Category: Money

Difference between EAP and General English

English for academic purposes focuses on high standards of English for higher learning and studies in general. It provides only what the students need. Therefore, it is goal-oriented as opposed to general English, where students are taught everything necessary to be learned and known in English (Smith 2015). EAPs major task is learning how to plot theses and dissertations. Hence, there is a need for proper planning, writing, organization, and even proof-reading written works to ensure adherence to the rules of EAP.

Various factors such as the objectives, levels of the students, their goals, and even culture are challenges that make it impossible for EAP to be provided equally. Consequently, such factors must be put into consideration when establishing effective methods of learning EAP. On the contrary, general English only aims at basically teaching students how to listen, speak, read and write English in their day to day communications (Smith 2015).

EAP has numerous features. These features include genres, signposting, and even the use of linking words. Knowledge of the language is also a very crucial component of EAP as it aids the learner in understanding questions and responding to them in their examinations.another differentiating factor between the two varieties of English is that EAP learners are generally adults while General English learners include both children and adults.

Skills I have improved and the Methods I used

Reading and writing are among the main skills I have enhanced. The process of achieving their enhancement was possible through the formation of groups. Particularly, we always hold discussions for purposes of demonstrating how to pronounce and write English words. Group discussions have also helped improve speaking and listening skills. Through them, we are always able to discuss every challenging thing we came across. Eventually, every learner is corrected through consensus and lessons end with all problems settled.

EAP Areas to be worked on and the Methods to Use

Learners expectations should always be addressed in good time (Smith 2015). In this process, appropriate materials must be used in proper ways. This situation can be achieved by setting goals on how to meet learners expectations and using certified and approved materials. At the same time, individuals training as teachers of both EAP and general English should be well trained to handle their students without difficulties.

Saving Money and Carefully Planning for the Future

Saving money and striving to make ones future bright is vital. People should invest every small amount of money they get in businesses for the sake of securing the future. Investing in businesses helps reduce a lot of expense and increase earnings (Spreading your wings 2015). Savings also prevent people from becoming bankrupt for the money is not all spent. Some reasonable amounts of money are left for use later in life. Saving also enables one to get ready for responsibilities that come with getting children. Specifically, one will be able to cater to needs such as good clothing, food, and even quality education.

Apart from taking care of future needs, saving money is ideal because individuals that save money are able of coping with emergencies that may leave someone helpless if he or she did not save (Kobliner 2010). Hence, it is important to save in order to better the future and make life more comfortable. In addition, people must also save with the view of avoiding debts that come when one lacks money. Saving ensures that they comfortably and conveniently cope with situations as they arise without requesting loans and grants, which might later burden them.

However, saving can be very challenging considering the small amounts of money earned by some groups of people and many unending needs that people must satisfy (Eyden 2012). Nonetheless, such situations can be solved and made easier by opening bank accounts for safekeeping. In the same vein, the situation can be salvaged through engaging in leisure activities that do not require money or those that need less money (Eyden 2012).

Examples of such activities are mostly sporting activities that keep one occupied with the view of reducing his or her expenditure. Selling items you no longer need can also earn extra money for saving. Similarly, the keeping of receipts and analyzing them as you check on what you should not buy again or what you will reduce spending on can significantly reduce the amount you spend.

Contrasting Views on the Topic

Some people may argue that the death of someone cannot be predicted. Therefore, there is no reason for saving money for the future (Kobliner 2010). They may also argue that saving makes someone lag behind in terms of modern trends and fashions as one is forced to forego secondary needs and only focus on necessary items. Worse still, balancing between ones spending habits and saving is also a difficult task. Proponents of this standpoint insist that people deny themselves very many things when they decide to save. Hence, such peoples lives do not run the way they should.

Examples of Contrasting Views on the Topic

An individual who opens a fixed account to save money for five years then dies in the third year of saving having foregone very many things is a good example of a counterargument to the topic. Such a person does not enjoy the benefits of saving. Another good example is that of an individual who avoids keeping up with trendy things and fashion and being classy just to save money for the future (Eyden 2012). Such an individual lives differently from his or her friends. The third example of contrasting views is that of one having problems with balancing between saving and spending. Precisely, she or he saves enough money, but when an emergency arises or when an urge to acquire something or use the money in another way comes up, one quickly opts to use the money saved. This brings about the challenge of balancing.

Personal View on the Topic

I believe that both saving and spending are necessary. The best thing to do is to be conscious of both. Do not deny yourself so much in the name of saving and do not also spend everything without thinking of what tomorrow will be. It is good to budget for everything that requires your money and balances the budget well as this prevents overstraining in other areas. Budgeting helps people avoid debts as the money one has is planned for in a way that ensures that all things are catered for, including savings and other amounts meant for future use and emergencies. For easier saving of money, one should avoid impulse buying as it leads to having unnecessary items and spending money in an unplanned way. Hence, it is important to create a budget for yourself.

References

Eyden, T 2012, Personal financial plans: Saving for the future. Web.

Kobliner, B 2010, A painless saving plan for your future. Web.

Smith, Z 2015, English for academic purposes Vs. general English- 101 crash course. Web.

Spreading your wings, 2015. Web.

Although deciding whether to attend college is beyond doubt not an easy choice, it should not escape mention that today, more than ever before, college education is no longer viewed as option or privilege, but rather a necessity (Baum & Kathleen, 2004). Not only are people in contemporary society raised and conditioned to believe that one needs college education to succeed in life, but the stiff competition for the few job openings available continue to inform the importance for individuals to seriously consider investing in college education. Through comparing and contrasting various dimensions and dynamics related to college education and its potential benefits, this paper purposes to demonstrate evidence that attending college is worth the investments made.

First, it is known that investing in a good education surpasses any other investment that money can possibly buy due to the permanency of the investment. Money comes and goes, but education is for long-term once an individual makes the conscious decision to invest in knowledge, not mentioning that education pays the best interest (Baum & Kathleen, 2004). Consequently, it is advantageous to always invest in something that not only guarantees permanency over the long-term, but occasions premium results by virtue of the opportunities which it is capable of generating (Baum & Kathleen, 2004). This investment can only be achieved through getting good college education.

Second, research demonstrates that attending college not only make individuals more insightful, aware and enlightened, but provides them with coping strategies to enable them negotiate lifes challenges once they graduate from college (Baum & Kathleen, 2004). These insights, enlightenment, critical thinking skills, and coping strategies molded through an effective and efficient college education enables individuals to be economically productive and prosperous later in life. It is with this in mind that Zayed Alnayhan, a former president of the United Arab Emirates, once said that &the real asset of any advanced nation is its people, especially the educated ones, and the prosperity and success of the people are measured by the standard of their education (UAE Interact, n.d., para. 1).

Third, it is no longer a secret that individuals must have a good education base if they are to increase their chances of getting a descent job upon graduation. This assertion provided impetus for me to seriously consider getting a college education as I want to lead an independent and fulfilling life upon graduation. As observed by Baum & Kathleen (2004), &higher levels of education are associated with higher earnings and&college is a prerequisite for a comfortable middle-class lifestyle (p. 5). Consequently, not only is college education beneficial in terms of enhancing the probability to land a well-paying up-market job, but the exposure one gets in college enhances the development of various faculties of thought and emotion to enable the abstraction of ideas and anchoring them in real-life situations.

The potential benefits of investing in quality college education are unlimited. Research has demonstrated that college education curtails the probability for one to be dependent on society for support, implying that not only is college education beneficial for the individual concerned, but it acts as a triggering agent for society to be able to amass more resources for social and economic development. Indeed, President Obama is on record for urging high school students to expand their education by enrolling to pursue higher education for the reason that the future of this great nation depends on education (Jackson, 2011).

Lastly, on the benefits, it is a well known fact that college education enables individuals to develop values and behavioral orientations that are reflective of a sound and morally upright society. It has been noted by Baum & Kathleen that &college graduates have lower smoking rates, more positive perceptions of personal health, and lower incarceration rates than individuals who have not graduated from college (p. 7). In addition, college graduates are more likely than others to demonstrate higher levels of civic participation, volunteer work and other actions that are reflective of citizenship behavior. This therefore implies that college education also provide individuals and society with the correct trajectory towards achieving positive development.

The counter-arguments against college education are many and varied, but none, in my view, seems to hold enough ground to discourage people from making investments towards acquiring quality college education. For instance, there have been arguments that a strong academic background does not necessarily translate into overcoming financial barriers later in life, and that the tuition fees associated with college education are exorbitant (Baum & Kathleen, 2004; Cheever, 2005). But one can always argue that even though college education does not necessarily guarantee higher rewards later in life in terms of financial independence, it nevertheless significantly improves post-secondary opportunities of attaining financial independence and positive personal and career development. In the same vein, it can be argued that although tuition fees for attaining college education may be high in the short-term, the tangible and intangible benefits of the knowledge received from college education are unlimited.

