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Actions of a new Forex trader

Actions of a new Forex trader

Trading price signals instead of emotional reactions

It is said that over 90% of active traders in the Forex financial markets do not make money in the long term. There is a lot of confusion about the exact numbers, but it's safe to say that the more time you spend in the market, the harder it is to make profits on a consistent basis. Even experienced investors sometimes make buying and selling decisions at the wrong time, but why does this happen? It usually comes down to the trivial emotions (impulse actions) of the trader.

Most Forex traders and investors' mistakes are emotional because they rely on internal signals. Their emotions give rise to unproven and often unproven buying and selling strategies. I think you too have witnessed many wild price swings that make no sense in the current market conditions. If you want to make a qualitative leap in profitability, the first thing to do is to stop buying or selling anything without a compelling, quantifiable external reason for doing so.

The main driving force behind the NASDAQ 5000 bubble in March 2000 was greed instead of real asset valuation. Buyers continually invested in dotcom stocks with no real intrinsic value and held them because of greed for higher profits and higher highs. The NASDAQ 5000 trend could be traded at a profit with the right entry and exit signals. Simple chart patterns and moving averages made many traders a lot of money in 2000. And some people are the opposite. A trader I know had enough money to pay for a new house in March 2000, but he lost everything.

The problem in this period was traders and investors who traded based on their personal euphoria, which allowed them to hold their positions during a parabolic uptrend, preventing them from taking profits and closing their positions. The use of trailing stops would have helped them exit and maintain large profits instead of rolling their technology stocks down completely.

Read more: How to invest in stocks and what you need to know

In March 2009, all major stock indices hit lows that seemed impossible a year ago. Selling escalated because of a fear of owning stocks and sellers were willing to give them up at ridiculously low prices. Long-term trend traders should have given up on stocks in long positions and locked in losses in 2008 using any reasonable sell signal.

The easiest sell signal for a Forex trader or investor to use to preserve their capital is to dump their holdings and go into cash when the S&P 500 index, tracked by ETF SPY, closes below its 200-day simple moving average. For stock indices, this simple exit signal reduces capital drawdown by about 50% (this has been shown by history testing over the past 15 years). In most cases, it does not increase returns, but exiting when the 200-day simple moving average is lost will cut the loss in half!

You have the ability to exit in cash during market corrections, bear markets, recessions and market crashes, and you can wait to start buying again when the indices start to close above their 200-day moving average. This could be possibly the most important signal in the Forex market! It is highly advisable for most Forex investors and traders to cash out when the stock market indices are trading below their 200-day moving average, and wait for better investment opportunities. Exchange-traded index-tracking funds such as SPY, QQQ, IWM or DIA, which track closes below the 200-day moving average, should be your first warning indicator of danger.

Pride (or vanity) makes people hold what they thought was a good investment or long position, even if the price of that asset has fallen sharply. The only sensible reason to buy something is the possibility of a rise in price. Pride and unwillingness to admit they are wrong initially puts the trader in a losing position. These blinders, a visor that prevents the use of stop-losses and proper exit signals. A trader who is too proud will not even understand the exit signals, because he/she does not think about the possibility of making a mistake.

Hope is another dangerous signal used by traders. A trader will buy a stock that is falling lower day after day based on an unfounded hope that it will still go up. Hope is not a signal to buy. A stock index approaching the 30 RSI and above the 200-day moving average on the daily chart during a bull market is a much better buy signal. You must have a quantifiable external reason for buying falling assets, which increases the chances of making the right decision based on price movement, not because you hope something good will happen.

Read more: How to determine the beginning of the movement of the "bull" market?

Fear is one of the internal trading signals that completely undermines a trader's ability to profit. There are two ways to be profitable: have more wins than losses, or have big wins and small losses. A system with a high winning percentage must have equal amounts of wins and losses for your system to be profitable. Similarly, having big wins and small losses, even a small winning percentage system can allow you to make money, as long as there are big enough wins. Huge losses will make you unprofitable regardless of big wins or high winning percentages because you will squander your profits from winning trades and eventually destroy your trading capital.

