UK PM race: The countdown begins in full throttle

Here we go with the UK PM election race!!!

The former Prime Minister Theresa May has resigned her post on May 24, 2019, and officially relieved on June 7, 2019, following the Brexit amendment failure tabled by her. The next general PM election is to be held in 2022 officially. Till 2022 a member has to serve as PM from the Conservative Party which is ruling the country.

Is it GBP Most affected Currency after BREXIT?

Election Procedure:

Now the election is held among 313 conservative lawmakers who will be reduced to two contestants with series of ballots. The election is conducted in four rounds that started from June 13 followed by June 18, 19 and 20. A membership husting was held on June 22. The official result will be announced on July 23, 2019.
Which Currency is the Real Winner in Brexit?
Who are the contestants in the UK PM race?

No Candidates Current Designation
1 Michael Gove Environment Secretary
2 Matt Hancock Health Secretary
3 Mark Harper Chief Whip
4 Jeremy Hunt Foreign Secretary
5 Sajid Javid Home Secretary
6 Boris Johnson Former Foreign Secretary
7 Andrea leadsom Former Leader of House
8 Esther McVey Former Works and Pensions Secretary
9 Dominic Raab Former Brexit Secretary
10 Rory Stewart International Development Secretary


Who will win the Contest?

At present, Boris Johnson and Jeremy Hunt are now in the race for the next PM.
Mr. Johnson has long been the clear favorite in the contest and easily made it to the final two, securing the votes of more than 100 Tory MPs in each round. Last few days his lead is slipping slowly due to Hunt’s commendable speech.

Hunt has a tough time to win the contest which was among the Tory members and the general public. But recently the percentage of winning slowly increased to above 20%.

On 20 June – the public at large preferred Mr. Johnson by 36 percent to Mr. Hunt’s 28 percent. On 22 June, however, Mr. Hunt led by 32 percent to 29 percent. Mr. Johnson retained his lead among Conservative voters, but it fell from 27 points to nine points over the same period.
What is Forex Monetary Policy?

The problem for Mr. Hunt is that Mr. Johnson’s lead is large, especially among the fraction of the electorate that actually gets to decide the outcome of the leadership race.

The former Mayor of London has emerged as the darling of the Tory party membership with 77 percent of them saying he would be a good leader according to the latest polling.

This is a better score than any of the other candidates that made it through to the third round and is 21 points ahead of Mr. Hunt who scored 56 percent.

This would suggest that Mr. Johnson has an excellent chance of winning the contest when the vote goes before the members over the course of the next month.

What is the Bank Stress Test and its importance?

What is the Bank Stress Test?

Bank stress testing is a framework for analyzing the financial impact of unfavorable economic scenarios to ensure that banks have sufficient capital to maintain operations during economic crisis situations.

Why is it required?

The stress tests are required to make sure banks are prepared for whatever economic crisis might be right around the corner. Stress tests also force banks to play it safe by maintaining financial cushions against losses, and they serve as a form of accountability among large institutions. Healthy banks are critical to a functioning economy, and they affect our daily lives. When large banks are a “systemic risk,” they can cause severe widespread harm if they fail, so regulators set rules designed to prevent those outcomes.

The most straightforward model of a bank is an institution that takes deposits and lends that money out to other customers. But things have evolved to a point where banks take more risk and use increasing amounts of leverage to improve profits.

Bank stress testing required by the regulation include:

CCAR and DFAST by the Federal Reserve
EU-wide stress testing by the European Banking Authority
Annual industry stress test by the Bank of England

What are the impacts of the Stress Test on Forex?

When banks are opening an office in another country the stress will start on the exchange rate. If the exchange rate is low ((i.e) home currency is less than other currency) the bank may face some risk. It also depends on the interest rate of the other country too. Again, the correlation may be very small in a normal scenario but could become very high in a stress scenario. Therefore, this link must be modeled carefully in the context of a stress testing exercise.

FX rates can have a big impact on liquidity. Most of the reports required by the different supervisors now have to be produced per currency, as there is a difference between having cash in local currency and the US dollar. Even when the exchange rate is indexed on the dollar, some differences can appear when a crisis occurs. It is therefore very important to calculate two metrics in each currency. Even for liquid currencies, it is not always easy to exchange one currency for another.

