1) The document discusses the differences between Islamic banking principles and the US Federal Reserve's monetary policy, specifically regarding interest rates. Islamic law forbids interest, while the Fed uses interest rates as a tool.
2) Islamic banks engage in profit-loss sharing investments rather than interest-based loans. This allows entrepreneurs access to funding without liability if ventures fail.
3) The document argues the US system prioritizes interest returns over charitable principles, pointing to examples of speculative lending that Islamic banks would avoid.
Islamic solutions to the modern economic crisisYamen Nanne
The document discusses the history and flaws of the current fiat monetary system and proposes Islamic economic solutions. It summarizes that the Federal Reserve system allows private banks to profit from money creation through interest, creating perpetual debt. This system caused the 2008 financial crisis. Islam prohibits interest and advocates financing that is tied to real economic transactions and risk-sharing models. The document proposes short-term solutions like debt relief and complementary currencies, and long-term solutions such as commodity-backed currencies and negative interest in the form of zakat to transition to a just economic system.
The document discusses the 38-year experiment with fiat currency since the US abandoned the gold standard in 1971. It notes that fiat currency has no intrinsic value and is only worth what goods and services it can purchase. However, there is now more claims on assets than real assets due to credit expansion. This could lead to currency debasement through inflation as more money is created. The document warns that printing money to get out of the current crisis will only make the problem worse by further eroding confidence in fiat currencies. It argues we may be reaching an important crossroads where people begin questioning the value of paper money.
William Gross Sues Pimco for Hundreds of MillionsTric Park
The document is a complaint filed by William H. Gross against Pacific Investment Management Company LLC (PIMCO), Allianz Asset Management of America L.P., and unnamed defendants. It alleges that younger PIMCO executives conspired to force Mr. Gross, the founder of PIMCO, out of the company in order to take his share of PIMCO's profits. It also claims PIMCO wrongfully denied Mr. Gross hundreds of millions of dollars in compensation. The complaint provides background on Mr. Gross's career, the founding and success of PIMCO, disputes over strategy between Mr. Gross and another executive, and an investigation into damaging press leaks.
Daniel Zachmann, head of research at Bedrock, seeks unconstrained fund managers that are not tied to benchmarks. He cites the Alken European equity fund and TCW Unconstrained Plus Bond fund as examples. Zachmann closely monitors funds' historical exposures and performance to ensure consistency and avoid style drift. He also considers recommendations from fund managers on new opportunities. Zachmann is excited about opportunities in peer-to-peer lending and alternatives despite these being nascent markets.
Barry Pasikov runs the value-oriented investment firm Hazelton Capital Partners. Hazelton utilizes two investing strategies - the Core Strategy, which creates a concentrated portfolio of 15-20 equities selected based on how cheap they are relative to intrinsic value, and the Overlay Strategy, which provides short-term cash flow and hedges positions. Pasikov founded Hazelton to manage both his own capital and that of other investors using an investing process refined over his career in finance. He assesses management quality by examining incentives and balancing what management says with what they do, preferring managers he can trust like Ursula Burns of Xerox.
I'm looking for 2 people that want to change their current situation.
See how $18, one time, can change your situation in one year. There is strength in numbers. Teamwork makes the dream work. Take a look here >>> http://tinyurl.com/kb7luuf
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Islamic solutions to the modern economic crisisYamen Nanne
The document discusses the history and flaws of the current fiat monetary system and proposes Islamic economic solutions. It summarizes that the Federal Reserve system allows private banks to profit from money creation through interest, creating perpetual debt. This system caused the 2008 financial crisis. Islam prohibits interest and advocates financing that is tied to real economic transactions and risk-sharing models. The document proposes short-term solutions like debt relief and complementary currencies, and long-term solutions such as commodity-backed currencies and negative interest in the form of zakat to transition to a just economic system.
The document discusses the 38-year experiment with fiat currency since the US abandoned the gold standard in 1971. It notes that fiat currency has no intrinsic value and is only worth what goods and services it can purchase. However, there is now more claims on assets than real assets due to credit expansion. This could lead to currency debasement through inflation as more money is created. The document warns that printing money to get out of the current crisis will only make the problem worse by further eroding confidence in fiat currencies. It argues we may be reaching an important crossroads where people begin questioning the value of paper money.
William Gross Sues Pimco for Hundreds of MillionsTric Park
The document is a complaint filed by William H. Gross against Pacific Investment Management Company LLC (PIMCO), Allianz Asset Management of America L.P., and unnamed defendants. It alleges that younger PIMCO executives conspired to force Mr. Gross, the founder of PIMCO, out of the company in order to take his share of PIMCO's profits. It also claims PIMCO wrongfully denied Mr. Gross hundreds of millions of dollars in compensation. The complaint provides background on Mr. Gross's career, the founding and success of PIMCO, disputes over strategy between Mr. Gross and another executive, and an investigation into damaging press leaks.
Daniel Zachmann, head of research at Bedrock, seeks unconstrained fund managers that are not tied to benchmarks. He cites the Alken European equity fund and TCW Unconstrained Plus Bond fund as examples. Zachmann closely monitors funds' historical exposures and performance to ensure consistency and avoid style drift. He also considers recommendations from fund managers on new opportunities. Zachmann is excited about opportunities in peer-to-peer lending and alternatives despite these being nascent markets.
Barry Pasikov runs the value-oriented investment firm Hazelton Capital Partners. Hazelton utilizes two investing strategies - the Core Strategy, which creates a concentrated portfolio of 15-20 equities selected based on how cheap they are relative to intrinsic value, and the Overlay Strategy, which provides short-term cash flow and hedges positions. Pasikov founded Hazelton to manage both his own capital and that of other investors using an investing process refined over his career in finance. He assesses management quality by examining incentives and balancing what management says with what they do, preferring managers he can trust like Ursula Burns of Xerox.
I'm looking for 2 people that want to change their current situation.
See how $18, one time, can change your situation in one year. There is strength in numbers. Teamwork makes the dream work. Take a look here >>> http://tinyurl.com/kb7luuf
http://Kaea80.4c4all.com
http://flow77.4c4all.com
http://unitedlove1.4c4all.com
The newsletter provides an overview of the Indian stock market performance from the previous Diwali to the current Diwali. It notes that the Nifty grew 45% and Sensex grew 41% over this period. While analysts believe the bull run will continue for the next 4-5 years, returns may slow and investors should focus on choosing the right mix of stocks and funds. The newsletter discusses ESG funds, flexicap funds, and business cycle funds as good investment options. It also profiles a case study of an individual who achieved his financial goal of accumulating Rs. 1 crore through consistent SIP investments over 10 years.
The monthly newsletter by seeman fiintouch LLP November 2021Ashis Kumar Dey
This monthly newsletter provides investment advice and recommendations. It discusses dynamic asset allocation funds as the best option for retail investors to achieve their goals and maintain peace of mind. An inspiring case study highlights how a medical representative used insurance and SIP investments to manage expenses during an accident-related absence from work. The newsletter also notes that hybrid funds and multicap funds saw high inflows last month, making them trending categories. It recommends multicap funds as providing good diversification through exposure to large, mid and small cap stocks.