Fear can signal a trader to make a small profitable trade while the profits are still there before they disappear, making it difficult to make any big wins. This is also a big detriment. It's better to use external indicators. Exit a trade based on a trailing stop, a time stop or because the target price has been reached, rather than giving in to your fears. Fear can also cause a trader to miss a real entry signal because they are afraid of losing money.

Read more: What is a Trailing stop and how to use it?

Greed is the internal impulse that can probably hurt you the most, forcing you to trade with too much position size. Greed is a misguided confidence. Every trade signal you use should be designed to increase the probability in your favour, but even a good trade signal is not a guaranteed win, it is simply an opportunity with a good probability. Many excellent trading systems have only a 60% win rate. The key is how a trader manages to keep 40% of losing trades small while maximising profitable ones.

Greed can also prevent a trader from completing a trade when their profit target has been met. Greed for profits after the risk to profit ratio has changed from the original entry can lead to losses when the trend reverses. One of the biggest mistakes a trader can make is not to lock in profits at his target mark when the market turns around, instead of waiting for the price to recover. It is usually too late. Greed dictates the desire to trade big and stay in winning trades forever. Your clear trading plan must overcome your greed, control position size and have a strategy to lock in profits when targets are available.

The main cornerstone message of this article is that your emotions are the worst trading signals you can use. Emotions pull you to buy falling assets at the start of market corrections and bear markets instead of waiting for the market to find key price support levels. Indicators are created to give you a measurable reason to do the opposite of what your emotions tell you.

Read more: Bulls and bears, as well as other animals on the stock exchange

Your trading success will depend heavily on your ability to approach the markets systematically, using a trading plan to use profitable buying and selling signals that fit your market beliefs and methodology. You need a good external guide that you will follow regardless of what your emotions tell you. Trade with external indicators, not with your feelings, opinions or emotions.

 

