INTRODUCTION
Risk Appetite
Risk appetite is a term that is frequently used through Out the role management
community but it seems that there is a lack of useful information on its application-
outside of financial risk areas or other risks that can easily be translated into
financial areas.
Globalization: After the Recession
The world economy has just been though a severe recession marked by financial
term oil large scale destruction of wealth and declined in industrial production and
global trade , according to the international labour organization continued labour
market deterioration 2009 may lead to an estimated increase in global
unemployment of 39-61 million workers relative to 2007 .
By the end of this year , the world wide ranks of the unemployment may range from
219 to 241 million the highest number on records . This shows Globalization after
the recession.
DISCUSSION
1. Buy and Hold
By 2009, the global economic malaise had erased a decade's worth of gains. Buying and holding turned out to be a one-way ticket to massive losses. From 2007 to 2008, many investors who followed this strategy saw their investments lose at least 50%.
2. Know Your Risk Appetite
The aftermath of a recession is a good time to reevaluate your appetite for risk. Ask yourself this: When the markets crashed, did you buy, hold or sell your stocks and lock in losses? Your behavior says more about your tolerance for risk than any "advice" you received from that risk quiz you took when you enrolled in your 401(k) plan at work.
3. Diversify
Diversification failed in 2008 as stock markets around the world swooned. Hedge funds and commodities tumbled too. Fixed annuities, on the other hand, had their day in the sun in 2009 - after all, a 3% guarantee sure beat holding a portfolio that fell by half. Holding a bit of cash, a few certificates of deposit or a fixed annuity can help take the traditional strategic asset allocation diversification models a step further.
4. Know When to Sell
Indefinite growth is not a realistic expectation, yet investors often expect rising stocks to gain forever. Putting a price on the upside and the downside can provide solid guidelines for getting out while the getting is good. Similarly, if a company or an industry appears to be headed for trouble, it may be time to take your gains off of the table. There's no harm in walking away when you are ahead of the game.
5. Use Caution When Using Leverage
The events that occurred following the subprime mortgage meltdown in 2007 had many investors running from the use of leverage. As the banks learned, making massive financial bets with money you don't have, buying and selling complex investments that you don't fully understand and making loans to people who can't afford to repay them are bad ideas.
Korea and fiscal worries hurt risk appetite
The FTSE All-World equity index is down 1.1 per cent and commodities are mostly under pressure. Worry is pushing money into perceived havens like the dollar and core bonds.
The S&P 500 on Wall Street is down 0.8 per cent in its holiday-shortened session – though it is getting some support from optimism regarding the start of the festive shopping season.
Better data out of the States – supported by well-received corporate earnings and the Federal Reserve’s $600bn backstop – have provided flurries of positivity over recent days. The S&P 500 in New York rose 1.5 per cent, for example, on Wednesday following upbeat news on jobs and consumer sentiment.
But the benchmark had fallen 1.4 per cent the previous session as fiscal and political factors weighed.
The former relates to the fear the eurozone budget crisis will spread to Spain, delivering more uncertainty, austerity and financial system woes to a region struggling to emerge from recession. Stock traders are today avidly watching the euro, noting its extremely tight correlation to risk appetite. The cost of insuring the bloc’s debt is at record levels.
The latter is the tension on the Korean peninsula following the North’s shelling of civilians in the South.
Both those issues still fester – indeed Pyongyang has now accused Washington and Seoul of pushing the region close to war by planning military exercises in the Yellow Sea. And the euro is being sold off again as eurozone “peripheral” bonds signal contagion.
They have been joined on Friday by the now seemingly traditional end-of-week worry about China tightening monetary policy to contain inflation.
A sense that Beijing’s moves to constrict capital may already be having significant impact was fostered by news that the country’s finance ministry had failed to elicit sufficient demand for a planned sale of Rmb20bn ($3bn) worth of three-month bills. A shortage of liquidity at banks was blamed following the central bank’s hiking of reserve requirement ratios over recent months.
China’s benchmark money market rate moved to its highest level in two months, up 25 basis points to 2.73 per cent, as the system priced in a move by the authorities to raise borrowing costs, according to Bloomberg.
Anecdotal evidence from the malls so far is fairly promising, with decent crowds and less discounting.
Asia-Pacific – News of artillery fire within North Korea spooked Asian stocks in late trade, further hurting a region already wary of eurozone fiscal woes and potential monetary tightening
Commodities – The complex is mostly under the cosh on China tightening worries and the stronger buck. Copper is down 1.3 per cent at $8,223 a tonne, while oil is lower by 0.1 per cent at $83.74 a barrel. Gold is not enjoying any haven flows on the political tensions and seems more concerned about the dollar’s rise. The bullion is down 1.1 per cent at $1,360 an ounce.
