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Forex, commodities, indicesall markets in one place
Present State of Capital, Commodity & Forex Market
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Financial Market• What is Financial Market ?
• Mechanism that allows people to Buy & Sell financial securities (such as Stocks & Bonds) and items of low transaction cost.
• Market work by placing many interested Buyers and Sellers in one “Place”, thus making easier for them to fine each other.
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Purpose of Financial Market
Financial Market Facilitates– The raising of Capital– The Transfer of Risk– International trade
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How does Financial Market
• Borrowers – Issues a receipt to lender promising to pay back the capital
• Receipts – Securities which may be freely bought and sold.
• Lender – will expect some compensation in form of interest or dividends in return.
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Types of Financial Market
• 3 types of financial market instruments
• Capital market instruments.
• Money market instruments.
• Hybrid instruments.
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Types of Financial Market
1. Capital Markets – Stock Markets - Which provide financing
through the issuance of shares or common stock ,and enable subsequent trading.
– Bond Markets – Which provide Financing through the issuance of bonds , enable subsequent trading.
– Commodity Market – which facilitate the trading of commodities.
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Types of FM Cont.
– MONEY MARKETS – which provide short term debt financing and investment.
– DERIVATIVE MARKETS – which provide instruments for the management of financial risk
– INSURANCE MARKETS – which facilitate redistribution of various risks.
– FOREIGN EXCHANGE MARKETS - which
facilitate the trading of foreign exchange.
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Raising Capital• Without financial Markets, borrowers would
have difficulty finding buyers themselves. • Here the intermediaries such as BANKS
come in picture. • Banks take money from those who have
money to save. • They can then lend this money to those
who seek to borrow. Banks popularly lend money in form of LOANS and MORTGAGES.
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RELATIONSHIP• LENDERS
– INDIVIDUALS : Many individuals are not aware that they are lenders, but almost everyone lends money in some way.
• A person lends money when he : – Puts money in a savings account at a bank. – Contributes to a pension plan. – Pays premiums to an insurance company. – Invests in government bonds. – Invests in company shares.
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RELATIONSHIP
• LENDERS – COMPANIES : Companies usually tend to be
borrowers of capital . But when they have surplus cash that is not needed for a short period of time, they may seek to make money from their cash surplus by lending it, by Investing in bonds and stocks
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RELATIONSHIP• BORROWERS
– Individuals – e.g. bank loans, mortgages.
– Companies – for short term or long term cash flows or
future business expansion. – Governments – for spending requirements, or on
behalf of nationalized industries, municipalities or other public sector bodies.
– Public Corporations – e.g. postal services, railway companies and utility companies.
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FINANCIAL MARKET EFFICIENCY
• Allocative Efficiency: A market is allocatively efficient if channels fund to those firms and organizations with most promising real
investment opportunities. • Operational Efficiency: Carries its operations as low a
cost as possible.
• Information Processing Efficiency: Any new relevant information is quickly and accurately impounded in prices.
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1 : STOCK MARKET • A stock is a small share that represents a partial ownership of
a company. A Stock market is the place where buying and selling of stocks takes place. Nowadays due to internet and advanced technology buying and selling of stocks takes place anywhere in India and also from foreign country, there is no need to be physical present in exchanges like NSE and BSE.
• Stocks are issued by companies in order to raise capitals and are bought by investors in order to acquire a portion of the company. INDIAN STOCK MARKET There are 25 stock exchanges in the India. Bombay stock exchange is the largest, with over 6,000 stocks listed. Established in the year 1875
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1 : STOCK MARKET
• Mainly there are two exchanges in India. NSE (National stock exchange) Nifty is listed with NSE . BSE (Bombay stock exchange) Sensex is listed with BSE.
• Two types of Indices Nifty & Sensex
– Nifty - Nifty consist of a group of 50 shares.
– Sensex - Sensex consist of a group of 30 shares.
