Why does the time value of money assume that a dollar today is worth more than a dollar tomorrow?

July 8, 2024 No Comments

A: The time value of money, or TVM, assumes a dollar in the present is worth more than a dollar in the future because of variables such as inflation and interest rates. Inflation is the general increase in prices, which means that the value of

Why is the British pound / U.S. dollar currency pair known as “trading the cable”?

July 8, 2024 No Comments

A: The British pound / U.S. dollar currency pair is one of the oldest and most widely-traded currency pairs in the world. The term cable is a slang term used by forex traders to refer to the exchange rate between the pound and dollar and

Why is the U.S. dollar shown on the top of some currency pairs and on the bottom of others?

July 8, 2024 No Comments

A: All currencies are traded in pairs. The first currency in the pair is called the base currency while the second is called the quote or “counterpart” currency. Usually the most dominant currency, in terms of the other currencies against which it trades, is quoted

What causes a recession?

July 8, 2024 No Comments

A: The National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real gross domestic product (GDP), real income, employment, industrial production and wholesale-retail sales.” A recession

What is the correlation between U.S. stock prices and the value of the U.S. dollar?

July 8, 2024 No Comments

A: The correlation between any two variables (or sets of variables) summarizes a relationship, whether or not there is any real-world connection between the two variables. The correlation coefficient will always be between -1 and +1, which signify two opposite extremes of perfect correlations. A

What do the terms weak dollar and strong dollar mean?

July 8, 2024 No Comments

A: The terms weak dollar and strong dollar are generalizations used in the foreign exchange market to describe the relative value and strength of the U.S. dollar against other currencies. The terms “strong,” “weak,” “strengthening” and “weakening” are interchangeable for any currency. Defining a Strong and Weak

What is the difference between extensive margin and intensive margin in economics?

July 8, 2024 No Comments

A: Trading on margin is not commonly done in stock trading except by professional investors and institutional traders. However, trading on margin is standard practice in the futures markets and forex trading. The ability to trade on relatively low margin, with high leverage, is part

What does deflation mean to investors?

July 8, 2024 No Comments

A: The cause and effect of deflation are complex economic forces, which requires a short introduction to the concept and an explanation of how it affects investors. Deflation is a macroeconomic condition where a country experiences lowering prices. This is the opposite of inflation, which

What does rollover mean in the context of the forex market?

July 8, 2024 No Comments

A: In the forex (FX) market, rollover is the process of extending the settlement date of an open position. In most currency trades, a trader is required to take delivery of the currency two days after the transaction date. However, by rolling over the position

What economic indicators are most used when forecasting an exchange rate?

July 8, 2024 No Comments

A: The economic indicators used to forecast an exchange rate are the same ones used to determine the overall economic health of a country. The gross domestic product (GDP), consumer price index (CPI), producer price index (PPI), employment data and interest rates are all key

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