THE GOLD STANDARD

To great extent, gold is a well-known form of money. Also in the history it has a general acceptance as a medium of exchange from the beginning. Unlikely to currency which does not have a intrinsic value, just a paper; gold always had a value.

Before the start of gold standard, silver had been used as a standard currency for centuries.However after a while this came to an end and gold became the standard. Difficulties with the gold standard started with the World War I.Countries had to leave the gold standard in order to be able to pay war reparations.


The Theory
In a gold standard system, countries tie their currencies to gold. Therefore, they prevent the problem of  "Nth currency". Since the countries peg their currencies to the gold, all countries stand equal to each other meaning that  no one has a privileged position in the international market.

Through this way, gold becomes the international currency. When needed, a single country can use gold as a defense mechanism of domestic currency. Gold system keeps exchange rate fixed.

However, using gold standard has both advantages and drawbacks. Since countries can not increase their money supply rapidly, gold standard prevents hyperinflation. On the other hand, gold standard puts constraints to the use of domestic monetary policy.

FINANCIAL MARKET TYPES

Financial market allows people make trade with financial securities and commodities.

1.Capital markets
2.Money markets
3.Derivatives markets
4.Futures Market
5.commodity markets
6.Insurance markets
7.Foreign exchange markets

DERIVATIVES

DERIVATIVES

What is a derivative?
A derivative is an instrument whose value depends on the values of another assets.

In recent years there has been the growth of derivative markets especially in the futures and options market. Before explaining what is futures and options we can also mention other examples of derivatives.

Examples of derivatives:

• Future Contracts
• Forward Contracts
• Options
• Swaps

Why are we using derivatives?

1. For hedging risks
2. For taking a position in the market for future direction
3. For making arbitrage profit
4. For changing the liability's nature

Another term related with derivative markets is the derivative asset or the contingent claim in different words. A derivative asset means that its payoff depends on the prices of other securities.

Futures Contracts

Futures contract is one of the types of financial derivatives. Two parties make an agreement over an asset by specifying a certain date and certain price also deciding on who sells the asset and who buys the underlying asset.
Basic terminology about future contracts:

• Futures price: Strike price which is determined by supply and demand
• Delivery date: Specified delivery time in the future
• Long position: Buyer of the asset
• Short position: Seller of the asset

Generally, future contracts are traded electronically now; in contrast to past when they were traded in a physical environment.

The Actors of Foreign Exchange Market

There are 4 actors in the foreign exchange market which are:

1. Banks: Their positions are at the center of foreign exchange market.

•                 Banks are often in the market to meet the needs of customers.

2.Corporations: 

• Companies need exchange market for their operations, indeed they can need  local currency for an operation.

3. Nonbank Financial Institutions

4.Central Banks

Now Celebrities must pay too! [Air Berlin]

The airline "Air Berlin" ended its long-standing special-flight program for celebrities. The "Premium Plus Card Counter" more than 100 selected individuals from business, sports, culture and entertainment and their families to had to chance to travel free at any time with the second largest German airline. The decision to discontinue the program was, in light of the realignment of the company has been taken. Air Berlins spokesman Uwe Berlinghoff confirmed the report on Sunday

What is a mutual fund?

Mutual fund is an open-end investment company that takes the money from many investors. With this money, company buys stocks, bonds and short term capital market instruments which is traded on national and international market.

Advantages of Mutual Funds
1. Diversification: Investors buys hundreds or thousands type of products. This means for you even with a small amount of money you can buy hundreds of products and reduce your risk.
i.e. In reality it is not possible to buy with 1000 dollars gold , oil, silver and other papers at the same time.

2. Professional investment management: We know that markets are not stable and if you do not want to lose money you have to need to follow the news every minute or you can be a part of a mutual fund and let them manage your money.

3. Daily liquidity: Generally you can sell your mutual funds in a short period of time. The difference between current market value and sale price is not so much.

4. Government oversight

5. Ease of comparison


Disadvantages of mutual funds


1.No Guarantee: The value of a mutual fund investment could be fall. It is also not guaranteed by an agency of the U.S government

2. Fees: you can face with some sale commissions such as 12b-1 fees, redemption fees and operating expenses

3. Less predictable income

4. No opportunity to customize


Types of mutual funds
1. Open-end funds

2. Closed-en funds

3.Unit investment trusts

4.Exchange-traded funds


more information abaout mutual funds you can find in Wikipedia