The document discusses asset allocation and recommends dynamic asset allocation funds for retail investors. It notes that dynamic asset allocation relies on fund managers adjusting the mix of assets as markets change. Dynamic asset allocation funds, also known as balanced advantage funds, aim to sell declining assets and purchase increasing assets. The document provides examples of popular dynamic allocation funds and notes their long-term performance. It also discusses the tax benefits of such funds.
The document provides an overview of key topics from Q4 2013 including:
- Bonds still belong in portfolios despite rising interest rates due to their benefits of low correlation to stocks, lower volatility, and liquidity. Flexible bond funds that can minimize interest rate risk performed well compared to benchmarks in 2013.
- The Merger Fund uses an arbitrage strategy focused on mergers after announcement but before completion to achieve steady returns with very low volatility and correlation to stocks and bonds, making it a good diversifier.
- Duration risk, or sensitivity to interest rate changes, has increased in the bond market and conservative investors should consider this risk given the likelihood of rising rates.
- Being a registered investment advisor
The document discusses investment strategies and market updates. It recommends that investors should not panic due to short-term market volatility and remain invested in equity for long-term growth. It also suggests dynamic asset allocation funds for better risk management. The market indicators section provides data on key market metrics for November 2021. It also shares an inspiring story of an individual who practiced insurance and SIP investments, which helped him during a medical emergency. The trending mutual fund category section notes high inflows into hybrid, ELSS, multicap and flexicap funds. It recommends multicap funds for diversification across large, mid and small cap stocks.
Benjamin Graham was an influential American economist and investor who is considered the father of value investing. He wrote two influential books, Security Analysis and The Intelligent Investor. The Intelligent Investor teaches the distinction between investing and speculation, with investing focused on analyzing companies and protecting against losses, while speculation aims for extraordinary gains. It also covers topics like how to select stocks, dealing with market fluctuations, and the importance of a margin of safety. The book has been hugely influential on investors like Warren Buffett and remains one of the foundational texts on value investing.
The document discusses three common myths about investing: 1) that bonds are always safe and investors cannot lose money, 2) that interest rates cannot stay low for long so investors should wait in cash, and 3) that volatility in equities is always bad. It argues that bonds face price risk, interest rates could remain low for many years, and short-term volatility in stocks presents opportunities for long-term investors to buy at lower prices. The commentary was used to explain investment decisions made in the DIAS Conservative Income portfolio in light of recent market declines.
The market seems to be nervous due to the new variant of Virus Omicron. Experts believe that the market will be volatile in the coming days and they are advising investors to play cautiously.
StockTakers aid to small investors in the great Rotation continues. The biggest Wild Assed Guesser will be the donkey whose tale gets pinned, by market volatility. Whose money got pinned is a real ethical question.
This document provides a summary of the author's investment strategies and portfolio performance over time. It discusses the concept of "likeables" equities that trade above a benchmark risk price and tend to continue rising due to investor preference. Sample portfolios like the Solo50K and BlackSwanTrading portfolios are described, showing strong returns over multiple years despite periods of market volatility. The use of stop-loss settings is discussed as a way to potentially improve risk-adjusted returns through capital preservation.
StockTakers 3 year BookBuilderTM 25.15% IRR is charity to small investors of our proprietary Risk Price the proven metric investors need. The Modal Geometry gives new clarity navigating balance sheets for sound debt structures in any firm. From that we derive our Risk Price.
The document discusses lessons that can be learned from the 2008 financial crisis on Wall Street. It notes that Americans lacked propensity to save, taking on too much debt through credit cards and mortgages. This led to a mortgage bubble that burst. The crisis showed the importance of countries having higher savings rates being able to take advantage of cheap stock prices. While the situation was dire, the document argues there are opportunities for Jamaican investors to buy cheap stocks that will rebound, such as Citigroup. It also warns that both individuals and corporations need to curb tendencies towards overleveraging.
This document discusses investing in mutual funds and provides an overview of Primerica, a financial services marketing organization. It notes that mutual fund investing entails some risk and shares may be worth more or less than the original investment. It then provides details on Primerica, including that it is the largest independent financial services marketing organization in North America, has over 5 million insured lives and 2 million client investment accounts, and clients have over $61 billion in asset values. The document aims to demonstrate why now is always a good time to invest using market cycles, proven investment fundamentals like dollar cost averaging and discipline, and investment solutions.
The Henley Group's Market Outlook - September 2013Winston Lai
This document provides an investment outlook and analysis across various asset classes from a wealth management firm called Henley. It discusses that markets are experiencing low liquidity and volatility due to uncertainty around central bank actions like tapering of quantitative easing. It recommends that investors stay diversified, think about total portfolio returns rather than focusing on short-term performance of individual investments, and maintain a long-term perspective despite short-term volatility. Fixed income faces challenges from potential interest rate rises if tapering occurs, while emerging market currencies have weakened significantly against the US dollar.
Los hijos son un regalo de Dios y una bendición para los padres. Tener hijos es una parte importante de la vida y una fuente de alegría. Los niños son valiosos y dignos de ser cuidados y protegidos.
Science and technology has gone so far ahead. And it is still advancing at such a damn pace, that you
cannot imagine where it’s going to lead. But, yes its leading towards better solutions and results and no
doubt at the same time its leading to the hell lots of trouble too!. These outcomes from all research and
experiments do give some positive and negative aspects too. Positive solutions are always highlighted in
media and negative aspects and can be given a word as deadly negative solutions are kept hidden in labs
and in community among people.
This resume is for Loganathan G, a 22-year-old male studying for a Bachelor of Engineering degree in Mechanical Engineering at T.J. Institute of Technology in Chennai, India. He has completed 7 semesters with a percentage of 73%. His contact information, education history, skills, interests and projects are described. He is declaring that all information provided is true and complete.
The newsletter provides an overview of the Indian stock market performance from the previous Diwali to the current Diwali. It notes that the Nifty grew 45% and Sensex grew 41% over this period. While analysts believe the bull run will continue for the next 4-5 years, returns may slow and investors should focus on choosing the right mix of stocks and funds. The newsletter discusses ESG funds, flexicap funds, and business cycle funds as good investment options. It also profiles a case study of an individual who achieved his financial goal of accumulating Rs. 1 crore through consistent SIP investments over 10 years.
The monthly newsletter by seeman fiintouch LLP November 2021Ashis Kumar Dey
This monthly newsletter provides investment advice and recommendations. It discusses dynamic asset allocation funds as the best option for retail investors to achieve their goals and maintain peace of mind. An inspiring case study highlights how a medical representative used insurance and SIP investments to manage expenses during an accident-related absence from work. The newsletter also notes that hybrid funds and multicap funds saw high inflows last month, making them trending categories. It recommends multicap funds as providing good diversification through exposure to large, mid and small cap stocks.
The document discusses asset allocation and recommends dynamic asset allocation funds for retail investors. It notes that dynamic asset allocation relies on fund managers adjusting the mix of assets as markets change. Dynamic asset allocation funds, also known as balanced advantage funds, aim to sell declining assets and purchase increasing assets. The document provides examples of popular dynamic allocation funds and notes their long-term performance. It also discusses the tax benefits of such funds.
