Absolute return funds are investment funds designed to make money in all market conditions. They focus on returns rather than trying to outperform the market, and employ a range of strategies - like short selling - in an aim to profit regardless of market direction.
Learn moreAfter hours trading refers to the buying and selling of assets outside the standard trading hours of major exchanges such as the New York Stock Exchange. It might be used in an attempt to capitalise on price movements following key news events, to hedge, or to avoid price gapping. After hours trading can potentially be more volatile, and therefore risky.
Learn moreThe Amex Index refers to a series of stock market indices on the NYSE American, which lists small to medium-sized US and international companies, providing a benchmark for their performance.
Learn moreIn finance, animal spirits refer to the emotional and psychological factors that drive traders’ decisions, leading to fluctuations in financial markets beyond what would be expected from rational behaviour.
Learn moreAn asset refers to any resource with economic value that an individual, company, or institution owns or controls with the expectation that it will provide future financial benefit. Assets can include shares, commodities, real estate, and currencies, many of which can be traded with derivative products such as CFDs.
Learn moreAsset valuation is the process of determining the current worth of a financial asset or company. It might involve methods such as discounted cash flow analysis, comparable company analysis, or using market values for assets like stocks and bonds to establish their fair market value.
Learn moreAttitude to risk refers to the willingness of a trader to take positions that represent a higher chance of losing their capital. More risk-averse traders prefer lower risk assets that may have less upside but also less downside, while risk-seeking traders accept the higher chance of losing money for more potential upside.
Learn moreAn audited account is a financial statement that has been examined and verified by an independent auditor. The audit process ensures that the accounts accurately represent the entity’s financial position and comply with relevant accounting standards and regulations. This provides assurance to stakeholders about the accuracy of financial reporting.
Learn moreAutomated market making (AMM) is a type of trading system that uses algorithms to set buy and sell prices, providing continuous liquidity to markets. AMMs determine prices based on trading volume and demand, functioning without traditional human market makers.
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Monetary policy is the policy or actions taken by a country’s central bank to promote economic growth and support economic goals laid out by the government, such as low unemployment.
It is by means of monetary policy that central banks control the money flowing through the economy. They use interest rates and bond purchases to adjust liquidity in the economy, to prevent extreme inflation or deflation and keep it on an even keel.
According to the St. Louis Federal Reserve, there are four main tools central banks have at their disposal:
The discount rate is the interest rate that central banks charge commercial banks for short-term loans and it influences other interest rates.
Reserve requirements control the funds available in the banking system as they specify the amount of deposits that banks must hold in cash, either in their vaults or with the central bank.
Central banks pay interest on the commercial bank reserves they hold, allowing them to encourage or discourage lending.
Open market operations are the buying and selling of government bonds and other assets.
While you might not have read a monetary policy definition itself, you have likely encountered news coverage about central bank decisions on interest rates and other means of economic stimulus such as credit to support lending and investment.
Monetary policy meaning has become more important at a time of record central bank intervention in many economies around the world. The aim is to encourage banks to extend credit to businesses and promote consumer spending over saving.
Central bank leaders – such as the head of the US Federal Reserve, the chief of the European Central Bank, or the governor of the Bank of England – frequently make public statements that are watched closely for indications of changes to monetary policy that will affect the economy and have an influence on financial markets.
It is important for investors to be aware of monetary policy in their country as well as major economies like the US, as the policy that affects economic growth has an influence on company share prices. Interest rates also affect the value of currencies, as higher interest rates encourage flows of money into an economy from abroad, while lower interest rates make it less attractive.
There are different types of monetary policy adopted by different central banks around the world. Monetary policy examples include the US approach to inflation or China’s focus on currency stability.
The consistent use of quantitative easing since the 2008 financial crisis has seen central banks like the US Federal Reserve go beyond purchasing government bonds to intervene in the economy by providing loans and purchasing other financial instruments to stimulate economic growth. In August 2020, the Federal Reserve announced a major shift in monetary policy in response to the fallout from the Covid-19 pandemic, saying that it will tolerate inflation above its two per cent target for longer periods of time. That will allow it to maintain low interest rates for several years without the need to raise them to control inflation.
The stated aim of the People’s Bank of China (PBOC) is to keep the value of the Chinese currency stable and contribute to economic growth. In 2015, the PBOC devalued the renminbi and in 2016, adjusted its monetary policy to move towards a more market-based approach, allowing the renminbi to float within a tight range against a basket of global currencies rather than maintaining a fixed rate against the US dollar.
