(Hooker, 2002) empirically analysed the effects of oil prices on inflation from 1962 to 2000. His study found that up to the period of 1981 a significant change in oil prices contributed to inflation in the US. However, after 1981 statistical evidence showed that this was no longer the case. (Cologni & Manera, 2008) explained that the failure of the 1986 oil price collapse to stimulate economic activity meant that many economists believed that the relationship between oil price changes and economic activity no longer holds. As a result, (Cologni & Manera, 2008) examined the relationship between oil prices and inflation post 1980 and analysed not just the US but members of the G7 to see whether the relationship had returned.
The futures price is given by: where: F = futures price S = spot price rT = interest rate of the term currency rB = interest rate of the base currency T = tenor Users of Currency Futures Currency Future is a derivative instrument that can be used by hedgers, speculators, and arbitrageurs. A Hedger uses the instrument to reduce risk by locking on to a future exchange rate and mitigate the risks due to adverse movements of the exchange rate. This can also reduce his profits. A Speculator uses the instrument to take a risk by betting on a position based on his view on the future exchange rate between two currencies. An Arbitrageur takes advantage of difference in ‘price’ between two places where the instrument is traded.
(Investors Glossary) The more predominant type of commodity that is used is the commodity futures contract. The futures markets are described as continuous auction markets and exchanges providing the latest information about supply and demand with respect to individual commodities, financial instruments, and currencies. Futures exchanges are where buyers and sellers of an expanding list of commodities, financial instruments, and currencies, come together to trade. The primary purpose of futures markets, is to provide an efficient and effective mechanism to manage price risk. The futures market allows buyers and sellers to stabilize the price of something.
Supply and Demand One of the widely used concepts in trading is Support and Resistance. Share prices are determined by supply and demand. Supply is arises from selling activity whereas demand arises from buying. Increase in supply or selling activity leads to fall in stock prices whereas increase in demand or buying activity leads to increase in stock prices. In this way the forces of demand and supply drive the stock prices with movement in the favour of the stronger force.
The discussion will critically analyse the various tools and mechanisms to minimise the impact of the risks and threats posed by the fluctuating oil prices. The discussion will conclude with identification of some opportunities with oil price fluctuations. Factors Influencing Fuel Price Fluctuations • Crude oil hold major cost component of diesel fuel and gasoline prices. The international oil price is also influence by number factors. There are seven factors that influence and contribute to the crude oil prices according to the US Energy Information Administration.
Changes in foreign exchange rates affect decisions made by businesses, investors, governments, and consumers. The rate of currency exchange between countries can impact the prices of goods and services, the supply and demand of financial assets, and interest rates. Additionally, fluctuations in foreign exchange rates can impact the bottom line of a business holding foreign exchange denominated investments. The significant impact exchange rates can have on the global economy suggests understanding how to forecast exchange rates is essential. There are several methods in which foreign exchange rates can potentially be predicted which are based upon parity conditions, balance of payments, and the asset market.
The recession of 1973 through 1975, was due to the Organization of Petroleum Exporting Countries (OPEC) who rose gas prices and imposed an embargo against the United States. This quickly caused oil production to be cut dramatically, leaving no choice but to increase the price in oil. This recession, I am going to pin point the causes, fiscal and monetary policy the government uses to help the economy slowly come out from the recession. Also I am going to pin point the recession’s recovery and expansion. The causes of this recession was due to the unemployment being too high and how it had rose even higher through the years.
With increased income after the war, a lot of investors purchased stocks on margins and with US Stock Exchange going manifold from 1921 to 1929, investors earned hefty returns during this time epriod which created a stock market bubble in USA. However, in order to stop increasing prices of Stock, the Federal Reserve raised the interest rate sof loanabel funds which depressed the interest sensitive spending in many industries and as a result a record fall in stocks of these companies were seen and ultimately the stock bubble was finally burst. The fall was so dramatic that stock prices were even below the margins which investors had deposited with their brokers. As a reuslt, not only investor but even the brokerage firms went insolvent. Withing 2 days of 15-16 th October, Dow Jones fell by 33% and the event was referred to Great Crash of 1929.
The 1970’s was a turbulent period for the UK. High levels of inflation, an increase in oil prices due to conflict with the Middle East, and failing nationalized industries was crippling the once world power (Smith, 2010). The Labour party’s reign in parliament ended with the election of the Conservative party in 1979. Margaret Thatcher was elected as prime minister and a significant shift in economic policy was soon to follow. I initially decided to choose the time period between the late 1970’s to the mid 1980’s because of the significant increases in financial flows, shift in trade patterns and the changes in the GDP growth rate.
Supports and Resistance helps traders and investors to identify trends in the stock prices. 3. Supports and Resistance can be used to identify chart patterns like Head and Shoulder, Double top to determine stock trends more accurately. Conclusion When a stock price approaches an important support level, it is assumed that there will be more of increased buying pressure and a potential reversal and traders can look to go long. Similarly, when a stock price approaches an important resistance level, it is assumed that there will be more of increased selling pressure and a potential reversal and traders can look to go short.