The document provides an overview of key topics from Q4 2013 including:
- Bonds still belong in portfolios despite rising interest rates due to their benefits of low correlation to stocks, lower volatility, and liquidity. Flexible bond funds that can minimize interest rate risk performed well compared to benchmarks in 2013.
- The Merger Fund uses an arbitrage strategy focused on mergers after announcement but before completion to achieve steady returns with very low volatility and correlation to stocks and bonds, making it a good diversifier.
- Duration risk, or sensitivity to interest rate changes, has increased in the bond market and conservative investors should consider this risk given the likelihood of rising rates.
- Being a registered investment advisor
The document discusses investment strategies and market updates. It recommends that investors should not panic due to short-term market volatility and remain invested in equity for long-term growth. It also suggests dynamic asset allocation funds for better risk management. The market indicators section provides data on key market metrics for November 2021. It also shares an inspiring story of an individual who practiced insurance and SIP investments, which helped him during a medical emergency. The trending mutual fund category section notes high inflows into hybrid, ELSS, multicap and flexicap funds. It recommends multicap funds for diversification across large, mid and small cap stocks.
Benjamin Graham was an influential American economist and investor who is considered the father of value investing. He wrote two influential books, Security Analysis and The Intelligent Investor. The Intelligent Investor teaches the distinction between investing and speculation, with investing focused on analyzing companies and protecting against losses, while speculation aims for extraordinary gains. It also covers topics like how to select stocks, dealing with market fluctuations, and the importance of a margin of safety. The book has been hugely influential on investors like Warren Buffett and remains one of the foundational texts on value investing.
The document discusses three common myths about investing: 1) that bonds are always safe and investors cannot lose money, 2) that interest rates cannot stay low for long so investors should wait in cash, and 3) that volatility in equities is always bad. It argues that bonds face price risk, interest rates could remain low for many years, and short-term volatility in stocks presents opportunities for long-term investors to buy at lower prices. The commentary was used to explain investment decisions made in the DIAS Conservative Income portfolio in light of recent market declines.
The market seems to be nervous due to the new variant of Virus Omicron. Experts believe that the market will be volatile in the coming days and they are advising investors to play cautiously.
StockTakers aid to small investors in the great Rotation continues. The biggest Wild Assed Guesser will be the donkey whose tale gets pinned, by market volatility. Whose money got pinned is a real ethical question.
This document provides a summary of the author's investment strategies and portfolio performance over time. It discusses the concept of "likeables" equities that trade above a benchmark risk price and tend to continue rising due to investor preference. Sample portfolios like the Solo50K and BlackSwanTrading portfolios are described, showing strong returns over multiple years despite periods of market volatility. The use of stop-loss settings is discussed as a way to potentially improve risk-adjusted returns through capital preservation.
StockTakers 3 year BookBuilderTM 25.15% IRR is charity to small investors of our proprietary Risk Price the proven metric investors need. The Modal Geometry gives new clarity navigating balance sheets for sound debt structures in any firm. From that we derive our Risk Price.
The document discusses lessons that can be learned from the 2008 financial crisis on Wall Street. It notes that Americans lacked propensity to save, taking on too much debt through credit cards and mortgages. This led to a mortgage bubble that burst. The crisis showed the importance of countries having higher savings rates being able to take advantage of cheap stock prices. While the situation was dire, the document argues there are opportunities for Jamaican investors to buy cheap stocks that will rebound, such as Citigroup. It also warns that both individuals and corporations need to curb tendencies towards overleveraging.
This document discusses investing in mutual funds and provides an overview of Primerica, a financial services marketing organization. It notes that mutual fund investing entails some risk and shares may be worth more or less than the original investment. It then provides details on Primerica, including that it is the largest independent financial services marketing organization in North America, has over 5 million insured lives and 2 million client investment accounts, and clients have over $61 billion in asset values. The document aims to demonstrate why now is always a good time to invest using market cycles, proven investment fundamentals like dollar cost averaging and discipline, and investment solutions.
The Henley Group's Market Outlook - September 2013Winston Lai
This document provides an investment outlook and analysis across various asset classes from a wealth management firm called Henley. It discusses that markets are experiencing low liquidity and volatility due to uncertainty around central bank actions like tapering of quantitative easing. It recommends that investors stay diversified, think about total portfolio returns rather than focusing on short-term performance of individual investments, and maintain a long-term perspective despite short-term volatility. Fixed income faces challenges from potential interest rate rises if tapering occurs, while emerging market currencies have weakened significantly against the US dollar.
Los hijos son un regalo de Dios y una bendición para los padres. Tener hijos es una parte importante de la vida y una fuente de alegría. Los niños son valiosos y dignos de ser cuidados y protegidos.
Science and technology has gone so far ahead. And it is still advancing at such a damn pace, that you
cannot imagine where it’s going to lead. But, yes its leading towards better solutions and results and no
doubt at the same time its leading to the hell lots of trouble too!. These outcomes from all research and
experiments do give some positive and negative aspects too. Positive solutions are always highlighted in
media and negative aspects and can be given a word as deadly negative solutions are kept hidden in labs
and in community among people.
This resume is for Loganathan G, a 22-year-old male studying for a Bachelor of Engineering degree in Mechanical Engineering at T.J. Institute of Technology in Chennai, India. He has completed 7 semesters with a percentage of 73%. His contact information, education history, skills, interests and projects are described. He is declaring that all information provided is true and complete.
Senthil Kumar Chettiar has over 10 years of experience in purchase activities including sourcing, negotiation, vendor selection, inventory management, and price negotiation. He has worked in purchase roles for several companies in Bangalore, India including Dr. Agarwal's Health Care Ltd where he currently serves as Assistant Manager of Purchase. He holds a B.Com degree in Advanced Financial and Management Accounting from Dr. Ambedkar First Grade College.
Análisis del balance energético en un dispositivo de oxidación catalítica de ...21012955
This document analyzes the energy balance of a catalytic preheating oxidation device. It discusses concepts related to energy balance like the first law of thermodynamics, energy transformations, and accounting for all energy flows in industrial processes. Energy balances are used in industries like chemicals, petroleum, and pulp and paper to track energy sources and usage.
This document discusses Islamic alternatives to financing international trade. It begins by noting that while Muslim countries account for about 7% of global exports and imports, trade between Muslim countries is even lower at under 10%. Islamic banks have the potential to finance much more of this trade.
The document then outlines some key principles of Islamic finance, including profit and loss sharing, asset-backed financing, and linking risk and return. It discusses the emergence of modern Islamic banks since the 1960s and their growth into a global network. Islamic banks differ from conventional banks in having profit-sharing deposit contracts and integrating financial and real markets through various partnership models of financing.
What are the financial markets and what purposes do they serveA f.pdfAnkitchhabra28
What are the financial markets and what purposes do they serve?
A financial market is a broad term describing any marketplace where buyers and sellers
participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial
markets are typically defined by having transparent pricing, basic regulations on trading, costs
and fees, and market forces determining the prices of securities that trade.
Financial markets can be found in nearly every nation in the world. Some are very small, with
only a few participants, while others - like the New York Stock Exchange (NYSE) and the forex
markets - trade trillions of dollars daily.
