F4E: Markets: Week 1

Let's dive into Markets.

                        Markets are actually the places where the original transactions occur. Financial markets enables to borrow based on the ability to earn in the future. Interest rates determine every value of the market. When there is a change in interest rates there will be change in everything. Interest rates were determined by the central banks. Central bank charges the other banks of the nation with a interest rate called as Bank Rate, this is often calculated on basis percentage points. Increased interest rates decreases the borrowing capcaity and in turn it decreases the net spending ability of the individual or a company. Whereas the negative interest rates takes money out of the system. Central bank should carefully devise the perfect plan for maintaining a balance in the interest rates.

                        Government introduces the bonds, with decreasing interest rates people tend to invest more in these bonds and therby the bond value or the price eventually goes up. This brings government more money. This way the governmnt can benefit out of the decreasing interest rates. A low interest rate increases the demand without reflecting to the true/intrinsic value. There is a high risk of increasing debt.The rate at which money is exchanged is called velocity of money. This is a good measure of money's impact on economy.

                        Derivative markets are most crucial markets. Derivatives derive their value from the underlying assets like stocks, bonds, currencies, commodities etc. Derivative market has a time times more valuation than the world GDP.Interest rate is also called rate of return, return on investment, return on equity, dicount and compound rate etc. 

                        So, we can conclude that the interest rates are the key playeres in driving the economy of a country or a company.