The Micro Finance Institution

Lending institution

Cannot afford a huge number of small loan procedures if the administrative cost of each procedure is high: it has to be be much smaller than in a bank, shifting the burden of proof from the operation to the personality of the client. A deep understanding of her/his history, way of thinking, motivation, trustworthiness, bonds to the family and the neighbourhood, reasons for being poor allows a successful long-term relationship made up of recurrent loans each fostering an advancement in her/his life.

Theory of games

has widely shown that repetitive "games" (loans) generate a setting where it is better for the borrower to pay back (so to have the perspective of obtaining trust again) than to cheat. Successful as they are, "tit-for-tat" strategies rely on the first positive move of the lender, who trust first, engendering an economic effect reinforcing the psychological effect of "demonstrating that trust was deserved".

High repayment ratio

With 98% up to 100% loans paid back on time due, is the single strongest reason exhibited by most microfinance institution to the skeptical financial and political community. Yes, the neglected poor, illiterate and lacking formal training, living in doubtful hygienic conditions, after a life of oppression and emargination can be good and remunerative client of financial products, keeping their promises and activating all their entrepreneurial and personal energies.

Monitoring costs

Conversely, to keep the monitoring costs low, many microfinance institutions (MFIs) require the borrower to set up a group of peers involved in a cycle of conditional loans. For one member to obtain the loan, the previous receiver has to pay regularly back. The group exerts surveillance on each member, helps in coping with difficulties and reduces to zero the "idle" time, when the money paid back remains in the institution before being given to a new borrower.

To compete with them, other institutions are offering individual loans, but they should have mechanism to cope with the higher monitoring costs and the (potentially) worse portfolio at risk.

key success factor

Is the recruitment policy of the micro finance institution, which should select people caring about the broader goal of the organization, willing to constantly upgrade their technical and relational competences, and honest. A special monitoring system should indeed be in place to check for dishonest appropriation, which is relatively easy in the business. Technology should be applied to record transactions, but crucial is the organizational double check of clients and employees.

Microcredit

The core product of microfinance is microcredit

An extremely small loan to purchase productive assets boosting the poor's revenue allowing repayment over a short period of time in small instalments without the guarantee of collateral. The size of the loan is small in three dimensions

1. in absolute monetary values, as compared to typical business loan, so as to operate in a segment where there is no banking competition;

2. in relation to the borrower's income, so that payback is easier;

3. in respect to the lender's portfolio, so that the default of any single borrower has no impact on its financial soundness.

Microfinance

A platform to deliver financial products and complementary services reaching the poor in order to get them out of poverty. By providing capital, trust, social esteem, information, knowledge, competences, empowerment, networking, social capital, technology and market access, microfinance institutions and other sources of microfinance become active subject in the fight against poverty in all its dimensions and levels.

The integral development of the human potential of the client and of her/his family, neighbourhood, and social networks is fostered by both well-established and innovative financial products, whose high repayment ratio, remunerative interest rate (or price) and low administrative cost guarantee the economic sustainability of a well-managed institution.

Economic Cycle

The predictable long-term pattern changes in national income. Traditional business cycles undergo four stages: expansion, prosperity, contraction, and recession. After a recessionary phase, the expansionary phase can start again. The phases of the business cycle are characterized by changing employment, industrial productivity, and interest rates.

Fundamental Analysis

For a currency trader, fundamental analysis focuses on key underlying economic and political factors to determine the direction of a currency's value. There are a number of fundamental indicators traders may follow that reflect how an economy is changing and gleam insight into Forex market prices to come.

What Fundamentals Are Worthwhile?

You should look at the most important fundamental variables and compare them to determine the true health of the economy. The most important variables will change year to year as international trade dynamics evolve and central bankers & investors redirect their fixations.

Most investors look at three key variables: monetary indicators, economic indicators, and sentiment. Let's take a look into these variables by evaluating the US economy. Here is a brief explanation and example of each.

NAFTA

Acronym for North American Free Trade Agreement, which refers to a 1994 agreement reached by the United States, Canada, and Mexico that instituted a schedule for the phasing out of tariffs and eliminated a variety of fees and other hindrances to encourage free trade between the three North American countries.

Narrow Market

A market with a small number of bid and ask offers, and characterized by low liquidity, high spreads, and high volatility. Opposite of liquid market.

Composite Index

Nasdaq Composite Index

A market-value weighted index of all common stocks listed on Nasdaq, created in 1971, and used mainly to track technology stocks.