Investors have access to a large number of financial markets and exchanges representing a vast
array of financial products. Some of these markets have always been open to private investors;
others remained the exclusive domain of major international banks and financial professionals
until the very end of the twentieth century.
What are financial intermediaries? How do these intermediaries function in the economy?
Financial intermediaries channel funds from people who have extra money or surplus savings
(savers) to those who do not have enough money to carry out a desired activity (borrowers). A
financial intermediary is typically an institution that facilitates the channeling of funds between
lenders and borrowers indirectly. That is, savers (lenders) give funds to an intermediary
institution (such as a bank), and that institution gives those funds to spenders (borrowers). This
may be in the form of loans or mortgages. Alternatively, they may lend the money directly via
the financial markets, which is known as financial disintermediation.
Financial intermediaries help circulating money in the system. If money is staying idle (e.g.
under your bed pillow or as gold in your locker) then it is not good for the economy. Money
must keep changing hands. If you look at this from a different angle: if nobody buys skin
whitening creams then who will feed the families of those chemists who work there And the
businessman who supplies raw material to that factory? They promote the habit of savings.
Individual can use that saved money in bad times / emergency and earn profit in between. A
needy businessman will easily get loans.
When businessmen can get loans easily at a reasonable cost, they’ll start new business, expand
existing business, hire more employees, increase production of goods / services = GDP
increases. When people are making more money, they spend more money. A family goes to
restaurant, poor waiter makes money. Family hires maid, gardener, driver. Family buys new car,
mobile or bike- it breaks down, the repairman makes money. That’s how money trickles down
from rich people to poor people.
What is a federal government budget deficit? What is the national debt? How does a budget
deficit affect the economy?
The federal government budget deficit is when the Federal spending is greater than the tax
reve.
A negative interest rate policy will influence the way lending
and borrowing rates are charged in conventional Financial markets. The objective behind such a policy is to deliberately
boost aggregate demand and output by encouraging business and trade activities, which is no different from principles of Islamic Finance. This article provide insight into how Islamic Finance can help in achieving the same objectives expect from negative interest rate.
Islamic finance has its origins in medieval trade practices but began growing exponentially in the late 20th century. It is based on Sharia (Islamic law) which prohibits interest and gambling. Common Islamic financial products include partnership contracts like Mudaraba and Musharaka that are based on profit/loss sharing, cost plus financing like Murabaha, leasing contracts like Ijara, and investment certificates or bonds like Sukuk which represent partial ownership in an underlying asset. While still smaller than conventional banks, the Islamic finance industry has been growing 10-15% annually and includes both niche Islamic banks and conventional banks offering Islamic financial services.
Week-1 Into to Money and Bankingand Basic Overview of U.S. Fin.docxalanfhall8953
Week-1 Into to Money and Banking
and Basic Overview of U.S. Financial System
Money and Banking Econ 311
Instructor: Thomas L. Thomas
Financial markets transfer funds from people who have excess available funds to people who have a shortage.
They promote grater economic efficiency by channeling funds from people who do not have a productive use for them to those who do.
Well functioning financial markets are a key factor in producing economic growth, where as, poor functioning financial markets are a major reason many countries in the world remain poor.
Financial Markets
A security or financial instrument is a claim on the issuer’s future income or assets.
A bond is a debt security (IOU) that promises to make payments periodically for a specified period of time.
The bond market is especially important economic activity because it enables businesses and the government to borrow and finance their activities and because it is where interest rates are determined.
An interest rate is the cost of borrowing money or the price to rent (use someone else’s) funds.
Because different interest rates tend to move in unison, economist frequently lump interest rates together and refer to the “interest rate”.
Interest rates are important on a number of levels:
High interest rates retard borrowing
High interest rates induce saving.
Lower interest rates induce borrowing
Lower Interest rates retard saving
Information Asymmetry and Information costs
Why Financial Intermediaries
In the neo-classical world economists have argued financial intermediaries are not necessary. Savers (investors) could manage their risks through diversification.
The logic rests on the perfect market assumption – that is investors can always through their own borrowing and lending compose their portfolios as they see fit, without costs. In such a world there are no bankruptcy costs.
In such a world if taken to the extreme, perfect and complete markets imply that there is no need for financial institutions to intermediate in the financial (capital markets) as every investor (saver) has complete information and can contract with the market at the same terms as banks. E.g. Information Asymmetry
Why Financial Intermediaries Bonds
A common stock (usually called stock) represents a share of ownership in a corporation.
It is usually a security that is a claim on the earnings and assets of the corporation.
Issuing stock and selling it to the public (called a public offering) is a way for corporations to raise the funds to finance their activities.
The stock market is the most widely followed financial market in almost every country that has one – that is why it is generally called the market – here “Wall Street.”
The stock market is also an important factor in business investment decisions, because the price of shares affects the amount of funds that can be raised by selling newly issued stock to finance investment spending. (Note impact examples..
Interest Rates Explained 2024 What You Need to Know.docxAmit Kumar
Have you ever wondered why the stock market jumps on news about inflation, or why a government's decision to change interest rates sends the financial world into a frenzy? It's a complex dance, but at the heart of it lies the relationship between interest rates and the stock market. Understanding this connection is like decoding a secret language that can help you make smarter investment decisions. Get ready to explore how interest rate shifts shape businesses, consumer behaviour, and ultimately, the prices of stocks you see on the ticker.
From global economic trends to your own portfolio, interest rates hold surprising sway. Let's start with a timeline of major turning points in interest rate history – those moments that sent shockwaves through the markets…
Imagine you've taken out a loan to buy a house. The interest rate on that loan is essentially the extra cost you pay for borrowing the money. Let's say your interest rate increases. Now, your monthly payments go up, leaving you with less disposable income to spend elsewhere. This is just one-way interest rates touch our lives.
The Bigger Picture
At its core, an interest rate is the "price" of borrowing money. Banks charge interest on loans they give out, and they may offer interest on money you deposit with them. Governments even charge interest on bonds they issue! It's a crucial lever in the financial system, influencing how much businesses and consumers spend, save, and invest.
A truly unique example comes from Sweden. In 2009, to encourage borrowing and boost the economy during a financial crisis, the central bank implemented a negative interest rate policy. This meant people actually paid the bank to hold onto their money! While this might sound strange, it incentivized people to spend or invest their cash, which could stimulate economic activity. This policy wasn't without drawbacks, and Sweden eventually moved away from negative rates. But it serves as a fascinating illustration of how central banks can use interest rates as unconventional tools.
Types of Interest Rates
You'll often hear terms like:
• Repo Rate: The central bank (like India's RBI) sets this rate, at which it lends to commercial banks. Changes to the repo rate ripple through the economy.
• Reverse Repo Rate: The rate the central bank pays on banks' deposits with it. This helps manage the flow of money.
• Bank Lending Rates: Rates banks set on loans to businesses and individuals (mortgage rates, car loans, etc.)
Key takeaway: Interest rates are not one-size-fits-all. They play different roles, impacting our pockets and the broader economy.
Now that we understand what interest rates are, let's explore how changes in these rates can send ripple effects through the stock market.
How Interest Rates Affect the Stock Market
Businesses and Interest Rates
Businesses, the backbone of the stock market, feel the impact of interest rates in several ways:
Read full article at newspatron or download PDF.
