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Interest Rates

Interest rates

An interest rate is the price a borrower pays for the use of money he does not own, and the return a lender receives for deferring his consumption, by lending to the borrower. Interest rates are normally expressed as a percentage over the period of one year. Interest rates are also a vital tool of monetary policy and are used to control variables like investment, inflation, and unemployment.

Causes of interest rates

- Deferred consumption. When money is loaned the lender delays spending the money on consumption goods. Since according to time preference theory people prefer goods now to goods later, in a free market there will be a positive interest rate.
- Inflationary expectations. Most economies generally exhibit inflation, meaning a given amount of money buys fewer goods in the future than it will now. The borrower needs to compensate the lender for this.
- Alternative investments. The lender has a choice between using his money in different investments. If he chooses one, he forgoes the returns from all the others. Different investments effectively compete for funds.
- Risks of investment. There is always a risk that the borrower will go bankrupt, abscond, or otherwise default on the loan. This means that a lender generally charges a risk premium to ensure that, across his investments, he is compensated for those that fail.
- Liquidity preference. People prefer to have their resources available in a form that can immediately be exchanged, rather than a form that takes time or money to realise.

Real vs nominal interest rates

The nominal interest rate is the amount, in money terms, of interest payable. For example, suppose a household deposits $100 with a bank for 1 year and they receive interest of $10. At the end of the year their balance is $110. In this case, the nominal interest rate is 10% per annum. The real interest rate, which measures the purchasing power of interest receipts, is calculated by adjusting the nominal rate charged to take inflation into account. (See real vs. nominal economics.) If inflation in the economy has been 10% in the year, then the $110 in the account at the end of the year buys the same amount as the $100 did a year ago. The real interest rate, in this case, is zero. After the fact, the 'realized' real interest rate, which has actually occurred, is: :: i_r = i_n — p where p = the actual inflation rate over the year. The expected real returns on an investment, before it is made, are: :: i_r = i_n — p^e where: : i_n = nominal interest rate : i_r = real interest rate : p^e = expected or projected inflation over the year.

Market interest rates

There is a market for investments which ultimately includes the money market, bond market, stock market and currency markets as well as retail financial institutions like banks. Exactly how these markets function is a complex question. However, economists are generally agreed that the interest rates that any investment yields take into account, amongst other things:
- The risk-free cost of capital
- Inflationary expectations
- The level of risk in the investment
- The costs of the transaction

Risk-free cost of capital

The risk-free cost of capital is the real interest on a risk-free loan. While no loan is ever entirely risk-free, bills issued by major nations like the USA are generally regarded as risk-free benchmarks. This rate incorporates the deferred consumption and alternative investments elements of interest.

Inflationary expectations

According to the theory of rational expectations, people form an expectation of what will happen to inflation in the future. They then ensure that they offer or ask a nominal interest rate that means they have the appropriate real interest rate on their investment. This is given by the formula: :: i_n = i_r + p^e where: ::i_n = offered nominal interest rate ::i_r = desired real interest rate ::p^e = inflationary expectations

Risk

The level of risk in investments is taken into consideration. This is why very volatile investments like shares and junk bonds have higher returns than safer ones like bank deposits. The extra interest charged on a risky investment is the risk premium. The required risk premium is dependent on the risk preferences of the lender. If an investment is 50% likely to go bankrupt, a risk-neutral lender will require their returns to double. So for an investment normally returning $100 they would require $200 back. A risk-averse lender would require more than $200 back and a risk-loving lender less than $200. Evidence suggests that most lenders are in fact risk-averse. Generally speaking a longer-term investment carries a maturity risk premium, because long-term loans are exposed to more risk of default during their duration.

Liquidity preference

Most investors prefer their money to be in cash than in less fungible investments. Cash is on hand to be spent immediately if the need arises, but some investments require time or effort to transfer into spendable form. This is known as liquidity preference. A 10-year loan, for instance, is very illiquid compared to a 1-year loan. A 10-year US Treasury bond, however, is liquid because it can easily be sold on the market.

A market interest-rate model

A basic interest rate pricing model for an asset :: i_n = i_r + p^e + rp+ lp Assuming perfect information, p^e is the same for all participants in the market, and this is identical to: :: i_n = i
- _n + rp + lp where : i_n is the nominal interest rate on a given investment :i_r is the risk-free return to capital : i
- _n = the nominal interest rate on a short-term risk-free liquid bond (such as U.S. Treasury Bills). : rp = a risk premium reflecting the length of the investment and the likelihood the borrower will default : lp = liquidity premium (reflecting the perceived difficulty of converting the asset into money and thus into goods).

Interest rate notations

What is commonly referred to as the interest rate in the media is generally the rate offered on overnight deposits by the Central Bank or other authority, annualised. The total interest on an investment depends on the timescale the interest is calculated on, because interest paid may be compounded. In finance, the effective interest rate is often derived from the yield, a composite measure which takes into account all payments of interest and capital from the investment. In retail finance, the annual percentage rate and effective annual rate concepts have been introduced to help consumers easily compare different products with different payment structures.

Interest rates in macroeconomics

Output and unemployment

Interest rates are the main determinant of investment on a macroeconomic scale. Broadly speaking, if interest rates increase across the board, then investment decreases, causing a fall in national income. Interest rates are set by the Government or by a Central Bank as the main tool of monetary policy. The Government or central bank offers to buy and sell money at the desired rate, and because of their immense size they are able to effectively set i
- _n. By altering i
- _n, the Government/central bank is able to affect the interest rates faced by everyone who wants to borrow money for economic investment. Investment can change rapidly to changes in interest rates, affecting national income. Through Okun's Law changes in output affect unemployment.

Money and inflation

Loans, bonds, and shares have some of the characteristics of money and are included in the broad money supply. By setting i
- _n, the Government or central bank can affect the markets to alter the total of loans, bonds and shares issued. Generally speaking, a higher real interest rate reduces the broad money supply. Through the quantity theory of money, increases in the money supply lead to inflation. This means that interest rates can affect inflation in the future.

Mathematical note

Because interest and inflation are generally given as percentage increases, the formulas above are approximations. For instance, :: i_n = i_r + p^e can be stated accurately as: :: i_r = [(1 + i_n)/(1 + p^e)] — 1 For the purposes of most economic analysis, logarithms of indices are taken, which means the formulae work as stated in the article.

External links

- [http://www.grantspub.com/ Grant's Online - Home Page - Grant's Interest Rate Observer]
- [http://rates.creditcrank.com/ Current Mortgage Rates in the U.S. - Updated Daily] Category:Mathematical finance Category:Interest rates Category:Monetary policy

Price

:For people whose family name is Price see Price (disambiguation). In economics and business, the price is the assigned numerical monetary value of a good, service or asset. The concept of price is central to microeconomics where it is one of the most important variables in resource allocation theory (also called price theory). Price is also central to marketing where it is one of the four variables in the marketing mix that business people use to develop a marketing plan.

Conventional definition

Historically, price value has superseded the barter value of pre-monetary systems, in which bartering was used to determine a value of a good or service. However, in countertrade prices may nevertheless be used to establish trading ratios, and informal bartering continues. Economists, strictly speaking, view price as an exchange ratio between goods which reflects a utility preference by the buyer. Prices can also said to exist in a barter system, although they may not be expressed in money. From this point of view, a price is similar to an opportunity cost, that is, what must be given up in exchange for the good or service that is being purchased. The price of an item is also called the price point, especially where it refers to stores that set a limited number of price points. For example, Dollar General is a general store or "five and dime" store that sets price points only at even amounts, such as exactly one, two, three, five, or ten dollars (among others). Other stores (such as dollar stores, pound stores, euro stores, 100-yen stores, and so forth) only have a single price point (1$, 1£, 1€, 100¥), though in some cases this may get more than one of some very small items.