Critics of college education have also argued that the engagement takes a lot of time to complete  time which could be used for other gainful purposes such as employment (Baum & Kathleen, 2004). However, this assertion cannot be further from the truth as the investments made in terms of time can always be recovered upon graduation by virtue of the fact that college graduates are more likely to get high-paying secure jobs than high school leavers. Lastly, there are those who argue that college life makes students to gravitate towards deviant life and character due to the level of independence granted to the students in college. This assertion, too, does not hold much water as independence comes with responsibility, and it should be the role of parents and teachers to steer these young minds into an independent life that puts a premium on responsibility. Overall, investing in quality college education seems the only way to go if the many challenges facing individuals and society in the 21^st century are to be surmounted.

Reference List

Baum, S., & Kathleen, P. (2004). The benefits of higher education for individuals and society. Web.

Jackson, D. (2011). Obama urges students to pursue higher education. Web.

UAE Interact. (n.d.). Web.

Introduction

Real effective exchange rate (REER) is a measure of value of a countrys currency in relation to other major world currencies in the index aimed at countering effects of inflation. Such currencies include euro, US dollar and others. The measure is obtained by looking at the trade balance which is the difference between a countrys imports and exports in comparison with currencies of other countries in the same index.

In the world markets, there usually exist a relationship between the real effective exchange rates and various microeconomic variables such as consumer price index (CPI), unemployment rate, money supply and interest rate. In this paper UK and USA have been considered as the study areas between the years 2000 and 2010.

Real effective exchange rate, CPI, Interest Rates, Money supply, Unemployment in US

Just like in other countries, US have been experiencing changes in the economic variables such as the real effective exchange rates, consumer price index, interest rates, money supply and the unemployment rates.

Generally, these factors have been affected by changes in global economic trends that have also facilitated the government to effect monetary and fiscal policies to mitigate adverse effects. The monetary policy has been regulated by changes in interest rates, devaluation of currencies and regulation in money supply.

CPI and Unemployment rates

The US economy has had an increasing inflation rates and unemployment rates, 4.0 and 3.4 per cent respectively in year 2000 (Econedlink). This was because the economy was recovering from a serious inflation that had affected the economy towards the end of 1999. The inflation decreased slightly in 2001 to 2.8 as the prices of commodities stabilized (Econedlink).

However, the unemployment rate remained high at 4.3 per cent due to lack of enough employment opportunities. The CPI continued to decrease till 2004, as the unemployment rates increased to 5.8 per cent in the same year. Thereafter, the inflation rates increased slightly to 3.4 per cent and unemployment rates decreased slightly to 5.8 per cent (Econedlink).

The two variables remained slightly stable, until in 2009 when the world experienced financial crisis. The CPI was at its lowest point at -0.4 per cent while the unemployment rate recorded the highest figure of 9.3 per cent (Econedlink). This scenario coincides with Cencini who illustrates that an inverse correlation exists between inflation and unemployment (41).

He further adds that an increase in inflation as depicted by increase in CPI causes reduction in the economic performances that forces employees to be sent home. Sauert asserts that CPI is often included in the interest rates changes and therefore only the unexpected change affect prices (7). During the 2008-2010 financial crises, many employees were rendered jobless thus increasing the number of the unemployed in the country.

Money supply, real exchange rate and interest rates

As the business cycle changed, the Federal Reserve changed the monetary policy to suite the prevailing economic condition. When the country experiences inflation, the Federal Reserve strives to reduce the amount of money in circulation by increasing exchange rates and vice versa.

Despite the several business inflation that has been experienced in the last one decade the US REEL has remind relatively stable compared to other major currencies. According to the global rates report, the US interest rates were decreasing from 2000 to 2004 where the rates decreased from 7 per cent to 1 per cent in year 2004.

This drastic reduction was employed to encourage borrowing by the general public in an attempt to overturn economic slump that was experienced during this time. The interest then increased steadily to 5 per cent in 2005 and 2006. This monetary measure was meant to reduce the amount of money that was in circulation.

The large amount of money in circulation caused the consumer price index to go high due to large amount of money that was chasing few goods in the market. Sauret contends that increase in money stock increases chances of inflation in the future (6). Later the economic trend experienced sharp decrease to the current rate of less than 1 per cent as shown in the graph below which was extracted from the global-rates.

A graph showing interest rates

Global-Rates. US dollar rates 2000. Web.

Despite the many economic turns that have been experienced, the economy has experienced a stable REER over the years as shown by the graph below. The stable REEL has been influenced by a stable strength of the dollar that has been prevailing over the period. The stable value of the dollar has also been attributed to favorable terms of trade that has been experienced by the US.

This report also reveals that stability in real effective exchange rate has helped the country to achieve better economic performances. To many economists, stable PEER shows that the economy is performing better compared to other competing economies.

In addition it is also right to suggest that the US economy to a great extent managed to deal with inflation and hence managing to contain the value of the dollar. This information is shown by the graph below.

Future of US China trade.com. Real effective exchange rates, U.S. and China 1993-2010. Web.

Real effective exchange rate, CPI, Interest Rates, Money supply, Unemployment in UK

Although UK is known for its strong economy that is reflected by the strong value of its currency (Sterling Pound), the economy has had its fair share of economic challenges. From 2000 to 2010 the UK economy has been affected by variations in economic variables such the REEL, increased CPI and Interest rates which have resulted to an increase in unemployment rates.

Walayat (2010) asserts that these economic variables have been greatly affected by economic cycles such as depression and financial crisis that has been prevalent over the period. The graph below show how various economic variable changes in this period.

The graph below shows money supply varied in the period 2009.

Global-Rates. US dollar rates 2000. Web.

Interest Rates

The UK interest rates were strongly affected by the Credit crisis especially during the 2007-2009, during this period, the UK economy recorded the lowest ever level of interset rates (Walayat).

The trend reveal that the growth in the Interest rates have been decreasing between 2000 to 2003 where the rates changed from 6 % to 4.0 and 3.8 per cent respectively, later the interest rates started increasing steadily till the end of 2008 where interest rates were at a peak of 6 per cent.

Thereafter, the interest rates dropped drastically to 0.5 percent in 2010 (Walayat). Sauert explains that CPI is usually incorporated in the interest rates and therefore change in interset rates also affects the prices of commodities (93).

A decrease in interest rates was accompanied by an increase unemployment rates. As the interest rates dropped, the CPI increased, this reveals that the economy was not performing well and the government strived to boost economic performance by lowering interest rates. This was only possible by employing monitary policies that included economic injections.

The government strived to increase money supply in order to allow public borrowing. This trend was experienced from 2000 to 2003, as the UKs economy performances stabilized the real effective exchange rate was increasing as the value of pound increased steadily compared to other major currencies.

The trend in economic performance reveals that the UK government does not react in time to changes in interest rates (Walayat). It is evident that when the inflation is at the peak, the interest rate remains in the opposite direction. For instance, since economic forecast reveals the inflation has come to an end, the Bank of England is anticipated to continue raising interest rates to meet this trend.

Global-Rates. US dollar rates 2000. Web.

Fisher reveals that UKs CPI has generally been increasing from 2000 to 2010; however, the first three years experienced an intermittent trend of increase and decrease (2). The CPI index for 2000 to 2006 was below six percent but poor economic growth resulted to an increase in the CPI beyond the 2 percent mark.

Since CPI measures the changes in the consumer price index, the UK economy was facing a problem in dealing with escalating inflation rate. Since the cost of production was high, firms and other organizations sacked some employees to cut down on the escalating costs. Thus the unemployment level increased steadily, CPI and unemployment moves in the opposite direction (Arnold 128).

Bootle (7) reveals that the UK exchange rate has remained high over the stipulated time frame, the sterling pound value increased steadily from 2000 to 2004 whereas; the exchange rate remained high thereafter.

The stability in REEL was attributed to the steady foreign exchange conducted by the UK and its economic partners. However, the emergency of financial crisis in 2008-2010 has adversely affected the stability due to the changes in the strengths of other currencies (Fisher 8).

The UK economy has been shaken by the recessionary trend that has resulted to various actions that have been taken by the government and other economic institutions. Fisher reports that most firms in UK have strived to retain employees rather than fire them despite the tough economic trend prevailing (4).

However, most firms have opted to reduce wage rates and working hours as an attempt to cope with inflation, simply because of the few number of people were getting employed as compared to the those losing their jobs, the unemployment rate was steadily increasing.

Agenor (2004) although inflation (CPI) and unemployment rate work in different direction, hyper inflation usually forces unemployment and the CPI to move in the same direction in a situation called inflation trap (215). This has been the situation with the UK economy, whereby it has been experiencing high CPI and high unemployment rates during this period (Bottle 22).

