Monday, June 1, 2015

Does the Euro Have A Future

Debt Crisis – Important Failings in Design of Eurozone

Debt crisis in Europe had indicated the important failings in the design of Eurozone and predictions stating that the growth would be returning have not done much to inspire confidence according to Emma Alberici. Top economists and politicians besides Former Chancellors Alistair Darling, Nigel Lawson and Norman Lamont convey that the Eurozone cannot survive in its current form.

 During the interviews and articles for The Independent today, they were questioned on their short-term as well as long term prediction for the future of the euro. Though several are of the opinion that the Eurozone could be surviving the current Greek debt crisis particularly, if the political will invest in preventing disorderly default, none are confident that it would stay on.

They are of the belief that the new European Fiscal Compact that has been agreed in principle recently is unmanageable since it would take key financial powers from the national government as well as their electorates. Several of the economists and the politicians have disapproved the rush to strictness imposed on Italy and Greece recommending that it would be counter-productive by depressing growth and competitive imbalances among Eurozone members would be difficult to overcome. They had recommended that the ultimate consequence of the crisis would be quite a smaller Eurozone with Germany at the centre and countries like Greece, Italy, Ireland and Portugal on the external.

ECB Dropped Official Interest

As per Budget Papers `recent policy action in Europe has meant that some of the worst crisis risks have abated since the end of 2012 and global conditions are expected to gradually improve’. It is now over a year since Mario Draghi, European Central Bank President, had been credited with saving Europe by informing financial markets that he would do `whatever it would take’, to save the euro, which scarcely counts as `policy action’ and Mario’s subsequent move are still to yield any apparent success.

ECB had dropped official interests to 0.5 percent for the Eurozone and the Central Bank also had indicated that it was `technically ready’, to cut the deposit rate from the prevailing zero percent to negative territory. It would need the ECB to charge banks for safeguarding the money which would make it smart for the banks to extend credit to household as well as businesses instead of holding their money in Frankfurt, which is at the ECB headquarters.

Lower interest rate do not boost growth as they did early since people in Europe and Australia tend to be extra cautious when it comes to borrowing. With unemployment in the Eurozone, having a record of 12.1 percent, smaller numbers of people tend to have the capacity of repaying the loans they may have.

Severity – An Anti-Growth Approach 

All over Europe, severity has been considered as an anti-growth approach though no reliable alternative has come up to bring back life in the 17 countries that tend to share a currency. Vice president of the European Commission responsible for the euro, Olli Rehn, sounded the only strong note of optimism and predicted that the currency would emerge stronger from the crisis.

He stated that they would be undertaking nothing less than an economic reformation of Europe and step by step, they would be creating financial stability and the conditions for sustainable growth and job creation. However Mr Darling commented that he does not thing anyone could realistically say the Eurozone would survive with its present membership and the longer the inaction goes on, the greater the chance that one or more countries would be forced out.

Eurozone not About to Collapse but Survive …..?

Professor of Economics, Dartmouth College, Danny Blanchflower, commented that `the fundamental problem which has not been addressed is that there is no growth plan for Greece and even if a new loan is given to them, they will have no means of paying it back. The markets seem to have been priced in an orderly default.

The problem lies in a disorderly default which means default and exit for Greece. There seems to be moments to play out at the final hour though two and a half years down, he has little confidence that there would be an orderly way out’.Professor of Economics, New York University, Nouriel Roubini states his opinion that `the Eurozone is a slow motion train wreck.

 Not only Greece, other countries too are bankrupt. There is a 50% probability that over the next three to five years, the Eurozone will break up. Not all the members are able to stay. Greece and probably Portugal may exit the Eurozone, Greece within the next 12 months while Portugal would take a while longer.

According to Jim O’Neil, Chairman of Goldman Sachs Asset Management, Former head of global economic research at the bank states that `the reality is that too many countries joined the euro in the first place and ultimately without dramatic change, they can’t probably survive. According to some the Eurozone is not about to collapse but whether it could be constant over the long term is not known.

