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Ebook Transaction Cost Can Have A First-Order Effect on Liquidity Premium

Submitted by wulan on Sat, 01/30/2010 - 07:22

Transaction costs are prevalent in almost all financial markets. Extensive research has been conducted on the optimal consumption and investment policy in the presence of transaction costs (e.g., Constantinides (1986), Davis and Norman (1990), Koo (1992a), Liu and Loewenstein (2002), Liu (2004)). As shown in these studies, the presence of transaction costs significantly changes the optimal consumption and optimal investment strategy. For example, an investor no longer trades continuously and even a small transaction cost can dramatically decrease the frequency of trading to save transaction costs.

However, the utility loss is found to be small by most of the existing literature. In particular, in his seminal paper Constantinides (1986) finds that the liquidity premium (i.e., the maximum expected return an investor is willing to give up in exchange for zero transaction cost) is small relative to the transaction cost, even for a suboptimal trading strategy and thus concludes that transaction costs are of second-order effect for asset pricing.

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Ebook Balance of Payments Anti-Crises by Michael Kumhof, Isabel Yan

Submitted by puput on Thu, 01/28/2010 - 03:14

On March 20, 2007 Chinahs central bank governor announced that his country would stop accumulating foreign exchange reserves. He was quoted in Reuters (2007) as stating iforeign exchange reserves in China are large enough. We do not intend to go further and accumulate reserves.jAs shown in Figure 1, this statement followed several years of very large and accelerating Chinese reserve gains. The central bank did not follow through on the statement and kept accumulating reserves throughout 2007. But in all subsequent debates this option has never been completely off the table. The remainder of the year 2007 was characterized by accelerating Chinese currency appreciation and by a significant increase in domestic inflation.

Similarly, during 2007 Colombia experienced a period of large central bank foreign exchange purchases to stem the appreciation of its real exchange rate due to capital inflows. As reported in Kamil (2008), financial markets perceived this intervention as unsustainable and bet heavily against the central bank. As a result of its rapid accumulation of foreign currency denominated assets, the central bank soon ran out of domestic currency treasury bills, and its net creditor position visa vis the financial sector turned into a net debtor position. This made it very diffi cult to control the interbank nominal interest rate, which started to significantly undershoot the policy interest rate. As shown in Figure 1, exchange rate appreciation continued unchecked. The intervention policy was soon abandoned.

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PDF Ebook Analyzing Your Dairy Business: A Systematic Approach to Using Benchmarks

Submitted by antoq on Tue, 12/29/2009 - 01:53

One key to operating a successful and competitive dairy business is to monitor business performance and make the necessary adjustments to correct any bottlenecks that may adversely affect profitability. Benchmarks can be useful tools in helping dairy producers evaluate their business. Producers should always have a “Big Picture” view of how their business is performing. Dairy producers can accomplish this by knowing ten key performance indicators for their businesses; five financial ratios and five herd performance indicators. These indicators are comparable to the warning lights on the dashboard of a car. They can signal that something is wrong, but will provide little detail as to what the specific cause of the problems might be. However, if any of these ten indicators are significantly different, from a negative perspective, than recommendations outlined in this manual or the goals established by the business owners, other indicators should be examined to determine the cause of substandard performance.

Conducting an annual business performance analysis is an essential process for all business owners. Although dairy producers are no exception, many fail to address this important matter. An annual business analysis provides the owner with a comprehensive view of how the business has performed in a number of key areas over the past year. The analysis will answer some important questions every business owner must answer and can help determine the strengths and weaknesses of the business. If properly conducted, an annual business performance can pinpoint the bottlenecks that are reducing profits.

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