Thoughts on Blogging

May 4, 2007

Since Catherine wanted to read my blog reflection, here it is.

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Is a World Currency a Good Idea?

April 25, 2007

While a world currency may be a good idea in theory–it will eliminate the exchange rate risk–I don’t think that it is feasible because it seems cumbersome in nature.  For the entire world to have a single currency, there needs to be a central bank that will manage the global interest rates via operations similar to the tasks of the current Federal Reserve System.  There is a lot of pride in place here.  For a central bank (i.e. Federal Reserve, European Central Bank, etc.) to be “overrun” by a higher authority will almost be a slap in the face because of the pride that is at stake for each central bank system.  In addition, this concept could be viewed as a collective action problem.  Eliminating exchange rate risk would benefit the good of society, but each central bank system would look out for its own self-interest, which would mean ensuring that it doesn’t sacrifice its pride and authority.

Interesting article from the Washington Post

April 16, 2007

Tonight I spotted an article on the website for The Washington Post which had to do with the black market for organs.  The article shows that scarcity and strict government regulations for obtaining organs has led to a large black market for organs.  The article, “Organ Market” (http://www.washingtonpost.com/wp-dyn/content/article/2007/04/13/AR2007041302066.html) discusses that the black market thrives because of the excess of organ demands.  According to the author, the only way to put an end to the black market is to simply flood the market with organs in order to drive down the price for organs, which would make the exchange of organs much less appealing because of the higher transaction costs relative to its profitability.  I found this article to be interesting since my group will be discussing black markets as it relates to exchange rates.

U.S. to Impose Tariffs on Chinese Manufactured Goods

March 31, 2007

After reading the New York Times article “In Big Shift, U.S. Imposes Tariffs on Chinese Papers” (March 30, 2007), this is very much related to Adam Cash’s blog that mentioned China’s use of illegal subsidies on some of its exports.  The tariffs on Chinese exports marks the first time since the early 1980s that the United States has placed antisubsidy tariffs on a Communist country’s exports because it was hard for the U.S. to determine the definition of a subsidy in a state-controlled economy.  According to the article, the trade deficit with China reached $232.5 billion last year alone.  One would think that by making some Chinese exports more expensive, the U.S. government could decrease the trade deficit.  However, since the Chinese currency is tied to the U.S. Dollar and is undervalued, the trade imbalance between the U.S. and China is aggravated because exports to the U.S. are considered cheaper and imports to China are considered more expensive.  Thus, the deficit is exaggerated in value even more than it should be.  Going back to what was mentioned in class on 3/26 about the Portfolio Balance Model, if there is a current account surplus resulting from the antisubsidy duties placed on certain Chinese exports can it be assumed that the U.S. Dollar will depreciate?  If this logic is correct, what implications will this have for the Chinese economy which relies heavily on the value of the U.S. Dollar?

 The exchange rate between the U.S. Dollar and the Israel New Shekel (as of March 31, 2007) is 1 USD = 4.15780 ILS.

U.S. Economy

March 19, 2007

Recently, I have been looking at the papers and online news sources and all are saying the same thing–that the U.S. currency is falling in value relative to other currencies, most notably the Yen, Euro, and the British Pound.  What I don’t understand is that the Fed, which will meet on Tuesday, is likely to leave interest rates at 5.25 percent.  Maybe they see the current inflation rate as a blip on the radar and that in the future, the economy will stabilize so the interest rate doesn’t need to be raised.  However, all over the news is the issue with the recently turbulent stock market and the rising loan defaults for subprime mortgages, which are taken out by people with weak credit.  I tend to side with the worries of investors, many of whom feel that a recession may soon be felt.  In addition, China stated recently that it will start investing some of its $1 trillion reserves, which it claims will not affect the price of the U.S. Dollar.  Because a lot of foreign investments are building up in China–causing the foreign reserves to increase $20 billion monthly, China is faced with the dilemma of too much money in the market, something its central bank is combatting by selling bonds every month to reduce market pressures.  With all of this said, I would like to return to my opening remarks as to why the Fed is thinking of leaving the interest rate at its current level.  Why aren’t interest rates going to be changed to counter the inflationary tendencies and fall in the U.S. Dollar relative to other currencies to make our domestic economy more attractive to foreign investors?

 On a side note, the current Israel exchange rate is 1 USD = 4.209 ILS.  Below is a look at the ILS over a 3-month period courtesy of Yahoo! Finance:

Chart

Israel Exchange Rate (as of February 27, 2007)

February 27, 2007

Since I have forgotten to post this exchange rate for over a week, I figured that I should publish the latest exchange rate. 1 USD = 4.20223 ILS (Israel New Shekel).

Russian Trading System (RTS)

February 27, 2007

The Russian stock exchange is known as the RTS, which was first indexed on September 1, 1995 with a value of 100.  As of February 27, 2007, the index value is 1,906.08.  Looking at the RTS website (http://www.rts.ru/en/), I found out that the index is calculated based on the 50 most liquid and largest cap stocks picked by the RTS Committee.  Below is a graph of the RTS index since its start in 1995.

RTS Index (1995-2007)

Protected: Capital Flows Article from The Economist

February 20, 2007

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Trying to Understand International Banking Facilities (IBFs)

February 19, 2007

I have found a good site on the Federal Reserve’s website that discusses these IBFs.  From what I have gathered, they enable depository institutions to accept deposits and offer loans to foreign businesses and customers.  IBFs aren’t under the jurisdiction of certain interest rate restrictions and are free from the Federal Reserve System’s reserve requirements while also enjoying some state/local tax exemptions.  According to the description provided by the Federal Reserve Bank of New York, they offer short-term deposit maturities, large denomination time deposits, and may transact business in foreign currency.  From what I have gathered, these International Banking Facilities are a branch of American banks that are established to do Eurocurrency business with foreign customers.  I still can’t differentiate between IBFs and offshore banks.  To me, offshore banking provies even fewer restrictions and regulations than IBFs, especially in the way of account privacy and the ease to which money laundering and other trafficking activities can be completed.  Even though International Banking Facilities aren’t under the subjugation of the Federal Reserve System reserve requirements, detailed ledgers and logs (separate from the U.S. transactions) must still be maintained, so consequently, illegal activities seems to be more easily monitored within the confines of the United States than when someone conducts financial activities on their accounts outside of the U.S.

 Source: Federal Reserve Bank of New York: International Banking Facilities

http://www.newyorkfed.org/aboutthefed/fedpoint/fed34.html

Protected: Arbitrage Article from The Economist

February 10, 2007

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