Conclusion

In both countries the business cycles have affected the entire economic variables that were in consideration. The main thing that has triggered the variation in these economic variables is inflation and global financial crisis. The most notable one is the economic crisis of 2008-2010 that resulted to high inflation rates that was also accompanied by high unemployment rates.

Occurrences of this economic turn prompt the Federal Reserve and the Bank of England to alter the money supply in the countries. On the other hand PEER is mainly affected by the balance of trade and the financial markets.

Works Cited

Agenor, Pierre-Richard. The economics of adjustment and growth. San Juan, Unitedn States La Editorial, UPR: 2004. Print.

Arnold, Roger. Macroeconomics. San Franscisco: Cengage Learning, 2007. Print.

Bootle, Roger. The economic and financial outlook. Web.

Cencini, Alvaro. Inflation and unemployment: contributions to a new macroeconomic. London: Routledge, 1996. Print.

Econedlink. Focus on Economic Data. Web.

Fisher, Paul, Why is CPI inflation so high? Liverpool: Bank of England. Web.

Future of US China trade.com. Real effective exchange rates, U.S. and China 1993-2010. Web.

Global-Rates. US dollar rates 2000. Web.

Sauret, Dennis. Do macroeconomic variables have an effect on the US stock market? Norderstedt: Grin, 2002. Print.

Walayat, Nadeem. UK Interest Rate Forecast 2010 and 2011. Web.

The paper seeks to justify a Mobile Money Transfer (MMT) as an alternative product for Vodafone Group Plc. The company is multinational with headquarters in London. It is a leading telecommunications company based on 2011 annual revenue and subscriptions (439 million).

Vodafone offers information technology and mobile phone services to its customers in over sixty-five countries. In addition, Vodafone Group has 45 per cent shares in Verizon wireless. Verizon wireless is the leading mobile telecommunications company in the US.

Vodafone has been chosen to implement the MMT product because of its wide customer base and its ability to set a side enough resources to implement, test, launch and market the product. Its wider customer base is important because many people across the world will be able to enjoy the product and its benefits (Morawczynski, 2008).

MMT is an electronic product that helps the consumer to electronically send and receive money on a mobile phone. Consumers will register their simcards with Vodafone using their national IDs or pass ports. After registration, an MMT menu will be up dated on the customers phone.

Registered customers will be able to send and receive money, pay bills, loans, and utilities and also buy air time. Customers can also access their commercial bank accounts if they register their mobile numbers with their banks. To withdraw money from a mobile account, the customer approaches an agent and initiates the transaction through an agent code. The customer and the agent then receive a message that a specific amount of money has been withdrawn.

The agent then gives the customer the specified amount of money and the transaction is completed. To deposit the money in the mobile account, the customer approaches the agent with the amount of money they want to deposit, the agent deposits the money and both receive a confirmation message (Hughes & Lonie, 2007).

MMT is a cheap, safe and quick way of sending and receiving money. MMT saves the customer the trouble of having to make long queues in the bank to deposit or withdraw money. Customers are also able to make instant payments for services and goods by using the MMT. The company on the other hand benefits by acquiring and retaining customers, extending the range of its products and improve relationship with consumers.

To successfully launch the product, Vodafone will hire competent IT specialists to update the main server to accommodate MMT. The company will also replace existing simcards with those that have MMT menu. Finally the company will recruit and register agents all over the country. Vodafone should target supermarkets, banks and other places where people mainly handle cash.

MMT is a pretty new idea and very little secondary sources of information are available. However, the company will benefit in a big way by visiting the libraries of affiliated companies like Safaricom. Their websites would provide very important information. Other sources of credible information about feasibility of mobile banking include the websites of Equity Bank Limited. The library and archive of Equity bank are also rich with information.

Information on MMT can be verified by carrying out a research to reveal its practical features and sustainability. As stated earlier, MMT is a relatively new product in the market and not many people could be able to verify though it is highly implementable. The best way to verify MMT is to begin with a small pilot project carried out within the Vodafone staff.

References

Hughes, N. & Lonie, S. (2007). M-PESA: Mobile Money for the Unbanked: Turning Cellphones into 24-Hour Tellers in Kenya. Innovations: Technology, Governance, Globalization. Cape Town University, 2(2), 6381.

Morawczynski, O. (2008). Surviving in the Dual System: How M-PESA is Fostering Urban-to-Rural Remittances in a Kenyan Slum. HCC8 journal, 12 (3), 1-2.

Money and Commodity Circulatory Processes

Common characteristics and differences in C-M-C and M-C-M

Marx realized that problems existed amid commodities circulation. He then approached this dilemma by classifying the two ways that commodities could possibly circulate namely C-M-C and M-C-M. The difference and similarities between money that is just money and capitalized money appear only in the mode of circulation.

The circuit M-C-M is when money is circulated as capital and is also referred to as the capitalists circulation. In this circuit, M is money meant to purchase the commodity that is traded again for M (money). On the contrary, the monetary flow also known as the simple commodities circulation can be illustrated via the C-M-C circuit.

In this circuit, commodities are traded to get money. This money is then used to purchase different commodities. In capitalists circulation, M-C-M, individuals buy commodities with the intention of selling them. The main aim in the simple circulation is to attain the utility values. However, the capitalists circulation is categorically aimed at obtaining the exchange values that must be higher than the originally presented money (M).

The simplest commodities circulation form C-M-C entails purchasing commodities only after some commodities have been sold. The product is altered into cash, and this cash is once more changed back to a product.

Conversely, M-C-M circulation occurs when sales take place because of the purchases made. That cash is altered into product which is afterward changed back into cash. In the last circulatory process, the transformed money materializes as the potential capital. A close examination of the M-C-M circuit shows that it is made of two adversative phases.

Phase one comprises of the purchase or the M-C where money becomes transformed into commodities. The second phase entails the sale or C-M. It includes transforming the commodities back into monetary form. When these two phases are combined, they make a solitary flow where money becomes traded for commodities and similar commodities are traded for money. In this circulation, the process M-M that involves exchanging money usually varnishes in the end.

Both these circulations are composed of two similar segments namely the purchases phase (M-C) and the sales phase (C-M). In fact, a retailer, a purchaser, money and commodities that have similar economic characteristics are bound to face each other. The two similar opposing phases are unified by each circuit. In all cases, the unison comes as a result of the involvement of three contracting parties. One of the parties must be a buyer while the other party has to be a seller, and the third party should both be a seller and a buyer.

The M-C-M is distinguished from C-M-C by the inverted progression arrangement between the two segments. For instance, in the monetary circulation (M-C-M), the circuit ends with sales and commences with purchases. In the simple commodities circuit (C-M-C), the process ends with purchases and instigates with sales.

Furthermore, in C-M-C circuit, the circulation process goals and commencement points are made of commodities while in M-C-M, the goals and starting points are comprised of money. In the second circulation process (M-C-M), the commodity intervention brings about the movement whereas in the first circuit (C-M-C) the intervening movement comes because of the commodities.

What Marx meant

Money and commodity circulatory processes: M-C-M

To both Marx and society, the essential category in any societal affiliation is the generated profit or the derived value from trade. In fact, Marx was intrigued by the proceeds and value reality. The main aim in the circulation processes was to derive value from the possessed resources namely the commodities and money.

In the M-C-M circuit, money hardly serves its use value. This is because when it is finally converted, it does not become a commodity. In reality, buyers act as sellers by laying out their money with the intention of recovering that capital. However, the aim is to get greater value attached to it.

The buyers purchased the commodities by investing throwing their money into the exchange process. This enabled them to extract it later through selling similar commodities. They let their money go into the circulation process although with justified sly intent to have it back. This money is neither spent nor totally converted into commodities, but it is its value that is augmented.

In conclusion, labor products in the circulatory process which, in this case are the commodities become values. The commodities are produced in the capital relations framework where money becomes the initial form. Besides, money in the M-C-M circuit has value that essentially makes itself apparent in monetary form. Thus, money acts as the equivalence of value by manifesting itself in the excellent capital form, and could be termed as capital.

However, commodities can only be bought using money, but money used to purchase commodities is expected to generate greater returns in the future. Hence, commodities represent capital in the same way money represents capital. Whichever way, money is transformed into commodities or changes its appearance.

The intent is to increase its final value and this also increases capital. Money is hardly lost in the circulation process as it self-expands its value by sequentially assuming different forms. It just becomes an active character which, Marx called capital.

Introduction

The financial planning process enables an individual or a family to plan for earning with an aim of converting finances to wealth. Financial planning process is used in the managing investment for an individual. Before carrying out an investment planning process, an individual needs to come up with objectives that reflect on character, lifestyle, future and goals of an individual.

Aim of the paper

In the paper, I seek to come up with the right investment decisions for my future finances. The investment will focus on investing in Exchange Traded Funds (ETFs). The ETFs are one of the most traded financial instruments in the world due to their flexibility. The essay will discuss the possibility of investing in a number of selected ETFs in connection to an investment objective of an individual.