Marxian price theory

In Marxian economics, it is argued that price theory must be firmly grounded in the real history of economic exchange in human societies. Money-prices are viewed as the monetary expression of exchange-value. Exchange-value can however also be expressed in trading ratios between quantities of different types of goods. In Marxian economics, the increasing use of prices as a convenient way to measure the economic or trading value of labor-products is explained historically and anthropologically, in terms of the development of the use of money as universal equivalent in economic exchange. However, in an anthropological-historical sense, Marxian economists argue a "price" is not necessarily a sum of money; it could be whatever the owner of a good gets in return, when exchanging that good. Money prices are merely the most common form of prices. Marxian economists distinguish very strictly between real prices and ideal prices. Real prices are actual market prices realised in trade. Ideal prices are hypothetical prices which would be realised if certain conditions would apply. Most equilibrium prices are hypothetical prices, which are never realised in reality, and therefore of limited use, although notional prices can influence real economic behaviour. According to Marxian economists, while all labor-products existing in an economy have economic value, only a minority of them have real prices; the majority of goods and assets at any time are not being traded, and they have at best a hypothetical price. Six criticisms Marxian economists make of neoclassical economics are that neoclassical price theory:
- is not based on any substantive, realistic theory of economic exchange as a social process, and simply assumes that exchange will occur;
- simply assumes prices can be attached or imputed to all goods and services;
- assumes equilibrium prices will exist and that markets tend spontaneously to equilibrium prices;
- fails to distinguish adequately between actual market prices; administered prices; and ideal, accounting, or hypothetical prices.
- disconnects price theory from the real economic history of the use of prices.
- is unable to provide a coherent explanation of the relationship between price and economic value.

Austrian theory

The last objection is also sometimes interpreted as the Paradox of Value, which was observed by classical economists. Adam Smith described what is now called the Diamond–Water Paradox: diamonds command a higher price than water, yet water is essential for life, while diamonds are merely ornamentation. One solution offered to this paradox is through the theory of marginal utility proposed by Carl Menger, the father of the Austrian school of economics. As William Barber put it, human volition, the human subject, was "brought to the centre of the stage" by marginalist economics, as a bargaining tool. Neoclassical economists sought to clarify choices open to producers and consumers in market situations, and thus "fears that cleavages in the economic structure might be unbridgeable could be suppressed". Without denying the applicability of the Austrian theory of value as subjective only, within certain contexts of price behaviour, the Polish economist Oskar Lange felt it was necessary to attempt a serious integration of the insights of classical political economy with neo-classical economics. This would then result in a much more realistic theory of price and of real behaviour in response to prices. Marginalist theory lacked anything like a theory of the social framework of real market functioning, and criticism sparked off by the capital controversy initiated by Piero Sraffa revealed that most of the foundational tenets of the marginalist theory of value either reduced to tautologies, or that the theory was true only if counterfactual conditions applied. One insight often ignored in the debates about price theory is something that businessmen are keenly aware of: in different markets, prices may not function according to the same principles except in some very abstract (and therefore not very useful) sense. From the classical political economists to Michal Kalecki it was known that prices for industrial goods behaved differently from prices for agricultural goods, but this idea could be extended further to other broad classes of goods and services.

References

- Milton Friedman, Price Theory.
- George J. Stigler, Theory of Price.
- Simon Clarke, Marx, marginalism, and modern sociology: from Adam Smith to Max Weber (London: The Macmillan Press, Ltd, 1982).
- Makoto Itoh & Costas Lapavitsas, Political Economy of Money and Finance.
- Pierre Vilar, A history of gold and money.

Percentage

A percentage is a way of expressing a proportion, a ratio or a fraction as a whole number, by using 100 as the denominator. A number such as "45%" ("45 percent" or "45 per cent") is shorthand for the fraction 45/100 or 0.45. As an illustration, : "45 percent of human beings..." is equivalent to both of the following: : "45 out of every 100 people..." : "0.45 of the human population..." One way to think about percentages is to realize that "one percent", represented by the symbol %, is simply the number 1/100, or 0.01. A percentage may be a number larger than 100; for example, 200% of a number refers to twice the number. In fact, this would be a 100% increase, while a 200% increase would give a number three times the original value. Thus one can see the relationship between percent increase and times increase.

Confusion from the use of percentages

Many confusions arise from the use of percentages, due to inconsistent usage or misunderstanding of basic arithmetic.

Changes

Due to inconsistent usage, it is not always clear from the context what a percentage is relative to. When speaking of a "10% rise" or a "10% fall" in a quantity, the usual interpretation is that this is relative to the initial value of that quantity; for example, a 10% increase on an item initially priced at $200 is $20, giving a new price of $220; to many people, any other usage is incorrect. In the case of interest rates, however, it is a common practice to use the percent change differently: suppose that an initial interest rate is given as a percentage like 10%. Suppose the interest rate rises to 15%. This could be described as a 50% increase, measuring the increase relative to the initial value of the interest rate. However, many people say in practice "The interest rate has risen by 5%". To counter this confusion, the unit "percentage points" is sometimes used when referring to differences of percentages. So, in the previous example, "The interest rate has increased by 5 percentage points" would be an unambiguous expression that the rate is now 15%. Often also, the term "basis points" is used, one basis point being one one hundredth of a percentage point. Thus, the interest rate above increased by 500 basis points.

Cancellations

A common error when using percentages is to imagine that a percentage increase is cancelled out when followed by the same percentage decrease. A 50% increase from 100 is 100 + 50, or 150. A 50% reduction from 150 is 150 - 75, or 75. The end result is smaller than the 100 we started out with. In general, the net effect is: : (1 + x)(1 - x) = 1 - x² i.e. a net decrease proportional to the square of the percentage change. Owners of dot com stocks came to understand that even if a stock has sunk 99%, it can nevertheless still sink another 99%. Also, if a stock rises by a large percentage, you're still broke if the stock subsequently drops 100% meaning it has a zero value.

An example problem

Whenever we talk about a percentage, it is important to specify what it is relative to, i.e. what the total is that corresponds to 100%. The following problem illustrates this point. :In a certain college 60% of all students are female, and 10% of all students are computer science majors. Among the females, only 5% are computer science majors. What percentage of computer science majors are female? We are asked to compute the ratio of female computer science majors to all computer science majors. We know that 60% of all students are female, and among these 5% are computer science majors, so we conclude that .6×.05 = .03 or 3% of all students are female computer science majors. Dividing this by the 10% of all students that are computer science majors, we arrive at the answer: 3%/10% = .3 or 30% of all computer science majors are female.

Word and symbol

In British English, percent is usually written as two words (per cent). In American English, percent is the most common variant. In the early part of the twentieth century, there was a dotted abbreviation form per cent., which came from the original Latin per centum. The concept of considering values as parts of a hundred is originally Greek. The symbol for percent "%" evolved from a symbol similar except for a horizontal line instead of diagonal (c. 1650), which in turn evolved from an abbreviation of "P cento" (c. 1425). Traditionally, the symbol follows the number to which it applies. In Unicode, there is also an "ARABIC PERCENT SIGN" (U+066A), which has the circles replaced by square dots set on edge. In computing, the percent character is also used for the mod operation in programming languages that derive their syntax from C. In the textual representation of URLs, a % immediately followed by a hexadecimal number denotes the ASCII code of a character that cannot be otherwise represented. Names for the percent sign include percent sign; mod; grapes in ITU-T, and the humorous double-oh-seven in INTERCAL.

Related units

- Percentage point.
- Per mille (‰) 1 part in 1,000.
- Basis point (relates to per ten thousand as percentage point to percent).
- Parts per million (ppm).
- Parts per billion (ppb).
- Parts per trillion (ppt).

External links

- [http://www.roma.unisa.edu.au/07305/symbols.htm Explains the history of the symbol]
- [http://www.algebra.com/calculators/algebra/percentage/ Percentages calculator, practice, and word problems] Category:Mathematical terminology ja:パーセント simple:Percent

Investment

Investment or investing is a term with several closely-related meanings in finance and economics. It refers to the accumulation of some kind of asset in hopes of getting a future return from it. Technically, the word means the "action of putting something in to somewhere else" (perhaps originally related to a person's garment or 'vestment').

