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how to build brand loyalty | most established brand name products operate in highly competitive markets jockeying for market share with new and old rival products many of them barely distinguishable to thrive in this dynamic marketing departments employ various tactics to create and maintain brand loyalty including monitoring buying trends analyzing spending data and designing advertising campaigns targeting their existing loyal and likely to become loyal customer segments here are some of the most frequently cited strategies to create and maintain the brand loyal customer base that can take your business to the next level 4best in class quality the first and most important qualification the essential condition for brand loyalty is quality no matter how large your marketing budget is or how many celebrity endorsements you have low quality products and services will always be ridiculed on social media on the other hand companies that consistently deliver best in class quality will convert customers into brand loyal advocates who spread positive word of mouth and never feel the need to shop elsewhere customer service exceptional customer service is expensive 24 7 chat reps social media managers phone operators support ticket staff but ensuring that customers always receive first class service is an investment that drives the level of brand loyalty that generates big returns in fact in a crowded market first rate service that makes customers feel valued might be the only thing that sets a brand apart from its competitors for customer service to maximize brand loyalty customers must have access to user friendly systems to submit feedback and register complaints and a dedicated team of associates should be trained to address their submissions promptly brand ambassadors in addition to brand loyal customers who provide free word of mouth advertising on social media companies hire spokespersons to function as brand ambassadors for their products in addition to having a solid marketing background and an established online presence with an engaged network across platforms via blog emails webinars a successful brand ambassador should have an authentic professional presence in depth knowledge of products and services and highly developed expertise at building loyal customer relationships beyond this the best brand ambassadors are also skilled at gathering the critical customer and competitor intelligence that can translate into profitable business improvements loyalty programs establishing a program to reward existing customers for their business is one of the most direct ways to build brand loyalty it is worth repeating that no matter how expensive the redemptions for store credits discounts and free products are investing in the retention and loyalty of existing customers is far less expensive than marketing for new customers this is especially true for premium priced brands because an exclusive discount for loyalty program members can be just the right incentive to choose the pricey brand over a less expensive option online community as e commerce continues to accelerate u s online spend for 2022 is expected to hit 1 trillion building an online community to drive brand loyalty is essential for businesses across industries 5 unlike static advertisements social media has a range of tools to forge deeper more personal connections with customers from hosting q as and live streams with employees to taking customers on behind the scenes tours of the business not only does a digital community serve as an easy access point to interact with customers who spend hours online but as an extension of the website a community can also serve as a bridge from social interaction to purchase conversion brand loyalty is said to have started in the 18th century when an american merchant would hand out copper coins to repeat customers 6brand loyalty leadershere are two examples of companies who have made highly profitable investments in brand loyalty by prioritizing quality and customer service not only can these brand loyalty leaders charge more for their products but they also save on marketing costs social media and email marketing to existing customers is a fraction of the cost of attracting new customers apple in 2021 apple had an outstanding brand loyalty score of 92 the tech giant retained a higher percentage of existing clients than any other company in any industry 7 apple s status as the world s most valuable brand is based not only on revolutionary technology and state of the art design but also on unparalleled brand power and stellar customer service anyone who has ever seen a line of customers wrapping around an apple store in anticipation of the latest release understands that brand power impacts the true value of a product as much as or more than any other driver of market performance as apple rolls out fee based services including apple tv and gaming the company is likely to add to even more share of wallet sow the dollar amount a customer spends on one company s brand at the expense of competitors nike one of the most important reasons that nike is the most valuable sports brand in the world is an industry leading membership program that delivers four drivers of brand loyalty statistics on brand loyalty and profitabilitythe correlation between brand loyalty and profitability has been well documented for decades here are a few impressive statistics customer retention in 2020 harvard business school reported that in industry after industry increasing customer retention rates by 5 increases profits by at least 25 and up to 95 a statistic that set off a rush to craft retention strategies many of which continue to pay large dividends 9customer lifetime value clv one of the most significant statistics linking loyalty to long term rewards was reported by microsoft a 7 increase in brand loyalty increases the customer lifetime value clv of each client by 85 clv a metric to measure the growth of a company is the total expected revenue earned from a single customer over the lifetime of the relationship 10customer service 83 of customers would switch brands because of a bad customer service experience 11consistent quality 74 of consumers say that product quality is the main reason to stay loyal to a brand 12corporate social responsibility csr 25 of gen z and millennial consumers will spend more for a brand that takes a strong stand on corporate social responsibility csr issues 13brand loyalty is deeply tied to psychology disposition as a consumer may intentionally forego a logical choice in favor of supporting their preferred brand brand loyalty customer capitalism vs shareholder primacyone might ask if the connection between profitability and customer metrics like brand loyalty is so well established why do businesses often neglect their most valuable customers the harvard business review hbr proposes a few interesting answers to that question financial accounting and shareholder primacy 1the hbr article argues that because financial disclosure rules and corporate accounting practices require almost no reporting on customer value a short term mentality that prioritizes quarterly earnings over customer relationships has blinded both management and shareholders to the crucial role that loyalty plays in profitability compounding the financial reporting omissions two very different profitability strategies shareholder primacy vs customer capitalism have affected how customer metrics like brand loyalty are ranked as profit drivers 1on one side in the 1950s peter drucker who was called the father of business consulting by forbes and the greatest management thinker of the last century by ge chair jack welch said that the true purpose of a business is to create and keep customers 1415 on the other side in the 1970s milton friedman said that companies exist to maximize shareholder value period an argument that hbr said introduced the age of shareholder primacy current adherents of the customer capitalism approach argue that companies that put customers not shareholders first can create even greater value for shareholders for example in 2019 the new york times reported that ceos from the business roundtable including power players like tim cook of apple jeff bezos of amazon mary barra of general motors robert f smith of vista equity partners and larry fink of blackrock broke with decades of corporate orthodoxy by issuing a statement that the purpose of a corporation is no longer to advance only the interests of shareholders instead companies must now deliver value on several new fronts both directly to customers and indirectly by supporting customer values on issues like protecting the environment and dealing ethically with suppliers 16 | |