Friday, May 29, 2015

When is the Best Time to Buy Foreign Currency

Being Smart Essential – Buy Foreign Currency

Bob Atkinson of TravelSupermarket advises that one could save a tenner for every £100 one tends to spend abroad, by being smart. He states a traveller should `plan what one is going to do and how they are going to spend overseas though not any plastic. Look for credit and debit card which are designed for usage overseas.

The market-leading deals like the Halifax Clarity credit card and Norwich & Peterborough debit card, have no hidden currency loading fees or transaction fees. If one tends to spent for instance 600 euros on one of these cards they tend to actually spend about £470 based on the prevailing rates.

On comparing it to the worst option which is to rock up at an airport and actually buy euros without pre-ordering, they endup spending about £515 on the present day’s rate at some place like Heathrow’. He further adds `that’s a difference of around 10% which means it’s effectively like throwing away £10 for every £100 spent on holiday’.While purchasing holiday cash, most of the people leave it till the last moment and tend to completely ignore it at times till they arrive at the airport.

Commodity loaded with Poor Exchange Rate/High Transaction Fees

Several travellers generally pay more than the going rate for their holiday cash hence some advance planning could help them in avoiding poor exchange rates or exorbitant transaction fees. Most of them tend to leave this job at the last minute resulting in paying extra pounds or more.

Just as one would check for the best deals on hotels and flights, they should also do the same when it comes to purchasing foreign currency which is a commodity that is often loaded with poor exchange rate combined with high transaction fees. Individuals should avoid buying the holiday cash at the airport since it is the most expensive place to purchase the spending money and the rates are extremely bad since the providers have a captive audience.

The main issue is `time’ and one should be wise in thinking about currency much in advance prior to leaving for the holiday. The first step to be taken is to look at the exchange rates which would help in maximising how much local currency one would get from the exchange.

Euro, the single currency, till recently has maintained its strength and customers are recommended to purchase their euros when the pound could make gains against the single currency. In the meantime, sterling has performed more positively against the single currency and holidaymakers need not rush and buy euros now.

Knowledge on Value of Currencies

On the contrary, if one is heading out to the United States, one could be wise in purchasing dollars sooner instead of later since at the moment the pound tends to perform well against the dollar though the same is not expected to last. Gaining knowledge on the value of currencies one could be looking to purchase, could save them of money in the long run.

The only way to know if one is getting the best exchange rate is to be knowledgeable on what the currency rate is. Prior to the trip, one needs to check on currency converter to have an idea of what exchange rate to expect. If undertaking a prolonged trip, check on the rate periodically to remain updated of any major changes.

According to Alistair Cotton, corporate dealer at states that `now is a very good time to be buying US dollars. We are still on multi-year highs and businesses and people travelling abroad this year should be taking advantage at these levels’.

Fastest/Simplest Method - Online

Lucy Lillicrap of AFEX comments `current levels provide an excellent opportunity to buy the dollar at rates rarely seen since before the financial crisis’. Jeremy Cook, chief economist at on the other hand states that he `thinks that the US dollar will progress through the year as one of the best performing currencies in the G10 space as the economy continues to rebound.

The Federal Reserve is much like the Bank of England, trying to remain vague on when interest rate rises will come but a stronger economy, fuelled by strong domestic industry and receding fiscal drag will increase the pressure on Federal Reserve chair Janet Yellen to normalise policy sooner rather than later’.

According to Josh Ferry Woodard of TorFX, he states that `in the light of Fed chair Janet Yellen’s suggestion earlier that the interest rates could be raised in the USA by April next year, it is possible that the US dollar is the one currency that the pound may struggle to stay afloat against.

For this reason, it is a very good time to buy US dollars; the pound-to-dollar exchange rate may not reach levels this high for a long time’. The fastest and the simplest method to buy currency is online, on the internet where it would be easy to compare rates and one could also get a much better deal.