Types of investment

- In theoretical economics, investment means the purchase (and thus the production) of capital goods - goods which are not consumed but instead used in future production. Examples include building a railroad, or a factory, clearing land, or putting oneself through college. In a stricter sense, investment is also a component of GDP given in the formula GDP = C + I + G + NX. The investment function in that aspect is divided into non-residential investment (such as factories, machinery etc) and residental investment (new houses). Investment is a function of income and interest rates, given by the relation I = (Y, i). An increase in income will encourage higher investment, whereas a higher interest rate will discourage investment as it becomes costlier to borrow money. Even if a firm chooses to use its own funds in an investment, the interest rate represents an opportunity cost of investing those funds rather than loaning them out for interest.
- In finance, investment means buying securities or other monetary or paper assets. Valuation is the method for assessing whether a potential investment is worth its price. Types of investments include equity investment or real estate investment, foreign currencies or bonds or postage stamps. These investments may then provide future cash flows and may increase or decrease in value. In the stock markets it is performed by the stock investors.
- Collective investment schemes encourage investors to purchase securities by marketing the merits of investment.
- Investment clubs are groups of individuals who meet on a regular basis for the purpose of investing money, most often in stocks and other publicly-traded securities. Various online communities devoted to this type of investing have recently emerged and have contributed to the personal investing boom in the United States.

Notes

UK and U.S. English, respectively.

External links

- Investing textbook - in Wikibooks
- [http://www.ft.com Financial Times]
- [http://online.wsj.com/public/us Wall Street Journal]
- [http://finance.yahoo.com/ Yahoo! Finance]
- [http://www.investopedia.com/ Investopedia] Category:Macroeconomics ja:投資

Unemployment

. The Great Depression caused a massive surge of cyclical unemployment. This was associated with greater misery for those who could not find jobs.]] In economics, a person who is able and willing to work yet is unable to find a paying job is considered unemployed. The unemployment rate is the number of unemployed workers divided by the total civilian labor force, which includes both the unemployed and those with jobs (all those willing and able to work for pay). In practice, measuring the number of unemployed workers actually seeking work is notoriously difficult. There are several different methods for measuring the number of unemployed workers. Each method has its own biases and the different systems make comparing unemployment statistics between countries, especially those with different systems, difficult. The graph shows the official unemployment rate (as a percentage of the labor force) in the United States from 1948 to the present (using data supplied by the Bureau of Labor Statistics). The terms unemployment and unemployed are sometimes used to refer to other inputs to production that are not being fully used -- for example, unemployed capital goods.

Impact on society and the economy

capital goods Some of the likely costs of unemployment for society include increased poverty, crime, political instability, mental health problems, and diminished health standards. Understanding the forces that create unemployment, and then trying to mitigate their negative effects to the greatest extent possible, is a central issue in economics.

Cost

Joblessness can hit individual job-seekers hard. Lacking a job often means lacking social contact with fellow employees, a purpose for many hours of the day, lack of self-esteem, mental stress and illness, and of course, the ability to pay bills and to purchase both necessities and luxuries. This last is especially serious for those with family obligations, debts, and/or medical costs, especially in a country such as the U.S., where the availability of health insurance is often linked to holding a job. Dr. M. Harvey Brenner, among others, has shown that increasing unemployment raises the crime rate, the suicide rate, and encourages bad health.[http://ashleymac.econ.vt.edu/ashley/3204/brenner.pdf] Because unemployment insurance in the U.S. typically does not even replace 50 percent of the income one received on the job (and one cannot receive it forever), the unemployed often end up tapping welfare programs such as Food Stamps — or accumulating debt, both formal debt to banks and informal debt to friends and relatives. Some hold that many of the low-income jobs (such as McJobs) aren't really a better option than unemployment with a welfare state (with its unemployment insurance benefits). But since it is difficult or impossible to get unemployment insurance benefits without having worked in the past, these jobs and unemployment are more complementary than they are substitutes. (These jobs are often held short-term, either by students or by those trying to gain experience; turnover in most McJobs is high, in excess of 30%/year.) Unemployment insurance keeps an available supply of workers for the McJobs, while the employers' choice of management techniques (low wages and benefits, few chances for advancement) is made with the existence of unemployment insurance in mind. This combination promotes the existence of one kind of unemployment, frictional unemployment. Another cost for the unemployed is that the combination of unemployment, lack of financial resources, and social responsibilities may push unemployed workers to take jobs that do not fit their skills or allow them to use their talents. That is, unemployment can cause underemployment (definition 1). This is one of the economic arguments in favor of having unemployment insurance. This feared cost of job loss can spur psychological anxiety, weaken labor unions and their members' sense of solidarity, encourage greater work-effort and lower wage demands, and/or abet protectionism. This last means efforts to preserve existing jobs (of the "insiders") via barriers to entry against "outsiders" who want jobs, legal obstacles to immigration, and/or tariffs and similar trade barriers against foreign competitors. The impact of unemployment on the employed is related to the idea of Marxian unemployment. Finally, the existence of significant unemployment raises the monopsony power of one's employer: that raises the cost of quitting one's job and lowers the probability of finding a new source of livelihood. With unemployment the government might experience fiscal difficulties. The fiscal stance of the government might worsen because the government’s budgets, has inflows of money from taxation and money outflows in the form of government spending. With large numbers of people being unemployed the government receives lower levels of taxation. This could lead to budget deficit and as a result and increase to the public sectors borrowing requirement. As a result there is an increase of national dept. on top of that for social reasons the government has to support the unemployed through the form of unemployment benefits. Again this leads to an increase in government spending which makes the budget worsen. Finally, high unemployment implies low real Gross Domestic Product: we are not using our resources as completely as possible and are thus wasting our opportunities to produce goods and services that allow people to survive and to enjoy life. Much unemployment — called deficient-demand or cyclical unemployment — thus represents a profound form of inefficiency, sometimes called "Keynesian inefficiency." (However, this loss of production might instead be caused by classical unemployment or Marxian unemployment, which reduce potential output by restricting supply.) Okun's Law tells us that for the U.S., the economy misses out on about two percent of its potential output for each one percentage point of unemployment above the "full employment" unemployment rate or NAIRU (see below). Alternatively, this "law" says that as unemployment rises by one percentage point, say from 5% to 6% of the civilian labor force, the percentage of potential output that could have been produced but was not rises by about two points.

Benefits

Benefits for the entire economy arising from unemployment include that it keeps inflation from being high, following the Phillips curve, or from accelerating, following the NAIRU/natural rate of unemployment theory. Relatedly, a small amount of frictional unemployment allows employers to find the employees most suited to the jobs offered, while allowing workers to find the jobs that better fit their tastes, talents, and needs. This amount may be very small, however, since it is relatively easy to seek a new job without losing one's current one. As in the Marxian theory of unemployment, special interests may also benefit: employers often like having their employees in fear of losing their jobs, and thus working hard, keeping their wage demands low, etc. As noted, unemployment may increase employers' monopsony power. Unemployment may thus promote labor productivity and profitability. Some say that slow economic growth and the resulting unemployment are actually good, since the constantly needed growth of the GDP cannot be sustained forever, given resource constraints and environmental impacts. But others ask if is it fair to burden the unemployed (usually those at the bottom of the economic heap) with the costs of limiting the use of resources and the abuse of the environment. This suggests that we should seek ways to improve the efficiency of our resource management and environmental stewardship to attain growth and low unemployment in order to make sure that the burdens are distributed fairly.