why is brand loyalty important | the primary reason that brand loyalty is important is that it is a major driver of profitability 65 of revenue in most companies comes from repeat business with existing clients and existing customers loyal to brands purchase 90 more frequently than new customers | |
what is the difference between brand loyalty and customer loyalty | brand loyalty is perception based image and experience customer loyalty is money based prices and discounts brand loyal customers believe that a certain brand represents higher quality and better service than any competitor and price does not matter customer loyalty requires offering low prices and regular discounts to maintain best deal on the market status | |
what are brand ambassadors | brand ambassadors are professional marketers that companies hire to serve as spokespersons for their products to succeed brand ambassadors need an established online presence with an engaged network across platforms in depth knowledge of products and services and highly developed expertise at building loyal customer relationships | |
what are the 3 types of brand loyalty | consumers are often swayed by their head heart or hand heart loyal customers are usually driven by a non tangible benefit of a brand such as its impact on the local community or the environment head loyal customers that make rational choices often see the analytical reasoning behind supporting a specific brand or product hand loyal customers often buy without regard for outside factors such as price these customers are extremely difficult to convert | |
how do you identify brand loyalty | though some may smirk at customers waiting in line potentially in the rain for the latest cell phone release there are obvious signs of brand loyalty worth being envious of products that sell out quickly are backordered require waitlists to get or have popular pre sale quantities indicate customers are willing to buy a good before the market has even decided its value you can also measure brand loyalty by tracking repeat customers and customer lifetime value the higher for each the more likely consumers will repeat their purchases with a company or brand the bottom linebrand loyalty is the marketing success that occurs when companies are able to retain customers across product lines by increasing retention customer lifetime value and customer satisfaction companies are more likely to earn more money instead of investing capital in trying to land new clients companies that have high brand loyalty have the advantage of deploying that capital to improve its product or enhance its customer service to repeat consumers | |
what is brand management | brand management is a function of marketing that uses techniques to increase the perceived value of a product line or brand over time effective brand management enables the price of products to go up and builds loyal customers through positive brand associations and images or a strong awareness of the brand developing a strategic plan to maintain brand equity or gain brand value requires a comprehensive understanding of the brand its target market and the company s overall vision | |
how brand management works | brands have a powerful influence on customer engagement competition in the markets and the management of a company a strong master brand presence in the market differentiates a company s products from its competitors and creates brand affinity for a company s products or services a brand that has been established has to continually maintain its brand image through brand management effective brand management increases brand awareness measures and manages brand equity drives initiatives that support a consistent brand message identifies and accommodates new brand products and effectively positions the brand in the market it takes years to establish a brand but when it finally occurs it has to still be maintained through innovation and creativity notable brands that have established themselves as leaders in their respective industries over the years include coca cola mcdonald s microsoft ibm procter gamble cnn disney nike ford lego and starbucks benefits of brand managementeffective brand management techniquesbrand management may seem complex but there are a number of simple elegant techniques that make the process manageable here are some of the more effective ways brand management occurs brand management often begins with the basics and that means establishing a strong mission statement logo target audience and vision statement though these are often created by the marketing team during a company or product s infancy it is up to the brand management team to further refine and drive the branding basics as the product or company begins to be used by consumers it is critical that the brand management team strengthens the relationship between the good and user this means capitalizing on emotional stories by tapping into the human connection to however the company s products are being used often guided by social media and a website brand management must be cohesive across all media platforms this includes any televised radioed or printed advertising the more marketing channels a company has the more important it is for brand management to cohesively link these to convey a single consistent message to consumers on a related note the brand management process must be guided by a consistent use of language and tone this may be easier to convey using photos or printed advertisements however different challenges may arise if different people are managing different marketing channels as long as the receiving channels are the same across product lines the brand management team must ensure the wording and feeling behind communications are consistent all of the tips above don t matter if the internal branding and marketing teams aren t aligned therefore the brand management team must effectively implement limits and rules on how certain activities are performed for example the brand management team may restrict the use to certain fonts images designs or color schemes any deviations from these rules must be run through the brand management team for special approval brand management elementsthere are three critical elements to brand management equity recognition and loyalty though it may be difficult to quantifiably measure the benefits of each brand management plays a direct part in developing all three aspects of a brand brand management often starts with brand recognition if a company can t invoke positive emotions in consumers when they see a brand that may be no brand to manage in addition brand recognition entails ensuring that recognition of a brand invokes a favorable response instead of brand opposition this is especially important for new products being brought to market a company must decide how to best manage that brand and invest upfront capital to make the brand more recognizable on the other hand more established brands must decide how many resources to allocate to maintain or strengthen a brand s existing position brand equity is the commercial value of a product s image though a company doesn t actually receive the direct dollars