From 468bceaf5ccd490ba4cd9ae01a3878c3abe25dc3 Mon Sep 17 00:00:00 2001 From: apo77yon <126520850+apo77yon@users.noreply.github.com> Date: Sat, 25 Mar 2023 22:28:18 -0700 Subject: [PATCH] add macroeconony concepts: ul, default meaning, qe, qt --- MEV_and_trading/macroeconomy/concepts.md | 136 +++++++++++++++++++++++ 1 file changed, 136 insertions(+) create mode 100644 MEV_and_trading/macroeconomy/concepts.md diff --git a/MEV_and_trading/macroeconomy/concepts.md b/MEV_and_trading/macroeconomy/concepts.md new file mode 100644 index 0000000..2b825ce --- /dev/null +++ b/MEV_and_trading/macroeconomy/concepts.md @@ -0,0 +1,136 @@ +## macroeconomy concepts + +
+ +#### unrealized losses + +
+ + +Unrealized losses refer to losses that an investor or trader is currently holding on an investment but has not yet sold or realized. These losses are based on the current market value of the investment and can fluctuate as the market value changes. + +For example, if an investor purchased a stock for $50 per share and it is currently trading at $40 per share, the investor would have an unrealized loss of $10 per share. However, if the investor continues to hold onto the stock and the price eventually goes back up to $50 per share or higher, the unrealized loss would be eliminated, and the investor would not have actually realized a loss. + +Unrealized losses are important to consider when making investment decisions because they can impact an investor's overall portfolio performance and risk level. + + + +
+ +#### bonds + +
+ +Bonds are debt securities issued by companies, municipalities, or governments to raise capital. When an investor buys a bond, they are essentially loaning money to the issuer of the bond, who agrees to pay the investor interest on the borrowed funds for a specified period of time, usually until the bond matures. + +Bonds typically have a fixed interest rate, also known as the coupon rate, which is paid out to the bondholder periodically (usually semi-annually). At maturity, the issuer pays back the face value of the bond to the bondholder. + +Bonds are a popular investment choice for investors who seek a fixed-income stream and want to diversify their portfolio. Bonds are generally considered less risky than stocks, but they still carry some level of risk depending on the issuer's creditworthiness and the overall economic and market conditions. Bonds are also traded in the financial markets and their prices can fluctuate based on changes in interest rates, inflation, and the issuer's credit rating. + + + +
+ +#### defaulting mean + +
+ +Defaulting refers to a situation in which a borrower fails to repay a debt as per the agreed-upon terms and conditions. When a borrower defaults on a loan or bond, it means they have failed to make payments on the principal amount, interest, or both, and have violated the terms of the loan agreement. + +Defaulting on a loan or bond can have serious consequences for the borrower, such as penalties, higher interest rates, legal action, and damage to their credit score. For bondholders, default can mean a loss of income and principal, and a decline in the value of their investment. + +In the context of sovereign debt, default means that a country has failed to make payments on its government bonds or loans, leading to a financial crisis that can have serious economic and social implications for the country and its citizens. Default by a sovereign borrower can also trigger broader market turmoil and affect the global financial system. + + + + +
+ +#### quantitative tightening + +
+ + +Quantitative tightening is a contractionary monetary policy tool used by central banks to reduce the money supply and control inflation. It involves the sale of assets, such as government bonds, from the central bank's balance sheet, thereby decreasing the amount of money in circulation and increasing the cost of borrowing. + +During quantitative tightening, the central bank reduces the amount of money in the economy by reversing its earlier asset purchase programs, which are part of quantitative easing. The central bank sells the bonds it purchased during quantitative easing, which reduces the amount of reserves held by banks, and thereby reduces the amount of credit available for lending. + +Quantitative tightening is used to prevent or reduce inflation, as too much money in circulation can lead to inflationary pressures. It can also be used to stabilize the currency exchange rate and reduce the risk of asset bubbles forming in the economy. + +However, quantitative tightening can also have negative effects on the economy, such as slowing down economic growth, reducing liquidity in the financial markets, and increasing the cost of borrowing, which can discourage investment and consumption. Therefore, central banks use quantitative tightening cautiously and only when necessary. + + + + + +
+ +#### t-bills + +
