Журавлева Сборник текстов для подготовки аспирантов-економистов 2011
.pdfThe movement of workers between jobs is referred to as frictional unemployment. All unemployment beyond frictional unemployment is classified as unintended unemployment. Reduction in this area is the target of macroeconomic policy.
Economic Growth
Economic growth is enhanced by investment in technological advances in production. Encouragement of savings supplies funds that can be drawn upon for investment.
Interest Rate Stability
Volatile interest and exchange rates generate costs to lenders and borrowers. Unexpected changes that cause damage, making policy formulation difficult.
Financial Market Stability Foreign Exchange Market Stability Conflicts Among Goals
Goals frequently cannot be separated from each other and often conflict. Costs must therefore be carefully weighed before policy implementation. To make conflict productive, to turn it into an opportunity for change and progress, Follett advises against domination, manipulation, or compromise. "Just so far as people think that the basis of working together is compromise or concession, just so far they do not understand the first principles of working together. Such people think that when they have reached an appreciation of the necessity of compromise they have reached a high plane of social development . . . But compromise is still on the same plane as fighting. War will continue - between capital and labour, between nation and nation - until we reliquich the ideas of compromise and concession."
Currency issuance
Many central banks are "banks" in the sense that they hold assets (foreign exchange, gold, and other financial assets) and liabilities. A central bank's primary liabilities are the currency outstanding, and these liabilities are backed by the assets the bank owns. Central banks generally earn money by issuing currency notes and "selling" them to the public for interest-bearing assets, such as government bonds. Since currency
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usually pays no interest, the difference in interest generates income, called seignior age. In most central banking systems, this income is remitted to the government. The European Central Bank remits its interest income to its owners, the central banks of the member countries of the European Union. Although central banks generally hold government debt, in some countries the outstanding amount of government debt is smaller than the amount the central bank may wish to hold. In many countries, central banks may hold significant amounts of foreign currency assets, rather than assets in their own national currency, particularly when the national currency is fixed to other currencies.
Naming of central banks
The People’s Bank of China.. There is no standard terminology for the name of a central bank, but many countries use the "Bank of Country" form (e.g., Bank of England, Bank of Canada, Bank of Russia). Some are styled "national" banks, such as the National Bank of Ukraine; but the term " national bank” is more often used by privately-owned commercial banks, especially in the United States. In other cases, central banks may incorporate the word "Central" (e.g. European Central Bank, Central Bank of Ireland). The word "Reserve" is also often included, such as the Reserved Bank of India, Reserved Bank of Australia, Reserved Bank of New Zealand, the South African Reserved Bank and U.S. Federal Reserve System. Many countries have state-owned banks or other quasi-government entities that have entirely separate functions, such as financing imports and exports.
Unit 2
Warm up activities
Have you ever been to stock exchange? What are the greatest? What do people do there? Have you ever tried to have exchange business? Would you like to be a stockbroker?
What caused the flash crash?
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One big, bad trade
Oct 1st 2010, 18:42 by The Economist online | NEW YORK
MONEYMEN have yet another fat document from regulators to chew over. On Friday October 1st, America’s Securities and Exchange Commission and its Commodity Futures Trading Commission issued a joint report on the “flash crash on May 6th. That afternoon, American share and futures indices went into a seemingly inexplicable tailspin, falling 10% in a matter of minutes, with some blue-chip shares briefly trading at a penny, only to recover most of the lost ground before the end of the trading day. The short-lived plunge raised awkward questions about whether trading rules had failed to keep up with markets that now handle orders in milliseconds.
Weighing in at more than 100 pages, the report provides a thorough account of what happened that day, based on masses of data pulled from trading firms and exchanges. In the hours before the nosedive, volatility was unusually high and liquidity thin, thanks to a barrage of unsettling political and economic news. The main trigger for the sudden decline, the report suggests, was a large sell order in “e-mini” futures on the S&P 500 index by an unnamed mutual-fund group. Because this automated “algorithmic” trade was programmed to take account of trading volume, not price or time, it was executed unusually rapidly: in 20 minutes, instead of the several hours that would be typical for such an order.