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What are central banks and what are their tasks
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Oct 17, 2021
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Asset valuation using the CAPM model: how to calculate the profitability of a project
Asset valuation using the CAPM model: how to calculate the profitability of a project CAPM is one of the models for assessing the value of capital. This is how the abbreviation Capital Assets Pricing Model stands for. The essence of CAPM is to calculate the profitability of the project in relation to the level of risks: the more risky the idea is, the greater the profitability should be.Meaning and applicationCAPM is usually used to explain fluctuations in stock prices and to create a mechanism to help investors assess the level of profitability and risk of their portfolio. This concept was created in the USA in the middle of the XX century. Its author is economist Harry Markowitz. Later, CAPM developed in the works of other financiers: Jack L. Trainor, William Forsyth Sharp (he made such a significant contribution that sometimes the instrument is called the William Sharp model), John Lintner and Jan Mossin.The model works as follows. 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The absence of the possibility of arbitrage transactions, when individuals have information in advance that can change the stock price in the future.Long-term investment prospects for investors, thanks to which crises and sharp jumps in the exchange rate are excluded.Divisibility of shares and a high level of liquidity.William Sharp's model assumes that not only systemic, that is, market risks, but also the general mood of the market will have an impact on the future profitability of an asset. For this reason, Sharp followed a passive investment strategy - not to revise his investment portfolio due to new information.One of the features of an efficient market is the impossibility of obtaining excess profits. 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Investors are guided by them when choosing assets to buy.Formula and its descriptionThe mathematical form of the CAPM formula, which allows you to analyze what rate of return should be expected in the long term:RE = Rf + βx * (Rm — Rf), whereRE - rate;Rf is the yield of government shares, that is, risk-free assets;Rm is the estimated profit level of the investment portfolio according to the average rate;(Rm - Rf) - percentage premium for investment risk (usually 5%);β is a coefficient that determines how sensitive a particular stock is to fluctuations in market profitability. The coefficient is calculated based on statistical data.Thus, the CAPM formula represents an increase in the required capital return by the degree of risk related to equity. In Russia, two main approaches to CAPM are used in relation to companies from emerging markets:with the adjustment of country risk by the coefficient β;without this adjustment.Country risk is the degree of direct or indirect risk that the debtor's performance of its obligations will be affected by the actions of the government of a particular country.When adjusting the risk by the coefficient β, the formula looks like this:RE = RfGlobal + β * (ERP + C)Without risk adjustment by the β coefficient , the CAPM formula looks like this:RE = RfGlobal + β * ERP + C = RfLocal + β * ERPThere are cases when these formulas are supplemented with other indicators, in particular, for non-public companies. These indicators are S1 (premium for the minimum size) and S2 (premium for risks of a specific nature). Then the formula looks like this:RE = Rf + βx * (Rm — Rf) + S1 + S2 + CExample of CAPM calculationFor example, the risk-free rate is 6.4%. As a beta coefficient, we use 0.6 - such an indicator for food producers was calculated. Ideally, it is worth calculating the coefficient manually, but it can be assumed that these markets are highly diversified and not very sensitive to fluctuations in market profitability associated with a particular state. We substitute indicators into the CAPM formula:(Rm - Rf) - 9,4%;the country is 3.5%.Further, according to calculations based on the William Sharpe model, we get the following result:RE = 6,4% + 0,6 * 9,43% + 3,47% = 15,528%.This rate has not yet been adjusted for the capital structure of the company and the current level of inflation in the state.Any rate obtained as a result of the CAPM calculation can be challenged due to the variety of available concepts and assumptions used. Therefore, a rate calculated and agreed upon by several financiers is best suited for use in practice. What to consider when evaluating with CAPM CAPM is not ideal. Before using it, all the identified advantages and disadvantages should be taken into account.ProsThis is a fundamental principle that characterizes the mutual relationship between systemic market risk and the level of potential profitability of a stock.Ease of use. CAPM is a simplified calculation that is easily subjected to stress tests that allow you to get a set of expected results and confidence in relation to the desired rates of return.A diversified portfolio that eliminates unsystematic (specific) risk.The presence of systematic risk (beta coefficient). In other calculation models, for example, DDM, it is not taken into account. Meanwhile, this is a very important variable, often unexpected and unforeseen; it cannot always be smoothed out by other indicators.The CAPM formula is perhaps the only one that can easily adapt to the volatility of the financial market and business. Other existing return calculations, such as the weighted average cost of capital (WACC), cannot be used in cases where companies are exploring opportunities and financing differs from the current business.ConsCAPM works with only one factor that affects the future profitability of the asset. Meanwhile, in 1992, it was proved that