+ + +T-bills, or Treasury bills, are short-term debt securities issued by the United States Department of the Treasury to finance the government's short-term borrowing needs. T-bills are considered to be one of the safest investments as they are backed by the full faith and credit of the U.S. government. + +T-bills are issued with maturities of four, eight, 13, 26, or 52 weeks and are sold at a discount to their face value. For example, a $10,000 T-bill with a 13-week maturity might be sold for $9,950. At maturity, the investor receives the full face value of the bill. + +T-bills are popular with investors who seek low-risk investments with short-term maturities. They are also used as a benchmark for other short-term interest rates, such as the prime rate, and are traded in the secondary market. + +Because T-bills are backed by the U.S. government, they are considered to be virtually risk-free. However, they typically offer lower returns than other types of investments, such as stocks or corporate bonds, which carry more risk. + + + + + +
+ +#### ust + +
+ + +UST stands for United States Treasury, which is the department of the U.S. government that is responsible for issuing and managing the government's debt securities. UST securities include U.S. Treasury bonds, bills, and notes, which are sold to finance the government's borrowing needs and fund its operations. + +UST securities are considered to be one of the safest investments in the world, as they are backed by the full faith and credit of the U.S. government. This means that the government guarantees the timely payment of principal and interest on UST securities, even if it has to borrow more money to do so. + +UST securities are also used as a benchmark for other types of investments, such as corporate bonds, and are considered a safe haven during times of economic uncertainty or market volatility. Because UST securities are considered to be virtually risk-free, they typically offer lower returns than other types of investments, such as stocks or corporate bonds. + +UST securities are issued with different maturities, ranging from 1 month to 30 years, and are sold through public auctions and on the secondary market. They are also widely traded on global financial markets, making them an important part of the global financial system. + + + + +
+ +#### interest rates + +
+ + +Interest rates are the cost of borrowing money or the compensation for lending money. They are expressed as a percentage of the principal amount and are usually calculated on an annual basis, although they can also be calculated for shorter or longer periods. + +When a borrower takes out a loan, they are typically required to pay interest on the amount borrowed, in addition to repaying the principal. The interest rate on a loan is determined by a number of factors, including the creditworthiness of the borrower, the duration of the loan, and prevailing market interest rates. + +Interest rates also play an important role in monetary policy. Central banks use interest rates to control the money supply and influence economic activity. When the central bank raises interest rates, it makes borrowing more expensive, which can slow down economic growth and inflation. When the central bank lowers interest rates, it makes borrowing cheaper, which can stimulate economic activity and inflation. + +Interest rates also affect investments, as they determine the rate of return on bonds, savings accounts, and other fixed-income investments. When interest rates are low, investors may seek higher returns by investing in riskier assets, such as stocks or real estate. When interest rates are high, fixed-income investments become more attractive, as they offer higher returns with less risk. + + + + +
+ +#### reserve repos + +
+ + +A reserve repurchase agreement (repo) is a short-term transaction in which a financial institution, such as a bank or a securities dealer, borrows money from the central bank, pledging securities as collateral. The transaction is structured as a sale of securities with an agreement to buy them back at a later date at a slightly higher price. + +The purpose of a reserve repo is to provide liquidity to financial institutions that may have a temporary need for funds, such as to meet reserve requirements or to manage short-term cash flows. Reserve repos also allow the central bank to control the money supply and influence interest rates. + +In a reserve repo transaction, the financial institution sells securities to the central bank and receives cash, which it can use to meet its liquidity needs. The financial institution also agrees to repurchase the securities at a later date at a slightly higher price, effectively paying interest on the loan. The difference between the sale price and the repurchase price is the interest earned by the central bank. + +Reserve repos are usually very short-term transactions, with maturities ranging from overnight to a few weeks. They are typically used by financial institutions that need to borrow money for a very short period of time and have securities that they can use as collateral. Reserve repos are an important tool for managing the money supply and ensuring the stability of the financial system. + +