of value from its products having high brand equity brand equity often translates to greater sales as consumers associate a product or brand with greater value brand equity is built over time through positive experiences associates and demonstrated value consider an example of a billboard displaying an advertisement for powerade because of the positive name association of powerade via partnerships with professional sports leagues and massive markets it may have greater brand equity than a generic brand similar to how a company may become more valuable over time as it becomes worth more a brand s value can increase over time in the same way a customer may recognize a brand and a customer may even assess strong positive value with a brand however if that customer is easily swayed to pivot to a competing product brand management has failed the objective of brand loyalty is invoke such a strong relationship between the consumer and the brand that the consumer can t fathom diverting from the brand s products whereas brand recognition occurs on the front end of brand management brand loyalty is a long term achievement that is earned in a variety of ways companies must demonstrate their products meet consumer needs in addition companies must ensure strong customer service ensures a customer has a positive experience along the entire life of the product smaller companies with lower headcount may have one dedicated team to both the creation of brand management and implementation of marketing branding strategies brand management vs marketingbrand management and marketing both appear to do the same thing after all both departments influence how external stakeholders perceive the company s or product s brands however there are subtle differences between the two | |
when companies or products are launched those companies or divisions may not have a fully dedicated team for brand management instead they more often have a collection of marketing professionals that guide the initial external management of public perception that marketing team may own many initial aspects of brand management though their role often entails much more than simply honing in on a branding strategy | as a product line or company matures the brand in question may receive more resources especially if the brand has been successful at this point the brand management team documents defines and formalizes the brand strategy this plan is much more detailed than the initial plans laid out by the marketing team in addition the brand management team will be more likely to collect information from other departments to ensure a broader company wide adoption of the brand management implementation plan the marketing team of a company is primarily focused on the outside interactions this includes communications event presence public perception and public relations though these aspects may play a part in crafting the brand brand management is more internally focused on strategically devising the course of action brand management is more likely to outline the strategy and internal buy in whereas marketing is more likely to implement the external strategy and external acceptance of the brand examples of brand managementfor some seeing a gecko reminds them of geico insurance which uses the reptile in most of its advertising campaigns similarly the coca cola jingle it s the real thing which aired in 1971 as a tv commercial that featured people of different races and cultures is still popular and familiar to generations of coca cola consumers 2a brand does not have to be tied to one product one brand could cover different products or services ford for example has multiple auto models under the ford brand likewise a brand name can take on multiple brands under its umbrella for example procter gamble has multiple brands under its brand name such as ariel laundry detergent charmin tissue bounty paper towels dawn dishwashing liquid and crest toothpaste 3requirements of a brand managera brand manager is tasked with managing the tangible and intangible properties of a brand the tangible aspects of a company s brand include the product s price packaging logo associated colors and lettering format a brand manager s role is to analyze how a brand is perceived in the market by taking the intangible elements of a brand into account intangible factors include the experience that the consumers have had with the brand and their emotional connection with the product or service the intangible characteristics of a brand build brand equity brand equity is the price above the product s value that consumers are willing to pay to acquire the brand brand equity is an internally generated intangible asset in which its value is ultimately decided by consumers perception of the brand if consumers are willing to pay more for a brand than a generic brand that performs the same functions the brand equity will increase in value on the other hand the value of brand equity falls when consumers would rather purchase a similar product that costs less than the brand a cult brand is an example of a benign cult where the customer base for a product or service is extremely loyal leading to the brand s success as a growing legion of customers feel a unique emotional connection with the brand the importance of innovation in brand managementbrand management involves not only creating a brand but also understanding what products could fit under the brand of a company a brand manager always has to keep its target market in mind when conceiving new products to take on the company s brand or working with analysts to decide what companies to merge with or acquire the difference between brand management success and failure comes down to ongoing innovation a brand manager that continuously seeks innovative ways to maintain the quality of a brand will retain its loyal consumers and gain more brand affinity compared to one that is content with the current good name of the company s brand | |
what is meant by brand management | brand management is the creation and enforcement of rules surrounding how a company or product is communicated to markets this includes dictating boundaries on advertising language tone and cadence of communication with customers | |
why is brand management important | brand management is important because it dictates how public markets perceive goods without brand management consumers may not become loyal to a product line or may not choose to repeat purchases with a company after a positive experience effective brand management may lead to not only to greater sales quantities in the short term but greater long term financial success due to long term customers | |
what is the goal of brand management | the goal of brand management is to form a specific perception about a product or company by strategically determining the font language style of messaging and marketing plans the brand management team hopes to make the public see a product or company in a specific light the bottom linebrand management is the vague strategy of guiding public perception of a good product service or company brand management is heavily tied to creating brand equity loyalty and recognition it is also formulated by a dedicated team most often after the marketing team has built out an initial marketing plan by effectively building out a brand management strategy a company may experience stronger short term and long term financial success | |
what is brand personality | the term brand personality refers to a set of characteristics that is attributed to a brand name an effective brand increases its brand equity by having consistent traits that resonate with one or more consumer segments this brand personality provides a company with qualitative value in addition to those benefits derived from the functional desirability of its products and or services a brand personality is something to which the consumer can relate if the consumer becomes a regular customer they may forge a strong relationship with the brand due to the brand personality they may even start to connect parts of their own personality with the brand personality investopedia sydney saporito | |