profitability is also influenced by industry characteristics and the size of the organization.The William Sharpe model has a number of limitations. It does not take into account transaction costs, tax fees and the degree of opacity of the market. There may be forecast errors due to the use of retrospective degrees of risks.Profitability changes all the time, it is very volatile, and this is the main problem of using a risk-free Rf rate for the short term in the process of calculating CAPM.There is a problem with calculating Rm in cases when the market profitability is negative. As a result, long-term profitability smooths out profits. Also, revenues cannot really reflect future profits, since they are of the opposite nature.The CAPM formula is based on some assumptions, including those that do not reflect the real picture of the world. For example, that investors can borrow or borrow at a risk-free rate.ConclusionCAPM cannot be called ideal, but many of its characteristics make it applicable and useful in a number of cases. Most often, the calculation is criticized for being unrealistic; however, the output result is often more useful than that of WACC and DDM. It depends on the specific situation. The result of the CAPM calculation is easy to calculate and subject to a stress test. In combination with other analytical tools, it gives an idea of many important information, and on their basis a decision is made on the feasibility of investments.
Oct 15, 2021
IndexaCo
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If necessary, it is possible to get a report on paper. To do this, you need to make an appropriate request.To return the money from the broker's account, you must submit an order. This can also be done via the Internet.Brokerage companies are constantly working to improve the trading process on the exchange. 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Oct 15, 2021
IndexaCo
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The world's leading Stock Exchanges and features of their functioning
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The Dow Jones index, as well as the NYSE Composite and NYSE ARCA Tech 100 Index are calculated based on the indicators of industrial companies' shares on the stock exchange.Read more: What is the New York Stock Exchange (NYSE)NASDAQIt began its work in the 1970s as an automated quotation system. Today, more than 4,000 companies, mainly related to the IT sector, are represented in the listing of the exchange. A number of trading indices are calculated on the exchange, each of which is associated with a specific economic sector. The NASDAQ Composite and NASDAQ National Market Composite index are consolidated.London Stock Exchange (LSE)The official date of its opening is considered to be 1801, although this financial institution began to function since 1570 under the leadership of the royal adviser Thomas Gresham. By its structure, the London Stock Exchange is a joint-stock company that sells its own shares on the market. It accounts for about 50% of the turnover of all securities in the world. The exchange works not only with large companies, but also with aspiring entrepreneurs, to whom it provides loyal conditions. The composite index is FTSE.Tokyo Stock Exchange (TSE)It first appeared on the Japanese financial market in 1878. In terms of capitalization, it is currently in second place after the New York Stock Exchange. The largest companies of the Asian and European regions place their securities on its platform. The main index families are NIKKEI 225 and TOPIX (Tokyo Stock Price Index).Read more: About NASDAQ Stock ExchangeShanghai Stock Exchange (SSE)China's largest exchange is considered a non-profit organization and is under the patronage of the government Securities Commission. Based on the results of trading, the SSE Composite index is calculated, which reflects the state of the shares of all companies that are listed on the exchange.Hong Kong Stock Exchange (HKSE)It has securities of one and a half thousand large issuers from Asia and Europe. Capitalization is at the level of $ 2.9 trillion, and according to this indicator, HKSE ranks sixth in the ranking of the world's major exchanges. The Hang Seng index represents the weighted average value of the shares of the 34 largest companies of the exchange.EuronextIt has its own branches in the Netherlands, Portugal, Belgium and France. In addition to securities trading, it provides clearing services and analytical information on the market. Its total capitalization is 2.9 trillion dollars. The list of indices calculated during trading includes: Euronext 100, AEX index, BEL20 and CAC 40.Read more: IPO of a company - mechanism, examples & strategiesToronto Stock Exchange (TSX)It first appeared on the financial market of North America in 1878. The Canadian dollar is used as the main currency. The S&P/TSX trading index reflects the condition of 200 companies whose financial weight is at least 0.05% of the total capitalization.Shenzhen Stock Exchange (SZSE)It is a member of the United Union of exchanges of Asia and Oceania. Shares on the stock exchange are divided into two types: for residents and for foreigners. In 2016, free access to securities was opened for all investors, and a cross-trading system became available. The SZSE Component Index allows you to track the growth dynamics of the most liquid shares of 40 companies that are listed on the stock exchange at the current time.Frankfurt Stock Exchange (FWB)It has held a leading position on the German stock market since 1949. The main indicator of the DAX index reflects the value of securities of the 30 largest German companies and the state of the German economy as a whole.Bombay Stock Exchange (BSE)It is considered the oldest stock exchange not only in India, but also in the entire Asian region. It was founded by the British during the colonization of the country. At first, the auction was held in