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FACTORS AFFECTING STOCK MARKET
• INFLATION • MARKET TRENDS • GLOBAL MARKETS • GOVT. POLICIES • FINANCIAL STATEMENT OF COMPANIES
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INFLATION
• INFLATION RATE CURRENT 12.14 • MAIN FACTOR CRUDE 147$ BARRAL • NOW CRUDE IS ON 95$ BARRAL
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MARKET TRENDS
• 1.BULL MARKET 2. BEAR MARKET
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GLOBAL MARKETS
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FINANCIAL STATEMENT OF COMPANIES
• PROFITS
• LOSSES
• GROWTH
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Fundamental analysis and market correlations
X-Trade Brokers India.
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Macroeconomic news
Market correlations
„Nonmarket publications”
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Macroeconomic news
Market correlations
„Nonmarket publications”
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Macroeconomic news
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The most important macroeconomic news:
the U.S labor market,
interest rates decision FOMC + ECB,
inflation from the USA and Europe,
economic growth from the USA and Europe,
ISM, IFO, retail sales, industrial production
housing market (USA).
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U.S labor market
The most important, cyclical data published in the U.S every first Friday of the month at 8.30 (ET)
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U.S labor market
nonfarm payrolls –change of employment in the nonfarm sector,
unemployment rate
Markets react very abruptly to these publications. Their level indicates the state of the U.S. economy and translates directly into an increase or decrease in interest in both the dollar and the stock exchange in the United States.
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Interest rate decisions
An interest rate hike means for most investors a higher profitability of low-risk investments in the country. Free capital "circulating" on the international markets is quickly moved to strengthen its currency.
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Inflation data
Higher than forecasted inflation causes the appreciation of the national currency. Investors evaluate this process in terms of higher expectations for interest rate increases. This happens because data on inflation directly affects the monetary policy of central banks.
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Inflation data
CPI – Consumer Price Index PPI – Producers Price Index Core (NET) inflation – net (base)
inflation
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Economic growth
GDP – Gross Domestic Product
Measures the value of goods and services produced
within the country regardless of the nationality of the
owner of a manufacturing factor.
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ISM – Institute for Supply ManagementIndex takes into account five factors: new orders,
production, deliveries, inventories and employment.
Readings above 50% show the development of production
and the economy. Indication of 45% -50% show stagnation
in the sphere of industrial production with continued
economic development. A ratio below 40% means
stagnation, both in the industry and the economy.
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IFO – sentiment indexDeveloped by the economic institute in Munich, the
index shows sentiment among German industrialists. The
study involves about 7000 business units per month.
Analysts of the financial markets attach great importance to
this index, treating it as a gauge of economic health,
representative for the whole euro area. An increasing IFO
index shows improvement of the economic situation.
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Retail Sales
Industrial ProductionDetermines the pace of growth in aggregate and
physical level of economic production. A high growth rate of
production indicates the good condition of the economy
and may lead to the strengthening of the local currency.
Low growth is a symptom of an unfavorable economic
situation, leading to the flee of investors from the local
currency.
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Housing market (USA)
Existing Home Sales New Home SalesHousing StartsBuilding PermitsNAHB Housing Market Index
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Where to look for macro publications?
www.xtb.com – Calendar on the right-hand sidewww.reuters.com www.forexfactory.com www.wsj.com www.bloomberg.com
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• Indices - Indices
• Currencies - Currencies
• Indices – Currencies
• Currencies – Commodities
• Indices – Commodities
• Commodities - Stocks
Market correlations examples
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Correlation Indices vs. Indices
(Dow Jones, S&P 500,WIG20 – FW20, DAX)
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The situation of most world stock markets is closely linked to the condition and the sentiment on the stock exchanges in the United States. The link most strongly affects the smaller and shallower European exchanges and do not leave indifferent even large and well-developed markets.
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- 47%
- 57%
DJIA
W20
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FDowJones + 47%
FW20 + 82%
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FDJIA - 20,7%
FDAX -19,35%
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Correlation Currencies - Currencies
(EURUSD, USDPLN – FUSD, GBPUSD)
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The sstrengthening or weakening of the currency in question is realized in most cases for all currency pairs currency in which it appears. This applies to major currencies such as USD, EUR or GBP.