Causes of Unemployment

Capitalism and Unemployment

Open unemployment of the sort defined above is associated with capitalist economies. Preliterate ("primitive") communities treat their members as parts of an extended family and thus do not allow them to be unemployed — in the effort to preserve the group. In precapitalist societies such as European feudalism, the serfs (though clearly dominated and exploited by the lords) were never "unemployed" because they had direct access to the land (and the needed tools) and could thus work to produce crops. Just as on the American frontier during the 19th century, there were day laborers and subsistence farmers on poor land, whose position in society was somewhat analogous to the unemployed of today. But they were not truly unemployed, since they could find work and support themselves on the land. Under both ancient and modern systems of slave-labor, slave-owners never let their property be unemployed for long. (If anything, they would sell the unneeded laborer.) Planned economies (often called "communist countries") such as the old Soviet Union or today's Cuba typically provide occupation for everyone, using substantial overstaffing if necessary. (This is called "hidden unemployment," which is sometimes seen as a kind of underemployment, definition 3.) Workers' cooperatives — such as those producing plywood in the U.S. Pacific Northwest — do not let their members become unemployed unless the co-op itself goes bankrupt. On the other hand, under capitalism the individual profit-seeking employer does not have to bear the complete social costs of laying off or firing workers, so they are willing to live with (or even profit from) the existence of unemployment — unless employees are able to win good severance packages or protection from the government (such as restrictions on firing and lay-offs, although some doubt if even these help since they just make employers more reluctant to take the risk of hiring someone in the first place). (That is, there is arguably a market failure due to the existence of external costs of firing or laying-off of people.) On the "supply side," workers' lack of significantly positive net worth (beyond equity in a home or a car) makes it very difficult for them to go into business for themselves to avoid unemployment. Economist [http://www.econ.nyu.edu/user/wolffe/ Edward Wolff] estimates that in 1995 in the U.S., families with adults aged 25-45 in the middle income quintile could sustain their current consumption for only 1.2 months (or live at 125% of the poverty standard for 1.8 months) based on their financial reserves. Poorer quintiles of course had more difficulty. Because not all unemployment may be "open" and counted by government agencies, official unemployment may be very low even under capitalism. Most poorer capitalist countries lack a modern welfare state and unemployment insurance so that it is very difficult to afford being unemployed for very long: they often end up taking jobs below their skill levels. Those who might be counted as "unemployed" in the rich countries end up instead being underemployed (definition 1) and not counted. Others argue that unemployment actually increases the more the government intervenes into the economy. For example, minimum wages raise costs of doing business and businesses respond by laying off workers. Laws restricting layoffs make businesses less likely to hire in the first place leaving many young people unemployed and unable to find work. The results of both actions lead to less productivity and higher costs to society as a whole. The results lead to not just higher unemployment but increased poverty. This is why the less market oriented countries of Europe often sustain substantially high unemployment rates in comparison to the United States; that is, government induced employment through policies designed to “protect” the worker. The welfare state then responds with various benefits that are paid for by the middle and upper class which reduces their ability to consume and their incentive to work hard and innovate. Again, society gets worse off. Economists like Ludwig Von Misses, Milton Friedman, Friedrich Von Hayek, and many others not only believe that the welfare of society decreases with this kind of intervention but that these economic policies are not sustainable.

Debate on Unemployment

There is considerable debate amongst economists as to what the main causes of unemployment are. Keynesian economics emphasizes unemployment resulting from insufficient effective demand for goods and service in the economy (cyclical unemployment). Others point to structural problems (inefficiencies) inherent in labor markets (structural unemployment). Classical or neoclassical economics tends to reject these explanations, and focuses more on rigidities imposed on the labour market from the outside, such as minimum wage laws, taxes, and other regulations that may discourage the hiring of workers (classical unemployment). Yet others see unemployment as largely due to voluntary choices by the unemployed (frictional unemployment). On the other extreme, Marxists see unemployment as a structural fact helping to preserve business profitability and capitalism (Marxian unemployment). The different perspectives may be right in different ways, contributing to our understanding of different types of unemployment. Though there have been several definitions of voluntary (and involuntary) unemployment in the economics literature, a simple distinction is often applied. Voluntary unemployment is blamed on the individual unemployed workers (and their decisions), whereas involuntary unemployment exists because of the socio-economic environment (including the market structure and the level of aggregate demand) in which individuals operate. (As is usual in economics, the sociological or social-psychological factors that help determine individual choices are ignored here.) In these terms, much or most of frictional unemployment is voluntary, since it reflects individual search behavior. On the other hand, cyclical unemployment, structural unemployment, classical unemployment, and Marxian unemployment are largely involuntary in nature. However, the existence of structural unemployment may reflect choices made by the unemployed in the past, while classical unemployment may result from the legislative and economic choices made by labor unions and/or political parties aiming to help workers. So in practice, the distinction between voluntary and involuntary unemployment is hard to draw. The clearest cases of involuntary unemployment are those where there are fewer job vacancies than unemployed workers even when wages are allowed to adjust, so that even if all vacancies were to be filled, there would be unemployed workers. This is the case of cyclical unemployment and Marxian unemployment, for which macroeconomic forces lead to microeconomic unemployment. For more details, see unemployment types. One of the main causes of unemployment in a free market economy is the fact that the law of supply and demand is not really applied to the price to be paid for employing people. In situations of falling demand for products & services the wages of all employees (from President to Errand Boy) are not automatically reduced by the required percentage to make the business viable. Instead whole groups of persons are laid off, with all the consequent social hardships. In the classical framework, such unemployment is due to the existing legal framework, along with "interferences" with the market by non-market institutions such as labor unions and government. On the other hand, for Keynes, Marx, and many others, many of the problems with market adjustment arise from the market itself (Keynes) or from the nature of capitalism (Marx).

Types of Unemployment

- Cyclical (Deficient Demand) unemployment: When there is not enough aggregate demand for the labour.
- Frictional: When moving from one job to another, the unemployment temporarily experienced when looking for a new job.
- Structural: Experienced when the structure of an industry or skill demands changes in mainly:
- switching from a declining industry to a rapidly growing one.
- Pace of change in the tastes of people.
- Regional Structure of industry.
- Technological: Caused by the replacement of workers by machines or other advanced technology.
- Classical (Real-wage): When real wage for a job are set above the market-clearing level, commonly government (as with the minimum wage) or unions, although some (such as Murray Rothbard, America's Great Depression p. 45) suggest that even social taboos can prevent wages from falling to the market clearing level.
- Marxian: when unemployment is needed to motivate workers to work hard and to keep wages down, to preserve profitability.
- Seasonal: When an industry only is in demand certain times. For example, ski slopes, Shopping Mall Santas. For a more detailed discussion, see the entry on types of unemployment.

Measuring unemployment

The U.S. Bureau of Labor Statistics (BLS) provides some definitions which are similar to, but not the same as, those of other countries.

BLS definitions

The BLS counts employment and unemployment (of those over 16 years of age) using a sample survey of households.[http://www.bls.gov/cps/cps_faq.htm] In BLS definitions, people are considered employed if they did any work at all for pay or profit during the survey week. This includes not only regular full-time year-round employment but also all part-time and temporary work. Workers are also counted as "employed" if they have a job at which they did not work during the survey week because they were:
- On vacation;
- Ill;
- Taking care of some other family or personal obligation (for example, due to child-care problems);
- On maternity or paternity leave;
- Involved in an industrial dispute (strike or lock-out); or
- Prevented from working by bad weather. Typically, employment and the labor force include only work done for economic gain. Hence, a homemaker is neither part of the labor force nor unemployed. Nor are full-time students nor prisoners considered to be part of the labor force or unemployment. The latter can be important. In 1999, economists Lawrence F. Katz and Alan B. Krueger estimated that increased incarceration lowered measured unemployment in the United States by 0.17 percentage points between 1985 and the late 1990s. In particular, as of this writing (2004) 3 percent of the US population is incarcerated. On the other hand, individuals are classified as "unemployed" if they do not have a job, have actively looked for work in the prior four weeks, and are currently available for work. The unemployed includes all individuals who were not working for pay but were waiting to be called back to a job from which they had been temporarily laid off. Finally, it is possible to be neither employed nor unemployed by BLS definitions, i.e., to be outside of the "labor force." These are people who have no job and are not looking for one. Many of these are going to school or are retired. Family responsibilities keep others out of the labor force. Still others have a physical or mental disability which prevents them from participating in labor force activities. Children, the elderly, and some individuals with disabilities are typically not counted as part of the labor force in and are correspondingly not included in the unemployment statistics. However, some elderly and many disabled individuals are active in the labor market. In the early stages of an economic boom, both employment and unemployment often rise. This is because people join the labor market (give up studying, start a job hunt, etc.) because of the improving job market, but until they have actually found a position they are counted as unemployed. Similarly, during a recession, the increase in the unemployment rate is moderated by people leaving the labor force. Note: as of March 1st, 2005 unemployment statistics will be derived from three sources. These sources include the Current Population Survey, a statewide survey of businesses known as the Current Employment Statistics Survey, and state unemployment insurance claims.