how brand personality works | brand personality is a framework that helps a company or organization shape the way people feel about its product service or mission a company s brand personality elicits an emotional response from a specific consumer segment the purpose of building a brand personality is to drive positive consumer actions that benefit the business customers are more likely to spend money on products from a company with a brand personality that s similar to their own there are five main types of brand personalities with common traits the development of brand personalities is nothing new but they are even more important in the digital age where the use of automation and artificial intelligence ai technology is increasing at a dramatic pace as much as consumers enjoy being able to shop online or have companies predict their preferences studies show that people still want personal interaction and direct customer service when doing business with companies 1companies share their brand personality in a variety of ways marketing materials both written and visual emphasize and communicate brand qualities and values if a brand partners with celebrities or influencers they should be people already known for those qualities | |
how a business communicates its personality through events product releases or charitable partnerships can reflect its relationship with its community or industry | consumers want meaningful relationships with brands but many in top management fail to define appropriate brand personalities that could meet that demand 2brand personality vs imagerya company s brand personality should not be confused with its imagery a company s imagery is a series of creative assets that communicates the personality and tangible benefits of its brand conversely a firm s brand personality directly creates an emotional association in the mind of an ideal consumer group brand personality should influence the imagery and other marketing materials that a company creates and uses the two go hand in hand it is important for a company to accurately define its brand personality so that it resonates with the appropriate consumer by doing so it can establish the brand s footing and power in the marketplace and increase the company s brand equity brand personality is also the key factor of any successful marketing campaign in order to choose a brand s personality companies consider the five personality types and select the one the company wishes to convey the company then develops brand imagery to express that personality if for example a new outdoor apparel company wants to resonate with consumers the natural inclination is to create a brand personality that is rugged but it s possible that a competitor may have already positioned itself as the rugged outdoor apparel brand to set itself apart the new company can position itself uniquely in the mind of the customer with a brand personality of sophistication this can differentiate the brand as an upscale high end option for outdoor apparel that can attract a specific type of consumer once that personality decision is made the brand imagery that conveys that personality will be created examples of brand personalitythere are many examples in the corporate world of brand personality at work here are some well known ones dove chose sincerity as its brand personality in doing so the company hopes to attract feminine consumers who don t like the superficial image associated with many personal care and beauty brands one of dove s major marketing pushes is the real beauty campaign which features videos that explore how brand images are retouched and photoshopped it also uses models with differently sized bodies in its advertisements and features interviews with celebrity activists on its websites all this creates a brand personality that feels thoughtful and genuine which appeals to customers who don t want to be associated with traditional beauty standards nike has an exciting brand personality that motivated athletes identify with the company s motto just do it evokes a driven athletic person who is always willing to pursue new goals nike s products and marketing tend to feature bold colors such as neon accents that feel energetic and modern its commercials show people overcoming obstacles or achieving goals while wearing nike apparel its brand personality feels active ambitious and inspirational which are all personality traits that athletes tend to associate with luxury brands such as michael kors and chanel aim to create a sophisticated glamorous brand personality which attracts a high spending consumer base these brands use brand imagery that evokes elitism and luxury with elegant settings and glamorous clothes michael kors calls its rewards programs vip while chanel has a section on its website devoted to haute couture their goods are priced above what many shoppers can easily afford and since they have highly recognizable logos customers who buy them can flaunt their ability to make those purchases without having to say anything directly all this creates a brand personality that showcases the upper class trendy lifestyle that their ideal customers want to be associated with rei is an outdoor recreation retail store it has a rugged brand personality that outdoorsy adventurous customers can identify with the rei website uses phrases like gear up for adventure in its copy and bold unfussy colors that are associated with the outdoors and action such as pine green and dark orange event the website is organized not by type of item but by type of activity camp hike cycle snow water et cetera rei s brand personality feels strong resilient and exploratory which is how its ideal customers want to see themselves starbucks has positioned itself as having a brand personality with multiple components including sophistication sincerity and excitement it uses different aspects of its business to express each of these by creating a brand personality with so many different but complementary aspects starbucks is able to appeal to a wide variety of customers who associate themselves with different priorities and traits for example customers who define themselves as socially conscious might generally avoid buying from large corporations but they can still feel good about associating with starbucks because the brand supports esg goals and expresses how starbucks treats its workers | |
why is it crucial for companies to define their brand personality | it s important for companies to accurately define their brand personalities so that their expressions of brand resonate with the appropriate consumers brand personality is a key factor in increasing brand equity and in any successful marketing campaign | |
what are the different types of brand personalities | there are five main types of brand personalities with common traits they are excitement sincerity ruggedness competence and sophistication customers are more likely to make purchases from a company with a brand personality that s similar to their own | |
do all companies create a brand personality | in many cases they don t or their executives don t realize the significance of developing one that properly espouses their mission vision and or beliefs for employees as well as consumers 2the bottom linebrand personality is represented by a set of characteristics that is attributed to a brand name common characteristics are excitement sincerity ruggedness competence and sophistication brand personality and brand imagery are different though brand imagery should reflect a company s brand personality a company s brand should appeal to its target customers when a company defines and displays its brand personality customers who identify with that personality can develop a strong relationship with and loyalty to the brand and company | |