The Pound rallies against the Dollar, amid a global increase in risk appendies
GBPEUR/GBPUSD
The Pound declined heavily against the higher-yielding currencies, as an element of confidence returned to financial markets, despite widespread concerns over the spread of swine flu. The UK currency rallied to a high of $1.4812 against the U.S Dollar, as the rise in risk appetite diminished the allure of U.S assets as a haven.
UK stocks advanced, led by a rebound in banking shares and metal producers, after HSBC Holdings plc recommended Barclays Plc and Lloyds Banking Group Plc. The FTSE 100 Index jumped 2.3% on the session, as Barclays, the U.K’s third-largest bank, and Lloyds allied over 8% to wipe out two consecutive days of declines.
The UK benchmark index has rebounded 19% from its low this year on March 3rd, amid optimism that the worst of the global recession may be over. However, the FTSE is still down over 37% since June 2007, as banks in Europe reported more than $395 billion in net credit losses. Global stocks declined earlier this week on concerns that U.S lenders will need to raise additional capital and the outbreak of swine flu will hamper economic activity.
The Pound dipped to lows just under 1.1100 against the Euro yesterday and gilts rose, after the Chancellor of the Exchequer Alistair Darling said that UK interest rates would remain at record low levels. The two-year yield fell to close to its lowest level in almost four months, as Darling said in a conference to business leaders that interest rates were “low and likely to remain low”.
The Bank of England have cut UK interest rates by 4.5 percentage points since October to the lowest level in history at 0.5%. Policy makers have also embarked on a period of quantitative easing, through the creation of new money to purchase government and corporate bonds. The BoE confirmed on March 5th that it will buy up to £75 billion of toxic assets, as part of the asset insurance program.
The Pound will continue to make gains against the Dollar in the near-term as the aggressive swings in risk sentiment continue to dominate the market. The UK currency may also find some support against the Euro, amid the release of key economic data. The Gfk gauge of consumer confidence is expected to show an improvement in sentiment for April, while a separate report from Nationwide will probably report a modest increase in UK house prices.
A separate report yesterday showed that European confidence in the economic outlook increase for the first time in 11-months in April. The surprisingly upbeat tone of the report has fuelled hopes that the economy may now be past the worst of the recession but “with Euro-area domestic demand likely to remain weak, any resumption in growth may have to wait for world demand to recover
India
Despite slowing from highs of 8% to 9% growth, India's economy will grow close to 6% in 2009. Amid domestic and global liquidity crunch, large domestic savings and corporate retained earnings are financing investment. Sluggish labor market and wealth effects have hit urban consumption. But low export dependence, a large consumption base and the high share of employment (two-thirds) and income (one-half) coming from rural areas has helped sustain consumption. Pre-election spending, especially in rural areas, and high government expenditure, are also pluses. Timely monetary and credit measures have played a key role in improving private demand, liquidity and short-term rates and reducing the risk of loan losses. Credit is largely channeled by domestic banks, especially state-controlled ones, which have low loan-to-deposit ratios and little exposure to toxic assets. IT exports have held up despite repercussions on jobs and consumer spending. The oil price correction cushioned India's trade deficit and large foreign exchange reserves helped the country withstand capital outflows in 2008. High returns in real estate and infrastructure and planned liberalization also helped boost capital inflows and asset markets when global risk appetite revived recently.
TOKYO, Feb 2 (Reuters) - The dollar was stuck near its lowest level in nearly three months on Wednesday as a string of robust economic data and easing concerns over Egypt took the steam out of safe-haven buying in the currency.
The dollar, which attracted safe-haven bids late last week as protests in Egypt intensified, fell broadly on Tuesday as risk appetite returned, with its index against a basket of major currencies posting its biggest fall in nearly three weeks.
"When investors' risk appetite grows, the dollar becomes a funding currency," said Junya Tanase, strategist at J.P. Morgan Chase Bank.
The dollar index .DXY =USD fell 0.9 percent percent to 77.067 on Tuesday, after dropping as low as 76.943 and breaking through major support around 77.444. It last stood at 77.031.
Data showing the U.S. manufacturing sector grew at its fastest pace in nearly seven years last month bolstered hopes that the economy was gaining traction, encouraging investors to wade into risky trades.
That meant more buying of the euro, which has been marred by concerns over some euro zone countries' debt financing, as well as of growth-linked currencies such as the Australian dollar.
The euro EUR= rose as high as $1.3843 on Tuesday, its highest since early November, as the common currency continued to benefit from rising expectations that the European Central Bank will go well ahead of its U.S. counterpart in raising rates.
SOURCE
”www.wikipedia.org”
”www.wikihow.com”
”www.google.com”
CONCLUSION
The root cause of recession is that every citizen wants to enter into an individual field which results in that mediocre level citizen drown downwards and high class citizen become more strong economical wise. The big problem is credit and how people don't know how to use it. When you borrow money you can't pay back it is a problem, if most of a country does it, it is a huge problem which affects the whole nation ion recession .
Submitted by : Nikhil Sharma
Nikhil a good try but no referencing and title not as per guidelines????? Deviated from the topic???
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