About the Client

Currently, I am aged 50 years and married. I have a daughter who is currently a university student. My annual income after tax is $100,000. Further, I expect to retire at the age of 60. The monthly after tax income needed after retirement is 60% of my current income. This amount of income will be required until the last age of expectancy that is, 90 years. Apart from my retirement objectives, I would also like to adequately secure the college education of my children.

My current investment and risk profile

The table presented below shows the composition of my current portfolio.

Based on my current portfolio, I fall under the category of a greater-than-average risk taker because 95% my current portfolio is made up of investment in long term assets (bonds, stock, and satellite commodities and stock). It is a dynamic risk profile. Besides, I can be able to invest in some of the assets for a period longer than seven years. This portfolio will be consistent with my long term objectives. Besides, I will be able to adequately finance my expenses after retirement (Stevenson 2013). My regular investments amount to $10,000 per quarter.

Factors to consider when coming up with an asset allocation and an investment plan with my time horizon

There are a number of factors that I took into account when coming up with an my current portfolio. The first factor was my investment objectives and goals and my current financial condition. In relation to the objective factor, my main motivating factor for investing my finances is to secure my kids college fund in the future when they will be in a position to attend college. Moreover, I plan to live a fulfilling retirement life and thus this will include covering the major bills such as healthcare, travel and entertainment (Lydon 2009). As a result, my objectives for investing will for the long term since these needs are way advance in the future. My timing ranges from 7 to 20 years since this is the period when my children will be in college and most likely the period when I get to retire from career life. The second factor is coming up with the right asset allocation. Under this, I took into account the fundamentals and macro analysis in order to determine the best investment opportunity. Also, I took into account the historical risk adjust performance analysis (Ferri 2011). This entailed reviewing the historical returns of the various categories of investment opportunities. This should also entail evaluating the risks that are associated with the various investment opportunities. The final factor is allocating the available funds strategically to the selected assets.

Based on my assessment of risk, time and objectives, I would say that the most suitable investment options for me would be ETFs, mutual funds and cash investments (Warwick 2012). A large portion of my portfolio will be made up of ETFs because they have a number of advantages. First, ETFs have lower fees. Secondly, EFTs can provide a large exposure to a variety of market segments and group of equities. Thirdly, the ETFs trade in the financial market just like stock. Finally, the dividends that are earned on ETFs can be ploughed back instantly. The table below shows my current asset allocation.

Investment Analysis

Elements Rogers Intl Commodity (ETN)

Ticker symbol: RJI

ETN is a structured instrument that tracks 37 commodities in the futures market. It is the most diversified ETF. This ETF is designed to mimic the movements of the Rogers International Commodity Exchange which provides an exposure to commodities consumed in the global economy (James 2012). This investment instrument is one of the cheapest forms of investment. Investing in this ETF is advisable for long term investments since it is less volatile and suitable for investors with low risk appetite (Thompson 2009, p. 1132). Besides, it is cheap and it promises high returns. The prices increased from increased from a negative position of 42.43 in 2008 to a positive position of 1.29 in 2013. The year to date price for the ETF is -5.45. The rank in category declined from 34 in 2008 to 25 in 2012. The 3-year standard deviation of the EFT is 16.41 while the average return is -0.77. Further, the Sharpe ratio is 0.03 while the Sortino ratio is 0.04. The EFT is less volatile as compared to the Mornigstar long-only commodity TR. The net expense ratio and gross expense ratio for the ETF is 0.75%. The table presented below gives other information that relate to the ETF.

I select this ETF because it is cheap, less volatile, promises high returns, suitable for long term investment, and diversified because it tracks several commodities.

iShares Barclays TIPS Bond

Ticker symbol: TIP

The bond is one of the best investment instruments in the ETF sector due to its flexibility and potential of earnings. The bond is a protected treasury security traded fund. This secures it from frequent inflation and it safeguards the expected gain. The bond suitable for an investor with long-term goals (Ferri 2011). The price of this fund as at 28^th of October, 2013 was $ 113.36 and most of the fund has been invested in the US Treasury note. In terms of performance, the bond has experienced tremendous growth. The price has gone up by 13.28% while its NAV has also increased by 13.40%. This performance is slightly better than the aggregate of other protected bonds which had an increase of 12.66% in price and 12.67% increase in NAV (Berry & Junkus 2010, p. 708-711). The overall return of the ETF is above average while the overall risk is average. The 3-year standard deviation of the EFT is 5.48 while the average 3-year return is 3.17. The 3-year Sharpe ratio of the asset is 0.58 while the Sortino ratio is 0.86. Further, statistics show that the ETF is less volatile when compared to the Barclays US Aggregate. The net expense ratio and gross expense ratio for the ETF is 0.20%. The value is higher than the average of the category (0.19%). I select this ETF because it is flexible, guarantees high returns and it is protected from the effect frequent inflation.

PowerShares DB Commodity Index Tracking

Ticker symbol: DBC

The fund is based on the Deutsche Bank Liquid Commodity Index. The fund tracks the changes of the DBIQ Optimum Yield Commodity Index. The fund tracks 14 most traded and physical commodities in the world within four sectors of agriculture, energy, industrial metals and precious metals. The fund performs well since it takes advantage of the roll yield. The current price for unit of this fund stands at $25.85 as at 25^th of October, 2013. Investing in this fund is quite risky (Gitman, Joehnk & Smart 2010). However, the fund is suitable because it tracks different commodities which make it more balanced and diversified (Warwick 2012). Over the last five years, the funds NAV has grown by 5.81%. The overall return and risk of the EFT is average. Besides, the ETF has a three star rating. The 3-year standard deviation of the EFT is 16.82 while the average 3-year return is 0.75. The 3-year Sharpe ratio of the asset is 0.12 while the Sortino ratio is 0.17. Further, statistics show that the ETF is slightly more volatile than the Morningstar Long-Only Commodity TR. The net expense ratio and gross expense ratio for the ETF is 0.85%. The value is higher than the average of the category (0.92%).

Source of data  Morningstar Inc. 2013

I select this ETF because it is balanced and diversified since it tracks several commodities in different sectors. Also, it promises high returns since it takes advantage of the roll yield.

Vanguard Dividend Growth Inv

Ticker symbol: VDGIX

The fund that was designed to give investors an opportunity to earn from well performing companies that earns dividends (Rao, Pearce & Xin 2010, p. 109). The fund has a low exposure to risk. As a result, this would be a good investment for a person willing to invest in a long term fund that is less risky and quite profitable (Janjigian, Horan & Trzcinka 2011). Investment in this fund is cheap since it only requires a minimum of $ 3,000. Besides, it is based on low tax regime. The overall return of the fund is above average while the average risk is low. The fund has a five star rating. The 3-year standard deviation of the fund is 9.76 while the average 3-year return is 16.64. The 3-year Sharpe ratio of the asset is 1.63 while the Sortino ratio is 3.28. Further, statistics show that the fund is slightly less volatile and more profitable than the S&P 500 TR. The table presented below shows other information that relates to the fund.

Source of data  Morningstar Inc. 2013

I select this fund because it is less volatile, promises high returns, diversified because it tracks several commodities, based on low tax regime, and suitable for long term investment.

Vanguard FTSE All-World ex-US ETF

Ticker symbol: VEU

This fund is designed to track FTSE All-World ex US Index of 2,200 companies across the world. It is passively managed using a sampling of the index. This fund tracks companies which are not listed in the US and thus it offers an opportunity for investors to broaden their investments. The regional distribution is presented below.

Source of data  Morningstar Inc. 2013

This fund enables investors to get exposed to developing and emerging non-US equities around the globe (Stevenson 2013). The current unit price of this fund is $ 50.57 and its performance is quite volatile. This fund is quite risky (Clapp & Helleiner 2012, p. 187-192; Appel, Lydon & Masonson 2011). Investing in this fund will require good timing so that the investor can reap maximum benefits. The overall return of the ETF is average while the overall risk is above average. Further, the ETF has a five star rating. The 3-year standard deviation of the fund is 17.51 while the average 3-year return is 6.01. The 3-year Sharpe ratio of the asset is 0.42 while the Sortino ratio is 0.61. Further, statistics show that the ETF is more volatile and less profitable than the MSCI EAFE NR. The net expense ratio and gross expense ratio for the ETF is 0.15%. The value is higher than the average of the category (0.42%). The table presented below shows other information that relates to the fund.

Source of data  Morningstar Inc. 2013

I select this ETF because it is diversified because it tracks several commodities for 2,200 companies across the world.