what is brand recognition | the term brand recognition refers to the ability of consumers to identify a specific brand by its attributes over another one brand recognition is a concept used in advertising and marketing it is considered successful when people are able to recognize a brand through visual or auditory cues such as logos slogans packaging colors or jingles rather than being explicitly exposed to a company s name companies often conduct market research to determine the success of their brand recognition strategies | |
how brand recognition works | a brand is a name logo word mark tagline or any other identifying characteristic that separates a company s product or service from others on the market a brand is among the most important assets that a company has because it represents the company and helps keep the company in consumers minds brands are normally protected using trademarks companies invest a lot of time and money to create brand recognition in order for brand recognition to work companies need to find a way to help consumers recall their brand a company s marketing department often comes up with different cues both audio and visual cues to help set their brand apart in the marketplace they can do this by using logos colors marks or jingles logos like the nike nke swoosh and the golden arches from mcdonald s mcd and taglines like they re magically delicious from lucky charms cereal and i m a big kid now from huggies pull ups diapers all help further brand recognition to measure brand recognition and the effectiveness of promotional and marketing campaigns many companies perform market research through experiments on focus or study groups both aided and unaided recall tests may be used in these groups with similar products brand recognition often results in higher sales even if both brands are of equal quality brand recognition is often paired with brand recall which is why it s also known as aided brand recall aided brand recall is the ability of customers to think of a brand name from their memory when told to think of a category of products brand recall tends to indicate a stronger connection to a brand than brand recognition for example people tend to think of more brand names when prompted by a product than by a category brand recall is also called unaided recall or spontaneous recall brand recognition is also referred to as aided brand recall meaning the capacity of customers to remember a brand name off the top of their heads when told to consider a specific product category special considerationssmall businesses and big corporations can do much to build and maintain their brand recognition this ensures they remain top of mind with customers who are ready to buy their products or services here are a few ways they can do this brand awareness which leads to brand recognition is the extent to which people know that a brand exists brand recognitions vs brand awarenessbrand recognition shouldn t be confused with brand awareness although they may seem similar they re not but they are related remember brand recognition is the visual and audio cues people use to identify a brand brand awareness on the other hand is the knowledge that a brand exists this is the extent to which the general public knows that a company along with its products and services are available on the market brand awareness is what leads to brand recognition for instance if people didn t know about the apple aapl brand they probably wouldn t recognize and associate the famous apple logo with its products | |
what is brics | brics is an acronym for brazil russia india china and south africa the term was initially created as bric without south africa by goldman sachs economist jim o neill in 2001 he believed that by 2050 the four bric economies would come to dominate the global economy south africa was added to the list in 2010 the brics countries operate as an organization that seeks to further economic cooperation amongst member nations and increase their economic and political standing in the world 1understanding bricsbrazil russia india china and south africa ranked among the world s fastest growing emerging market economies for years this was thanks to low labor costs favorable demographics and abundant natural resources at a time of a global commodities boom the group has a set of joint priorities including the goldman sachs thesis didn t suggest that these countries would become a political alliance like the european union eu or even a formal trading association like the eurasian economic union eaeu instead the investment banking firm believed that these countries had the potential to form a powerful economic bloc even as it acknowledged that its forecasts were optimistic and dependent on significant policy assumptions still the implication was that economic power would bring political power and indeed leaders from brics countries regularly attended summits together and often acted in concert with each others interests 3according to brics the gdp of their nations accounts for 31 5 of global gdp as of 2023 compared to the 30 7 of the g7 nations 4history of bricsbrics sees itself as countering the traditional western led global order with some member states viewing the organization as a way to boost their influence around the world still the nations may disagree on fundamental factors such as transparency and a balanced approach which may hinder the growth of the group 4the group operates as an informal confederation of nations that meets annually at the brics convention there members and heads of state seek to build economic cooperation between the nations the head of state of a member nation acts as the chairman of the group rotating once a year informal meetings began in 2006 but the group s first official meeting was on june 16 2009 in yekaterinburg russia 5because of their economic power and the appeal of disentangling from the west to a degree brics claims that over 40 countries seek to join the group it announced that it invited additional countries to join the group at its 2023 summit full membership will be granted to argentina ethiopia iran saudi arabia egypt and the united arab emirates on jan 1 2024 6the brics thesis of a non western global order became conventional market wisdom in the aughts but there were always skeptics including some who claimed the term was goldman marketing hype for its brics focused investment fund 9goldman sachs bric thesisin 2001 goldman sach s o neill noted that while global gross domestic product gdp was set to rise 1 7 in 2002 bric nations were forecasted to grow more quickly than the group of seven g7 the g7 are the world s seven most advanced global economies canada france germany italy japan the united kingdom and the u s in the paper building better economic brics o neill outlined his view of the potential of the bric nations 3in 2003 o neill s goldman colleagues dominic wilson and roopa purushothaman followed up with their report dreaming with brics the path to 2050 the two authors claimed that by 2050 the bric cluster could grow to a size larger than the g6 the g7 minus russia and the world s largest economies would therefore look drastically different in four decades that is the largest global economic powers no longer would be the richest according to income per capita 10in 2007 goldman published another report brics and beyond that focused on bric s growth potential the environmental impact of these growing economies and the sustainability of their rise the report also outlined a next 11 a term for 11 emerging economies in relationship to the bric nations as well as the ascendancy of new global markets 11closure of goldman s brics fundgrowth in the brics economies slowed down after the global financial crisis of 2007 2008 and the oil price collapse that began in 2014 by 2015 the brics acronym no longer looked like an attractive investment venue and funds aimed at these economies either shut down or merged with other investment vehicles 9goldman sachs merged its brics investment fund which was focused on generating returns from these economies with its broader emerging markets equity fund the fund lost 88 of its assets from a 2010 peak 12in a filing with the securities and exchange commission sec goldman sachs stated that it did not expect significant asset growth in the foreseeable future in the brics fund per a bloomberg report the fund lost 21 in five years 139 | |
