RISK APPETITE INDICATORS

admin — Fri, 01 Jul 2011 17:00:09 +0000

When there is no clear, unequivocal signal from the signal grid, that is when not all four signals are pointing in the same direction, currency traders and investors can still boost their total return by using a risk appetite indicator to gauge overall market sentiment in terms of “risky” or “safe” assets, both in terms of putting on new positions and in terms of measuring their existing positions. Risk sentiment can be divided up into three levels:
Risk-seeking/stable
Risk-neutral
Risk-aversion/unstable
When the indicator is in risk-seeking or risk-neutral mode, be long a basket of higher carry currencies, either in the developed or emerging markets. Conversely, when it is in risk-aversion mode, obviously having moved there from risk-neutral, cut and reverse the position, going short the carry basket of currencies. Risk appetite has become an increasingly important concept not just because of the need to create more accurate models for forecasting short-term currency moves, but also because the last few years have shown a marked pick-up in cross-asset market volatility. There are several risk appetite indicators created by the private sector for this purpose. Not just currency traders or speculators can use this. A risk appetite indicator can be a crucial tool for corporate Treasurers and institutional investors, not least in providing them with an informed context within which their exposure exists.

Prices motivate economic players

admin — Fri, 16 Oct 2009 16:43:04 +0000

Market prices establish a reward-penalty (profit-loss) structure that encourages people to work, cooperate with others, use efficient production methods, supply goods that are intensely desired by others, and invest for the future. Self-interested entrepreneurs will seek to produce only the goods consumers value enough to pay a price sufficient to cover production cost. Self-interest will also encourage producers to use efficient production methods and adopt cost-saving technologies because lower costs will mean greater profits. Firms that fail to do so will be unable to compete successfully in the marketplace.
We asked you to reflect on why the grocery stores in your local community generally have on hand about the right amount of milk, bread, vegetables, and other goods. Likewise, how is it that refrigerators, automobiles, and CD players, produced at different places around the world, make their way to stores near you in approximately the same numbers that they are demanded by consumers? The invisible hand principle provides the answer, and it works without political direction. No government agency needs to tell decision makers to keep costs low or produce those goods most intensely desired by consumers. Similarly, no one has to tell individuals that they should
- develop skills that are highly valued by others. Once again the profit motive
- higher earnings in this case will do the job. Many of the things we take for granted in our ordinary lives reflect the invisible hand at work.

Loan advice » Risk

RISK APPETITE INDICATORS

Prices motivate economic players