The accuracy of unemployment statistics

The unemployment rate may be different from the impact of the economy on people. First, the unemployment figures indicate how many are not working for pay but seeking employment for pay. It is only indirectly connected with the number of people who are actually not working at all or working without pay. Second, in the United States those who work as little as one hour a week for payment are considered employed, even if they wish to work more. Therefore, critics believe that current methods of measuring unemployment are inaccurate in terms of the impact of unemployment on people as these methods do not take into account:
- Those who have lost their jobs and have become discouraged over time from actively looking for work.
- Those who are self-employed or wish to become self-employed, such as tradesmen or building contractors or IT consultants.
- Those who have retired before the official retirement age but would still like to work.
- Those on disability pensions who, while not possessing full health, still wish to work in occupations suitable for their medical conditions.
- Those who work for payment for as little as one hour per week but would like to work full-time. These people are "involuntary part-time" workers.
- Those who are underemployed, e.g., a computer programmer who is working in a retail store until he can find a permanent job. On the other hand, the measures of unemployment may be "too high." In some countries, the availability of unemployment benefits can inflate statistics since they give an incentive to register as unemployed. Homemakers and other people who do not really seek work may choose to declare themselves unemployed so as to get benefits; people with undeclared paid occupations may try to get unemployment benefits in addition to the money they earn from their work. Conversely, the absence of any tangible benefit for registering as unemployed discourages people from registering. However, in the United States and several other countries this is not a problem, since unemployment is measured using a sample survey (akin to a Gallup poll). This method is also used by many countries besides the U.S., including Canada, Mexico, Australia, Japan, and all of the countries in the European Economic Community. According to the BLS, a number of Eastern European nations have instituted labor force surveys as well. The sample survey has its own problems, because the total number of workers in the economy is estimated based on a sample rather than a census. So many economists look to the [http://www.bls.gov/ces survey of employers] to get a better estimate of the number of jobs created or destroyed. Due to these deficiencies, many labor market economists prefer to look at a range of economic statistics such as:
- Labour market participation rate (the percentage of people aged between 15 and 64 who are currently employed or searching for employment)
- The total number of full-time jobs in an economy
- The number of people seeking work as a raw number and not a percentage
- The total number of person-hours worked in a month compared to the total number of person-hours people would like to work

Situation in the United States

There are two permanent government projects conducted by the United States Census Bureau (within the United States Department of Commerce) and/or the Bureau of Labor Statistics (within the United States Department of Labor) that gather employment statistics monthly. One is the Current Population Survey (CPS) [http://www.bls.gov/cps] which surveys 60,000 households: it is used in calculating the unemployment rate. The other is the Current Employment Statistics (CES) [http://www.bls.gov/ces] which surveys 300,000 employers. These two sources have different classification criteria, and usually produce differing results. As noted, most economists these days see the CES as a more accurate estimate of the state of the job market. Because the CES only surveys employers, it does not produce an unemployment rate statistic. Though many people care about the number of unemployed (8.0 million in the U.S. in December 2004), economists typically focus on the unemployment rate (5.0% in November 2005). This corrects for the normal increase in the number of people working for pay or seeking work due to population increases and increases in the paid labor force relative to the population — and thus the normal increase in the number of unemployed workers. It is important to note that these statistics are for the U.S. economy as a whole, hiding variations among groups. For December 2004 and May 2005 in the U.S., respectively the unemployment rates for the major worker groups were as follows:
- adult men: 4.9 percent (Dec.); 4.4 percent (May)
- adult women: 4.7 percent (Dec.); 4.6 percent (May)
- Caucasians: 4.6 percent (Dec.); 4.4 percent (May)
- Asians: 4.1 percent (Dec.); 3.9 percent (May)
- Hispanics or Latinos (all races): 6.6 percent (Dec.); 6.0 percent (May)
- African American Descent: 10.8 percent (Dec.); 10.1 percent (May)
- teenagers: 17.6 percent; 17.9 percent (May) These percentages represent the usual rough ranking of these different groups' unemployment rates, though the absolute numbers normally change over time with the business cycle. They come from [http://www.bls.gov/news.release/pdf/empsit.pdf the Bureau of Labor Statistics]. (Clicking on this link will lead to a pdf file with up-to-date numbers.)

Aiding the Unemployed

The most developed countries have aids for the unemployed as part of the welfare state. These unemployment benefits include unemployment insurance, welfare, and subsidies to aid in retraining. To calculate the unemployment insurance benefits you might receive in the United States, see the useful page at the [http://www.epinet.org/content.cfm/datazone_uicalc_index Economic Policy Institute]. Of course, unemployment insurance and similar programs have replaced other systems (support from community and churches, home gardening and other production) which played a similar role in the past.

External links

- [http://www.bls.gov/cps/home.htm Current Population Survey Home Page]
- [http://encyclopedia.jrank.org/TUM_VAN/UNEMPLOYMENT.html Unemployment] - 1911 Encyclopædia Britannica article
- [http://ashleymac.econ.vt.edu/ashley/3204/brenner.pdf "Influence of the Social Environment on Psychology: The Historical Perspective," in Stress and Mental Disorder, ed. James E. Barrett (NY: Raven University Press, 1979)]
- Katz, Lawrence F. and Alan B. Krueger. 1999. The High-Pressure U.S. Labor Market of the 1990s. Brookings Papers on Economic Activity. 1: 1-65.
- Wolff, Edward N. 1998. Recent Trends in the Size Distribution of Household Wealth. Journal of Economic Perspectives. 12(3) Summer: 131-50. Category:Economic indicators Category:Macroeconomics Category:Socioeconomics Category:Employment ja:失業

Consumption

:"Consumption" is also an archaic name for the disease tuberculosis. Consumption is the using up of a resource. Discussions of human consumption of resources plays an important role in both economics and environmentalism. In Keynesian economics, "consumption" is short-hand for personal consumption expenditure and is determined by the consumption function, especially by the marginal propensity to consume. It is part of aggregate demand or effective demand. poep kan je ook eten. Consumption can also be defined as "the selection, adoption, use, disposal and recycling of goods and services", as opposed to their design, production and marketing. Studies of consumption investigate how and why society and individuals consume goods and services, and how this affects society and human relationships. Contemporary studies focus on meanings, role of consumption in indentity making, and the 'consumer' society. Traditionally, consumption was seen as rather unimportant compared to production, and the political and economic issues surrounding it. With the development of a consumer society, increasing consumer power in the market place, the growth in marketing, advertising, sophisticated consumers, ethical consumption etc, it is recognised as central to modern life. Sociology of consumption has moved well beyond Veblen's early work on 'conspicuous' consumption. Current theories investigate the role of economic and cultural factors in constraining consumption, as development of an approach that sees consumers as 'victims' of producers and their social situation. A counter theory highlights the subversive aspects of consumption, with consumers buying and using goods, places etc in ways unintended by the producers. Examples include city squares turned to skateboard parks, and music sharing on the internet. Studies of consumption come from a variety of backgrounds. Consumer studies attempt to help marketing; user research aims to improve product design; feminist studies highlights the importance of women as consumers, and particularly the role of the domestic arena in consumption; Media studies try to understand the consumption of media products such as television and video games. Critical Theory is an important influence on contemporary studies, as consumption is central to contemporary culture. Studying consumption can be done through traditional survey methods, or various ethnographic techniques. Consumption studies are difficult because they involve investigating everyday life situations, rather than formalised settings such as the workplace. Well known studies of consumption include those by Pierre Bourdieu and Daniel Miller. Favourite topics include studies of food, new technologies, fashion items, and television.