Finance :: Prohibition of Interest Rate in Islamic Financefabulouspsychop39
Islamic economics prohibits interest on loans based on verses from the Quran that forbid riba, or usury. While interest is circumvented through sales contracts that provide extra profit to the lender, there is no agreement on a definition of an "interest-free" loan. Critics argue the Quran only bans excessive usury, not moderate interest rates, and that Islamic banking deceives by cloaking interest instead of openly dealing with it.
This document discusses objections to interest-free banking systems and evaluates arguments against their practicability. It argues that contrary to objections, interest-free banking using profit-and-loss sharing can effectively allocate resources through projected profit rates. It also notes that Islamic systems discourage idle funds through zakat and potential taxes. The document then provides an overview of Islamic banking principles, areas of operations including various financing modes, and the potential of Islamic banks going forward given the Muslim population.
This document discusses principles of Islamic banking compared to conventional debt-based banking models. Some key points:
- Islamic banking prohibits interest and instead uses profit and loss sharing models where returns are linked to project outcomes rather than a fixed interest rate. This is believed to incentivize more careful project selection.
- Three models are analyzed: pure equity finance as in Islamic banking, pure debt finance, and a hybrid model like Japan's banking system. Islamic banking is argued to better absorb economic shocks since banks have ownership stakes in ventures rather than just lending through debt.
- Sources of funds for Islamic banks include transaction accounts similar to checking accounts where deposits are guaranteed, and investment accounts where depositors become shareholders sharing
The document discusses stocks and bonds as the two main types of marketable securities, noting that while they have some similarities as financial instruments that enable investment, they differ significantly in aspects such as ownership structure, cash flow predictability, and risk level. Stocks represent ownership in a company and have uncertain dividends and capital appreciation, while bonds are essentially loans that guarantee periodic interest payments and return of principal, making them generally less risky than stocks.
The document discusses several theories of interest rate determination:
1. The classical theory argues that interest rates are determined by the supply of savings and demand for investment, where the equilibrium rate balances the two.
2. The liquidity preference theory views interest as the price of money, with rates set by demand for and supply of money in the economy.
3. The loanable funds theory sees rates as set by demand for and supply of credit in the economy from savers, borrowers, and foreign actors.
The document discusses interest rate determination and the structure of interest rates. It covers several theories of interest rates including the classical theory, liquidity preference theory, loanable funds theory, and rational expectations theory. The classical theory argues that interest rates are determined by the supply and demand of savings and investment. The liquidity preference theory states that interest rates are determined by the demand and supply of money. The loanable funds theory considers the demand for and supply of loanable funds. And the rational expectations theory posits that interest rates reflect rational expectations of future rates based on available information. The document also discusses how interest rates are structured and determined by factors like risk, term of maturity, and monetary policy objectives.
The document discusses the global financial crisis and how Islamic finance principles could help minimize future crises. It argues that the conventional system's focus on interest and debt speculation led to excessive risk-taking by banks. In contrast, Islamic finance requires risk-sharing between financiers and entrepreneurs. It also prohibits debt trading, linking credit to real assets and encouraging equity-based modes of financing. Adopting these principles could introduce greater discipline into the financial system and link credit to real economic growth, reducing the severity and frequency of financial crises according to the document.
PAGE 280APPLYING THE CONCEPTTRUTH OR CONSEQUENCES PONZI SCHEM.docxsmile790243
PAGE 280
APPLYING THE CONCEPT
TRUTH OR CONSEQUENCES: PONZI SCHEMES AND OTHER FRAUDS
In the financial world, you always have to be on the lookout for crooks. Fraud is the most extreme version of moral hazard, and it is remarkably common.
The term Ponzi scheme has its origins in a 1920 scam run by serial con artist Charles Ponzi. Promising a 50 percent profit within 45 days, he swindled unsuspecting investors out of something like $250 million in 2014 dollars. Ponzi never invested their money. Instead, he paid off early investors handsomely with the money he obtained from subsequent investors.
Financial laws are now far more elaborate than in Ponzi’s day, and governments spend much more to enforce them, but frauds persist.
Bernie Madoff is the leading recent example. For decades, Madoff was a respected member of the investment community and able to escape detection. In the same manner as Ponzi, Madoff was redeeming requests for funds with the money he collected from more recent investors. Madoff’s con, which may have begun as early as the 1970s, failed only when the financial crisis of 2007–2009 depleted his funds, making it impossible for him to pay off the final cohort of wealthy, sophisticated—yet apparently quite gullible—investors and financial firms. The Madoff scandal dwarfed Ponzi’s racket: at the time the scheme blew up, the losses were estimated at $17.5 billion, and extensive efforts at recovery have put final losses in the neighborhood of $7 billion.
Unfortunately, in a complex financial system, the possibilities for fraud are widespread. Most cases are smaller and more mundane than those of Madoff or Ponzi, but their cumulative size is significant. One source devoted to tracking just Ponzi-type frauds in the United States listed 70 schemes worth an estimated $2.2 billion in 2014 alone.*
We aren’t going to get rid of Ponzi schemes and other frauds (see In the Blog: Conflicts of Interest in Finance). But the mission of ferreting them out and prosecuting those responsible is essential. A well-functioning financial system is based on trust. That is, when we make a bank deposit or purchase a share of stock or a bond, we need to believe that the terms of the agreement are being accurately represented and will be carried out. Economies where property rights are weak and enforcement is unreliable also usually supply less credit to worthy endeavors. That means lower production, lower income, and lower welfare.
imagesIN THE BLOG
Conflicts of Interest in Finance
Financial corruption exposed in the years since the financial crisis is breathtaking in its scale, scope, and resistance to remedy. Traders colluded to rig the foreign exchange (FX) market, where daily transactions exceed $5 trillion, and to manipulate LIBOR, the world’s leading interest rate benchmark (see Chapter 13, Applying the Concept: Reforming LIBOR). Firms have facilitated tax evasion and money laundering. And Bernie Madoff engineered what was arguably the largest Ponzi.
14 Outdated Investing 'Rules' You Don't Need To Follow AnymoreScott Tominaga
As the times change, so does the world of finance. Some investors are still stuck on “rules” of investing that have become obsolete, and sticking with these old adages may hurt you in the long run.
Islamic banking is expanding from the Gulf to India. It prohibits interest and investing in businesses like alcohol or pornography. Products include profit-sharing models like mudarabah and murabahah. Regulatory issues include existing Indian banking laws not fully accommodating practices like ijarah leases. Overall, Islamic banking has potential in India given its diversity, though interest-free options already exist within the current banking system.
Islamic banking prohibits interest and is guided by Islamic principles. It uses alternatives like murabaha, where the bank purchases goods for a customer and resells them at a profit, and ijarah, a leasing agreement. The key differences from conventional banking are the prohibition of interest and requirement for profit/loss sharing based on real economic activity. While Islamic banking faces challenges implementing its principles, it provides an alternative for both Muslims and non-Muslims and can help distribute credit more equitably. As the industry innovates further, its prospects for the future remain promising.
