BMC Course

The primacy of GDP

Economic Indicators
-

WGDPWRLD Index gets you world gdp. This is an estimate and numbers are
not accurate
Econ growh
Inflation
Unemployment
Business confidence
GDP== c+private investment +Gov consumption+net exports

Recession- two sccuesive quarters of gdp decline

Investors use real gdp
Morgages priced off gov bond yields

Coincident with gdp means it changes with it. Leading indicator means causes
Other indicators include; house prices, industrial production, jobless claims, retails
sales, gdp. These can fail to predict a turning point in the economy.
Real gdp growth is cyclical
Monitoring GDP

Gdp is published qyarterly, CPI, PMI and payrolls publishd monthly

Nonfarm payrolls report unemployment

Forecasting GDP
Currency Market
Gold standard ended
Fx volumes match gdp in just 14 days
Financial investors, corporations, and travelers
Pegged currecncy tied to one currency. Pegs dont always work
Currency matrix figure out exchange rate. Triangular arbitrage- cannot trade
between currecnes in that triangle and make money
Currency Valuation
Big mac index uses price of burger to see if currency is over/under valued

Surprise changes in interest rate, inflation and trade drive currency changes
Increase in int rates increase currency
Investors attracted by bonds with high interest rates
Target inflation is 2%

Central Banks and Currencies

Interest rates driven by expectations
Deflation leads to unemployment lower prices to stimulate demand
layoffs lower gdp

Currency Risk

Historic volatility of currency pair values

Currency pairs with higher volatility have higher bell curves. Middle of bell
curve is equilibrium price. Compare volatility from one standard deviation. \
Some people take 10 year currency locked in rate if they believe their
currency will weaken.
If you lock in a forward agreement with a higher price for your currency, the
cost of buyig the other currency will be lower.
Gold is nonyielding and expensive to store. Not able to be manipulated so it is
an inflation hedge. It stores vale
If a currency gets weaker it is better for seller there
Us dollar is heart of world market