External links

- [http://www.chrisjordan.com/ Intolerable Beauty - Portraits of American Mass Consumption] (Chris Jordan Photography), artistic photos of mass consumerism Category:Economics

Time-preference

Time preference is the economist's assumption that a consumer will place a premium on enjoyment nearer in time over more remote enjoyment. A high time preference means a person wants to spend their money now and not save it, whereas a low time preference means a person might want to save their money as well. The time preference theory of interest is an attempt to explain interest through the demand for accelerated satisfaction. This is particularly important in microeconomics. The Austrian School sees time as the root of uncertainty within economics. In his book Capital and Interest, the Austrian economist Eugen von Böhm-Bawerk built upon the time-preference ideas of Carl Menger, insisting that there is always a difference in value between present goods and future goods of equal quality, quantity, and form. Furthermore, the value of future goods diminishes as the length of time necessary for their completion increases. Böhm-Bawerk cited three reasons for this difference in value. First of all, in a growing economy, the supply of goods will always be larger in the future than it is in the present. Secondly, people have a tendency to underestimate their future needs due to carelessness and shortsightedness. Finally entrepreneurs would rather initiate production with goods presently available, instead of waiting for future goods and delaying production. Hans Hermann Hoppe elaborates on time-preference as a gauge of the degree of civilization of a given society in his book Democracy: The God that Failed. Laws in a society in violation of property rights increase time-preference, whereas a tradition of respect for property rights decreases time-preference. Category:Economics

Bankrupt

Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. A declared state of bankruptcy can be requested by creditors in an effort to recoup a portion of what they are owed; however, in the overwhelming majority of cases, the bankruptcy is initiated by the bankrupt individual or organization.

Purpose

The primary purpose of the laws of bankruptcy are: (1) to give an honest debtor a "fresh start" in life by relieving the debtor of most debts, and (2) to repay creditors in an orderly manner to the extent that the debtor has property available for payment. Bankruptcy allows debtors to resolve debts through the division of non-exempt assets among creditors. Additionally the declaration of bankruptcy allows debtors to be discharged of most of the financial obligations, after their non-exempt assets are distributed, even if their debts have not been paid in full. During the pendency of a bankruptcy proceeding, the "debtor" is protected from extra-bankruptcy action by creditors by a legally imposed "stay."

History

This word is formed from the ancient Latin bancus (a bench or table), and ruptus (broken). Bank originally signified a bench, which the first bankers had in the public places, in markets, fairs, etc. on which they tolled their money, wrote their bills of exchange, etc. Hence, when a banker failed, they broke his bank, to advertise to the public that the person to whom the bank belonged was no longer in a condition to continue his business. As this practice was very frequent in Italy, it is said the term bankrupt is derived from the Italian banco rotto, broken bench (see e.g. Ponte Vecchio). Others rather choose to deduce the word from the French banque, table, and route, vestigium, trace, by metaphor from the sign left in the ground, of a table once fastened to it and now gone. On this principle they trace the origin of bankrupts from the ancient Roman mensarii or argentarii, who had their tabernae or mensae in certain public places; and who, when they fled, or made off with the money that had been entrusted to them, left only the sign or shadow of their former station behind them.

Bankruptcy fraud

Bankruptcy fraud is a business crime of filing for bankruptcy with criminal intent, that is with the intention of evading payment for goods even though the buyer has funds that could be used to pay for them, or accepting payment for goods or services but not supplying them. Common types of bankruptcy fraud include petition mills, false oath, concealment of assets, and fraudulent conveyance. Multiple filings are not per se fraudulent; as with all things in the law, it depends on the circumstances. Bankruptcy fraud should be distinguished from strategic bankruptcy, which is not a criminal act (but may prejudice a judge against the filer if there is evidence that bankruptcy is being used strategically).

Bankruptcy in Canada

Bankruptcy in Canada is set out by federal law, in the Bankruptcy and Insolvency Act and is applicable to businesses and individuals. The office of the Superintendent of Bankruptcy, a federal agency, is responsible for ensuring that bankruptcies are administered in a fair and orderly manner. Trustees in bankruptcy administer bankruptcy estates.

Duties of Trustees

Some of the duties of the trustee in bankruptcy are to:
- Prepare the bankruptcy documents that assign the person into bankruptcy.
- Review the file for any fraudulent preferences or reviewable transactions
- Chair meetings of creditors
- Sell any non-exempt assets
- Perform counselling for the debtors.
- Object to the bankrupt's discharge.

Creditors' Meetings

Creditors become involved by attending creditors' meetings. The trustee calls the first meeting of creditors for the following purposes:
- To consider the affairs of the bankrupt
- To affirm the appointment of the trustee or substitute another in place thereof
- To appoint inspectors
- To give such directions to the trustee as the creditors may see fit with reference to the administration of the estate.

Bankruptcy Reform

Bankruptcy reform legislation has been passed into law with Senate approval and Royal assent on November 25, 2005. The new law will not come into force until June 30, 2006 at the earliest. A summary and an analysis of the major changes are given in a link at the bottom of this page.

Bankruptcy in the United Kingdom

In the United Kingdom (UK), bankruptcy (in a strict legal sense) relates only to individuals and partnerships. Companies and other corporations enter into differently-named legal insolvency procedures: liquidation, administration and administrative receivership. However, the term 'bankruptcy' is often used (incorrectly) when referring to companies in the media and in general conversation. A Trustee in bankruptcy must be either an Official Receiver (a civil servant) or a licensed insolvency practitioner. Following the introduction of the Enterprise Act 2002, a UK bankruptcy will now normally last no longer than 12 months and may be less, if the Official Receiver files in Court a certificate that his investigations are complete. It is expected that the UK Government's liberalisation of the UK bankruptcy regime will massively increase the number of bankruptcy cases; initial Government statistics appear to bear this out. It remains to be seen whether the leash has been loosened too far and whether the legislation will need reviewing if the system becomes too overheated with "debt-dumping" debtors.

Bankruptcy in the United States

Bankruptcy in the United States is a matter placed under Federal jurisdiction by the United States Constitution (in Article 1, Section 8), which allows Congress to enact "uniform laws on the subject of Bankruptcy throughout the United States." Its implementation, however, is found in statute law. The relevant statutes are incorporated within the Bankruptcy Code, located at Title 11 of the United States Code, and amplified by state law in the many places where Federal law either fails to speak or defers expressly to state law. While bankruptcy cases are always filed in United States Bankruptcy Court (an adjunct to the U.S. District Courts), bankruptcy cases, particularly with respect to the validity of claims and exemptions, are often highly dependent upon State law. State law therefore plays a major role in many bankruptcy cases, and it is often quite unwise to generalize bankruptcy issues across state lines.

Bibliography

Born Losers: A History of Failure in America, by Scott A. Sandage (Harvard University Press, 2005).

External links

- [http://www.bankruptcycanada.com/bankruptcyexemptions.htm Canadian Bankruptcy Exemptions for each province and territory]
- [http://www.bankruptcycanada.com/question1.htm Canadian Bankruptcy FAQ's]
- [http://www.bankruptcycanada.com/PropChngsBIA.htm Summary and Analysis of Major Canadian Bankruptcy Reform Changes]
- [http://www.nacba.org National Association of Consumer Bankruptcy Attorneys (US)]
- [http://www.law.cornell.edu/topics/bankruptcy.html LII Law about... Bankruptcy]
- [http://www.goldstein-pa.com/brFAQ.html Bankruptcy FAQ specific to Florida]
- [http://www.insolvency.gov.uk/ Website of the Insolvency Service in the UK]
- [http://www.theba.org.uk/ The Bankruptcy Association], a UK self-help group for those affected by bankruptcy
- [http://www.bestcase.com/bkreform.htm Bankrutpcy Reform 2005 Resources]
- [http://www.uscourts.gov/bankruptcycourts.html US Courts Bankruptcy Page] Category:Corporate finance Category:Personal finance ja:倒産 simple:Bankrupt

Default

Typically, default is the result when no action is taken. The term has specific meanings in various fields, including:
- Default (law)
- Default (finance)
- Default (computer science) — also contains consumer electronics usage
- Default logic
- Default (band)
- To default in tennis is to fail to participate in or complete a match; for example, due to an injury. If a player defaults, the opponent is considered to have won the match.
- defaults (software) is the utility that manipulates Mac OS X plist (preference) files. ja:デフォルト

Nominal interest rate

A nominal interest rate is the interest rate that does not compensate for inflation.

Effective interest rate

When comparing interest rates, nominal interest rates and effective interest rates have to be distinguished. An interest rate is called nominal if the period of time after that the interest is credited (e.g. a month) is not identical to the basic time unit (normally a year). For example, let's assume an nominal interest rate of 6% which is credited as of 6%/12 = 0.5% every month. After one year, the initial capital is increased by the factor (1+0.005)¹² ≈ 1.0616. As a result, this nominal interest rate is equivalent to an effective interest rate of 6.16%.