what countries are in brics | the brics nations are brazil russia india china and south africa in 2023 the group invited argentina ethiopia iran saudi arabia egypt and the united arab emirates to join full membership is expected to be granted as of jan 1 2024 6 | |
why was brics created | brics was created by goldman sachs as an analytical grouping of emerging market countries that experienced strong economic growth and were poised to dominate the world economy by 2050 these countries now operate as an informal organization that seeks to further economic ties with each other | |
what is the main goal of brics | the overarching goals of brics are cooperation development and influence in international affairs drilling down brics seeks to build economic cooperation development financing political coordination social and cultural exchanges technology and innovation sustainable development and peace and security 2the bottom linebrics refers to certain emerging market countries brazil russia india china south africa and more that seek to establish deeper ties between member nations and cooperate on economic expansion including trade the countries act as a counterbalance to traditional western influence they seek to depend on each other to build growing influence in the world | |
what is brics | brics is an acronym for brazil russia india china and south africa the term was initially created as bric without south africa by goldman sachs economist jim o neill in 2001 he believed that by 2050 the four bric economies would come to dominate the global economy south africa was added to the list in 2010 the brics countries operate as an organization that seeks to further economic cooperation amongst member nations and increase their economic and political standing in the world 1understanding bricsbrazil russia india china and south africa ranked among the world s fastest growing emerging market economies for years this was thanks to low labor costs favorable demographics and abundant natural resources at a time of a global commodities boom the group has a set of joint priorities including the goldman sachs thesis didn t suggest that these countries would become a political alliance like the european union eu or even a formal trading association like the eurasian economic union eaeu instead the investment banking firm believed that these countries had the potential to form a powerful economic bloc even as it acknowledged that its forecasts were optimistic and dependent on significant policy assumptions still the implication was that economic power would bring political power and indeed leaders from brics countries regularly attended summits together and often acted in concert with each others interests 3according to brics the gdp of their nations accounts for 31 5 of global gdp as of 2023 compared to the 30 7 of the g7 nations 4history of bricsbrics sees itself as countering the traditional western led global order with some member states viewing the organization as a way to boost their influence around the world still the nations may disagree on fundamental factors such as transparency and a balanced approach which may hinder the growth of the group 4the group operates as an informal confederation of nations that meets annually at the brics convention there members and heads of state seek to build economic cooperation between the nations the head of state of a member nation acts as the chairman of the group rotating once a year informal meetings began in 2006 but the group s first official meeting was on june 16 2009 in yekaterinburg russia 5because of their economic power and the appeal of disentangling from the west to a degree brics claims that over 40 countries seek to join the group it announced that it invited additional countries to join the group at its 2023 summit full membership will be granted to argentina ethiopia iran saudi arabia egypt and the united arab emirates on jan 1 2024 6the brics thesis of a non western global order became conventional market wisdom in the aughts but there were always skeptics including some who claimed the term was goldman marketing hype for its brics focused investment fund 9goldman sachs bric thesisin 2001 goldman sach s o neill noted that while global gross domestic product gdp was set to rise 1 7 in 2002 bric nations were forecasted to grow more quickly than the group of seven g7 the g7 are the world s seven most advanced global economies canada france germany italy japan the united kingdom and the u s in the paper building better economic brics o neill outlined his view of the potential of the bric nations 3in 2003 o neill s goldman colleagues dominic wilson and roopa purushothaman followed up with their report dreaming with brics the path to 2050 the two authors claimed that by 2050 the bric cluster could grow to a size larger than the g6 the g7 minus russia and the world s largest economies would therefore look drastically different in four decades that is the largest global economic powers no longer would be the richest according to income per capita 10in 2007 goldman published another report brics and beyond that focused on bric s growth potential the environmental impact of these growing economies and the sustainability of their rise the report also outlined a next 11 a term for 11 emerging economies in relationship to the bric nations as well as the ascendancy of new global markets 11closure of goldman s brics fundgrowth in the brics economies slowed down after the global financial crisis of 2007 2008 and the oil price collapse that began in 2014 by 2015 the brics acronym no longer looked like an attractive investment venue and funds aimed at these economies either shut down or merged with other investment vehicles 9goldman sachs merged its brics investment fund which was focused on generating returns from these economies with its broader emerging markets equity fund the fund lost 88 of its assets from a 2010 peak 12in a filing with the securities and exchange commission sec goldman sachs stated that it did not expect significant asset growth in the foreseeable future in the brics fund per a bloomberg report the fund lost 21 in five years 139 | |
what countries are in brics | the brics nations are brazil russia india china and south africa in 2023 the group invited argentina ethiopia iran saudi arabia egypt and the united arab emirates to join full membership is expected to be granted as of jan 1 2024 6 | |
why was brics created | brics was created by goldman sachs as an analytical grouping of emerging market countries that experienced strong economic growth and were poised to dominate the world economy by 2050 these countries now operate as an informal organization that seeks to further economic ties with each other | |
what is the main goal of brics | the overarching goals of brics are cooperation development and influence in international affairs drilling down brics seeks to build economic cooperation development financing political coordination social and cultural exchanges technology and innovation sustainable development and peace and security 2the bottom linebrics refers to certain emerging market countries brazil russia india china south africa and more that seek to establish deeper ties between member nations and cooperate on economic expansion including trade the countries act as a counterbalance to traditional western influence they seek to depend on each other to build growing influence in the world | |