Neutrality of Money

"Many economists maintain that money neutrality is a good approximation for how the economy behaves over long periods of time but that in the short run monetary-disequilibrium theory applies, such that money would affect output."

Neutrality of money is the idea that a change in the stock of money affects only nominal variables in the economy such as prices, wages and exchange rates but no effect on real (inflation-adjusted) variables, like employment, real GDP, and real consumption.

It is an important idea in classical economics and is related to the classical dichotomy. Money neutrality holds that the central bank does not affect the real economy (e.g., the number of jobs, the size of real GDP, the amount of real investment) by printing money. Any increase in the supply of money would be offset by an equal rise in prices and wages.

Superneutrality of money is a stronger property than neutrality of money. It holds that not only that the economy is neutral as to the level of the money supply but also that the rate of money supply growth has no effect on real variables.

In this case, both the money supply and its growth rate can affect nominal variables such as the price level and inflation rate in the short run.

Purchasing Power

"If money income stays the same, but the price level increases, the purchasing power of that income falls. Inflation does not always imply falling purchasing power of one's real income, since one's money income may rise faster than inflation."

Purchasing power is the number of goods/services that can be purchased with a unit of currency. For example, if you had taken one dollar to a store in the 1950s, you would have been able to buy a greater number of items than you would today, indicating that you would have had a greater purchasing power in the 1950s.

Currency can be either a commodity money, like gold or silver, or fiat currency like US dollars. As Adam Smith noted, having money gives one the ability to "command" others' labor, so purchasing power to some extent is power over other people, to the extent that they are willing to trade their labor or goods for money or currency.

For a price index, its value in the base year is usually normalized to a value of 100. The purchasing power of a unit of currency, say a dollar, in a given year, expressed in dollars of the base year, is 100/P, where P is the price index in that year. So, by definition the purchasing power of a dollar decreases as the price level rises.

Nominal Value

"Nominal values are related to prices and quantities (P and Q) and to real values by the following definitions: nominal value = P•Q = P•real value.
"

Nominal value refers to any price or value expressed in money of the day, as opposed to real value, which adjusts for the effect of inflation. Examples include a bundle of commodities, such as gross domestic product, and income.

For a series of nominal values in successive years, different values could be because of differences in the price level, an index of prices. But nominal values do not specify how much of the difference is from changes in the price level.

Real values remove this ambiguity. Real values convert the nominal values as if prices were constant in each year of the series. Any differences in real values are then attributed to differences in quantities of the bundle or differences in the amount of goods that the money incomes could buy in each year.

Thus, the real values index the quantities of the commodity bundle or the purchasing power of the money incomes for each year in the series. The nominal/real value distinction can apply not only to time-series data, as above, but to cross-section data varying by region or householder characteristics.

The Velocity of Money

"In the equation of exchange, velocity of money is one of the key variables determining inflation."

The velocity of money is the average frequency with which a unit of money is spent in a specific period of time. Velocity associates the amount of economic activity associated with a given money supply. When the period is understood, the velocity may be present as a pure number; otherwise it should be given as a pure number over time.

Forex Price Movement

Which is the Best Way to Predict Market Movement?

Today there are many predictive theories of Forex price movement and the speed and processing power of modern computers means that programmers can develop ever more complex theories to predict prices so which one is the best? Let's find out...

Mathematical theories are not new and theories such as Gann, Elliot Wave and Fibonacci have been used by traders for decades and today we have the Forex robots and expert advisors which claim there complex mathematical algorithms can beat the market, so we have a lot of theories to choose from.

Best mathematical theory, let's make a point:

Forex markets are moved by humans.

Humans by there very nature do not think logically so markets cannot move to mathematics and they did, we would all know the price in advance and there would be no market! For a theory to be mathematical it must work ALL of the time otherwise its not mathematical! No theory that claims to be mathematical works all the time and thats a fact.

So the answer is there is no way of beating the market and no hidden order that allows you to predict Forex price movement but you can win at Forex trading. You must however see the Forex market for what it really is.

The Forex markets move to probabilities, not certainties; the good news is you can spot high odds trades and by trading high odds set ups, you can become a winner in the long term. All you need to do is keep your losses small and run your profits.

Another key fact you need to keep in mind is simple systems, work best in an odds based market and the following fact proves the point.

In the last 100 years, the ratio of winners to losers has not changed and this is despite all the advances we have seen in technology in the period.

Simple systems work best, as they are more robust in the brutal, ever changing world of Forex trading than complex ones which have to many elements to break.

