21 answered
Questions
Short, plain-English answers to the questions people ask about money, markets and the economy. Some come from readers.
What is the underlying value for gold?
Unlike stocks or bonds, gold does not generate income, meaning its intrinsic value cannot be calculated through conventional cash flow valuation.
What determines interest rates?
Interest rates are determined by central bank monetary policy, inflation expectations, economic growth and the supply and demand for credit.
How can a country increase its GDP over time?
A country can increase its GDP by expanding its productive capacity through investment in infrastructure, machinery, education, healthcare and technological innovation.
Is a budget deficit always bad?
No. A budget deficit occurs when government expenditure exceeds revenue over a given period.
What do the different levels of interest rates tell us about an economy?
Interest rates provide information about inflation, economic growth, monetary policy and financial risk.
What is an ETF?
An Exchange Traded Fund is an investment fund traded on a stock exchange, similar to an individual share.
What is the difference between an ETF and an Index?
An index measures the performance of a defined group of securities according to specified rules.
What is a derivative?
A derivative is a financial contract whose value depends on the price or performance of an underlying asset, interest rate, index or other financial variable.
How to interpret an orderbook?
An orderbook is interpreted by examining the highest buying price, lowest selling price and the quantities available at each price.
What is an orderbook?
An orderbook is an electronic record of outstanding buy and sell orders for a financial instrument.
Why can't central banks simply print more money to make everyone wealthier?
Money is a medium of exchange, not wealth itself. Real wealth comes from the goods, services and productive resources available in an economy.
Why do governments borrow money when they can simply increase taxes?
Governments borrow to finance public expenditure without immediately imposing higher taxes on households and businesses.
Can a government actually go bankrupt?
Governments can default on their financial obligations, although they generally do not enter bankruptcy in the same manner as companies.
What is a Foreign Exchange swap?
An FX swap is an agreement to exchange two currencies on an initial settlement date and reverse the exchange at a future date using exchange rates agreed in advance.
What is a yield curve, and why does an inverted yield curve sometimes predict recessions?
A yield curve illustrates the relationship between bond yields and their maturities, typically using government bonds.
Why is unemployment sometimes considered necessary to bring inflation under control?
When demand exceeds an economy's productive capacity, businesses may increase prices and compete for workers through higher wages.
What actually determines the value of a currency?
A currency's value is determined by supply and demand in foreign exchange markets.
Why can tariffs make the country imposing them worse off?
Tariffs increase the cost of imported goods, which can raise prices for domestic consumers and businesses relying on foreign inputs.
What is a Safe Haven?
A safe haven is an asset that investors expect to preserve value or provide relative stability during periods of economic or financial uncertainty.
Why do emerging market currencies often depreciate against the US dollar?
Emerging market currencies can face depreciation pressure because of higher inflation, economic instability, weaker institutions and dependence on foreign capital.
Why do financial crises spread from one country to another?
Financial crises spread through interconnected banking systems, international investment, trade and investor behaviour.