Demand and Supply in Financial Markets

Navigating the New Landscape Careers in Financial Markets 2010-2011 www.efinancialcareers.com Your guide to finding a job in securities and banking 2010-11 8/19/10 3:24 PM Now is Your Time to Embrace New Opportunities. Don’t let the burden of finding the right job, worrying about school loans or debt weigh you down. Visit the NASDAQ.com Personal Finance Center today to broaden your business knowledge, strengthen your financial management skills and improve your personal finance confidence. • SearchforjobsandpreparefortheinterviewviatheNASDAQ.comCareerCenter • LearnhowtoshedstudentdebtintheCollegesection • UsethepersonalfinancetoolsandarticlestomaximizeCredit www.nasdaq.com/personal-finance © Copyright 2010, The NASDAQ OMX Group, Inc. All rights reserved. 201212_CVR.indd 2 www.efinancialcareers.com Welcome to the sixth edition of Careers in Financial Mar- kets, from eFinancialCareers. Investment banking remains a popular career choice among today’s very best graduates and MBAs, so the competition to secure that all-important first foot in the door is intense. The aim of this guide is to offer you real insights into the world of Wall Street and the securities business, and to give you the knowledge you need to stand out. As you develop your career, we hope eFinancialCareers will be your online companion. We serve the global financial community as the Web’s top site for career management and jobs in the securities, investment banking and asset management fields. Professionals from analysts to manag- ing directors at the world’s leading investment banks, hedge funds, ratings agencies and trading firms rely on us every day. In addition to job listings, eFinancialCareers provides pre- mier job market and pay analysis, employment advice and a series of tools to help you maximize your career oppor- tunities. One such tool for job seekers is our career guides published in the U.S. and Europe. These unique guides profile the current trends, career paths, top players and skills required for the principal financial professions. If, having read this guide, you’d like to learn more about the industry, conduct some pre-interview research, or simply post your resume for your next job, come and visit us at eFinancialCareers. Be sure to check out our Campus Con- nection, which provides news, tips, background and other information especially for business students. With best wishes for your career, Mark M. Feffer U.S. Editor, eFinancialCareers www.efinancialcareers.com Welcome Bonus video interviews and full length Q&A profiles www.efinancialcareers.com/cifm Q A 201212_Text_R1.indd 1 8/27/10 10:53 AM Careers in Financial Markets 2010-11 Contents Welcome 1 Table of Contents 2 How to Use This Guide 3 Overview A Career in the Financial Markets 4 The Brave New World 5 Finding a Job A New Dawn 6 The Campus Recruitment Process: A Survival Guide 7 Campus Recruiter Q&A 9 All About Internships 11 Landing Your First Job 12 Ace the Interview 13 Make Your Online Identity Work For You – Not Against You 14 Resumes and Cover Letters 15 How to Research Potential Employers 16 Networking in College – Online and Off 17 Your First Finance Skill-Set 18 The Ins and Outs of an Overseas Job Demand and Supply in Financial Markets Demand and Supply in Financial Markets By: OpenStaxCollege United States’ households and businesses saved almost $2.9 trillion in 2012 Where did that savings go and what was it used for? Some of the savings ended up in banks, which in turn loaned the money to individuals or businesses that wanted to borrow money Some was invested in private companies or loaned to government agencies that wanted to borrow money to raise funds for purposes like building roads or mass transit Some firms reinvested their savings in their own businesses In this section, we will determine how the demand and supply model links those who wish to supply financial capital (i.e., savings) with those who demand financial capital (i.e., borrowing) Those who save money (or make financial investments, which is the same thing), whether individuals or businesses, are on the supply side of the financial market Those who borrow money are on the demand side of the financial market For a more detailed treatment of the different kinds of financial investments like bank accounts, stocks and bonds, see the Financial Markets chapter Who Demands and Who Supplies in Financial Markets? In any market, the price is what suppliers receive and what demanders pay In financial markets, those who supply financial capital through saving expect to receive a rate of return, while those who demand financial capital by receiving funds expect to pay a rate of return This rate of return