So get yourself a simple Forex trading system and trade the reality of price change as it happens, rather than predicting and you will get the odds on your side. You then simply need to apply your system with discipline, keep your losses small and run your profits.

Traders continue to buy into the Forex robot and Forex expert advisor myth, that claims science can beat the market but all these systems all lose money and do so quickly.

Currency trading success is open to anyone. You can learn to trade successfully, you just have to see the markets for what they really are a market of probabilities. Complex mathematics and technology enriched our lives and made them easier over the years but to assume technology can help you gain an edge and predict the markets is not based on any facts and the opposite is true, simple systems work best and always will.

Reflation

Reflation is the act of stimulating the economy by increasing the money supply or by reducing taxes. It is the opposite of disinflation. It can refer to an economic policy whereby a government uses fiscal or monetary stimulus in order to expand a country's output.

This can possibly be achieved by methods that include reducing tax, changing the money supply, or even adjusting interest rates. Just as disinflation is an acceptable antidote to high inflation, reflation is considered to be an antidote to deflation (which, unlike inflation, is considered bad regardless how high it is).

Originally it was used to describe a recovery of price to a previous desirable level after a fall caused by a recession. Today it also (in addition to the above) describes the first phase in the recovery of an economy which is beginning to experience increasing prices at the end of a slump.

Stagflation

Stagflation is an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a period of time.

The portmanteau stagflation is generally attributed to British politician Iain Macleod, who coined the term in a speech to Parliament in 1965.

The concept is notable partly because, in postwar macroeconomic theory, inflation and recession were regarded as mutually exclusive, and also because stagflation has generally proven to be difficult and costly to eradicate once it gets started.

Economists offer two principal explanations for why stagflation occurs. First, stagflation can result when an economy is slowed by an unfavorable supply shock, such as an increase in the price of oil in an oil importing country, which tends to raise prices at the same time that it slows the economy by making production less profitable.

This type of stagflation presents a policy dilemma because most actions to assist with fighting inflation worsen economic stagnation and vice versa. Second, both stagnation and inflation can result from inappropriate macroeconomic policies.

For example, central banks can cause inflation by permitting excessive growth of the money supply.

The government can cause stagnation by excessive regulation of goods markets and labor markets together, these factors can cause stagflation. Both types of explanations are offered in analyses of the global stagflation of the 1970s.

It began with a huge rise in oil prices, but then continued as central banks used excessively stimulative monetary policy to counteract the resulting recession, causing a runaway wage-price spiral

Hyperinflation

hyperinflation is inflation that is very high or "out of control", a condition in which prices increase rapidly as a currency loses its value.

[1] Definitions used by the media vary from a cumulative inflation rate over three years approaching 100% to "inflation exceeding 50% a month."

[2] In informal usage the term is often applied to much lower rates. As a rule of thumb, normal inflation is reported per year, but hyperinflation is often reported for much shorter intervals, often per month.

The definition used by most economists is "an inflationary cycle without any tendency toward equilibrium." A vicious circle is created in which more and more inflation is created with each iteration of the cycle.

Although there is a great deal of debate about the root causes of hyperinflation, it becomes visible when there is an unchecked increase in the money supply (or drastic debasement of coinage) usually accompanied by a widespread unwillingness to hold the money for more than the time needed to trade it for something tangible to avoid further loss.

Hyperinflation is often associated with wars (or their aftermath), economic depressions, and political or social upheavals.

Disinflation

Disinflation is a decrease in the rate of inflation. This phase of the business cycle, in which retailers can no longer pass on higher prices to their customers, often occurs during a recession. In contrast, deflation occurs when prices are actually dropping.

To fully understand disinflation we need to first understand inflation. The word inflation originally meant an increase in the the supply of money which resulted in an increase in prices. But, in more recent years, the word inflation has come to mean the result rather than the cause. i.e. an increase in prices rather than an increase in the supply of money. This might be partially the result of the wide spread usage of the term "inflation rate" which measures the rate of price increases rather than the increase in the money supply.

Disinflation on the other hand is a more recent term and so only has the connotation of moderating prices i.e. prices that are not increasing as quickly as they once did. For example if the annual inflation rate one month is 5% and it is 4% the following month, prices disinflated by 1% but are still increasing at a 4% annual rate.

Disininflation can continue at that rate for four more months until the inflation rate is zero. At that point, disinflation becomes deflation as prices are now decreasing. The tricky part is that during the month that annual prices were disinflating, monthly prices may actually be deflating.