This is where high-frequency trading firms (HFTs) enter the story. These outfits zip in and out of shares, often holding them for less than a second. This fickleness has attracted criticism, with some accusing them of undermining market stability. HFTs initially helped to absorb the sell pressure, buying e-mini contracts. Ten minutes later, however, they began forcefully selling to reduce their “long” positions. The sell algorithm used by the mutual fund responded to this increased volume by increasing the rate at which it fed orders into the market, creating a feedback loop.
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Two liquidity crises
This created two separate liquidity crises, the report says: one at the broad index level in the e-mini, the other in individual shares. HFTs began quickly buying and reselling to each other e-mini contracts. This “hot potato” trading generated lots of volume but little net buying. Traditional buyers were unable or unwilling to step in, and the depth of the buying market for e-minis and S&P 500-tracking exchange-traded funds fell to a mere 1% of its level that morning.
The second liquidity crunch, in individual stocks, began when automated trading systems used by market-makers and other large liquidity providers paused, as they were designed to do when prices move beyond certain thresholds. This left traders to assess the risks of restarting trading. A number of participants reported that because prices had fallen precipitously across many types of securities, they “feared the occurrence of a cataclysmic event of which they were not yet aware, and that their strategies were not designed to handle,” says the report.
Some market-makers reacted to this increased risk by widening the spreads between the levels at which they would buy or sell. Others withdrew completely. Some resorted to manual trading but could not keep up with the explosion in volume. It did not help that marketmakers in over-the-counter markets (those that trade off public exchanges) began routing their orders to the exchanges, where they competed with other orders for immediately available but dwindling liquidity. HFTs-whose rapid-fire trading has been blamed by some for the collapse in liquidity-were net sellers at this time, but so were most other participants. Some HFTs continued to trade throughout the crash, even as others reduced or halted trading.
The lessons are complex
The regulators point to a number of lessons that need to be learned. In times of turmoil, automated orders can trigger extreme price swings, especially if the algorithm does not take account of prices. And the way in which these automatic orders interact with high-frequency and other computer trading strategies can quickly erode liquidity, even amid very
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high trading volume. More work also needs to be done to understand how stock markets and derivatives markets interact, especially with respect to index products.
Another lesson is that official trading pauses can be a good way to provide time for sanity to return to markets, but uncoordinated breaks can do more harm than good. On May 6th the New York Stock Exchange stopped trading briefly while other exchanges and alternative trading venues kept going. This led to a diversion of order flows that greatly added to the pressure on those markets. The SEC has since introduced “circuit-breakers” for individual shares that halt trading across all markets. These may be modified to allow shares to continue trading, but only within pre-set bands. The commission has also brought in uniform policies for cancelling trades struck at clearly irrational prices. And it is eliminating “stub quotes”, which thanks to a technical oversight allow market-makers to buy perfectly good stocks for a penny if there are no other bids.
Another area that needs to be looked at is market data. Though the report does not see data delays as a primary cause of the crash, differences in data conventions among the dozens of markets may have exacerbated it.
Some will no doubt see the report as confirmation that high-frequency trading is dangerous stuff. In response, the robo-trading crowd will point out that the algorithm at the centre of the story was executed not by one of them, but by a bog-standard mutual fund. As the blame game continues, the real question will be whether the report, and the measures taken to avoid a repeat, help to restore confidence in today’s market structure.
Vocabulary
flash − внешний, показной блеск
futures − сделки на срок, срочные сделки (контракты)
inexplicable − необъяснимый; неизъяснимый, непонятный, непостижимый
tailspin − резкий спад в экономике; хаос, паника, потеря контроля
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blue-chip shares – акции с высокими котировками awkward – неудобный, странный,
nosedive − пикировать Syn: dive , swoop , резко падать, снижаться , пике, пикирование - fall into a nosedive - резкое падение, спад volatility − изменчивость, непостоянство (напр. в характере потребительского спроса)
iquidity , ликвидность (состояние рынка, характеризующееся высокой активностью).