front of the city hall building under huge banyan trees, then a separate building was built for this purpose. Today, its capitalization level exceeds $ 1 trillion, which makes it possible to leave behind all potential competitors in the region. The main stock index is BSE.Read more: What is an IPO: how the company goes on the stock exchangeNational Stock Exchange of India (NSE)It was opened in Mumbai on the recommendation of the Government of the country. The exchange organizes trades on the stock market, debt obligations and production instruments. The exchange's listing includes more than 1,600 of the largest companies in the region. The Indian rupee is used as the settlement currency.Swiss ExchangeThe trading platform started functioning in 1995 after the merger of the Zurich, Geneva and Basel exchanges. Today, all trades are conducted only in electronic form. Based on the SMI Index, a conclusion is made about the state of the 20 largest companies, the aggregate share of whose securities accounts for 85% of all exchange trades.Australian Stock Exchange (ASX)The main stock and futures exchange in the region. The activities of this financial regulator are controlled by the State Commission on Investments and Securities. The main financial index of the S&P/ASX 200 consists of the value of securities of 200 names of blue chips.Read more: The DAX index – history of its creation, structure and featuresKorean Stock Exchange (KRX)It is among the leaders in terms of trading volume with derivatives. The total capitalization is $ 1.2 trillion. It was formed as a result of the merger of KOSDAQ and the Korean Futures Exchange. The headquarters is located in Busan. The main index is KOSPI.NASDAQ NordicIt is a group of subsidiaries of NASDAQ Inc., which manage the stock markets of the Baltic States, the Caucasus and Northern Europe. The headquarters is located in Stockholm. 564 largest regional companies are represented in the listing of the exchange.Johannesburg Stock Exchange (JSE)The largest trading platform on the African continent. She started working in 1887 with securities of gold mining companies. Bidding is conducted "by voice" with subsequent offsetting through an automated system. The exchange gives preference to mining sector stocks. The main calculated index is FTSE/JSE.Read more: S&P 500 Stock Index - history, calculation and forecastingMadrid Stock Exchange (BM)Various exchange instruments are traded on this platform. In terms of capitalization, it is considered the largest stock exchange in Spain, far ahead of regional offices in Barcelona, Valencia and Bilbao. IBEX 35 is the base index of the exchange.Taiwan Stock Exchange (TWSE)It is located in the capital of Taiwan - Taipei. Transactions on securities of mainly regional companies are carried out on this trading platform. The total capitalization level is 0.8 trillion dollars. Based on the results of trading, the overall TAIEX financial stability index is calculated.Sao Paulo Stock Exchange (BM&F)It was formed as a result of the merger of the Brazilian Trading and Futures exchanges. The total value of transactions made on the trading floor per day exceeds $1 trillion. The main Ibovespa calculation index includes the value of securities of the largest companies that participate in the auction.Mexican Stock Exchange (BMV)The exchange began its work in 1908. The headquarters is located in Mexico City. Since 1999, all transactions have been concluded electronically. The IPC index includes the value of securities of the 36 largest issuers that are listed on the exchange.Read more: Nikkei 225 Index - history, calculation and the featuresMoscow Stock Exchange (MOEX)The holding was formed in 2011 after the merger of RTS and MICEX. Currency, securities, derivatives, precious metals and grain trading transactions are concluded on the exchange. In addition, the Moscow Exchange carries out clearing and depository activities. The Moscow Exchange indices are among the key indicators of the state of the Russian economy. Based on the results of trading, the Moscow Exchange Index is determined (calculated in rubles) and the RTS (calculated in US dollars).Italian Stock Exchange (ISE)It was founded in 1808, in 1998 it became a joint stock company, and in 2007 it merged with the London Stock Exchange. The trading platform is located in Milan. The FTSE MIB index is calculated based on the value of the shares of the 40 largest companies, the list of which is regularly reviewed and updated.Helsinki Stock Exchange (HEX)It began its work in 1908. Since 1980, the transaction system has become fully automated. Shares and derivatives of large corporations, including Nokia, Finnair and Tikkurila, are traded on the exchange. The main stock index is OMX Helsinki 25.Read more: Index NASDAQ 100 - history, advantages and what it depends on
Oct 14, 2021
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Mergers and acquisitions of companies: goals, types, features, pros and cons
Mergers and acquisitions of companies: goals, types, features, pros and cons It is difficult for small companies to compete with large companies that have long occupied a niche in their industry. For a successful start in business, you need an impressive capital and resources that not all entrepreneurs have. In such situations, mergers and acquisitions of companies can be an excellent solution. These are types of reorganization of commercial organizations, in order to connect two or more business entities and merge their capitals. Mergers and Acquisitions - M&A. M&A deals open up opportunities to increase capital, resources and other important business performance indicators.The purposes of mergers and acquisitionsThe main goal of mergers and acquisitions is to increase profits. The main motive of most M&A transactions is the synergistic effect. This is a complementary cooperation between two or more companies, as a result of which it is predicted to achieve a