Tuesday, May 26, 2015

Beware Credit Card Firms’ Odious Tricks


Credit Card Companies – Reduced Rewards/Cash-backs

Starting a new business and making arrangements for the fund could at times come from friends or family or even a small business loan from the lender or financial institute. However, when these options seem to be unavailable, one could turn to credit card in availing the funds for a small business.

Credit card is not an invitation to spend money one does not own but the consumer needs to be cautious in using the credit card wisely. Several of the consumers do not take the trouble in reading the card statement carefully that would make them cautious of all the small charges which are imposed by the card company.

It means that a credit card is an easy packaged though a terribly priced personal loan which has the utilities but the charges seems to outweigh the benefits. Since updated EU clampdown on charges has been hitting on the profits, Credit card companies have reduced their rewards and cash-backs. Peter Jackson of Stockport speculates on the rewards that these credit card companies tend to hand out to consumers in a way to confuse them on how much they actually pay to use them.

Companies – Hidden Charges

Jackson writes that `any perks that individuals tend to receive have been paid for, by themselves without their knowledge. What makes matter worse is the fact that because everyone pays the same prices in the vast majority of retail outlets, anyone without a cash-back deal is subsidizing the customers who do’.

 He further goes on the same point with regards to current accounts stating that `this has been going on for years in the form of free banking. Banks give free bank accounts and then make their profits from people going overdrawn’.

In all honesty, he could have made the same point about mortgages, energy bills or mobile phone charges and people with the time and energy seeking out the best deals tends to do well. Others get penalised through higher charges or fewer discounts. Jacksons continues that `instead of charging a fair price for a fair service, companies tend to put all their efforts in hiding charges.

Introductory Deals of Zero Percent – Odious Deceits

It ends up with the poor and financially illiterate supporting the well-off. Why is there no open and honest charge, without all the cross-subsidizing?’ he asks. He states that it is a fair enough question and the one which he constantly puts forth to financial institutes over the years.

There are few notable exceptions most of whom are too frightened of losing business should refrain from competing with the same marketing tricks which their rivals tend to have. The introductory deals of zero percent which credit cards tend to offer are one of the most odious deceits, since people get affected by huge balance transfer fees together with high charges towards the end of the term.

 The faster these tricks or deceits are barred, the better. Consumers should bear these facts in mind and be wary while using the credit cards and avoid the traps the card companies and banks utilise to entice consumers getting them to pay all kinds of penalties and fees.

Thursday, May 21, 2015

How to Maximize Credit Card Rewards


Credit Card Rewards – Perks of Rewards Program

According to a 2011 research from Colloquy and Swift Exchange, the average household active in rewards program do not redeem a third of the rewards they tend to earn every year which could include credit card rewards. John Ulzheimer, president of consumer education at Smart comments that `there are a slew of people out there that has cards with points on all of them and they don’t even realize it’.

 The idea of receiving rewards credit card is to give the person the perks of the rewards program and the best way to ensure that one gets the most out of the rewards credit card is to use the right one and make sure it is paid off each month.

It could be used to the greatest advantage while also being aware of the possible pitfalls like leaving points on the table. The first problem is to ensure that the credit card and rewards program chosen matches the individual’s financial lifestyle.

 If the person travels a lot during free time, then a hotel or airline card could suit the individual while a gas credit card could be best for a road warrior. Those who would prefer an uncomplicated reward system could opt for cash-back credit cards, according to vice-president, Amy Lenander, of rewards programs at Capital One.

Cash Rewards Easy & Straightforward

She states that `cash rewards tend to be easy and straightforward as rewards can develop. Customers who prefer miles and points could save up for a big reward and dream up the possibility, whereas the cash-back customers tend to be more practical’.

Besides this, several cash back cards are provided with various ways of redeeming rewards like in the form of cheques, statement credits, charity donation or gift cards while others tend to automatically deposit the rewards directly in the bank account. It is essential to read the terms and conditions since not all cards are created equal even if they offer a similar form of reward program.