Real interest rates

Interest rates compensate the lender for postponing access to the money. This includes taking account of likely changes in the value of money over time due to price inflation. If the nominal interest rate is adjusted to ignore this change, what remains is called the real interest rate.

Money market

The money market is the financial market for short-term borrowing and lending, typically up to one year. This contrasts with the capital market for longer-term funds. In the money markets, banks lend to and borrow from each other, short-term financial instruments such as certificates of deposit (CDs) or enter into agreements such as repurchase agreements (repos). It provides short to medium term liquidity in the global financial system. Money market derivatives include forward rate agreements (FRAs) and short-term interest rate futures. Trading takes place between banks in the "money centers" (New York and London primarily, also Chicago, Frankfurt, Paris, Singapore, Hong Kong, Tokyo, Toronto, Sydney).

Common Money Market Instruments

Bankers' acceptance. A draft or bill of exchange accepted by a bank to guarantee payment of the bill. Certificate of deposit. A time deposit with a specific maturity date shown on a certificate; large-denomination certificates of deposits can be sold before maturity. Commercial paper. An unsecured promissory note with a fixed maturity of one to 270 days; usually it is sold at a discount from face value. Eurodollar deposit. Dollar deposits in a U.S. bank branch or a non-U.S. bank located outside the United States. Federal Agency Short-Term Securities (in the US). Short-term securities issued by government sponsored enterprises such as the Farm Credit System, the Federal Home Loan Banks and the Federal National Mortgage Association. Federal funds (in the US). Interest-bearing deposits held by banks and other depository institutions at the Federal Reserve; these are immediately available funds that institutions borrow or lend, usually on an overnight basis. They are lent for the federal funds rate. Municipal notes (in the US). Short-term notes issued by municipalities in anticipation of tax receipts or other revenues. Repurchase agreements. Short-term loans—normally for less than two weeks and frequently for one day—arranged by selling securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. Treasury bills. Short-term debt obligations of a national government that are issued to mature in 3 to 12 months. For the U.S., see Treasury bills.

External links

- [http://www.richmondfed.org/publications/economic_research/instruments_of_the_money_market/ Instruments of the US Money Market]

Historical data

- [http://research.stlouisfed.org/aggreg/ St. Louis Fed: Monetary Aggregates] Category:International trade Category:Financial markets ja:金融市場

Bond market

The bond market refers to people and entities involved in buying and selling of bonds and the quantity and prices of those transactions over time. Participants in the market trade bonds issued by corporations and various government bodies. Because of the relationship between bond prices and interest rates, references to the "bond market" are often used to indicate changes in interest rates or the shape of the yield curve. Other names for the bond market are the credit market and the debt market.

External links

- [http://www.bondmarkets.com/ The Bond Market Association] Category:Fixed income market

Bank

A bank is an institution that provides financial service, particularly taking deposits and extending credit. Currently the term bank is generally understood as an institution that holds a banking license. Banking licenses are granted by bank regulatory authorities and provide rights to conduct the most fundamental banking services such as accepting deposits and making loans. There are also financial institutions that provide certain banking services without meeting the legal definition of a bank, a so called non-banking financial company. Banks have a long history, and have influenced economies and politics for centuries. The word bank is derived from the Italian banca, which is derived from German language and means bench. The terms bankrupt and "broke" are similarly derived from banca rotta, which refers to an out of business bank, having its bench physically broken. Money lenders in Northern Italy originally did business in open areas, or big open rooms, with each lender working from his own bench or table. Typically, a bank generates profits from transaction fees on financial services and on the interest it charges for lending.

Services typically offered by banks

Although the type of services offered by a bank depends upon the type of bank and the country, services provided usually include:
- Taking deposits from the general public and issuing checking and savings accounts
- Making loans to indivudals and businesses
- Cashing cheques
- Facilitating money transactions such as wire transfers and cashiers checks
- Issuing credit cards, ATM, and debit cards
- Storing valuables, particularly in a safe deposit box

Types of banks

Banks' activities can be characterised as retail banking, dealing direct with individuals and small businesses, and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profit making. In some jurisdictions retail and investment activities are, or have been, separated by law. Central banks are non-commercial bodies or government agencies tasked with responsibility for controlling interest rates and money supply across the whole economy. They act as Lender of last resort in event of a crisis.

Types of retail bank

- Commercial bank, is the term used for a normal bank to distinguish it from an investment bank. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with corporations or large businesses.
- Community development bank are regulated banks that provide financial services and credit to underserved markets or populations.
- Postal savings banks are savings banks associated with national postal systems. Japan and Germany are examples of countries with prominent postal savings banks.
- Private banks manage the assets of high net worth individuals.
- Offshore banks are banks located in jurisdictions with low taxation and regulation, such as Switzerland or the Channel Islands. Many offshore banks are essentially private banks.
- Savings banks traditionally accepted savings deposits and issued mortgages. Today, some countries have broadened the permitted activities of savings banks.
- Building societies and Landesbanks both conduct retail banking

Types of Investment Banks

- Investment banks "underwrite" (guarantee the sale of) stock and bond issues and advise on mergers. Examples of investment banks are Goldman Sachs of the USA or Nomura Group of Japan.
- Merchant banks were traditionally banks which engaged in trade financing. The modern definition, however, refers to banks which provides capital to firms in the form of shares rather than loans. Unlike Venture capital firms, they tend not to invest in new companies.

Both combined

- Universal banks, more commonly known as a financial services company, engage in several of these activities. For example, Citigroup, a very large American bank, is involved in commercial and retail lending; it owns a merchant bank (Citicorp Merchant Bank Limited) and an investment bank (Salomon Smith Barney); it operates a private bank (Citigroup Private Bank); finally, its subsidiaries in tax-havens offer offshore banking services to customers in other countries. Almost all large financial institutions are diversified and engage in multiple activities. In Europe, big banks are very diversified groups that, among other services, distribute also insurance, whence the bancassurance term.

Other types of bank

- Islamic Banks, Islamic banking revolves around several well established concepts which are based on Islamic canons. Since the concept of Interest is forbidden in Islam, all banking activities must avoid interest. Instead of interest, the Bank earns profit (mark-up) and fees on financing facilities that it extends to the customers. Also, deposit makers earn a share of the Bank’s profit as opposed to a predetermined interest.

Banks in the economy

Role in the money supply

A bank raises funds by attracting deposits, borrowing money in the inter-bank market, or issuing financial instruments in the money market or a capital market. The bank then lends out most of these funds to borrowers. However, it would not be prudent for a bank to lend out all of its balance sheet. It must keep a certain proportion of its funds in reserve so that it can repay depositors who withdraw their deposits. Bank reserves are typically kept in the form of a deposit with a central bank. This behaviour is called fractional-reserve banking and it is a central issue of monetary policy. Some governments (or their central banks) restrict the proportion of a bank's balance sheet that can be lent out, and use this as a tool for controlling the money supply. Even where the reserve ratio is not controlled by the government, a minimum figure will still be set by regulatory authorities as part of bank regulation.

Bank crises

Banks are susceptible to many forms of risk which have triggered occasional systemic crises. Risks include liquidity risk (the risk that many depositors will request withdrawls beyond available funds), credit risk (the risk that those that owe money to the bank will not repay), and interest rate risk (the risk that the bank will become unprofitable if rising interest rates force it to pay relatively more on its deposits than it receives on its loans), among others. Banking crises have developed many times throughout history when one or more risks materialize for a banking sector as a whole. Prominent examples include the U.S. Savings and Loan crisis in 1980s and early 1990s, the Japanese banking crisis during the 1990s, and the bank run that occurred during the Great Depression.

Regulation

The combination of the instability of banks as well as their important facilitating role in the economy led to banking being thoroughly regulated. The amount of capital a bank is required to hold is a function of the amount and quality of its assets. Major banks are subject to the Basel Capital Accord promulgated by the Bank for International Settlements. In addition, banks are usually required to purchase deposit insurance to make sure smaller investors are not wiped out in the event of a bank failure. Another reason banks are thoroughly regulated is that ultimately, no government can allow the banking system to fail. There is almost always a lender of last resort—in the event of a liquidity crisis (where short term obligations exceed short term assets) some element of government will step in to lend banks enough money to avoid bankruptcy.