better result and get more profit.In addition, there are other motives:The possibility of obtaining additional discounts from suppliers for raw materials and other resources due to an increase in the volume of purchases.Joint activities in the field of new developments that require the pooling of financial and intellectual resources.Reduction of tax costs by obtaining benefits. For example, Company A has a high profit and is heavily taxed. Company B receives significantly less income, but has significant tax benefits. By purchasing it, Company A will have the opportunity to use them in a new merged corporation. In some cases, when reorganizing a company after bankruptcy, it has the right to transfer losses to future taxable profits. However, it is not always possible to take advantage of this. For example, the US tax authorities classify transactions whose purpose is only to transfer losses as doubtful and often revoke this right.Mergers and acquisitions of companies can be aimed at improving the results of activities due to the presence of two or more companies of complementary resources. Together, these companies are more expensive than individually, and after the merger, each of them receives the missing resources.Obtaining privileges on the capital market in the form of access to the most favorable credit conditions. Similar benefits are available to the largest corporations that are considered first-class borrowers.The motives are not always due to direct savings of money. In some cases , they pursue the following:the opportunity to demonstrate the company's high performance, for example, an increase in the value of shares, an increase in the volume of products, an increase in capital;improving the image of the company due to the growth of its scale and increasing the level of encouragement of managers;striving for such a company size when it becomes an additional guarantee of stability.Thus, the number of motives due to financial savings and not related to direct monetary benefits can be very large – they all depend on specific situations.Read more: InvestmentsMerger and acquisition: differences in conceptsOften the concepts of mergers and acquisitions are considered as equivalent, but this is not the case.Takeover is a process that results in the establishment of full control of one company over another. It occurs through the purchase of a part of the authorized capital of the absorbed company, the size of which must be at least 30%. For example, a certain company is rapidly reducing its growth rate and ceases to meet the requirements of the modern market. In this case, the value of the company's shares decreases, and it itself becomes a profitable object for absorption. Depending on the interests of the participants in the process , two main groups of acquisitions can be distinguished:friendly - occur with the consent of shareholders and managers of the absorbed company;aggressive - occur against the will of the company that is subject to takeover. Sometimes the absorbed company is not even aware of the actions of the "absorber".A merger is a process that results in the merger of two or more companies with the formation of a new organization at the exit. The process of merging companies is divided into the following types.Merger of forms is an association, as a result of which previously independent companies cease to exist, and the newly created legal entity is endowed with all the assets, rights and obligations of the previous ones.A merger of assets is an association characterized by the transfer of exclusive rights by companies to a new legal entity, while they themselves continue their activities.Joining is a merger of companies without forming a new economic unit. In this case, one of the companies continues its activities, and the others are liquidated. Their rights are transferred to the remaining company.Mergers and acquisitions of companies: types and featuresThere are the following types of mergers and acquisitions.Horizontal - an association of companies with the same type of activity. They are carried out in order to increase opportunities for development and reduce competition with large companies.Vertical - an association of companies with different types of activity. For example, one is a supplier of raw materials, and the second is a manufacturer. The increase in profit with this type of merger is due to a reduction in cost.Parallel - an association of companies whose products are interconnected. For example, a computer manufacturer unites with a manufacturer of operating systems for them. Such cooperation reduces costs and improves product quality.Circular - an association of companies whose activities were not previously connected in any way. I.e., none of them was a supplier of raw materials, a transporter for the products of the other, and they were not competitors.Reorganization - companies with different areas of activity are connected.Mergers of companies and their types are also divided by national indicators:internal - committed in the same country;export - provide for the transfer of rights to foreign organizations;import - provide for obtaining the rights of companies of foreign states;mixed - the parties to the transaction may be companies whose assets are located in different states.In addition, M&A transactions are classified by geographical location: transnational, international, national, regional and local.Advantages and disadvantages of mergers and acquisitions M&A deals have both advantages and disadvantages. Let's consider the main ones.Advantages of merging companies:weakening of competition;high probability of achieving good performance in a short period of time due to the efforts of both sides;the possibility of buying undervalued assets;acquisition of a well-established sales system;the possibility of the company entering new geographical sales markets.Disadvantages of mergers:a large share of the risk of incorrect