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Quantitative Easing for Financial Markets Explained

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In the wake of the European Union's new financial market strategy to implement Quantitative Easing, Nicky Kundnani explains the process of QE and how it might effect the economy.

Published in: Economy & Finance
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Quantitative Easing for Financial Markets Explained

  1. 1. The Central Bank creates electronic money to purchase Government bonds, equity, and corporate bonds.
  2. 2. The Central Bank creates electronic money to purchase Government bonds, equity, and corporate bonds. The increase in money supply will lead to an increase in the price of assets and incremental decrease in the interest rates due to an increase in demand for money.
  3. 3. Due to the decreased interest rates, borrowing and funding become less expensive.
  4. 4. Businesses prosper in hopes to stimulate the economy.
  5. 5. Once the economy is restored, the bonds are destroyed and money supply is decreased.
  6. 6. Risks of Quantitative Easing • The Central Bank might lose money • Risk of Inflation • Consumer confidence could diminish • Difficult to gauge the correct amount of Quantitative Easing needed to bolster an economy

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