Financial Markets Explained

Learn about the economy and the markets in general as we present a comprehensive explanation of the most commonly used jargon.

What is ‘Helicopter Money’ Policy?

What is ‘Helicopter Money’ Policy?

Financial Markets Explained
Helicopter Money is a proposed alternative in the world of easy monetary policy. One could be forgiven to mistake the term as a phenomenon where loads of money is simply dropped from a Helicopter. Helicopter Money is seen by many critics as the next step after Quantitative Easing. Helicopter Money, although might seem new to many has been around for years. The term is attributed to Milton Friedman and his parable of 'Helicopter drop of money' in 1969. “Let us suppose now that one day a helicopter flies over this community and drops an additional $1000 in bills from the sky, .... Let us suppose further that everyone is convinced that this is a unique event which will never be repeated,” (Friedman 1969, pp 4–5) In this article you will learn how helicopter money works, how it can be implem
What is the ECB’s Corporate Bond purchase program?

What is the ECB’s Corporate Bond purchase program?

Financial Markets Explained
After the ECB ventured into the world of quantitative easing as a policy response to deflationary threats and lack of growth in the Eurozone, the markets are abuzz with the latest venture, known as corporate bond purchases starting June 8th. So what are corporate bond purchases how are corporate bond purchases different from regular bond purchases and what impact will it have on the Eurozone economy? This and more questions are answered in this article. ECB's QE - Timeline and Context The European Central bank, embarked on Quantitative Easing when it announced on January 2015 that the central bank would purchase sovereign bonds to stimulate growth in the European economies. While initially starting with a monthly bond purchase program of 60 billion euros, the ECB quickly ramped up their ...
Why was the yen volatile at April 2016 BoJ meeting?

Why was the yen volatile at April 2016 BoJ meeting?

Financial Markets Explained
The Japanese yen saw one of the wildest moves ever this year so far, losing close to 5.90% on a weekly basis. In comparative terms, this week's strong declines in USDJPY stands only next to August 2015, when USDJPY fell 4.87% on the week amid a flash crash that saw investors rush to safety bidding up the yen. But this week, the yen's rally (or USDJPY’s declines) was for a different reason. In order to understand why the yen was so volatile this week, we need to build some context. Since the start of the year, the yen started off on a firm footing, after the December's Fed rate hike. With interest rates starting to be hiked for the first time since the 2008 global financial crisis, the markets which got used to easy monetary policy saw a flight to safety which saw gold along with
What is Negative Interest Rate Policy (NIRP)

What is Negative Interest Rate Policy (NIRP)

Financial Markets Explained
Central banks across the world have been talking about it, some have already implemented it, and others are still considering it. It is safe to stay that Negative Interest Rate Policy or NIRP could pretty much be the new norm, right after QE. A decade ago, negative interest rates were seemingly unthinkable, but in today's times where central banks mandated to maintain price stability or inflation, negative interest rates are mentioned periodically and with ease. So what are negative interest rates and why is there so much fuss around this? What is Negative Interest Rate Policy? In a sane world, interest rate is the price one pays to borrow money. In the credit markets or bond markets, it goes by the name of yield. Yield is nothing but a dividend, interest or returns an investor expects f...
Is the NZD rally justified despite RBNZ rate cut in Dec’2015?

Is the NZD rally justified despite RBNZ rate cut in Dec’2015?

Financial Markets Explained
The Reserve Bank of New Zealand met on December 9th for its final monetary policy review for the year. Heading into the RBNZ's monetary policy event, the markets were widely divided on whether the New Zealand Central bank would cut rates or not, given that the it is an almost certainty that the US Federal Reserve would hike rates at the meeting on December 17th. However, the RBNZ did indeed deliver a 25 bps rate cut, bringing the overnight cash rate from 2.75% previously to 2.50%. In the monetary policy statement from the RBNZ which can be read here, the Central Bank noted that it felt justified that the current rate cut would help New Zealand's inflation move back into the 1.0% - 3.0% target range by mid 2016. The Central bank also accepted the view that inflation will remain weak in t...