assessment of the company;significant financial costs associated with the payment of bonuses to shareholders;complex integration with a mismatch of the spheres of activity of companies;the risk of incompatibility of cultures in cross-border association;possible problems with the personnel of the acquired organization.Mergers and acquisitions of companies: the impact of transactions on the value of shares and examples of M&AThe result of a merger transaction (in particular, the value of shares) is influenced by many indicators. They can be divided into two groups.Positive:synergy in business organization: the merger of two or more companies makes their achievements more significant than single ones;sale of its own share in order to further invest the funds received in business development;liquidation of a competitor company through its acquisition;the connection of the company with the purpose of selling products through common points of sale (for example, PepsiCo sells its carbonated drinks through the purchased international fast food chain KFC).Negative:fundamentally different ideologies that companies adhere to (for example, conservative and innovative);the imposition of one company's own policy, which negatively affects the effectiveness of another;the leader leaves the company after selling his share.In fact, there are much more indicators, and they depend on the characteristics of specific companies.As a rule, it is not easy to evaluate the effectiveness of mergers and acquisitions in business. It is required to understand the company's policy, take into account the specifics of the industry and many other indicators that affect the result. Analyzing transactions requires a professional approach and a lot of time, and as a result, only a small part of them is subsequently approved. Often the completed transactions do not lead to the set goals, and sometimes they do not pay off at all.Thus, mergers and acquisitions can take the company to a whole new level. A well-chosen strategy will allow you to achieve the main goal – to increase profits. In some cases, mergers and acquisitions is the only chance for a company to stay afloat and withstand competition.Read more: What you need to know about SPAC - the hottest trend on Wall Street 
Oct 14, 2021
IndexaCo
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Government Securities: concept, types and purposes of issue
Government Securities: concept, types and purposes of issue The purchase of securities is a great way to save and increase your capital. Working with them is quite comfortable: they are clear, liquid and suitable for regular trading at a calm pace. Issuers of such instruments are legal entities and authorities, including local authorities, which are granted the right to issue various securities backed by obligations. Our article is about one of the most reliable types of them - Government Securities (GS).The concept and essence of the termGovernment Securities are securities, most often bonds, whose obligations are guaranteed by the state. Their release pursues a specific goal - to fill the budget with free cash. Receipts from the main sources - taxes and state duties - are tied to certain deadlines established by regulatory acts. Expenditures are regular, therefore, the lack of finance for the implementation of state programs and projects is quite a natural and expected phenomenon.Government Securities refer to debt securities, the issuers of which must repay the debt and pay interest within a strictly stipulated time. The securities purchase and sale agreement, in addition to accrual of interest income, may provide for other ways of fulfilling obligations, for example, indexing the value or winnings.The essence of the issue of government securities is to attract funds from the government of the country for the development and implementation of its own economic and social policy. The interest of Government Securities buyers is also clear - getting a guaranteed income. The conclusion suggests itself: such financial instruments are a mutually beneficial and reliable way of monetary turnover for both sides of the transaction.Types of government securitiesThey can be classified according to various parameters:by terms of circulation - long-term (more than five to seven years), medium-term (up to five to seven years), short-term (up to one year);according to the method of circulation — market (with free sale), non-market (no right to resell) and target (for a certain circle of people);type of issuer - federal, municipal, state institutions, with the status of state;by type of income - interest with a fixed or floating rate, discount (profit is the difference in price), indexed (the nominal price increases over time), winning and combined.Some experts single out another determining factor - the purpose of the release. In accordance with it, the issue of Government Securities is justified:federal or regional budget deficit;debts on previously issued loans;funds for specific projects;payments on debt obligations.Today, state securities are represented by three main areas - bonds, treasury obligations and savings certificates. The most popular are bonds. These government securities are debt securities. Their issuer is obliged to pay the loan amount and interest on it after the agreed period. The income on them can be coupon and discount. The first is the periodic accrual of interest at a fixed or floating rate. The second is making a profit due to the difference in price when buying and redeeming the paper.According to the time of access, the standard classification is applicable to them - short, long and medium-term. There have been cases in world history when the state has issued perpetual securities. For example, this was the case with the UK war loan - War Loan - during the Second World War. The income on them was 3.5% per annum, and the price on the stock exchange was about 70% of the nominal