Public perceptions of banks

In United States history, the National Bank was a major political issue during the presidency of Andrew Jackson. Jackson fought against the bank as a symbol of greed and profit-mongering, antithetical to the democratic ideals of the United States.

Profitability

Large banks in the United States are some of the most profitable corporations, especially relative to the small market shares they have. This amount is even higher if one counts the credit divisions of companies like Ford, which are responsible for a large proportion of those company's profits. For example, the largest bank, Citigroup, which for the past 3 years has made more profit than any other company in the world, has only a 5 percent market share. Now if Citigroup were to be as dominant in its industry as a Home Depot, Starbucks, or Wal Mart in their respective industries, with a 30 percent market share , it would make more money than the top ten non-banking U.S. industries combined. In the past 10 years in the United States, banks have taken many measures to ensure that they remain profitable while responding to ever-changing market conditions. First, this includes the Gramm-Leach-Bliley Act, which allows banks again to merge with investment and insurance houses. Merging banking, investment, and insurance functions allows traditional banks to respond to increasing consumer demands for "one stop shopping" by enabling the crossing selling of products (which, the banks hope, will also increase profitability). Second, they have moved toward risk based pricing on loans, which means charging higher interest rates for those people who they deem more risky to default on loans. This dramatically helps to offset the losses from bad loans, lowers the price of loans to those who have better credit histories, and extends credit products to high risk customers who would have been denied credit under the previous system. Third, they have sought to increase the methods of payment processing available to the general public and business clients. These products include debit cards, pre-paid cards, smart-cards, and credit cards. These products make it easier for consumers to conveniently make transactions and smooth their consumption over time (in some countries with under-developed financial systems, it is still common to deal strictly in cash, including carrying suitcases filled with cash to purchase a home). However, with convenience there is also increased risk that consumers will mis-manage their financial resources and accumulate excessive debt. Banks make money from card products through interest payments and fees charged to consumers and companies that accept the cards. The banks' main obstacles to increasing profits are existing regulatory burdens, new government regulation, and increasing competition from non-traditional financial institutions.

Bank Size Information

Top ten banking groups in the world ranked by tier-one capital in 2004 (In U.S. Dollars)

#Citigroup — 73 billion #JP Morgan Chase — 69 billion #HSBC — 67 billion #Bank of America — 64 billion #Credit Agricole Group — 63 billion #Royal Bank of Scotland — 43 billion #Mitsubishi Tokyo Financial Group — 40 billion #Mizuho Financial Group — 39 billion #HBOS — 36 billion #BNP Paribas — 35 billion

Top ten banking groups in the world ranked by assets in 2003 (In U.S. Dollars)

#Mizuho Financial Group — 1,265 billion #Citigroup — 1,097 billion #Allianz — 1,002 billion #UBS — 907 billion #Sumitomo Mitsui Financial Group — 903 billion #Deutsche Bank — 892 billion #Fannie Mae — 888 billion #ING Group — 843 billion #BNP Paribas — 835 billion #Mitsubishi Tokyo Financial Group — 832 billion

Top ten bank holding companies in the world ranked by profit in 2003 (In U.S. Dollars)

#Citigroup — 20 billion #Bank of America — 15 billion #HSBC — 10 billion #Royal Bank of Scotland — 8 billion #Wells Fargo — 7 billion #JP Morgan Chase — 7 billion #UBS AG — 6 billion #Wachovia — 5 billion #Morgan Stanley — 5 billion #Merrill Lynch — 4 billion

Top ten bank holding companies in the U.S. ranked by deposits (In U.S. Dollars)

As of June 30, 2004. These are U.S. deposits only. This is not a ranking of the largest U.S. based global banks. #Bank of America Corp. — 526 billion #Wells Fargo & Co. — 256 billion #Wachovia Corp. — 238 billion #J.P. Morgan Chase & Co. — 227 billion (1) #Citigroup Inc. — 193 billion #Bank One Corp. — 150 billion (1) #U.S. Bancorp — 112 billion #SunTrust Banks, Inc. — 78 billion #BB&T Corporation — 67 billion #National City Corp. — 64 billion (1) Since this report, J.P. Morgan Chase & Co. has acquired Bank One Corp., making the combined 6/30/04 deposit total for the merged company $377 billion, vaulting it to second place on the list.

History of banking

Main article: History of banking
- Florentine banking — The Medicis and Pittis among others
- Banknotes — Introduction of paper money
- Bank of Amsterdam
- Bank of Sweden — The rise of the national banks
- Bank of England — The evolution of modern central banking policies
- Bank of America — The invention of centralized check and payment processing technology
- Swiss bank
- United States Banking
- Imperial Bank of Persia — History of banking in the Middle-East

External links

- [http://www.economist.com/markets/displayStory.cfm?story_id=4174345] List of the world's ten largest banks at the end of 2004 by tier 1 capital from The Economist.
- [http://www2.fdic.gov/sod/ FDIC bank market share data]
- [http://www.eh.net/encyclopedia/index.php#B EH.Net Encyclopedia]
- [http://www.ibtalk.com IBtalk] Banking forum for practitioners and those interested in banking. Mainly centered on the wholesale (investment) functions of banking.
- [http://www.seek2know.net/money.html Presidential and other quotes on banking]
- [http://bwnt.businessweek.com/global_1000/2003/index.asp?sortCol=assets&sortOrder=DESC&pageNum=1&resultNum=10 List of largest banks by assets]
- [http://www.gbanking.com gbanking.com - Global banking directory] Category:Banking terms and equipment Category:Legal entities Banker ko:은행 ms:Bank ja:銀行 simple:Bank th:ธนาคาร

Bills

:For other possible meanings, see Bill. The Bills were a youth subculture that thrived in Léopoldville (now known as Kinshasa) in the late 1950s, basing much of their image and outlook on the cowboys of American Western movies.

Background

Western moviesFrom 1957 to 1959, half a dozen movie theatres opened in the "African" neighbourhoods in Léopoldville (the city was segregated into African and European areas). The majority of Léopoldville's population was under 20, and most of these youths were educated to only Primary level, since the colonial government reserved most of the Secondary school places for Europeans. Poor education resulted in large scale unemployment, and, with little else to do, the youths began to make the theatres their meeting points. They were particularly drawn to Western movies, and "Billism" began to incorporate many of the motifs into their lives. The portrayal of Buffalo Bill in the movies was especially appealing partly because of the similarity to hunter heroes of Congolese culture. The character of Buffalo Bill had already appeared in over 20 films by that time, but the most influential movie is thought to be 'Pony Express', where Charlton Heston played Bill.

Way of life

The Bills dressed in cowboy outfits (kerchiefs, jeans and shirts) sold in Kinshasa. The names of the 'territories' for each gang echoed those of the Western (Texas, Sante Fe), and the gangs themselves were usually named after their territories (ie. Texas Bills), but occasionally strayed outside the Western pantheon (Godzilla). Some commentators have suggested they provided a street-level counterpart to the more refined and overtly political anti-colonial struggle that was then being fought by some of the évolués (the middle class educated elite).

Hindoubill

The Bills developed their own argot called Hindoubill (or Hindubill). The origins of this name are obscure, but may relate to either the Hindu films occasionally shown in Kinshasa, or to the Bills conflating the Native American "Indians" of "Cowboys and Indians" with the Indians of India (a reversal of Columbus' mistake).

References

- De Boeck, Filip & Plissart, Marie-Françoise. (2004) Kinshasa: Tales of the Invisible City Ludion. ISBN 9055445282. Photography and analysis of everyday life in Kinshasa, together with extensive quotations from contemporary Congolese. The last chapter is available as a PDF [http://www.vai.be/download/Venetie224-einde.pdf here]
- Stewart, Gary. (2000) Rumba on the River: A history of the popular music of the two Congos Verso. ISBN 1859847447. Tells the story of Congolese music, history, and popular culture. Category:Cul

Interest rates

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