Stillwater Capital Partners manages three hedge funds that posted double-digit returns in 2006 through diversified strategies including asset-backed lending, fund of funds, and multi-strategy funds. The asset-backed lending fund makes short-term bridge loans to real estate developers, law firms, and individuals for insurance premiums, earning steady returns through low volatility and correlation to equity and bond markets. Stillwater also manages a fund of funds that seeks out niche and creative asset-backed managers around the world. While conducting extensive due diligence, they avoid managers that demonstrate greed through opaque fee structures or misrepresenting fund capacity.
This document provides an overview of Islamic banking and finance. It discusses how Islamic banking has grown rapidly at 15-20% annually, with estimated assets of $270 billion currently. The key principles of Islamic finance are that it must be compliant with Sharia (Islamic law), which prohibits riba (usury or interest) and involves profit and risk sharing between investors and businesses. Instead of interest-based loans, Islamic banks use modes of finance based on equity participation, partnership, trade, and leasing. The document outlines various Islamic finance products and their growth is projected to continue outpacing conventional investing.
This document discusses methods of providing Islamic home financing in the United States. It summarizes four main methods: murabaha (installment sales contract), agency sale, land contract, and ijara wa iqtina (lease-to-own). The document also discusses regulatory changes that enabled Islamic financing, similarities and differences between US and Islamic legal/financial concepts, and some successful pilot programs utilizing these methods.
Similar to Fed Policy Compared to Islamic Banking Principles (20)
Alhuda CIBE - Presentation on Islamic Mortgages in the US by Abu Bakar Thomson
Fed Policy Compared to Islamic Banking Principles
1. Ford 1
Islamic Banking Principles Vs. Federal Reserve Policy
Currently in the US, the Federal Reserve is attempting to formulate a palpable
progression in the economy by changing its current strategy on monetary policy. For months
now, most global markets have been waiting anxiously for the adoption of minimally higher
interest rates. There are cynics and proponents for each side, and both have due cause. Most
cases are caused by choosing a side on the Fed’s dual mandate of price stability and full
employment. This debate isn’t new by any means. William Greider, author of Secrets of the
Temple, picks apart John Maynard Keynes’ philosophy on the issue. “Economies operating
efficiently at full employment would, in time, produce such an abundant supply of capital that
the price for it would fall to very low levels-that is, very low interest rates.” (Greider, 174) We
see this trend right now. But which came first, the low interest rates dictated by the Fed, or full
employment? Also, what happens if there are no interest rates, would economies without interest
rates automatically be at full employment? This is the case in Islamic regions as the Quran
forbids the collecting or issuing of interest or ribā. In comparison, usury often has the
connotation of interest in excessive amounts, but in strictly Islamic terms, usury indicates any
amount of interest, no matter how small. The concentration of this paper will navigate through
the growth of the US and Saudi Arabia over the past 30 years. It should be seen if a Keynesian
perspective on interest rates that is present in productive Islamic countries is able to keep pace
with the United States and their Federal Reserve’s implemented monetary policy. Also to be
included is a synopsis of Islamic banking and a notation of the major differences, on top of
interest rates, that stand out between them.
In the US, there are times when critics are in a deadlock when it comes to choosing a dual
mandate side. Raising interest rates should slowly pick up the inflation rate from its near
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stagnant rate, which isn’t beneficial and negatively impacts real wage growth. Supposedly
keeping interest rates the same will not cause markets to go haywire, but in the past few months
it has been seen that major volatility occurs without implementation of new monetary policy.
Interest itself creates a lucrative market for most parties involved.
At this point in time, if interest rates were raised, savers would see a greater potential of
their capital without the risk of investment. With inflation being so low, any increase in interest
rates would be a real gain that isn’t eroded immediately by inflation. Citizens who are employed
would greatly enjoy this benefit as they can finally have a small grasp on the idea that their
money isn’t going to disappear as it did in the recent financial crisis. Cleveland Fed president,
Loretta J. Mester notes this by recently stating that price stability “allows households and
businesses to focus on productive activities rather than on ways to protect the purchasing power
of their money and to make long-term plans and commitments without having to deal with
uncertainty about the value of their money.” (Mester) If price stability and higher interest rates
coincide, people would have the option to save rather than take the risk in investments. What
about in places like Saudi Arabia? What investment vehicles do households and businesses there
have to increase their wealth outside of interest based accrual?
First let’s look at the objectives of Islamic banking. A research paper by Ashfaq Ahmad
et al. published in the African Journal of Business Management gives the principles of Islamic
banking. “The basic aim of Islamic banking is to perform interest-free activities based on
principles of Sharia’h and carry out only Halaal (permissible) transactions.” ( Ahmad et al.)
From this we can see that Islamic banks are modeled around the guidelines set by a higher
power, unlike the rest of the world who get their guidelines from men. Also there is a differing
view when it comes to making money. The Institute of Islamic Banking and Insurance puts
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investments in two different categories, debt financing, the western way, and PLS, the Islamic
way. So in the western based system, capital seekers come to a bank asking for a loan. The loan
is paid out with interest, with the interest being used to cover the spread and compensate the
savers that have money in the bank. If the investment goes sour, the capital seeker is left solely
on his or her own to repay the money and the interest agreed to. This is a risk that may deter
entrepreneurs from getting an idea off the ground. With the PLS system, profit-loss sharing,
investors in Islamic countries put their money into a bank. Once a person or business comes
along, negotiations are drawn up and proportions of profits and losses are drawn up before the
transaction. If it is a successful investment, the profits are used to pay the investors who placed
their money in the bank, not interest. Essentially, the capital seeker in this situation has no
liability to pay back the bank for a failed venture, however it is deemed okay. “As long as the
owner of money is willing to become a shareholder in the enterprise and expose his money to the
risk of loss, he is entitled to receive a just proportion of the profits and not merely a merely
nominal share based on the prevailing interest rate.” (IIBI) In Islamic banking, investors are
compensated well do to their risk more than just interest. Here is a stark differentiation between
the two systems.
Savers in western systems have their will to save or invest dictated by the Federal
Reserve. If interest rates are high, less people are spending and they assume their money will go
further in the future if he or she saves now. But with interest rates being high businesses are less
likely to go in search for loans to improve or expand their business. Within a reasonable amount
of time, unemployment will pick up because business are looking to cut to save money, and
interest rates will have to be lowered to make the job market more accommodative. With the
PLS model, there is no saving; only investing. Every time money is put in to the Islamic banking
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system, it has a risk of loss, but the risk of profit payouts, tend to outweigh the consequences of
the loss. Western savers are saving for their own benefit and expose themselves to virtually no
risk, while Islamic savers are ultimately investors and share their wealth with people looking to
make entrepreneurial strides.
These principles also apply to personal loans for houses, cars, and tangibles that may
need financing. The lenders in these situations play a similar rule but tend to be more lenient. In
A Guide to Contemporary Islamic Banking and Finance, an example is given if a lender loans
$10 over 10 years. The question is raised about the time value of that money lost. This loan
contract is considered charity as the charitable contribution includes the time value of money.
The following quote best explains this Islamic banking idealogy:
“If that time value is higher due to inflation, then the lender has given a larger charity.
Notice that if the debtor cannot pay the creditor must give him extensions until he is able.