What is Monetary Policy? What are its importance and impacts?

What is Monetary Policy?

Monetary policy is a set of economic policy that manages the size and growth rate of the money supply in an economy. It is a powerful tool to regulate macroeconomic variables such as inflation and unemployment.

Monetary policies are implemented through different tools, including the adjustment of the interest
rates, purchase or sale of government securities, and changing the amount of cash circulating in the economy. The central bank or a similar regulatory organization is responsible for formulating monetary policies.

Importance of Monetary Policy:

To ensure economic stability at full-employment or potential level of output;
To achieve price stability by controlling inflation and deflation; and
To promote and encourage economic growth in the economy.

Monetary policy is concerned with changing the supply of money stock and rate of interest for the purpose of stabilising the economy at full-employment or potential output level by influencing the level of aggregate demand.

More specifically, at times of recession monetary policy involves the adoption of some monetary tools which tend the increase the money supply and lower interest rates so as to stimulate aggregate demand in the economy, on the other hand, at times of inflation, monetary policy seeks to contract the aggregate spending by tightening the money supply or raising the rate of interest. Monetary policy has also to promote and encourage economic growth both in the industrial and agricultural sectors of the economy.

Impacts of Monetary Policy:

Monetary policy is a powerful tool that the government and concerned monetary authorities use to influence the economy based on a reaction to certain issues and predictions of where the economy is moving. The monetary authorities need to make accurate predictions based on solid information to properly adjust the money flow and rates of interest. There is an inverse relationship in money flow and interest rates. Increasing money flow and decreasing interest rates can encourage spending and, as a result, stimulates the economy. More spending means more jobs and curbing unemployment.

Monetary policies have an impact on an individual’s life too. If a government thinks the economy is overheating and growing very fast, there are chances of inflation so, the government may decrease spending.

Similarly, taxes play a vital role in monetary policy. Decreasing taxes can stimulate the economy as people will have more money in pockets to either invest or save. The investments will increase production and more people will be hired reducing the level of unemployment.

What are Forex Reserves? Why is it important?

What are Forex Reserves?

Forex reserves are money or other assets held by a central bank or other monetary authority so that it can pay its liabilities if needed, such as the currency issued by the central bank, as well as the various bank reserves deposited with the central bank by the government and other financial institutions.


Why Forex Reserves are important for a Country?

1. It increases the confidence in the monetary and exchange rate policies of the government.

2. It enhances the capacity of the central bank of the country to intervene in the foreign exchange market and control any adverse movement and stabilize the foreign exchange rates to provide a more favorable economic environment for the progress of the country.

3. During the time of any crisis, foreign exchange reserves come to the rescue of any country so as to absorb the distress related to such a crisis.

4. It also adds to the comfort of market participants that domestic currency is backed by external assets and hence it also helps the equity markets of the country because due to strong reserves many people from foreign countries are willing to invest in the country having strong foreign exchange reserves.

What affects the country due to forex reserves?

The accumulation of reserves might induce two types of crisis:
First, it might lead to over-borrowing and overinvestment in the reserve currency country and cause a financial crisis when expectations worsen or the reserve accumulation ends.

Second, by steadily worsening the net foreign asset position of the reserve currency country, it might result in a currency crisis where the reserve currency country deliberately decides to devalue its currency.

List of top 10 countries with highest forex reserves:

Rank Country Foreign Currency Reserves (in billions of U.S. dollars)
1 China $3,210.00
2 Japan $1,259.30
3 Switzerland $804.30
4 Saudi Arabia $501.30
5 Russia $460.60
6 Taiwan $459.90
7 Hong Kong $424.80
8 India $403.70
9 South Korea $402.40
10 Brazil $379.40

 

List of top 10 countries with lowest forex reserves:

Rank Country Foreign and Gold Reserves (thousands of USD)
1 Sao Tome and Principe 63,520
2 Micronesia 75,060
3 Dominica 103,000
4 Samoa 140,700
5 Saint Vincent and the Grenadines 157,400
6 Tonga 158,800
7 The Gambia 159,300
8 Sudan 181,500
9 Vanuatu 184,000
10 Eritrea 218,900