Vanguard Intermediate-Term Bond ETF

Ticker symbol: BIV

The fund is a bond that tracks the return on investment on the Barclays 5-10 year Government Adjusted Index. This fund is a market weighted bond index which covers investment grade bonds with a maturity of 5 to 10 years. This fund can also be classified as an immediate term bond. The bond has a Net Asset Value (NAV) of $84.39 as at 25^th of October, 2013 (Patil 2009, p. 756-758). The fund has a dividend yield of 5.20%. The price of the fund increased by 8.51% over a five year period (James 2012). This performance can be compared to other bonds such as the Barclays US Agg-Bond TR USD that had an increase of 5.87% within the last 5 years. The overall return of the ETF is above average while the overall risk is high. Further, the ETF has a four star rating. The 3-year standard deviation of the fund is 4.58 while the average 3-year return is 3.95. The 3-year Sharpe ratio of the asset is 0.85 while the Sortino ratio is 1.37. Further, statistics show that the ETF is more volatile and more profitable than the Barclays US Aggregate. The net expense ratio and gross expense ratio for the ETF is 0.10%. The value is higher than the average of the category (0.23%). Therefore, the fund outperformed other funds and it is a good long term investment. The table presented below shows other information that relates to the fund.

Source of data  Morningstar Inc. 2013

I select this ETF because suitable for long term investment and it performed better than other ETFs in the same category.

WisdonTree Emerging Mkts Small Cap Div

Ticker symbol: DGS

The fund tracks companies that are small in size in terms of capital employment. The fund is structured in a manner that takes advantage of the local companies operating in different local economies. As of 28^th October, the NAV stood at $ 49.19 on the 28^th October. This fund has been in the market since 2007 and its value has increased tremendously (Vikas, Narayan & Naik 2008, p. 73). In the last five years, this fund has grown exponentially with its NAV gaining 27.36 points. This represents a 127.61% increase. The overall return of the ETF is high while the overall risk is below average. Further, the ETF has a five star rating. The 3-year standard deviation of the fund is 18.87 while the average 3-year return is 1.20. The 3-year Sharpe ratio of the asset is 0.15 while the Sortino ratio is 0.21. Further, statistics show that the ETF is more volatile and less profitable than the MSCI EAFE NR. The net expense ratio and gross expense ratio for the ETF is 0.63%. The value is higher than the average of the category (0.68%). The table presented below shows other information that relates to the fund.

Source of data  Morningstar Inc. 2013

I select this ETF because it is less volatile, promises high returns, and diversified because it tracks several commodities.

My Cash

Investing in ETFs can be risky due to market volatility and risks associated with these instruments. Therefore, it would be prudent to invest a small portion of my savings in cash. The value of cash savings over time is eroded by inflation (Clapp 2012, p. 204). The advantage of having cash savings is that it has extremely low risk. However, most savings attracts low interest (Janjigian 2011). Investing in cash provides flexibility compared to stocks and bonds. Moreover, cash is easily available in cases of emergency. The growth in cash investments is quite slow but some offer good fixed deposit rates that can encourage an investor to avoid risk and save money through cash (Ferri 2011). For instance, if an individual saves $ 10,000 over a ten year period at an interest rate of 3%, his/her investments over the ten years will amount to $ 13,439.16. Thus, with low risk and no effort cash can be considered as a safe bet for investment.

Opinion on whether the current allocation is suitable

Based on the above discussion, it can be noted that Vanguard FTSE All-World ex-US ETF and PowerShares DB Commodity Index Tacking are quite risky. However, the other EFTs and the mutual fund offer high returns at a low level of risk. Further, the EFTs covers a variety of industries. Therefore, the current allocation can be altered to reduce the allocation of the two EFTs. The new allocation is presented in the table below.

Thus, reducing the allocation of the risky ETFs will reduce the overall risk of the portfolio.

Conclusion

Investing is very important in the achievement of the goals and objectives of any individuals financial freedom. Due to the intricate nature of the various forms of investment tools and options, it is wise to learn the fundamentals of investing. In this essay, various investment options which are mainly made up of ETFs were discussed. However, investing in ETFs can significantly be affected by global issues such as the global economic crisis. Thus, selection of a variety of EFTs lowers such risks. As a result, the ETFs I have chosen and analysed in this essay will allow me to grow my investments and achieve my goals and objectives.

References

Appel, M, Lydon, T & Masonson, L 2011, ETF Trading and investing strategies, Lippincott Williams & Wilkins, New York.

Berry, T & Junkus, J 2010, Socially responsible investing: an investor perspective, Journal of Business Ethics, vol. 112 no. 4, pp. 707-720.

Clapp, J & Helleiner, E 2012, Troubled futures? The global food crisis and the politics of agricultural derivatives regulation, Review of International Political Economy, vol. 19 no. 2, pp. 181-207.

Ferri, R 2011, The ETF Book: All You Need to Know About Exchange-Traded Funds, Books on Demand, New York.

Gitman, L, Joehnk, M & Smart, S 2010, Fundamentals of Investing, Sage, Chicago.

James, B 2012, 7 Timeless Principles of Investing, Jossey Bass, San Francisco.

Janjigian, V, Horan, S & Trzcinka, C 2011, The Forbes/CFA Institute Investment Course: Timeless Art of Investing, John Wiley and Sons, Boston.

Lydon, T 2009, The ETF Trend Following Playbook: Profiting from Trends in Global Exchanges, Elsevier, Detroit.

Morningstar Inc. 2013, ETF  exchange traded funds. Web.

Patil, R 2009, Exchange traded interest rate derivatives, Economic and Political Weekly, vol. 38 no. 8, pp. 755-760.

Rao, A, Pearce, L & Xin, K 2010, Governments, reciprocal exchange and trust among business associates, Journal of International Business Studies, vol. 36 no. 1, pp. 104-118.

Stevenson, D 2013, FT Guide to Exchange Traded Funds and Index Funds, Penguin Books, London.

Thompson, S 2009, The globalization of securities markets: effects on investor protection, The International Lawyer, vol. 41 no. 4, pp. 1121-1144.

Vikas, A, Narayan, Y & Naik, G 2008, Risks and portfolio decisions involving hedge funds, The Review of Financial Studies, vol. 17 no. 1, pp. 63-98.

Wagner, D 2011, Trading ETFs: gaining an edge with technical analysis, Jones & Bartlett Learning, London.

Money markets refer to a subsection of the fixed-income industry where short-term financial instruments of high liquidity are sold and bought. The money market includes several short-term trading instruments such as commercial papers, treasury bills, and bankers acceptances. The main purpose of any money market is to fill the void in any economys short-term credit needs. Nevertheless, the money market differs from the capital market because most of the formers instruments mature after only a short time.

The money market is not limited to physical currency trading but it also encompasses trade in other short-term instruments that are either sold in wholesale or retail terms. For example, in most countries money market occur in terms of commercial papers and treasury bills among other non-currency tools. The overall goal of money markets is to facilitate the efficient transfer of short-term funds between holders and borrowers of cash assets¹.

This paper aims to assess money markets as well as how they operate including their context within international economies. Money markets developed to their current states when it became clear that money was a major tool in the global financial system². Currently, most money market instruments have a maturity period that is less than one year. Although, money markets are often confused with bond markets, the latter is distinguished by its short maturity periods.

In the global context, money markets are part of vast and distinguished international monetary systems. All economies around the world use money markets to fulfill their short-term lending and borrowing needs. Money markets were a replacement for commodity markets that were fairly common in the previous centuries. Gold is still a preferred trading commodity in modern markets and it is also one of the earliest.

For example, in the 1600s France had the biggest gold reserve for trading purposes in the whole of Europe³. Maintaining a balance in the money markets can determine the fate of an entire economy. Furthermore, only free markets have shown the resilience that is necessary to accompany the fluctuations in demand and supply of the money markets. After the Dutch economy collapsed in the late 1700s due to demand and supply uncertainties, the government took charge whilst upholding the spirit of the free market⁴.

Capital markets serve a purpose that goes beyond the short-term lending and borrowing needs. Furthermore, individuals rarely feature in the money markets although they are well represented in the capital markets. Large economies have subsequently big money markets and vice versa. The demand and supply of money market instruments is subject to normal market forces. It is also important to note that money markets are part of both capitalist and socialist systems. Nevertheless, their modes or regulation and presentation in these two systems are different.

Access to money markets in various economies around the world is limited to local institutions. The use of middlemen in these markets is also common especially in capitalist economies. Other than economic players, money markets are also subject to political influences. Political stability is synonymous with health money market environments and vice versa. All governments endeavor to use their money markets to create harmonious investment tools that can bring together financial institutions, citizens, and government policies.

The main distinction of money markets is their short-term assets. These assets can be bought or sold and have a maturity period that can range from twenty-four hours to one year. Furthermore, all these instruments of exchange can be easily converted into cash-based currencies at the convenience of their holders. All money markets have ready facilitation/disposals for bank accounts, certificates of deposit, interbank loans, money market mutual funds, commercial paper, treasury bills, repurchase agreements, and securities lending⁵.