In fact the debtor may never be able to pay back, in which case the entire lent sum is
considered charity.” (El-Gamal 32-33)
This is a stark contrast compared to western banking. If payments are late, they are most
definitely not forgiven. The debtor is pursued relentlessly until payment is made or the goods
are forfeited. Of many things western banks have been called, charitable is not a term often
thrown around. Western banks appear to be chasing the God Almighty interest rates.
Effectively, “If money was not God, it appeared to be the next best thing.” (Greider 234)
Historically US banks have been at fault for making speculative loans with major
repercussions such as the lending upward of a billion dollars to the Hunt brothers of Texas to
corner the silver market in the early 1980s. The bubble was caused by the blindness of banks
thinking the price of silver would keep ever increasing and push the banks’ investments sky high.
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When the Hunt brothers started their binge effort, silver was around $10 an ounce. In six
months, they had watched as the price climbed up to $52 mainly influenced by high inflation and
their global purchases. William Greider points out those banks were eager to give them money
at first as they were already wealthy Texas oil tycoons with millions already. In all they held
129 million ounces of silver, most of it on margin. (Greider 144) Ultimately the price crashed
hard, plummeting the whole way back down to $10. Engelhard, still a major supplier of silver
today, is to whom the Hunt brothers and vested banks were indebted. When the time came for
Engelhard to collect, they did not act charitably and write off hundreds of millions of dollars, and
who would blame them? In this instance the Federal Reserve wielded its power and intervened
to save some of the major banks that would have gone under without such intervention.
Islamic financing would have never allowed such a financial injustice. While speculative
options are available for investment like stocks, trying to corner the silver market would have
been considered gambling. On top of this, “if a business’s primary activity is deemed
unproductive (e.g. a casino, or a beer brewery), then Muslims will not be permitted to own shares
in that company since owning such shares constitutes an implicit participation in the business’s
activity.” (El-Gamal 35) So nowhere in the Islamic realm would such speculative investments
be made and they would not have had deal with the near collapse of their major banks. Western
banks have also drawn the attention of other religious affiliates. After the 2009 financial crash,
the Vatican voiced their opinion in their official newspaper Osservatore Romano that “ethical
principles on which Islamic finance is based may bring banks closer to their clients and to the
true spirit which should mark every financial service.” (qtd in Totaro) Inherently, capitalism
really isn’t based on a close relationship between banks and clients. Free markets aren’t about
6. Ford 6
building relationships. It’s about providing the best product at the most efficient price which in
turn is driven by many economic principles and theories, not relationships.
Like the Fed has its dual mandate, the Islamic Monetary Regime has a fourfold plan that
includes an interest free economy, low to moderate inflation, stable exchange rates, and
increased savings. Having already discussed the interest free topic, the issue with inflation is the
next topic. Typically with the Federal Reserve’s policy, they like to confine inflation to between
the 10 year Treasury note interest rate and the 3 month Treasury note interest rate. They do this
by dictating interest rates and reserve requirements to either increase or decrease the supply of
money dependent on the circumstance. So how would an Islamic state regulate inflation without
the interest rates to dictate? Firstly, research did by Salman Shaikh notes the four factors that
impact inflation “are interest rates, depreciation of money, indirect taxes and price distortions
due to imperfect markets.” (Shaikh) Therefore in an Islamic economy they only have to worry
about 3 factors. Money creation is how these banks limit inflation. Rather than using interest
rates on loans, “money supply expansion will be dependent upon productive loans disbursed.”
(Shaikh) However, what if in an extended time period, loans that were given turn sour, or what
if they are all massively successful? Would Islamic banks give loans to people that they expect
to fail to make up for the excess money that successful loans produce to keep inflation tame? It
seems very unlikely for that to be the situation. Cycles occur and there are good years and bad
years. But without effective monetary policy, these swings of inflation and deflation can become
habitual.
For my research I looked at the GDP of Saudi Arabia and compared it to the US’s over
the time from 1970 to 2013. Rather than convert currencies and find a baseline dollar value, I
chose to look at the percentage change in GDP from the previous year. Tracking it over this
7. Ford 7
period yielded evidence that Saudi Arabia suffers much greater volatility compared to the US.
The graphs below comprised of data from the St. Louis Federal Reserve paints this well. The
graph on the left indicates a spike of 211 percent increase in Saudi Arabia’s GDP from1973 to
1974, thus skewing the other figures relative to it. The graph on the right gives a more
meaningful representation of the data. The GDP of the US is indicated by the red line which
appears to have very little variation. Saudi Arabia is no stranger to having negative GDP growth
throughout this time period, while the US only experienced it once for less than a year.
It only lasted through the fourth quarter of 2008
and the first two quarters of 2009. I would like to believe the use of the Federal Funds rate aided
in this. Shown directly left is a graph that matches the same time frame as the GDP graph shown
above it. What it displays is the change in the Federal Funds Rate set by the Fed. Depending on
the situation, increases or decreases in the rate can be seen in the area around the grey bars. The
grey bars in the charts also indicate recessions in the US which often corresponds with down
turns in Saudi Arabia’s GDP. With similar monetary policy less the use of interest rates,
speculation would lead to the notion that interest rates are formidable when intervention is
needed in the economy. Throughout the times shown, the US was the economic global
powerhouse and many economies depended on our imports and exports and overall economic
8. Ford 8
health. It’s shown that the US is almost constant in percentage change compared to Saudi
Arabia’s volatility.
On top of being an interest free economies, most counties on the oil rich Arabian
Peninsula, do not impose individual income taxes of any sort or charge sales tax. Hellen Ziegler
and Associates is a Canadian company that recruits health care professionals to work in Saudi
Arabia, Qatar and the UAE. They offer insight on the tax scales that their employees would be
subject to. Anyone making less than $99,400 is not subject to Saudi taxes. Business’ however
that are linked to the production of hydrocarbons are taxed 85% while other sectors are between
20-30%. (Ziegler) To this effect someone making $40,000 less the cost of living has more
disposable income than someone in the US. If inflation were to spike in the US at any given
time, a person or family with comparable income would feel a much greater strain than someone
in Saudi Arabia would. Not having interest rates seemed like a big issue when it came to
maintaining a stable economy, but if forgoing an average personal income tax of 25% is at stake,
I don’t think the citizens are too distraught. If anything they are being honored for their
commitment to not participate in riba based transactions in a sense. Currently in the US interest
rates and inflation are quite low, and in principle our money is going further but the tax rate is
still present. Currently to me, Saudi Arabia sounds more appealing than the recovering economy
of the US and our slow rising wages. Granted there are a lot of non-economic factors that would
lead to the deterrent of job seekers to go to the area, but still no income tax.