what is a breadth indicator | breadth indicators are mathematical formulas that measure the number of advancing and declining stocks and or their volume to calculate the participation in a stock index s price movements by evaluating how many stocks are increasing or decreasing in price and how much volume these stocks are trading breadth indicators help in confirming stock index price trends or can warn of impending price reversals calculating breadth indicatorsthere are a number of breadth indicators each with their own formula and method of calculation some breadth indicators are cumulative with each day s value added or subtracted from the prior value others are non cumulative with each day or period providing its own data point one of the simplest breath indicators is the advance decline line it s a cumulative indicator where net advances number of advancing stocks number of declining stocks is added or subtracted from the prior value | |
what does a breadth indicator tell you | breadth indicators provide traders and investors with a view of an overall market the stock market is typically examined using stock indexes for example the s p 500 index s advance decline line is a cumulative guide for whether more stocks are rising or falling over time this calculation shows the overall investor sentiment in all the stocks within the index breadth indicators are primarily used for two purposes there are many different breadth indicators that traders and investors can use in their analysis some other popular breadth indicators aside from the advance decline line include there are many other breadth indicators traders and investors may use different breadth indicators for different purposes for example on balance volume looks at buying and selling pressure from a volume standpoint rather than just looking purely at price while the mcclellan summation index involves a more complex formula that generates actual buy and sell signals some breadth indicators such as the chaikin oscillator and on balance volume can be applied to individual stocks or even other assets other breadth indicators such as the advance decline line or arms index are only calculated based on indexes traders use market breadth indicators in conjunction with other forms of technical analysis such as chart patterns and technical indicators to maximize the odds of success for example if the advance decline line starts to drop while the s p 500 is still rising traders will watch closely for the s p 500 to break below a rising trendline break below support or for technical indicators to turn bearish this will help confirm that the price may be starting to decline and therefore the trader can exit longs or initiate short positions breadth indicator examplethe following chart shows two breadth indicators on balance volume and the force index on a chart of the spdr s p 500 etf spy the force index at the bottom shows a strong bearish sentiment in early february during the market drop and relatively weak bullish sentiment throughout the entire period on balance volume shows bullish volume during the february and march recovery and moderate volume in the months following these indicators suggest that the market is relatively neutral between april and june the difference between breadth indicators and technical indicatorsbreadth indicators are a subset within the larger field of technical indicators while breadth indicators attempt to gauge participation and strength in a stock or index s movements technical indicators have a far larger purpose technical indicators can be used to analyze volume or price generate trade signals or define support and resistance limitation of using breadth indicatorsbreadth indicators won t always forewarn of a reversal nor will they always confirm a price move even though the price keeps moving in the same direction most breadth indicators are prone to some situational anomalies while traders typically look for volume to increase as prices move further this doesn t always happen trends can last a very long time on decreasing volume or even decreasing stock participation which will lead to the breadth indicators diverging but not necessarily resulting in a price reversal certain breadth indicators may also generate odd readings because of their calculation method on balance volume may jump or decline significantly for example if there is a huge volume day but the price finishes only marginally higher or lower the price barely moved but the indicator could move a great deal | |
what is a break even price | a break even price is the amount of money or change in value for which an asset must be sold to cover the costs of acquiring and owning it it can also refer to the amount of money for which a product or service must be sold to cover the costs of manufacturing or providing it in options trading the break even price is the price in the underlying asset at which investors can choose to exercise or dispose of the contract without incurring a loss understanding break even pricesbreak even prices can be applied to almost any transaction for example the break even price of a house would be the sale price at which the owner could cover the home s purchase price interest paid on the mortgage hazard insurance property taxes maintenance improvements closing costs and real estate sales commissions at this price the homeowner would not see any profit but also would not lose any money break even price is also used in managerial economics to determine the costs of scaling a product s manufacturing capabilities typically an increase in product manufacturing volumes translates to a decrease in break even prices because costs are spread over more product quantity traders also use break even prices to understand where a securities price must go to make a trade profitable after costs fees and taxes have been taken into account break even price formulathe break even price is mathematically the amount of monetary receipts that equal the amount of monetary contributions with sales matching costs the related transaction is said to be break even sustaining no losses and earning no profits in the process to formulate the break even price a person simply uses the amount of the total cost of a business or financial activity as the target price to sell a product service or asset or trade a financial instrument with the goal to break even for example the break even price for selling a product would be the sum of the unit s fixed cost and variable cost incurred to make the product thus if it costs 20 total to produce a good if it sells for 20 exactly it is the break even price another way to compute the total breakeven for a firm is to take the gross profit margin divided by total fixed costs for an options contract such as a call or a put the break even price is that level in the underlying security that fully covers the option s premium or cost also known as the break even point bep it can be represented by the following formulas for a call or put respectively break even price strategybreak even price as a business strategy is most common in new commercial ventures especially if a product or service is not highly differentiated from those of competitors by offering a relatively low break even price without any margin markup a business may have a better chance to gather more market share even though this is achieved at the expense of making no profits at the time being a cost leader and selling at the break even price requires a business to have the financial resources to sustain periods of zero earnings however after establishing market dominance a business may begin to raise prices when weak competitors can no longer undermine its higher pricing efforts the following formula can be used to estimate a firm s break even point the break even point is equal to the total fixed costs divided by the difference between the unit price and variable costs break even price effectsthere are both positive and negative effects of transacting at the break even price in addition to gaining