In modern economies, the money markets make up a significant share of the entire financial system. For instance, money markets account for at least thirty-five percent of the entire United States economy according to recent statistics. The only unique factor about most money market instruments is their maturity periods. In addition, most of these instruments are issued under different sets of guidelines and regulations.

Fannie Mae and Freddie Mac are two institutions that are tasked with the distribution of money market securities. However, these two institutions operate under regulations that seek to oversee the best interests of both the government and the populous. In 2008, the interests of the money market consumers were overlooked when Freddie Mac and Fannie Mae gave subprime mortgage money to retail banks and who in turn made quick and cheap loans to people to finance homes without telling them that interest was going to go up quickly as a result⁶.

Fig 1. Table showing trends of March 2012 sales of short-term securities over periods of fifteen years and thirty years⁷. The trade indicates the interest rates of most securities remain stagnant over the short-term and keep adjusting over the long-term.

Money markets are universal and they can be found in any country across the world. In socialist economies, there are limitations to the diversity of money market instruments. For instance, both Singapore and Qatar have money market instruments⁸. However, as a capitalist hub Singapore offers a wide range of market instruments than Qatar, which is a socialist economy. Nevertheless, it is important to note that both of these countries have similar economic dynamics.

Liberal markets are the hallmark of money markets because economic policy makers rely on them to effect the distribution of funds to the parties that need it at any given times. In lecture 1 on Origins of a Political Economy, it is noted that President Roosevelt used the money market skills of Lord Keynes to save America from slipping into another financial depression. Keynes advised Roosevelt to to pump money into states and regional government&and once states and regional governments had access to that revenue money, it became their responsibility to create banks⁹. Banks are important agents in money markets and they can use the instruments of this trade to stimulate growth in any section of the economy.

Commercial banks are the main facilitators of money markets. Most money market instruments are distributed through the commercial-bank networks. Consequently, in any given country commercial banks act as suppliers and consumers of money market products. The market dynamics that are subject to the operations of commercial banks are expected to create a viable balance in this market. First, commercial banks are surcharged with the distribution and collection of currency.

This process often relies on the millions of citizen-operated checking accounts that are held through various commercial banks. These accounts are responsible for movement of market instruments from wholesalers to retailers and then to individuals who act as consumers. In instances where money markets prove hard to regulate, commercial banks are often used by governments to correct any imbalances. In the history of the United States, commercial banks have been used to correct money markets. For example, in the Lectures on Political Economies we encountered incidences where both Franklin Roosevelt and Bill Clinton influenced money market dynamics during their presidencies¹⁰.

Another main participant in the money-market field is the central bank. Central banks act as the regulators of commercial banks in any country¹¹. Consequently, central banks have a huge stake in the control of money markets as well. In liberal economies, central banks act as overall bankers for the commercial banks as the latter deposits their money into these organizations¹². On the other hand, central banks hold cash reserves on behalf of countries and their financial institutions. In regards to money markets, central banks have the ability to issue out these reserves to financial institutions if a need for them arises.

International money markets are often subject to the control of central banks. These institutions act as gateways to all international monetary transactions as well as rates of exchange. One of the purposes of the monetary reserves that are held within central banks is to ensure that the demand for national currencies does not outstrip supply at any given time. To correct these monetary imbalances, central banks sometimes use other forms of exchange such as gold standards.

In addition, globally accepted currencies such as the Euro and the dollar are a common fixture in the international money markets. It is important to note that the currency exchange markets are subject to both internal and external factors. For example, if a country produces less than average it often relies on imports. Consequently, the countrys currency will be less valuable if other countries are not interested in its domestic products.

There are various categories of money market instruments and they are all aimed to satisfy certain market segments. Bank deposits make up the majority of the market but they are only considered as legitimate instruments when certificates of deposit are issued along with them. Bank deposits are mainly influenced by an institutions creditworthiness or governments policies in regards to these instruments. At times banks receive loans from other banks and this scenario creates another form of money markets.

Commercial paper is another form of money market instrument and it acts as an acknowledgement of any debt that is unsecured. Only large and reputable organizations are in a position to trade in commercial paper¹³. The creditworthiness of any financial organization is subject close scrutiny when it is offering these promissory notes. Treasury bills are among the most common money market instruments. Treasury bills are often given out by governments and their maturity periods range from a month to a year.

The buying and selling of treasury bills is subject to a fixed interest rate. In modern economies, treasury bills are also issued electronically and traded as such. Repos represent a late entrant into the money market and they are characterized by their relatively short maturity periods. Repos are issued on short-term basis&usually no more than two weeks&where a borrower sells a security it owns for cash and agrees to buy it back from the purchaser at an agreed time and with interest¹⁴.

Money markets are characterized by their trade in short-term securities that have maturity periods of less than twelve months. The money market instruments are subject to short-term factors and this minimizes their risk by a significant margin. The main actors in the money markets are commercial banks, central banks, governments, individuals, and other financial institutions. Political climates have a lot of influence on money markets. Most money market instruments are reliant on the creditworthiness of the institutions that issue them. Money markets are continually evolving in line with the needs of the population.

Fig 1. Table showing daily Treasury bill rates data¹⁵

The table above indicates the yield rates of treasury bills that have different maturity levels. It is important to note that although the treasury bills are issued exclusively by the United States Treasury Department, they can be sold as various money market instruments. Consequently, The Bank Discount rate is the rate at which a Bill is quoted in the secondary market and is based on the par value&and the Coupon Equivalent, also called the Bond Equivalent, or the Investment Yield, is the bills yield based on the purchase price¹⁶. It is also evident that instruments with shorter maturity rates (4 weeks) yield lower returns than those with higher ones.

Reference List

Amico, Stefania. The Federal Reserves Largescale Asset Purchase Programmes: Rationale and Effects. The Economic Journal 122, no. 564 (2012): 415-446.

Balaam, David. Introduction to International Political Economy. Upper Saddle River, NJ: Prentice Hall, 2012.

Department of Treasury. Resource Centre. Open Government. 2015. Web.

Ehrmann, Michael and Marcel Fratzscher. Monetary Policy Announcements and Money Markets: A Transatlantic Perspective. International Finance 6, no. 3 (2003): 309-328.

Goodfriend, Marvin. Monetary mystique: Secrecy and Central Banking. Journal of Monetary Economics 17, no. 1 (2006): 63-92.

Lecturers Last Name, First Name. Political Economic Notes. Lectures, 2015.

McKinnon, Ronald. Money and Capital in Economic Development. New York: Brookings Institution Press, 2013.

Melvin, Michael. International Money and Finance. London: Academic Press, 2012.

Footnotes

1. Michael Melvin, International Money and Finance (London: Academic Press, 2012), 17.
2. Lecturers First Name Last Name, Political Economic Notes (Lectures, 2015).
3. Lecturers First Name Last Name, Political Economic Notes (Lectures, 2015).
4. Lecturers Last Name, Political Economic Notes.
5. Lecturers First Name Last Name, Political Economic Notes (Lectures, 2015).
6. Lecturers Last Name, Political Economic Notes.
7. Stefania Amico, The Federal Reserves Largescale Asset Purchase Programmes: Rationale and Effects, The Economic Journal 122, no. 564 (2012): 426.
8. Lecturers First Name Last Name, Political Economic Notes (Lectures, 2015).
9. Lecturers Last Name, Political Economic Notes.
10. Lecturers First Name Last Name, Political Economic Notes (Lectures,2015).
11. Michael Ehrmann and Marcel Fratzscher, Monetary Policy Announcements and Money Markets: A Transatlantic Perspective, International Finance 6, no. 3 (2003): 310.
12. Marvin Goodfriend, Monetary mystique: Secrecy and Central Banking, Journal of Monetary Economics 17, no. 1 (2006): 69.
13. Ronald McKinnon, Money and Capital in Economic Development (New York: Brookings Institution Press, 2013), 59.
14. David Balaam, Introduction to International Political Economy (Upper Saddle River, NJ: Prentice Hall, 2012), 43.
15. Department of Treasury, Resource Centre, Open Government. Web.
16. Department of Treasury, Resource Centre,.

GDP

Gross Domestic Product (GDP) refers to the total all output produced within a countrys economy. It is a measure of the intensity of economic activities in a country and is mainly viewed as a critical tool in the determination of whether a country is performing well economically or not. It is obtained as a summation of all the activities of the economic agents in an economy. This entails consumption both by households as well as the government, investment activities carried out b investors, and the difference between exports and imports. Consequently, the GDP can be defined by the equation:

Y=C+I+G+NX where:

Y= Total GDP, C=Consumption by household, I=Investment, G=Government expenditure, NX=Net Exports

Net Domestic product entails the reduction of the GDP by the depreciation of the assets used in the production activities is a significant part of the GDP.

Net GDP=GDP-Depreciation

GNP on the other hand takes into consideration income from abroad. It is the summation of the value of production activities conducted by nationals within and without the country.