There are various forms of credit cards wherein some may require spending threshold prior to earning rewards while others cap the amount of rewards that is earned. Users should also be aware of blackout dates in redeeming travel rewards or the expiration date on points. Linda Sherry, director of national priorities at watchdog group Consumer Action also informs that these rewards programs are subject to change at any point of time.

Some Advanced Planning

Cash back cards could also involve some advanced planning and while most cards provide one percent to two percent cash back there could also be certain restrictions or requirements. These could include caps on spending in various categories or more rewards on purchases on gas, groceries or dining. Other cash back rewards programs could be even more difficult, with rotating categories needing quarterly registrations.

According to Bill McCracken, CEO of Synergistics Research in Atlanta, states that in some cases, consumers tend to pick the spending category and receive the rewards or the rewards are given to the highest spending category. This could mean more observing by the consumer in taking full advantage of their credit card.

Consumers should be alert for opportunities to double or triple their reward earning power. Lisa Hronek, senior analyst at Mintel Comperemedia informs that several issuers tend to offer an increased cash back return rate each quarter for certain categories usually the ones that go according to the season.

Friday, May 15, 2015

Equity Systematic Investment Plan - SIP

Stocks with good fundamentals are known to be some of the best ways of investment plans and investment in equity stocks has reaped phenomenal returns amongst various other assets if the same has been done in an organized manner with long time horizon. It is very important to select stocks and the right decision of the right price to enter in equity investment where most of the investors often tend to commit errors.

Equity Systematic Investment Plan or SIP is an instrument that tends to help an individual in avoiding the risk of timing the markets and enable wealth development in an organised or disciplined manner by averaging the cost of investments. Saving which tend to be small could create the big corpus in the long run. SIP enables the individual in building a portfolio on a longer time basis with small investment that are done at regular intervals thus reducing the danger of market volatility.

Individuals have the option of choosing between Quantity based and Amount based SIPs, in Mutual Funds, Stocks, ETFs as well as Gold. Quantity based SIP is a type where a fixed amount of quantity of shares of a desired company is purchased at a predefined frequency while Amount based SIP is a fixed amount which can be decided by the individual intending to invest in selected share at predefined frequency.

Disciplined & Long Term Time Horizon

The formula for calculating Quantity is SIP Amount/Market price of the said share. Fractional value is ignored and the order is placed for the remaining quantity. In the case of Quantity based SIP the quantity which is to be purchased is specified by the individual and is fixed at the time of placement of order according to the desired frequency.

The order value is then calculated depending on the usual market price of the scrip while execution of the order. In order to have a long term wealth development through the equity market, it is essential to have a disciplined and long term time horizon that have integral features of SIP. The following features would make an appropriate choice for equity market –
  • Disciplined and simple approach to investment
  • Based on concept of Rupee Cost Averaging
  • Investment possible with small sum of money invested recurrently to mount up wealth
  • Flexible intervals like Daily/Weekly/Fortnightly/Monthly basis
  • Flexibility with regards to Amount or Quantity based SIP
Avoid Majorly in Aggressive Funds

While investing in equity funds through SIP, though one will gain the rupee cost averaging benefits at the time of the volatile market phase, one should also avoid investing majorly in aggressive funds such as sector, thematic and mid-cap funds. One cannot guarantee better returns in excessive aggression.

On the contrary it could make your portfolio risky and probably disrupting the life stage with regards to investment goals. However, with mid-caps as a section of the portfolio, majority of it could comprise on large cap funds. Individuals often tend to start SIPs without a second thought on the amount they intend to invest comfortably. Often they try to make up for the lost time and then find it difficult to continue with their SIPs after a period of time.

This results in a stop of their investment and their long term life stage goals. Hence with systematic investment plans one should start conventionally and increase their investment amount gradually over a period of time ensuring stability.