Why Does the Russian Ruble Decline Amidst The Problems in the Ukraine

The Russian army is moving into the Crimea region which is Ukrainian sovereign territory. All of the political and military pandering aside, the Sberbank moved the exchange rate to 38.50 rubles to Dollar. That’s an unprecedented high. Why is the shift happening?

Two reasons.

1) Nobody wants to buy Russian assets at the moment which means demand for Russian rubles is low. Low demand means no pressure of appreciation against foreign currencies.

But perhaps the biggest reason,

2) Foreign investors and Russians themselves don’t trust the ruble and are moving immediately to dump assets and convert their currency into a safer vehicle. In order to dump Russian currency you need to buy foreign currency buy selling rubles. first. This puts pressure on foreign currency, or rather, floods the market with Russian rubles. More rubles increases supply and depreciates the currency against the dollar (and others like the Euro).

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How to Check Your Credit Report for Free in Canada – TransUnion and Equifax

Contact Information and Credit Report Forms

Did you know you can check your credit report for free? You can get instant copies online by paying a fee. However, a government mandate on privacy means you can check your credit score for free, you just have to jump through some hoops and send in some documents. It’s not easy to find all the necessary information so we’ve compiled the forms, instructions, and lists here at DiscussEconomics for your review.

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Money Creation – Where Does the Money Come From?

How Banks Create Money continued

One of our popular posts located here talks about ‘how banks create money’. You should read that link before this one as it is the necessary part 1 of this series on money creation. A lot of people think it’s a huge conspiracy that banks would create money out of thin air. Fact is they don’t, and our entire financial system is based upon the responsibility of banks to lend correctly. Furthermore, in the capitalist system, in the simplest form, the troubled banks would be permitted to fail and close its doors, however, because most nations aren’t true capitalists economies (free market) because of the intervention of the central bank, you’ll note that the government through the central bank is doing more to ensure consumer confidence is settled by the guarantee of loans in banks and the banks themselves.

Here are some notable comments from the previous article on How Banks Create Money that are worthy to be posted in article form (from Keir in the UK.) we’ve had folks from all around the world respond to this post so please feel free to comment.

Keir notes:

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Internal Rate of Return, Cash Flow, and NPV

Calculating and Interpreting Internal Rate of Return (IRR)

This post continues a discussion about cash flow, net present value, and interest rates and NPV, which you can read by clicking on the specific links. This post deals with the topic of internal rate of return.

IRR is an indicator of the efficiency or quality of an investment, as opposed to net present value (NPV), which indicates value or magnitude. It is the interest rate that results in a zero NPV when used as the discount rate. Or it is the discount interest rate for which the present worth of all cash inflows equals the present worth of all cash outflows. It is called internal rate of return because the money invested in this project generates (internally, within the project) exactly this rate of return. In particular for bonds, the IRR is called yield to maturity (YTM).

The IRR Rule

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Determining Net Present Value of Cash Flow

We started a discussion on the importance and description of cash flow for the operating firm. You can find that post here: cash flow intro.

Moving forward now to the topic of net present value of cash flow (or NPV). An investment project generally should be undertaken if benefits outweigh costs. In order to compare the two categories we must convert them first to the same time period by finding their present value. If the PV of benefits is greater than the PV of costs the project is profitable.

Usually the costs of the project incur in year 0 while benefits incur in years 1 to t. The difference between the PV of benefits and costs is called net present value (NPV). If we denote with Ao the initial cash flow (negative if it is a cost, positive if it is revenue) and with AI, … , At all the future cash flows, the net present value of the project is:

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Corner Solution – Perfect Substitutes: Demand Theory

Continuing on with demand theory. Previously we discussed the Cobb Douglas function, now we move into perfect substitutes and the corner solution. Here are some factors to keep in mind.

1. Indifference curves must interest one of the axis (not necessity or essential good)
2. Budget constraint line is such that the slope is greater than the MRS (marginal rate of substitution) (MRS x1, x2) good 2 for good 1 at the intercept (M/p2).

For example: Perfect substitutes: the solution –> spend your entire budget on the cheaper of any two goods to maximize utility. This is mathematically express like:

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Consolidating Loans Intro – How Does it Reduce Debt Faster?

Q. I’ve heard alot of about consolidating loans but don’t understand it fully, can you give me just a brief explanation?

A. Great question, everyone on the Internet (scammers, some legit, banks, credit cards, everyone) wants you to consolidate your loans with them? So what’s the deal.

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Efficiency and Improvement Theories

Economics is a study of choices and how you make those choices can be defined. Be it to maximize utility, to increase profit, or to improve a situation. Here are some:

1) Pareto Efficiency: a state where it is not possible to make one better without worsening another.
2) Pareto Improvement: improvement to noe without worsening another (no one is worse off)
3) Pareto worsening: choice that make one better off at the expense of another.
4) Kaldor-Hicks Improvement: A change is a Haldor-Hicks improvement if the gains from that exchange outweigh the costs (potentially pareto improving)

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Why does the Canadian dollar go down if interest rates stay the same or go down?

As of this post the Canadian dollar is depreciating versus the American dollar. The major contributing factor to this downward pressure is due to the interest rate announcement expected by the Bank of Canada.

Why does the Canadian dollar go down when interest rates are reported to be staying the same or declining? To put it in very simple terms, foreign exchange is about supply and demand of foreign currency, to hold foreign currency you need to buy some supply. A form of that supply would include government bonds or T-bills which have a return. If the interest rate is going down or staying the same then the return from those short term investments stays the same or is going to decline in future value, which means there will be less demand to hold your currency. Less demand or the selling of your supply (it’s not worth as much) puts downward pressure on the currency therefore depreciating it versus, in this case, the American dollar.

How to Predict Foreign Exchange Movements

The reason domestic currencies drop may baffle some newbie FOREX investors since many movements are rooted in what are called ‘expectations’. You see, currency movements move up or down (depreciate or appreciate) based on expectations and/or real announcements. Here is an article to help you track currency movements because predicting currency movements is a skill that can be learned to some degree.

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