can come in a variety of forms, depending on the type of investment The simplest example of a rate of return is the interest rate For example, when you supply money into a savings account at a bank, you receive interest on your deposit The interest paid to you as a percent of your deposits is the interest rate Similarly, if you demand a loan to buy a car or a computer, you will need to pay interest on the money you borrow Let’s consider the market for borrowing money with credit cards In 2012, more than 180 million Americans were cardholders Credit cards allow you to borrow money from 1/11 Demand and Supply in Financial Markets the card's issuer, and pay back the borrowed amount plus interest, though most allow you a period of time in which you can repay the loan without paying interest A typical credit card interest rate ranges from 12% to 18% per year In 2010, Americans had about $900 billion outstanding in credit card debts About half of U.S families with credit cards report that they almost always pay the full balance on time, but one-quarter of U.S families with credit cards say that they “hardly ever” pay off the card in full In fact, as of March 2013, CreditCards.com reported that nearly two out of every five Americans (39%) carry credit card debt from one month to the next Let’s say that, on average, the annual interest rate for credit card borrowing is 15% per year So, Americans pay tens of billions of dollars every year in interest on their credit cards—plus basic fees for the credit card or fees for late payments [link] illustrates demand and supply in the financial market for credit cards The horizontal axis of the financial market shows the quantity of money that is loaned or borrowed in this market The vertical or price axis shows the rate of return, which in the case of credit card borrowing can be measured with an interest rate [link] shows the quantity of financial capital that consumers demand at various interest rates and the quantity that credit card firms (often banks) are willing to supply Demand and Supply for Borrowing Money with Credit Cards In this market for credit card borrowing, the demand curve (D) for borrowing financial capital intersects the supply curve (S) for lending financial capital at equilibrium € At the equilibrium, the interest rate (the “price” in this market) is 15% and the quantity of financial capital being loaned and borrowed is $600 billion The equilibrium price is where the quantity demanded and the quantity supplied are equal At an above-equilibrium interest rate like 21%, the quantity of financial capital supplied would increase to $750 billion, but the quantity demanded would decrease to $480 billion At a below-equilibrium interest rate like 13%, the quantity of financial capital demanded would increase to $700 billion, but the quantity of financial capital supplied would decrease to $510 billion 2/11 Demand and Supply in Financial Markets Demand and Supply for Borrowing Money with Credit Cards Interest Quantity of Financial Capital Rate (%) Demanded (Borrowing) ($ billions) Quantity of Financial Capital Supplied (Lending) ($ billions) 11 $800 $420 13 $700 $510 15 $600 $600 17 $550 $660 19 $500 $720 21 $480 $750 The laws of demand and supply continue to apply in the financial markets According to the law of demand, a higher rate of return (that is, a higher price) will decrease the quantity demanded As the interest rate rises, consumers will reduce the quantity that they borrow According to ...SR/OIAF/99-03 FederalFederal FinancialFinancial InterventionsInterventions andand SubsidiesSubsidies inin EnergyEnergy MarketsMarkets 1999:1999: PrimaryPrimary EnergyEnergy September 1999 Energy Information Administration Office of Integrated Analysis and Forecasting U.S. Department of Energy Washington, DC 20585 This report was prepared by the Energy Information Administration, the independent statistical and analytical agency within the Department of Energy. The information contained herein should be attributed to the Energy Information Administration and should not be construed as advocating or reflecting any policy position of the Department of Energy or of any other organization. Service Reports are prepared by the Energy Information Administration upon special request and are based on assumptions specified by the requestor. Preface The analysis in this report was undertaken at the request of the Office of Policy, U.S. Department of Energy. In its request, the Office of Policy asked the Energy Information Administration (EIA) to update the 1992 EIA report on Federal energy subsidies, including any additions or deletions of Federal subsidies based on Administration and Congressional action since the 