GNP=GDP=NR where NR=Net income from abroad

There are several ways of GDP determination. The output measure determines the GDP by adding the total value of output in terms of goods and services produced in an economy. Considerations are made here in a bid to eliminate cases of double counting mainly occasioned by the process of value addition. The Income measure looks at the summation of all the incomes earned in the year under consideration.

This is because all the income is obtained as a result of engaging in economic activities. The uses measure considers a summation of all the transactions which show how the incomes earned from the production processes are utilized whether in consumption, savings, or investments. Finally, the expenditure measure specifically sums up the total expenditure as the expenditures are expended on the goods and services in the economy whether produced locally or from a foreign land.

Price Indices

Price indices are an important indicator of the general movement of prices in an economy. The two most common indices are the Laspeyres and the Paasche price indices. The Laspeyres index assesses the level of the current prevailing prices and quantities about the prices and/or quantities of a predetermined base year. In calculation, the index is obtained by first getting the ratio of the current price of a determined group of commodities. The resultant is then multiplied by 100. Consequently, it is true that for the base period, the index is assumed to be 100. Periods with prices higher than those of the base year have their Laspeyres indices higher than 100 and vice versa.

The Paasche Index is a ratio of the cost of purchasing a certain bundle of goods at the prevailing prices about the cost of purchase at the base year for the same bundle of goods. Consequently, the main difference between the two indices is the fact that the Laspeyres index considers a consumption bundle of goods while the Paasche Index focuses on an expenditure bundle.

Chained indices are a late introduction in the calculation of accurate price indices in a bid to eliminate some weaknesses in the Laspeyres indices. Chained indices are a series of indices that measure changes in prices from the base year to the quarters in the subsequent years. All the indices for all the subsequent quarters are linked hence achieving more realistic continuity in the determination of changes in prices. They focus more on the consequence of changes in price changes.

Eclectic IS-LM model

The IS-LM model is an elaborate economic tool used in explaining the relationship existing between the real output and the level of interest rates. The model explains the relationship existing between the good and the money market. The Investment/Savings (IS) curve defines the relationship between interest rates and Incomes. This is the demand aspect of the model. The Liquidity preference money supply equilibrium on the other hand represents the supply model as it defines the amounts available for investments. At equilibrium, the two curves cross.

The IS curve defines the levels of income and interest rates where the aggregate expenditure equates to output. The curve is downward sloping. This means that the higher the level of equilibrium incomes, the lower is the level of interest rates.

Money

Generally, money refers to anything which is generally acceptable as for the payment for products as well as clearance of debts. In economics, money is defined in three steps. The narrow definition of money encompasses all the coins and notes currently held by the public including travelers checks and automatic transfer service accounts. This category is referred to as M1. A broader definition incorporates money held in current and savings accounts on to the M1. This becomes M2. M3 incorporates M2 plus deposits made in fixed accounts.

Money multiplication occurs due to the process of re-lending conducted by financial institutions based on the deposits made with the bank. In the case of a fractional reserve system, there are requirements set by regulatory authorities on the extent to which lending can be done based on the deposits. The consequence of this is that the initial amounts of the high powered money referring to the real currency in the form of notes and coins can be multiplied through the financial institutions increasing the level of money supply in the economy. This process is called money creation.

In formulating a simple multiplier it is possible to determine the maximum amount of money created by commercial banks for a given level of high-powered money. The most basic formula for the determination of the multiplier is m=1/R where R refers to the reserve ration as determined by the central banks. Consequently, in a case where a $1000 is injected and a reserve ratio of 40%, then the levels of the money supply are bound to rise by levels calculated below.

Money created= (1/0.4)*1000= 2500. The implication is that a $1000 increase in high powered money results in an increase of $2500 at the level of the money supply.

The unpredictability of the multiplier money multiplier occurs due to different factors. The first is that the money multiplier is calculated using the benchmarks established by the regulatory authorities. In many cases, the financial institutions do not just maintain reserve levels within the stipulations of the regulatory authorities. Setting the reserve levels acts as only a guideline but it is okay to exceed the expectations mainly in consideration of the economic conditions. Consequently, when the reserve level is set at 40% some banks may maintain a 50% reserve level. Therefore the use of 40% may not be an accurate measure.

Introduction

The argument presented by John Keynes is an illustration of the paradoxical twist that prevailed during the time when the document was prepared. He developed this theory in his attempt to explain the great depression; hence, sway individuals, corporations, and governments from classical practices. This argument was to a large extent applicable to European countries, which at the time deemed themselves superior. At the time, Europe was expanding its industrial capacity, and value for money in relation to employment, economic growth, and consumerism was in the lime light. Hence, this theory was mainly relevant to Europe as a directive to the countrys use of money.

Keyness general theory is not static, and it does not focus on a single element of money; rather, it encompasses a varied holistic approach that examines different realms of money and the economy. It was a perfect reflection of the economic situation of Europe that sought to challenge some of the classical ideologies regarding the use of money, especially in bad economic times characterized by unemployment and high inflation rates.

Keynes challenges classical theorists who believed in full-employment and the fact that poor economic times should be followed by the termination of unsustainable economic activities. In addition, he does not support the idea of inflating the prices; otherwise, the propensity to consume would not be achieved and the efforts to revive employment would be in vain.

Main body

The document reflects the period it was produced in that during this time money was in limited supply; hence saving the money was associated with thrift. Apparently, the ideas of Keynes formed the basis for the current theories associated with money, demand, supply, and associated push and pull factors. The 1930s was a time when countries were unstable due to inter-wars, colonization, and the fight for freedom.

Hence, reinforcing the circulation of money at this time was illogical given the fact that most countries were focused on gaining sovereignty. In addition, the existence and exchange of money at this time challenges the period in which the document under review was produced because money was mainly in the possession of the feudal lords and aristocrats. In addition, whereas Keynes gathers ideologies from great scholars, these ideas are not congruent with the referred period; hence continue to challenge the application of the theory at the time. One ideology asserts the need to give every individual an equal chance of being employed as well as promote innovation and invention by supporting manufacturers, and arts, and handicrafts.

Whereas this theory reflected the endeavors of the British who had gone out in search of more resources to reinforce and expand their dreams of industrialization, the same would not be said about other countries. On the other hand, this document challenged the manner in which the British solely relied on employment to sustain its economy; hence the reason why it went in search of cheap labor through slavery. Yet, Britain and associated superpowers would have used their local manpower to generate more money and promote national economic growth. Keynes argument challenged the current period at the time by forecasting the consequences of an individuals inability to consume, which apparently were not a major cause of concern at the time.

Money was associated with the prosperity of a nations economy as long as it remained in circulation through increased consumption. Whereas money has been considered the outcome of good business, Keynes has indicated that money is the determinant of good business. He affirms this fact by stating that a business should not be closed down just because it is not performing as it should. More and more money should be spent until expected results are realized. Money is a determinant of the propensity to consume; hence, the more money one makes, the more that he or she consumes and the converse is the case.

Increased consumption guides one towards full-employment, and once this has been achieved, inflation cannot affect the income that one gets. Hence, money is shown as the platform of all economic activity because sufficient consumption leads to an increase in demand that subsequently induces investment. It is such spending that challenges classical notions of saving for the uncertain future.

But, Keynes is adamant on the fact that increased trade, which is fluid and destined to occur on a daily basis is more beneficial than a static investment whose price is uncertain. Such a phenomenon is attributed to the fact that money is deemed useless if it cannot be spent. Even in the event of bad economic economics, the available money should be used to enhance production and meet peoples demands.

Conclusion

The political implication of Keyness argument is that governments should provide supportive structures to encourage individuals to manufacture and create handicrafts. Subsequently, this leads to the development of a means of generating income and the creation of employment opportunities that steer a countrys economy further. The moral implication of the argument presented by Keynes is that individuals have the moral responsibility of spending money to generate more income. Actually, it is no use in saving money that could otherwise be spent setting up some lucrative business somewhere or promoting the growth of the business.

Hence, governments should develop policies that support such moves. Contrary to high-held beliefs, Keynes does not support the concept of property acquisition, which is the main reason why people save money. He argues out that upon acquiring adequate property, for instance, land, of what use is it if it cannot be used in a form of trade to give way to consumerism. Hence, the reason for the recent surge in the real estate business; the land is not fluid and does not enhance the propensity to consume. Being virtuous and thrifty is prejudice to man because it thwarts consumerism.

Keynes offers great insight into the political world by insisting that even though people seek employment, they will be willing to work with a lower real wage than a lower nominal wage. In this sense, the government and associated corporations are largely responsible for the prosperity of any nation because it is through the provision of well-salaried jobs that the propensity to consume is enhanced. Subsequently, national economic growth is achieved.