value.Treasury obligations are securities that are issued to bearer. Their possession is a sign of participation in the country's budget and the right to receive income.The last type of government securities is savings certificates. These are certificates issued by the bank as confirmation of the deposit of funds for a certain period. After its completion, the owner of the security returns the funds and the interest on them. The term can also be used to refer to government savings loan bonds.Features of the securities markets of other countriesThe nuances of working with securities are largely determined by the state of the economy and the economic model of the country. Each of them has its own peculiarities and problems. Thus, state securities in the USA are considered the most reliable investment instruments. Being accessible to foreign investors, they are an excellent indicator of the general state of the world economy.In total, three types of securities are issued - short-term coupon-free treasury bonds, treasury interest-bearing bonds (from one to nine years) and interest-bearing bonds with a maturity of more than ten years. The lion's share of the national debt falls on securities issued by the country, while medium-term instruments account for more than half of the total.In Japan, government securities are also presented in three categories - short-term (with a maturity period of up to two months), medium-term (up to five years) and long-term (from ten to twenty years). Moreover, for medium- and long-term there is its own market - Gensaki. Most of the securities belong to various banks and insurance companies. The share of the population involved is about 5%. The central bank controls the market, and for foreign investors there is an approved limit on the volume of ownership of securities. Most state securities are non-documentary.China is practically a closed market for foreigners. The main owners of government securities are commercial banks. The issuers are the People's Bank and the Ministry of Finance, there are several branch banks whose bonds are included in the state guarantee zone. Securities transactions are not subject to taxation.
Oct 14, 2021
IndexaCo
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Conditions necessary for hyperinflation to occur
Conditions necessary for hyperinflation to occur Hyperinflation, as a rule, is a macroeconomic consequence of strong shocks in the history of a country: war (in Germany after World War I and in Hungary after World War II) or collapse (the collapse of the USSR in the early 90s of the XX century). Sometimes several factors work together. Some modern economists reduce the causes of hyperinflation to purely monetary circumstances. But the economics of behavior (this is broader than just a school of behaviorism) has revealed through research that hyperinflation is impossible without a certain psychological attitude and an appropriate strategy for the behavior of market participants (individuals and legal entities).Against the background of falling purchasing power of money, actors are beginning to believe that inflation will last forever and only increase. A critical mass of such sentiments is being created, people are feverishly spending all available cash, which provokes a rise in prices and a reduction in the purchasing power of money at a rate exceeding the growth rate of the monetary base. The acceleration of price growth throughout the economy leads to a general awareness of the inflationary problem and further spurs the desire to spend money faster. The economy is entering a self-spiraling spiral, where a rapid rise in prices forces people to accelerate the pace of their spending, which, in turn, leads to an acceleration in price growth, etc. This is hyperinflation.The drawn picture leads to an understanding of why central banks spend so much effort on managing inflation expectations. They spend even more energy on controlling the money supply, because without its unlimited growth, the spiral described above will not unwind. The steady and almost uncontrolled growth of the money supply will inevitably lead to hyperinflation. This has been repeatedly proven in modern and recent history. Some examples are heard. For example, the three-year rule of Chilean President Salvador Allende, accompanied by the work of the printing press to fulfill the increased social obligations he assumed, led to 800% inflation, which was one of the reasons for the military coup.In particular, one of the first measures of the Allende government was to freeze prices and raise workers' salaries. Cash in circulation grew rapidly, prices did not remain at the prescribed level. When there wasn't enough money, they just printed escudos over and over again. However, those interested can observe almost in real time the hyperinflation in Venezuela and the steep dive of the economy of this state.Read more: Hyperinflation: the concept, risks and consequences for the economyIf we turn to the situation in our country, now we can hear industrialists complaining about the compression of the money supply by the Bank of Russia, which allegedly leads to underinvestment in fixed assets and in the modernization of assets. This is an excuse, who wants to develop - he invests. But the position of the Central Bank is quite clear, they did not forget the hyperinflation of the first half of the 90s and everything that was connected with it. Those who lived at that time were millionaires, but it was not enough to buy with those millions — there were price tags in the so-called "conventional units" in the stores, American dollars were so shamefacedly designated (in rare cases, "CU" meant deutschmarks, which was specifically stipulated). It didn't come to a situation like in Weimar Germany, they went over the edge — and no one in their right mind is going to repeat the sad experience.
Oct 14, 2021
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