consumer prices have reached the peak in past few years. There is a mark able increase in consumer prices of about 5.4% than previous year. Whole sale prices also faced high change compare to last year. There is a noticeable change in wholesale prices of about 2.5% in annual terms. Greece inflation pricing is the lowest and the overall look of annual inflation is to be under 4.5%. The increasing size of Greece capital market instigates overseas as well as local investor to invest money in capital market for future benefits. The growth in Greece economy must be highlighted in order to provide path to those who never thought of investment in Greece economy. In past few years, Greece currency has achieved high goals in international market; this is the only reason why overseas investors are looking forward investing in Greece economy. There is a noticeable increase in international stock broking houses which highly recommended investors to invest in Greek bonds and Greek shares. Refocusing on Greece currency is highly meeting targets and now become competitive in European market. This government is focusing on this domain and is likely to take strong and new measures in order to maintain Greece position and status in market. The current government is revising old government policies according to current stock market situation. Greek stock market is based on Athens market rules have railed immensely. Hellic telecommunication organization (HLO) instigates local investors to move to the stock market as a result of sale of government business utilities. Investing in property is no longer the preferred medium of investment in a declining inflation environment. European convergence target have led Greece currency up to high peak therefore, international investors buying Greek bonds and shares. Greek financial market is oozing its image of antiquated paper based trading. It has changed the viewpoint of international investors that Greek stock exchange is only suitable for "Cowboys". This year stock exchange may reach 80% of targets, this performance will make Athens stock exchange one of the best performance equity market in the world of upcoming markets. The increase in sale of OTE may use to reduce the deficit while Greeks and international investor secures share in one of Greece's largest enterprises. OTE proved as one of the secure and safe investment. OTE will continue to play the monopoly in telecommunication industry for few more years. OTE has reformed the shape of blue chip investment among Greek and non resident investors. OTE is one of the major companies in Greek stock market and is being ruling from number of years. Number of various companies has also shown great performance in recent years and it can be easily stated that upcoming years will be good for Greek Stock market. Capital gains are not limited to shares, there are number of other aspects which can relate with capital gains. From past few years, investors are enjoying capital gains in market and it seems the same in upcoming years. Currency volatile is unavoidable in most parts of world. Current government is taking number of measures to bring capital market up and free from economical pressure. In recent years, falling yields, prices and capital has been observed in international market. As, current government is revising its policies, and its new policy is based on "Hard Drachmae" this policy assures Greek government drachmae weakness would be less than inflation rate. The government is focusing seriously on this policy. The result of this policy would be tremendous and it results the downward pressure replaced by domestic inflation. From the investment point of view, investors in past years did not feel excited while investing in Greek stock market. This policy will increase appreciation of investors to invest in this market. Nowadays, Australian investors ahs started investing in Greece have seen the recent dramatic changes and they would have seen the weakness of Greece currency and Australian dollar reduced value of an investment in Greece about 10%. Foreign exchange loose will surely affects on capital appreciation in Drachmae terms. At a glance, Australia investor thinks that OTe would have done n Australian dollar term. There is a strong need for promoting and instigating overseas investors and take some measure to tell them investment in Greece would be beneficial for them. The recent performance of Greek financial period has shown dramatic changes and proved that there is a wide room of investment and planning on long term basis. Recent development and performance of Greek stock market has shown that in upcoming years it will achieve high goals in international market. It has achieve European Economic convergence targets suggests overseas investor that they should think investing in Greece currency and economy in order to create more finance or an avenue of more money creation. Greek economy has shown number of changes and new trends in recent years and it is presenting that investing in Greece currency would not be useless; it will reach the top in international market. Greece economy has shown that it has ability to meet European convergence economic targets. There is a need of strong and strict government policies which should be implement on urgent basis. Greece economy has face lots of challenges and downfall in past years but now it is rising on the top. Overseas investors must change their point of view and think in investing Greece currency keeping an eye on recent and current situation of international market and Greek stock economy. Greek stock market is highly based on principles of Athens market. For future development government should take serious interest in Greek economy and take such measures which will help in brining new and overseas customers. These days, international market is in crises and there is no space for immature decision at this point. Every government should be careful while taking any measure about their currency and economy in order to make economy secure and safe for new and overseas investors. References: Barrell, R.and Pain, N. (2000),'Monetary and fiscal policy in Europe', National Institute Economic Review, 174, October. Dalsgaard, T., Andr, C. and Richardson, P. (2001), 'Standard shocks in the OECD interlink model', OECD Economics Department Working paper no. 306. J. Seyyed. 1991. The impact of socioeconomic variables and credit ratings on municipal bond risk premia. JBFA (September): 735-47. Laxton, D, (1998), Multimod Mark III', Occasional Paper 164, IMF, Washington. Read More