1992 report was written, and to provide an estimate of the size of each current subsidy. Subsidies to be included are those through which a government or public body provides a financial benefit. The subsidy must be specific; for example, depreciation schedules that can be used in non-energy sectors as well as energy sectors are not included in the definition of a subsidy for this study. This report is to focus on subsidies covering primary energy only; a subsequent report will be requested, covering end-use energy and electricity. The assumptions for the study were noted in a letter provided by the Office of Policy on May 20, 1999. A second letter from the Office of Policy clarified the assumptions further, focusing the analysis of subsidies on goods rather than services. Both letters are provided in Appendix E. The legislation that established EIA in 1977 vested the organization with an element of statutory independence. It is EIA’s responsibility to provide timely, high-quality information and to perform objective, credible analyses in support of the deliberations of policymakers. EIA prepared this Service Report upon special request, using the assumptions specified by the requestor. This report was prepared by the staff of EIA’s Office of Integrated Analysis and Forecasting. General questions about the report may be directed to Mary J. Hutzler (202/586-2222, mhutzler@eia.doe.gov), Director of the Office of Integrated Analysis and Forecasting, or to Arthur Rypinski (202/586-8425, arthur.rypinski@eia.doe.gov). Specific questions about the report may be directed to the following analysts: Kevin Lillis (202/586-1395 klillis@eia.doe.gov): The Scope of Energy Subsidies and Tax Expenditures Appendix B, Oil and Gas Appendix C, Federal Energy Research and Development Appropriations Appendix D, Bibliography Robert Eynon (202/586-2392 reynon@eia.doe.gov): Federal Energy Research and Development Edward Flynn (202/586-5748 eflynn@eia.doe.gov): Trust Funds and Energy Excise Taxes Appendix B, Coal Tom Leckey (202/586-9413 tleckey@eia.doe.gov): Appendix A, Studies of Federal Government Energy Interventions Larry Prete (202/586-2847 lprete@eia.doe.gov): Appendix B, Electricity, Nuclear, Alternative Energy. ii Energy Information Administration / Federal Energy Market Interventions 1999: Primary Energy Contents Page Executive Summary vii 1. Introduction 1 Background 1 Scope of the Report 2 Federal Energy DANANG UNIVERSITY UNIVERSITY OF ECONOMICS TRADE DEPARTMENT  MICROECONOMICS Demand and Supply Teacher: Nguyen Huu Hien Members of group: • Le My Linh • Duong Minh Ha • Le Thanh Quyen • Le Thi Truc Kieu • Huynh Thi Thuy Trang • Hoang Thi Phuong Thao Class: 39K01.1-CLC Dec 11 DEMAND and SUPPLY MICROECONOMICS and MACROECONOMICS   Microeconomics is a branch of economics that studies the behavior of individual economics units: consumers, workers, investors, owners of land, business firms in making decisions on the allocation of limited resources Typically, it applies to markets where goods or services are bought and sold Microeconomics examines how these decisions and behaviors affect the supply and demand for goods and services, which determines prices, and how prices, in turn, determine the quantity supplied and quantity demanded of goods and services This is in contrast to macroeconomics, which involves the sum total of economic activity, dealing with the issues of growth, inflation, and unemployment Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets This includes national, regional, and global economies With microeconomics, macroeconomics is one of the two most general fields in economics MICROECONOMICS 14 Dec 11 DEMAND and SUPPLY DEMAND and SUPPLY    Demand Definition: Demand is a schedule or a curve that shows the various amounts of product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time The demand curve: the inverse relationship between price and quantity demanded for any product can be represented on a simple graph, in which, by convention, we measure quantity demanded on the horizontal axis and price on the vertical axis Such a curve is called a demand curve Its downward slope reflects the law of demand – people buy more of a product, service, or resource as its price falls Ex: P D Q Determinants of demand: the demand curve shifts because of changes in: • Consumer tastes • The number of buyers in the market • Consumer income • The prices of substitute or complementary goods • Consumer expectations MICROECONOMICS 14 Dec 11 DEMAND and SUPPLY Market demand: market demand includes all of individual demands on the market In theory, market demand is obtained by adding all the individual quantities demanded at each price; we then plot the price and the