group 1: Analysis of the FED’s federal discount rates over the last 10 years

The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they received from their regional Federal Reserve Bank’s lending facility. Through a discount rate chosen, a central bank can keep an eye on the multiplicity of the money available in the market. In fact, a huge discount rate means that the FED, for example, wants the money supply to decrease since the commercial bank will be more careful when lending or will be less incentive to take out a loan from the central bank. In that case, this commercial bank will make less loans and thus, follow some economic activities such as the investments will be less; then, the money supply will decrease. This tool as it is used by the Federal Reserve to control the money supply, is a key in this case for preventing inflation. If the Federal Reserve wants in the contrary increase the money in order to lead to an inflation, the discount rate will be low.

An Overview of the Discount Rates set from 2007 to 2017

This graph below describes the discount rate chosen by the FED for 10 consecutive years. From 2007 to now, rate has tremendously decreased; as it can be seen, it goes from 5.2 to 0.75. It must be remarked that this graph has 3 periods. The first period is from the year 2007 to 2009; this period portrays a big decrease of the discount rate. Next, the second period lasts for 7 years (2009-2015) and the rate did not change; in fact, it remains unchanged (0.5) from 2009 to 2015. The last one which begins in 2016 until now is subject to a slight increase.

Analysis of the FED’s federal discount rates over the last 10 years

 

  • First period (2007-2009):

The Fed had viewed the financial turbulence that had rocked financial markets over those last few weeks as primarily a liquidity crisis and not as an economic crisis. Since financial market conditions had deteriorated, and tighter credit conditions and increased uncertainty to have the potential to restrain economic growth going forward, the Federal Reserve Board approved a cut in the discount rate, the rate at which banks may borrow directly from the Federal Reserve, of 50 basis points to 5.75%. The Fed also announced that it was changing the standard terms of loans at the discount window to allow for borrowing up to 30 days

The reduction in the discount rate was the latest move by the Fed to provide liquidity to parts of money markets that need it.

  • Second period (2009-2015)

After the financial crisis and Great recession, the discount rate decreased a lot. It was equivalent to 2% in 2008 and it was only 0,25% in 2009.

Between 2009 and 2015 there is a stability between 0 and 1 percent of the rate, it is called the « period of 0 rate » or also an « above-market rate ».The fed fund rate tends to fall.

In 2010, the maximum term on discount window loans has been reduced back to overnight.

This monetary policy adopted a floor system. It promotes the efficient functioning of the financial system by allowing banks to earn the market rate of interest on all of their reserve balances.

This monetary policy is due to 2 things: because the Fed began paying interest on reserves. And also it purchased assets such as Treasuries through, which led to an important increase in the stock of reserves.

  • Third period (2015-2017)

Since the end of 2015, the discount rate of the FED has started to increase slowly. Indeed, by the beginning of February 2017, the rate is 0.75% compared to only 0.5% in 2016. Although this quarter percentage point of increasing seems weak, it shows the optimism of the FED and also that the American economy is going better.

This period represents the first raise of the discount rate of the decade. And in 2017, the FED anticipates 3 increases of its rate. Therefore, we can expect a sustainable rise for the following years.

 

External sources

https://www.fxstreet.com/analysis/fed-cuts-discount-rate/2007/08/17

http://www.cnbc.com/2015/12/16/fed-raises-rates-for-first-time-since-2006.html

https://www.stlouisfed.org/publications/regional-economist/april-2016/interest-rate-control-is-more-complicated-than-you-thought

https://www.wsj.com/articles/fed-raises-rates-for-first-time-in-2016-anticipates-3-increases-in-2017-1481742086

 

group 1 :the strategy of prudential and HSBC after the Brexit announcement

 

Analyze the strategy of prudential and HSBC after the Brexit announcement

 

 

Brexit: an economic issue?

Firms and investors in many non-European Union countries have been using Britain as a gateway to Europe, benefitting from the zero-tariff environment and free movement of labour and capital. Accordingly, the main fear here seems to be that, if the United Kingdom voted to leave, foreign direct investment inflows would dry up and parent companies may even close-up shop and move production or offices elsewhere. In addition, given that foreign multinationals tend to be productivity-enhancing, bringing with them new technologies and management practices, a drying up of this investment into Britain could be damaging for the country’s long-term potential.

 

Prudential

 

Prudential is an international financial services group

 

 

Their strategy: to focus on the Asian Market

 

“Our strategy is simply to pursue growth in growing markets,” Thiam, 52, said on the conference call with journalists. “In the U.K. and the U.S. we don’t target growth, it depends on the environment.”

 

Prudential operates throughout Asia including Hong Kong, China, Singapore, Indonesia, Malaysia and Vietnam. Sales in the region have grown for 22 consecutive quarters, the company said today.

In asset management, U.K.-based M&G reported an 8 percent increase in external funds under management to 139.5 billion pounds while in Asia, the Eastspring unit saw new third-party inflows more than double to 2.3 billion pounds.

 

The shares fell 0.8 percent to 1,599.5 pence at 2:56 p.m. in London, trimming the insurer’s gain this year to 7.2 percent.

 

 

HSBC

HSBC Holdings PLC is a British multinational banking and financial services holding company headquartered in London, United Kingdom

 

Their strategy to move some part of employement from London

HSBC is planning to move up to 1,000 staff from the UK to Paris due to Britain’s narrow vote to leave the EU.The leading global bank, which has assets worth $2.6 trillion (£1.9 trillion), has said it will relocate the jobs if the UK leaves the single market, a possible outcome of post-Brexit negotiations, according to the BBC. It is possible the UK could leave the EU but remain a part of the European Economic Area (EEA), in a model like that of Norway, Iceland and Liechtenstein. It is thought the staff to be relocated would be those who process euro payments for HSBC in Canary Wharf.

But the company decided to remain in London in part due to the city’s status as the main financial centre of Europe. Douglas Flint, HSBC’s chairman, said: « The work to establish fresh terms of trade with our European and global partners will be complex and time consuming.

 

In February Douglas Flint had indicated move 1000 jobs out of London But he qualifies this scenario as an“extreme” scenario.

“If you look at elements of the wholesale business which depended upon passporting rights, if you thought we were going to lose all of those passporting rights, to take one extreme, it could be up to 1,000 jobs,” he told TheCityUK’s annual conference in London.

“It is impossible to answer a hypothetical question because it depends on the access that we have [to EU markets].

 

Analysis

 

We can see that both strategy is to reduce their market in the UK but they still remain there. They want to maintain relation with the EU and want profit so prudential go to the growing market of Asia and HSBC prefer Paris.

 

Conclusion

 

Brexit has certainly impact on banks like Prudential and HSBC. The banks are

worried about Britain leaving the European Union — known as a Brexit

because not only would it have to deal with the economic fallout like the rest of the sector, it is also uniquely placed in suffering from a second potential Scottish independence referendum after that

 

 

https://www.bloomberg.com/news/articles/2015-05-06/prudential-new-business-profit-declines-6-in-first-quarter

 

https://woodfordfunds.com/economic-impact-brexit-report/#foreign-investment

 

https://www.ft.com/content/bbabb504-3d4b-11e6-9f2c-36b487ebd80a

 

http://www.telegraph.co.uk/business/2016/06/30/hsbc-plays-down-chance-of-moving-1000-jobs-out-of-london-on-brex/