Most countries that have adhered to Keynes ideology of a liquid market have taken the responsibility of promoting consumerism. Other than the exchange of money with tangible goods, money on its own in the context of stock markets and diversified financial services beats the gold standard of merely saving and borrowing money. Hence, the reason for stability of the financial sector regardless of wars, terrorist attacks, and natural calamities. Political figures should learn to develop and support dynamic policies that act as pillars for their nations economies to ensure the cycle of supply and demand does not cease to exist like in the case of the Great Depression.

Introduction

Money laundering is considered to be one of the most wide-spread financial crimes of the 21^st century. It damages the world economy by rising inflation, supporting crime and terrorism, and enabling individuals and criminal organizations to use their ill-gotten gains unopposed (Caine). According to New York Times, the front door of money laundering is the banking system, which, due to government efforts, remains closed. The backdoor, which is the international trade system, remains wide open (Caine). The purpose of this paper is to research the subject of trade-based money laundering, its impact on global scene and export controls, identify types of trade finance techniques used to launder illegal money, and provide a chart of red flags that indicate to potential money laundering.

What is Money Laundering?

In order to understand why money laundering is dangerous and what could be done to prevent such malpractices, it is first required to provide the definition of the term. The working definition accepted in all countries across the globe is provided by the FATF, or the Financial Action Task Force, which is an international organization created with the purpose of setting standards and promoting effective implementation of various measures for combating money laundering, as well as cutting off terrorist financial supplies and dealing with other issues threatening the integrity of the global financial system (FATF 2). According to FATF, money laundering is identified as a process that hides the existence of illegal income, their sources, as well as various illegal applications of income by disguising that income and reintroducing it into the economic system as legitimate (FATF 3).

Stages of Money Laundering

Typically, money laundering schemes pass through three stages, after which the reintegration of illegal income into the formal economy occurs. The first stage is money placement, during which illegal money is introduced into an otherwise legitimate enterprise. This could be done, for example, through putting money in a bank account. The process of layering that occurs after is used to distance money from its source through numerous transactions. The last step is the integration of money into the formal economy, in a way that appears legitimate and is used for purchasing legitimate assets (Caine).

Methods of Money Laundering

FATF identifies three main methods used by criminals and terrorists with the purpose of hiding the origins of money and reintegrating it into the formal economy. These methods are financial money laundering, physical money laundering, and trade money laundering (FATF 3). Financial money laundering relies on making large amounts of investments, deposits, credit cards and other operations to effectively split the large sum into smaller ones, making it easier to hide its origin and avoid detection (Trade-Based Money Laundering). The second type is widespread in the USA and Mexico, where drug money is transported back and forth in large quantities. Trade money laundering involves using illegal money to purchase goods and then transferring them across the border disguised as a legitimate trade operation. Various criminal elements exploit the loopholes and weaknesses in the global trading system, as well as massive amounts of transactions conducted daily in order to hide their own activities.

Trade-Based Money Laundering

FATF identifies TBML as the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illicit origins (FATF 4). Governments and financial institutions across the world have put considerable efforts into combating money laundering techniques used in the financial segment, making it harder for criminals and terrorists to reintroduce their ill-gotten gains back into the formal economy. This is the reason why trade-based money laundering is on the rise, as a host of anti-laundering laws and identification demands imposed on the banking system makes it much riskier to conduct such operations. Transferring stolen money through objects of value, on the other hand, has much fewer risks (The Hong Kong Association 5).

Stages of Trade-Based Money Laundering

Trade-based money laundering goes through the same stages as other types of money laundering but in a different way. Instead of depositing money in bank accounts and using various transfers and banking transactions to obscure the money trail, TBML suggests transferring money into purchasable assets, such as goods, and hiding their origin through trade operations involving one or several cover-up companies. In the end, when the money is reintroduced into the formal economy, it is done so through legal sales of goods purchased on illegal income (Caine).

The Four Basic TBML Methods

There are four basic TBML Methods which are used more often used to launder money. Over-invoicing is a technique that enables the transfer of value to the exporter, while under-invoicing  to the importer. Multiple invoicing allows the criminals to receive multiple payments for a single shipment of goods. Over- and under-shipments, as the name suggests, involve transferring bigger or smaller shipments for the same amounts of money. Lastly, false descriptions of services and goods involve diminishing or exaggerating the qualities of goods to justify the price (Anti-Money Laundering Risk 5).

Trade Finance in Relation to Money Laundering

Trade finance is avidly used in international trade as a means of paying for goods and services between companies. As such, it is an excellent way for criminals to use it to conduct TBML operations, as all of them are camouflaged to be legitimate enterprises. This, and the amount of paperwork that trade finance operations usually solicit, as well as various complications in inter-bank relationships allow criminals and terrorist organizations to use trade finance institutions to launder money (Anti-Money Laundering Risk 3).

Trade Finance Techniques Used in Money Laundering

These trade finance techniques are most frequently used in order to launder money, due to the fact that they make up the core of financial operations used in legitimate trade. In particular, letters of credit and guarantees are used to conduct over and under-invoicing operations as well as pay for multiple invoices, as usually banks do not require any extended proof of fairness of the transactions that have taken place. Bankers acceptance and open account financing are also tools that can be used either to conduct money laundering or to use the already laundered money to finance an otherwise legitimate business (Anti-Money Laundering Risk 8).

The Role of Trade Finance Organizations in Mitigating the Risks of TBML

There are several ways in which banks and other financial institutions may mitigate the risks of TBML. The Know-your-customer program allows financial organizations to assess the risks of money laundering posed by particular customers by analyzing the nature of their business and establishing their identity in order to implement a necessary level of monitoring. Due diligence suggests gathering information on the nature of the goods, as well as identifying applicants and beneficiaries in relation to the traded goods. Lastly, the transaction monitoring program should keep a look-out for the potential violations of Anti-Laundering laws and sanctions (The Hong Kong Association 5).

Red Flags for TBML

• Major differences between the invoice and the descriptions of the goods.
• Customer does not follow the standard business procedure.
• High-risk nature of shipments or businesses.
• Commodity is shipped to or from a country known for their laundering activities.
• Shipment does not make sense from an economic perspective.
• Use of shell companies.
• Unnecessarily complicated transaction structures.
• Entities related to the transaction have no apparent connections to it.
• Commodities provided by the customer differ from those associated with their business.
• Shipment locations and conditions of trade differ from those mentioned in the letter of credit.
• The product is more expensive or cheaper when compared to the average market price(Anti-Money Laundering Risk 7).
• Red Flags for TBML.

Here is a classic example case of over-invoicing for goods, which was conducted by an expatriate businessman who used this scheme through the use of companies in the UK and the UAE, both of which were allegedly controlled by him. This type of fraud uses falsified documents in order to cover up transactions of low value at the start, and the reception of higher value payments based on a trust receipt or a line of credit given on falsified documents. The chain goes as followed (Chandrasekhar):

1. Shipments of low value are sent from companies in the UK to companies in the UAE.
2. Falsified documents for higher value are provided to the exporters bank in the UK.
3. Falsified documents are transferred from the exporters bank to the importers bank in UAE.
4. Falsified documents reach the companies in the region.
5. Payment of higher value is sent to the importer through both banks and is then received (6) by the exporter companies in the UK.
6. Laundered money is transferred to somewhere else.

1. Company A extended a US$5 million advance to Company H that was to be repaid by the receipt of aluminum ingots from the exporter at a future date.
2. Company Hs obligations to supply the metal were backed by a performance bond that was issued by its bankers (Bank H), favoring Company A. Should Company H default on its ability to deliver the ingots, Bank H would compensate Company A to the extent of US$5 million.
3. Company A, in turn, borrowed US$5 million from its bankers (Bank Y) and assigned the benefit of the performance bond to that bank. In due course, Company H reneged on its obligations under the original purchase contract.
4. Company A repaid the US$5 million to Bank Y and took back the performance bond that was in its favor. Company A then claimed a similar amount from Bank H (Chandrasekhar).

Conclusions

Money laundering is one of the great enablers for the existence of large organized crime rings and various terrorist groups, as it provides them ways of legitimizing their ill-gotten gains to finance their operations further. Statistics show that the number of transactions prevented and apprehended by the authorities is extremely low, which means that most of the illegal money becomes laundered and is used to purchase goods, assets, and services. This presents a challenge to the world trading and financial system and threatens its stability. In order to prevent trade-base money laundering, stricter adherence, and control, as well as total transparency of the financial and trading sector is required (Anti-Money Laundering Risk 5).

Works Cited

Anti-Money Laundering Risk in Trade Finance. 2016. Web.

Caine, Kimberly. Trade-Based Money Laundering is on the Rise.Law360, 2015.

Chandrasekhar, Deepa. Trade-Based Money Laundering: A Case Study. The Anti-Fraud Network, 2011.

FATF. The FATF Recommendations. 2012.

The Hong Kong Association of Banks. Guidance Paper on Combating Trade-Based Money Laundering. 2016.

Trade-Based Money Laundering.ACAMS.