total quantity demanded as one point on the market demand curve Change in demand: a change in demand schedule or, graphically, a shift in the demand curve is called a change in demand It occurs because the consumer’s state of mind about purchasing the product has been altered in response to a change in one or more of the determinants of demand If consumers desire to buy more corn at each possible price, that increase in demand is shown as a shift of the demand curve to the right Changes in quantity demanded: is a movement from one point to another point – from one price-quantity combination to another- on a fixed demand schedule or demand curve The cause of such a change is an increase or decrease in the price of the product under consideration This is a simple example: With the price 15,000 VND/kg of oranges, consumer A is ready to buy kg for his family for one day in hot summer months, 2008 in Hanoi However, when the price increases by 30,000 VND/kg, that consumer only desire to and afford to buy kg When the orange price is 15,000 VND/kg, the oranges quantity demanded is marketed to 10 tons per day But when the price increases by 30,000 VN/kg, there are only tons of oranges per day in Hanoi market So, with the different price, the consumers will desire to and afford to buy different quantities of articles Whereby, we see that the oranges quantity demanded of consumer A in Hanoi is kg/day while Hanoi market demand is 10 tons of oranges per day when the orange price is 15,000 Copyright 2011  Pearson Canada Inc. 24 - 1 Chapter 24 Aggregate Demand and Supply Analysis Copyright 2011  Pearson Canada Inc. 24 - 2 Aggregate Demand • Aggregate Demand - The relationship between the quantity of aggregate output demanded and the price level when all other variables are held constant • Based on the quantity theory of money – Determined solely by the quantity of money • Based on the components parts – Consumption, investment, government spending and net exports Y AD = C + I + G + NX Copyright 2011  Pearson Canada Inc. 24 - 3 Quantity Theory of Money Approach to Aggregate Demand M =quantity of money P= price level Y= aggregate real output (real income) P x Y = total nominal spending on goods and services V = the average number of time per year that a dollar is spent Multiplying both sides by M we derive the equation of exchange which relates money supply to aggregate spending M x V = P x Y Changes in aggregate spending are determined primarily by changes in the money supply M YxP V = Copyright 2011  Pearson Canada Inc. 24 - 4 Deriving the Aggregate Demand Curve • Changes in the price level induce changes in the aggregate output demanded and hence movement along the AD curve (points A, B, and C in Figure 24-1) • In the quantity theory, changes in the money supply are the primary source of changes in aggregate spending and thus shifts the AD curve. Copyright 2011  Pearson Canada Inc. 24 - 5 Aggregate Demand Curve Copyright 2011  Pearson Canada Inc. 24 - 6 Behaviour of Aggregate Demand’s Component Parts Y AD = C + I + G + NX The aggregate demand curve is downward sloping because P ↓ → M/P ↑ →i ↓ → I ↑ → Y AD ↑ and P ↓ → M/P ↑ →i ↓ → E ↓ → Y AD ↑ Copyright 2011  Pearson Canada Inc. 24 - 7 Factors that Shift Aggregate Demand • An increase in the money supply shifts AD to the right because it lowers interest rates and stimulates investment spending • An increase in spending from any of the components C, I, G, NX, will also shift AD to the right Copyright 2011  Pearson Canada Inc. 24 - 8 Factors That Shift the Aggregate Demand Curve I Copyright 2011  Pearson Canada Inc. 24 - 9 Factors That Shift the Aggregate Demand Curve II Copyright 2011  Pearson Canada Inc. 24 - 10 Aggregate Supply • Long-run aggregate supply curve (LRAS) – Determined by amount of capital and labor and the available technology – Vertical at the natural rate of output generated by the natural rate of unemployment • Short-run aggregate supply curve (SRAS) – Wages and prices are sticky – Generates an upward sloping SRAS as firms attempt to take advantage of short-run profitability when price level rises [...]