Maybe their tax rate leads to their 5% unemployment rate. Trading Economics has their
current unemployment rate at 5.7% and tracking the figure back until 2001, peaked at 6.3% in
the end of 2006. Looking back to the early graph depicting GDP growth, even in the time when
their GDP shrank nearly 20% in 2009, unemployment was relatively unscathed compared to the
9. Ford 9
US’s. Nearly the opposite of what one would expect to happen. The US’s GDP shrank for 3
quarters and an overall decrease of just 2% led to a drastic increase in unemployment, nearly
eclipsing the 10% mark over the same time. This could be tied to the Saudi Arabian economy
being a one trick pony with their cash cow of oil. The services and industries provided in the US
were marginalized during the most recent financial crisis, but not so for Saudi Arabia. There
were no massive layoffs in the oil industry because they pretty much supply a near necessity to
the world. Quandl, an international database, notes that 24.7% of the Saudi population is
involved the industry sector. I would have assumed to find unemployment concerns in the 70%
that work in the service industries, but there seemed to be none at the time of the crisis or even
now. (Quandl)
Granted a 2% decrease of GDP in the US is substantially large. The 2% that the US
dropped equated to half a trillion dollars, which is equal to Saudi Arabia’s GDP of 500 billion
US dollars for that time. This does make the large increase in unemployment a little easier to
realize because 2% is a large figure to the US. Often statistics like such are over looked for that
reason, but when your country has the largest GDP, small variances can have large impacts like
those realized in the recession. But what the Fed is good at as of late is regulating inflation. No
matter the increase or decrease of GDP, inflation has remained steady. That much cannot be said
for Saudi Arabia. Saudi Arabia’s inflation rates fluctuate and reach much greater magnitudes
than that seen in the US. The following graphs depict the historical percent changes in GDP and
inflation rates through the past forty odd years and show the differences seen between the US
and Saudi Arabia.
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The differences are substantial. The graph on the left depicts US statistics and the right is Saudi
Arabia. For the US the bounds are shown to have a high inflation of about 15 percent around
1980 and high GDP growth around the same time of 13 percent. Lows for both stats reached
negative growth in the 2009 financial crisis almost hitting -2.5 percent. For Saudi Arabia the
statistics can’t even be represented well on the same axis due to the high fluctuations. But what
it does show is that the high changes in GDP are followed by increases in inflation. For example
as shown, the 220 percent increase in GDP was followed by a roughly 35 percent increase in
inflation soon after. Also shown for Saudi Arabia is the nearly 20 percent decrease in GDP in
2009 while at the same time as mentioned before the US only suffered a 2 percent. With similar
monetary policy principles such as reserve requirements, one of the differences is the ability to
11. Ford 11
use interest rates to conduct economic growth or destruction for the greater good and price
stability.
For my regression analysis, I looked at the inflation growth or decreases as well as the
GDP growth or decrease for each nation and pitted them against each other. Removing interest
rates from the equation, GDP growth directly impacts the increase of money for each nation
leading to inflation. What I expect to see is that the GDP increases in the US have minimal
significance or impact on inflation since The Fed has tools to readily combat these issues. For
Saudi Arabia I expect to see a major link between the two especially since the graphs shows
correlation already. Since inflation is often associated as an effect of GDP shifts, I made
inflation my dependent variable for both analyses. First I did the US comparison and got the
following output.
Model 1: OLS, using observations 1969-2013 (T = 45)
Dependent variable: INF_US
Coefficient Std. Error t-ratio p-value
const 4.9244 0.722708 6.8138 <0.00001 ***
GDP_US -0.204691 0.20818 -0.9832 0.33099
Mean dependent var 4.354325 S.D. dependent var 2.893168
Sum squared resid 360.2001 S.E. of regression 2.894261
R-squared 0.021988 Adjusted R-squared -0.000756
F(1, 43) 0.966756 P-value(F) 0.330991
Log-likelihood -110.6522 Akaike criterion 225.3043
Schwarz criterion 228.9177 Hannan-Quinn 226.6514
rho 0.816788 Durbin-Watson 0.380241
This regression shows that in the US, GDP is not statistically significant in predicting inflation in
the US. We are currently seeing this in our economy because GDP has increased ever since the
recession but our inflation has been near stagnant. Looking at the R-squared statistic, it shows
12. Ford 12
that GDP could account for only a two percent shift in inflation. Also with an high P-value, the
GDP coefficient is rendered void.
Model 2: OLS, using observations 1969-2013 (T = 45)
Dependent variable: INF_SA
Coefficient Std. Error t-ratio p-value
const 2.34488 1.15266 2.0343 0.04812 **
GDP_SA 0.107119 0.030878 3.4691 0.00120 ***
Mean dependent var 3.991510 S.D. dependent var 7.880447
Sum squared resid 2134.943 S.E. of regression 7.046264
R-squared 0.218675 Adjusted R-squared 0.200504
F(1, 43) 12.03469 P-value(F) 0.001200
Log-likelihood -150.6917 Akaike criterion 305.3834
Schwarz criterion 308.9968 Hannan-Quinn 306.7305
rho 0.488065 Durbin-Watson 1.023790
This model substantiates my original hypothesis that GDP in Saudi Arabia precedes inflation
significantly. Looking at the P-value of GDP_SA, it is shown to have strong statistical
significance by having 3 stars and unlike the US figure it is positive which portrays a positive
linear relationship between the two. There are other factors that can contribute to inflation, but
using the R-squared value in this model, GDP can be responsible for a near 22 percent change in
inflation.
The major difference I would attribute to these occurrences is the ability to dictate
business cycles with interest rates, which for these models appear to work in the benefit of the
13. Ford 13
United States and its central bank. Interest rates have had controversy tied to them occasionally
because they aren’t dictated by market forces but by the Fed. If the Fed wasn’t in the position to
dictate interest rates, would the US have a need for them? Other than interest rates driving large
profits for the financial sector, could we possibly find an appreciation for loans based on their
profitability in the long run rather than just on interest rates.
Works Cited
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El-Gamal, Mahmoud Amin. "A Basic Guide to Contemporary Islamic Banking and Finance."
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guide.pdf>.
Farooq, Mohammad Omar. "Exploitation, Profit and the Riba/interest Reductionism." I J Islam
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Greider, William. Secrets of the Temple: How the Federal Reserve Runs the Country. New York:
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banking.com/islamic_banking_principle.aspx>.
14. Ford 14
Mester, Loretta J. "Long-Run Economic Growth." Clevelandfed. Federal Reserve Bank of
Cleveland, 15 Oct. 2015. Web. 19 Nov. 2015. <https://www.clevelandfed.org/newsroom-
and-events/speeches/sp-20151015-long-run-economic-growth.aspx>.
Quandl. "Saudi Arabia - Unemployment Data - Data from Quandl." Saudi Arabia -
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<https://www.quandl.com/collections/saudi-arabia/saudi-arabia-unemployment>.
"Saudi Arabia Unemployment Rate | 1999-2015 |." Saudi Arabia Unemployment Rate | 1999-
2015 |. Trading Economics, n.d. Web. 19 Nov. 2015.
<http://www.tradingeconomics.com/saudi-arabia/unemployment-rate>.
Shaikh, Salman Ahmed. "Role and Functions of Central Bank in Islamic Finance." Role and
Functions of Central Bank in Islamic Finance. Academia, n.d. Web. 19 Nov. 2015.
<https://www.academia.edu/565309/Role_and_Functions_of_Central_Bank_in_Islamic_
Finance>.
Totaro, Lorenzo. "Vatican Says Islamic Finance May Help Western Banks in Crisis."
Bloomberg.com. Bloomberg, 4 Mar. 2009. Web. 19 Nov. 2015.
<http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aOsOLE8uiNOg>.
Ziegler. "Frequently Asked Questions - Saudi Arabia." Frequently Asked Questions - Saudi
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