barrage – заграждение unsettling – тревожный
outfit − снаряжать, экипировать; снабжать, поставлять zip - ; ничто, нуль
fickleness − непостоянство, изменчивость, переменчивость Syn: inconstancy
undermine − делать подкоп, подкапывать, минировать; взрывать, подрывать Syn: mine, подрывать, расшатывать
feedback loop – контур обратной связи stock – биржа
threshold – порог
assess − оценивать, давать оценку precipitous − крутой; обрывистый; отвесный securities − ценные бумаги
spread − спред, спрэд, маржа (разница между ценами покупки и продажи )
turmoil − шум, суматоха; беспорядок
swing − колебание, резкое колебание, неожиданное скачкообразное движение
amid − между, посреди, среди
derivative − производный (о финансовом инструменте, цена которого зависит от цены базового товара, валюты или другого финансового инструмента)
diversion − отвлечение, отклонение, переключение circuit-breaker − автоматический выключатель
bid − предложение цены (обычно на аукционе) ; заявка (на торгах)
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Give the definition of the following:
flash crash, high-frequency trading firms, blue-chip shares, short-lived, nosedive, volatility, liquidity, a feedback loop, “hot potato”, marketmakers.
You and your partner are going to gamble on a stock. What words would you need to use? Choose them from the text.
Give a written translation of the paragraph “The lessons are complex”
Render the text using as many financial terms as possible
Supplementary Reading
Stock exchange
From Wikipedia, the free encyclopedia
A stock exchange is an entity which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds.
To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of increased speed and reduced cost of transactions. Trade on an exchange is by members only.
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The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks.
There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange over-the-counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for securities.
The first stock exchanges
In 12th century France the courtiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. As these men also traded in debts, they could be called the first brokers.
Some stories suggest that the origins of the term "bourse" came from the Latin bursa meaning a bag because, in 13th century Bruges the sign of a purse (or perhaps three purses), was hung on the front of the house where merchants met.
The story may well be apocryphal, however it is possible that in the late 13th century commodity traders in Bruges gathered inside the house of the Van der Burse family (for some a Venetian family with original name "Della Borsa" and used three leather bags as coat-of-arms), and in 1309 they institutionalized this until now informal meeting and became the "Bruges Bourse." The idea spread quickly around Flanders and neighboring counties and "Bourses" soon opened in Ghent and Amsterdam.
In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351, the Venetian Government outlawed spreading rumors intended to lower the price of government funds.
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There were people in Pisa, Verona, Genoa and Florence who also began trading in government securities during the 14th century. This was only possible because these were independent city states ruled by a council of influential citizens, not by a duke.
The Dutch later started joint-stock companies, which let shareholders invest in business ventures and get a share of their profits—or losses. In 1602, the Dutch East India Company issued the first shares on the Amsterdam stock exchange. It was the first company to issue stocks and bonds. In 1688, the trading of stocks began on a stock exchange in London.
On May 17, 1792, in order to more easily trade cotton, twenty-four supply brokers signed the Buttonwood Agreement outside 68 Wall Street in New York underneath a buttonwood tree. On March 8, 1817, properties got renamed to New York Stock & Exchange Board. In the 19th century, exchanges (generally famous as futures exchange) got substantiated to trade futures contracts and then choices contracts.
There are now a large number of stock exchanges in the world.
The role of stock exchanges: Stock exchanges have multiple roles in the economy. This may include the following:
Raising capital for businesses
The Stock Exchange provide companies with the facility to raise capital for expansion through selling shares to the investing public.
Mobilizing savings for investment
When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry resulting in stronger economic growth and higher productivity levels of firms.
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Facilitating company growth
Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market shares, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.
Profit sharing
Both casual and professional stock investors through dividends and stock price increases that may result in capital gains, will share in the wealth of profitable businesses.
However, when poor financial, ethical or managerial records are known by the stock investors the stock and the company tend to lose value. In the stock exchanges, shareholders of under performing firms are often penalized by significant share price decline, and they tend as well to dismiss incompetent management teams.
Creating investment opportunities for small investors
As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors.
Government capital-raising for development projects
Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such bonds can obviate the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax the citizens or oth-
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