... Run Aggregate Supply Short Run Aggregate Supply Factors that Shift Short Run Aggregate Supply I • Costs of production – – – – Tightness of the labor market Expected price level Wage push Change in production costs unrelated to wages (supply shocks) Factors that Shift Short Run Aggregate Supply II Equilibrium of AS and AD in the Short Run Equilibrium of AS and AD in the Long Run I Equilibrium of AS and. .. result of past high unemployment – Natural rate of unemployment shifts upward and natural rate of output falls below full employment – Expansionary policy needed to shift aggregate demand Demand and Supply at Work in Labor Markets Demand and Supply at Work in Labor Markets By: OpenStaxCollege Markets for labor have demand and supply curves, just like markets for goods The Copyright 2011  Pearson Canada Inc. 24 - 1 Chapter 24 Aggregate Demand and Supply Analysis Copyright 2011  Pearson Canada Inc. 24 - 2 Aggregate Demand • Aggregate Demand - The relationship between the quantity of aggregate output demanded and the price level when all other variables are held constant • Based on the quantity theory of money – Determined solely by the quantity of money • Based on the components parts – Consumption, investment, government spending and net exports Y AD = C + I + G + NX Copyright 2011  Pearson Canada Inc. 24 - 3 Quantity Theory of Money Approach to Aggregate Demand M =quantity of money P= price level Y= aggregate real output (real income) P x Y = total nominal spending on goods and services V = the average number of time per year that a dollar is spent Multiplying both sides by M we derive the equation of exchange which relates money supply to aggregate spending M x V = P x Y Changes in aggregate spending are determined primarily by changes in the money supply M YxP V = Copyright 2011  Pearson Canada Inc. 24 - 4 Deriving the Aggregate Demand Curve • Changes in the price level induce changes in the aggregate output demanded and hence movement along the AD curve (points A, B, and C in Figure 24-1) • In the quantity theory, changes in the money supply are the primary source of changes in aggregate spending and thus shifts the AD curve. Copyright 2011  Pearson Canada Inc. 24 - 5 Aggregate Demand Curve Copyright 2011  Pearson Canada Inc. 24 - 6 Behaviour of Aggregate Demand’s Component Parts Y AD = C + I + G + NX The aggregate demand curve is downward sloping because P ↓ → M/P ↑ →i ↓ → I ↑ → Y AD ↑ and P ↓ → M/P ↑ →i ↓ → E ↓ → Y AD ↑ Copyright 2011  Pearson Canada Inc. 24 - 7 Factors that Shift Aggregate Demand • An increase in the money supply shifts AD to the right because it lowers interest rates and stimulates investment spending • An increase in spending from any of the components C, I, G, NX, will also shift AD to the right Copyright 2011  Pearson Canada Inc. 24 - 8 Factors That Shift the Aggregate Demand Curve I Copyright 2011  Pearson Canada Inc. 24 - 9 Factors That Shift the Aggregate Demand Curve II Copyright 2011  Pearson Canada Inc. 24 - 10 Aggregate Supply • Long-run aggregate supply curve (LRAS) – Determined by amount of capital and labor and the available technology – Vertical at the natural rate of output generated by the natural rate of unemployment • Short-run aggregate supply curve (SRAS) – Wages and prices are sticky – Generates an upward sloping SRAS as firms attempt to take advantage of short-run profitability when price level rises [...]... Run Aggregate Supply Short Run Aggregate Supply Factors that Shift Short Run Aggregate Supply I • Costs of production – – – – Tightness of the labor market Expected price level Wage push Change in production costs unrelated to wages (supply shocks) Factors that Shift Short Run Aggregate Supply II Equilibrium of AS and AD in the Short Run Equilibrium of AS and AD in the Long Run I Equilibrium of AS and. .. result of past high unemployment – Natural rate of unemployment shifts upward and natural rate of output falls below full employment – Expansionary policy needed to shift aggregate demand Demand and Supply Shifts in Foreign Exchange Markets Demand and Supply Shifts in Foreign Exchange Markets By: OpenStaxCollege The foreign exchange market involves firms, households, and investors who demand and supply currencies coming together through their banks and the key foreign exchange dealers [link] (a) offers an example for the exchange rate between the U.S dollar and the Mexican peso The vertical axis shows the exchange rate for U.S dollars, which in this case is measured in pesos The horizontal axis shows the quantity of U.S dollars being traded in the foreign exchange market each day The demand curve (D) for U.S dollars intersects with the supply curve (S) of U.S dollars at the equilibrium point (E), ... affects saving in different types of financial investments In deciding between different forms 4/11 Demand and Supply in Financial Markets of financial investments, suppliers of financial capital... Demand and Supply in Financial Markets Demand and Supply for Borrowing Money with Credit Cards Interest Quantity of Financial Capital Rate (%) Demanded (Borrowing) ($ billions) Quantity of Financial. .. 6/11 Demand and Supply in Financial Markets The United States as a Global Borrower Before and After U.S Debt Uncertainty The graph shows the demand for financial capital and supply of financial