Lancaster University Investment and Finance Society is the largest student society at Lancaster University and one of the fastest growing in the UK according to the number of members. As a result of our focus on members' needs we were acknowledged by LUMS Careers Team as the best society in Lancaster University Management School. While our primary focus is finance and investment related career events, we have members of various backgrounds interested in various fields. We are supported by Ernst & Young. Join us by registering for membership and I hope to see you all involved.
Several trends are likely to dominate the currency markets in 2012. For the U.S. dollar (USD), the key issue is going to be what comes out of the Eurozone in terms of sovereign debt resolution. Markets do not like uncertainty, nor the modus operandi of the EU to continue to kick the can down the road rather than face the tough austerity measures needed. Various EU member nations have promised to bring down their debt to GDP ratios, but the single Euro currency faces significant bearish pressure as we begin the year.
It has been a turbulent year for the equity markets. To put the statement into context – FTSE 100 is down 7.4%, while NIKKEI 225 has plunged 17.4%. Meanwhile in the US, S&P 500 index ended the year nearly unchanged at 1257.60 points (a drop of 4 ticks from 1257.64 at the beginning of the year). The Nasdaq index fell 1.8%. The Dow Jones Industrial Average was the only major US equity index that did not land in the red, posting a 5.5% annual increase, which was, however, fueled primarily by non-cyclicals like McDonalds and Pfizer.
“Europe will be forged in crises.” Those were the words of Jean Monnet, one of the European Union’s chief architects and founding fathers. The truth of this adage is currently being tested as the saga of the European sovereign debt crisis continues and the mettle of the European Monetary Union (EMU) is being tried by capital markets. This essay attempts to explain how this crisis came about, examine its impacts and propose measures that could be taken to amend the situation.
Even prior to the introduction of the Euro in 1999, there had been much skepticism about its vaunted advantages to European economies. However, the fears were quickly dispelled by the euphoria induced with the Euro’s introduction. Occurring shortly after the burst of the dot com bubble in North America, the elation spurred investors to flock to European equity markets providing huge liquidity for the nascent currency and monetary union (Currie, 1999). In addition, the adverse environment towards the dollar and concerns about another US crisis led European and Asian central banks to diversify their currency reserves into the Euro. The capital inflows in turn led to euro’s appreciation and were interpreted by American economist Michael Hudson as the harbinger of a possible conversion of Europe into a safe haven destination for capital flight during risk aversion. The emulation of Switzerland’s model portended trade problems and engendered jitters about the euro’s exchange rate levitation (Hudson, 2003).