Changes on smaller markets such as the PLN depend primarily on the situation facing the first currency in the pair (base currency). Even very good news from the emerging market economy, combined with simultaneous positive data from the U.S. the market does not lead to the strengthening of the currency - a stronger impulse comes from the more market developed.
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EURUSD
USDPLN
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EURUSD
USDPLN
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EURUSD
GBPUSD
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Correlation Indices - Currencies
USDPLN – W20 (W20)
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Correlation Indices - Currencies
Changes on different - in terms of type - markets can be a source of information to address the underlying investment position on the derivatives market. That is the nature of the bilateral relationship that can be observed between the indices of emerging markets and their currencies.
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Dependence having a bilateral nature.
Entry of foreign capital into the stock market requires a prior acquisition of the local currency
currency strengthens index increases
Exit of foreign capital from the stock market requires the closure of positions in shares and selling the local currency.
index declines currency weaknes
This dependendence is the strongest for developing countries
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W20PLN
USDPLN
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W20PLN
USDPLN
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USDPLN
W20PLN
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Correlation Currencies - Commodities
(EURUSD – OIL, EURUSD - GOLD)
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Commodities are quoted in U.S. dollars,
thus the weakening of the U.S. currency increases
the interest in commodities, because they are
cheaper for investors holding another currency,
such as EUR and JPY (negative correlation).
In addition, a specific example is gold - an
alternative to an investment in the U.S dollar.
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EURUSD
OIL
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OIL
EURUSD
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EURUSD
GOLD
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EURUSD
GOLD
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Correlation Indices - Commodities
(US30 – OIL, US30 - GOLD)
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Increase in the value of the index reflects the good condition of companies that comprise it. The good condition of enterprises results in an increase in demand for commodities needed for their operations. This dependence can also be interpreted negatively at certain times for indices – increased prices of commodities mean higher costs of operations for companies.
A special case of a very strong correlation is the gold market, in which investments are treated as a substitute for stocks. After a period of crisis on the marketsa comeback to investments can result in increases of both instruments.
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OIL
US30
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US30
GOLD
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Correlation Commodities - Stocks
(Copper – KGHM, Nickel – INCO Ltd )
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Investments in companies involved in
mining, processing or otherwise directly or
indirectly related to the commodities
markets, strictly depend on the level of its
prices.
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Copper prices and KGHM
KGHMCOPPER
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Nickel Prices and Inco Ltd
NICKEL INCO Ltd
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Nonmarket publications
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12th of September 2007
British bank specializing in mortgages, Northern Rock,
suddenly acquired an extraordinary line of credit from
the Bank of England, customers fear that the bank lost
liquidity.
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GBPUSD
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25th of January 2008
Information about the French Societe Generale's losses
amounting to 5 billion euros, due to broker transactions -
Jérôme Kerviel'a
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Index CAC 40 (FRA40)
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Gulf of Mexico 26th of August 2008
Hurricane Gustav gaining momentum
Forecasts more clearly indicate that Hurricane Gustav (90
miles - 145 km / h) is close to the Gulf of Mexico. The bay is
a place which produces more than 20% of U.S. oil.
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OIL market 26th of August 2008
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Euro in Poland in 2011?
10th September at the Krynica Economic Forum, Prime
Minister Donald Tusk announced that Poland is able to adopt
the Euro in 2011.
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The reaction of the EURPLN market
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Reaction of the USDPLN market
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Lehman goes bankrupt, Merrill acquired
And it happened. In half a year after the fall of Bear Sterns, another investment bank - Lehman Brothers was forced into bankruptcy. Even during the weekend it seemed that it can be salvaged- potential buyers Barclays and Bank of America - both banks, however, are afraid of unknown severity, which for them is difficult to be measured. Bank of America for $ 50 billion for the acquired Merrill Lynch, which is next weekend and hit shows that Merrill warned in this way, "anointing" on the next bankrupt.
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Market reaction (W20PLN)
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FDJIA reaction
