FINA 4310 Chapter Notes - Chapter 12: Federal Funds Rate, Gross Domestic Product, Federal Funds
Document Summary
12. 2 the domestic macro economy, three main economic policy goals. Interest rate differential (example: carry trade: purchasing power parity (ppp) Interest rate differential: the carry trade enforces equilibrium, carry trade mechanics, borrow funds in low interest rate currency, convert funds to high interest rate currency, at the end of the term, redeem investment in high interest rate currency, Invest at the high interest rate over a certain term convert funds back to currency that was borrowed and repay loan: purchasing power parity (ppp) In theory, identical goods/services should cost the same everywhere, no matter the currency. Industries with above-average sensitivity to state of economy (high beta: defensive industries. In trough capital goods industries (anticipating capex spending cycle) In expansion cyclical industries: to outperform, one must be better/faster in recognizing cycle shifts, 12. 6 business cycles: leading indicators, economic series that tend to rise or fall in advance of the rest of the economy.