market shares and driving away existing competitions pricing at break even also helps set an entry barrier for new competitors to enter the market eventually this leads to a controlling market position due to reduced competition however a product or service s comparably low price may create the perception that the product or service may not be as valuable which could become an obstacle to raising prices later on in the event that others engage in a price war pricing at break even would not be enough to help gain market control with racing to the bottom pricing losses can be incurred when break even prices give way to even lower prices both marginalist and marxist theories of the firm predict that due to competition firms will always be under pressure to sell their goods at the break even price implying no room for long run profits examples of break even pricessuppose firm abc manufactures widgets the total costs for making a widget per unit can be broken down as follows hence the break even price to recover costs for abc is 10 per widget now suppose that abc becomes ambitious and is interested in making 10 000 such widgets to do so it will have to scale operations and make significant capital investments in factories and labor the firm invests 200 000 in fixed costs including building a factory and buying machines for manufacturing the firm s break even price for each widget can be calculated as follows 30 is the break even price for the firm to manufacture 10 000 widgets the break even price to manufacture 20 000 widgets is 20 using the same formula for a call option with a strike price of 100 and a premium paid of 2 50 the break even price that the stock would have to get to is 102 50 anything above that level would be pure profit anything below would imply a net loss | |
how can ordinary individuals use break even prices | the break even price covers the cost or initial investment into something for example if you sell your house for exactly what you still need to pay you would leave with zero debt but no profit investors who are holding a losing stock position can use an options repair strategy to break even on their investment quickly break even price calculations can look different depending on the specific industry or scenario however the overall definition remains the same | |
what is the break even price for an options contract | in general the break even price for an options contract will be the strike price plus the cost of the premium for a 20 strike call option that cost 2 the break even price would be 22 for a put option with otherwise same details the break even price would instead be 18 | |
why should taxes and fees be included in a break even analysis | a gross break even point is often not entirely correct for figuring out exactly where you would break even on a trade investment or project this is because taxes fees and other charges are often involved that must be taken into account for instance if you sell a stock for a 10 profit subject to long term capital gains tax you will have to pay 1 50 in taxes if the commission was 1 for the trade that also must be noted inflation too is something to consider especially for long term holdings | |
what is break even analysis | break even analysis compares income from sales to the fixed costs of doing business the five components of break even analysis are fixed costs variable costs revenue contribution margin and break even point bep | |
when companies calculate the bep they identify the amount of sales required to cover all fixed costs before profit generation can begin the break even point formula can determine the bep in product units or sales dollars | investopedia paige mclaughlinunderstanding break even analysisbreak even analysis looks at fixed costs relative to the profit earned by each additional unit produced and sold a firm with lower fixed costs will have a lower break even point of sale and 0 of fixed costs will automatically have broken even with the sale of the first product assuming variable costs do not exceed sales revenue fixed costs remain the same regardless of how many units are sold examples of fixed and variable costs include break even point formulabreak even analysis involves a calculation of the break even point bep the break even point formula divides the total fixed production costs by the price per individual unit less the variable cost per unit 1bep total fixed costs price per unit variable cost per unit calculating contribution margin and bepsa product s contribution margin is the difference between the selling price of the product and its variable costs 1 so relative to the bep formula above you could also say that the bep total fixed costs contribution margin contribution margin item price variable cost per unitfor example if an item sells for 100 with fixed costs of 25 per unit and variable costs of 60 per unit the contribution margin is 40 100 60 this 40 reflects the revenue collected to cover the remaining fixed costs which are excluded when figuring the contribution margin to find the total units required to break even divide the total fixed costs by the unit contribution margin bep units total fixed costs contribution marginassume total fixed costs are 20 000 with a contribution margin of 40 shown above the break even point is 500 units 20 000 divided by 40 upon selling 500 units the payment of all fixed costs is complete and the company will report a net profit or loss of 0 to calculate the break even point in sales dollars you ll need to divide the total fixed costs by the contribution margin ratio so first you must determine the ratio contribution margin ratio contribution margin per unit item pricecontinuing with the example above the contribution margin ratio is 40 40 100 x 100 to convert to a percentagenow as noted just above to calculate the bep in dollars divide total fixed costs by the contribution margin ratio bep sales dollars total fixed costs contribution margin ratio 50 000 20 000 40 in accounting the margin of safety is the difference between actual sales and break even sales 2 managers utilize the margin of safety to know how much sales can decrease before the company or project becomes unprofitable who calculates beps although investors may not be interested in an individual company s break even analysis of production they may use the calculation to determine at what price they will break even on a trade or investment 1 the calculation is useful when trading in or creating a strategy to buy options or a fixed income security product | |
what are some limitations of break even analysis | break even analysis assumes that the fixed and variable costs remain constant over time however costs may change due to factors such as inflation changes in technology and changes in market conditions it also assumes that there is a linear relationship between costs and production break even analysis ignores external factors such as competition market demand and changes in consumer preferences | |
what are the components of break even analysis | there are five components of break even analysis fixed costs variable costs revenue contribution margin and the break even point bep | |
why is the contribution margin important in break even analysis | the contribution margin represents the revenue required to cover a business fixed costs and contribute to its profit with the contribution margin calculation a business can determine the break even point and where it can begin earning a profit | |
how do businesses use the break even point in break even analysis | the break even point bep helps businesses with pricing decisions sales forecasting cost management and growth strategies a business would not use break even analysis to measure its repayment of debt or how long that repayment will take the bottom linebreak even analysis or the comparison of sales to fixed costs is a tool used by businesses and stock and option traders it is essential in determining the minimum sales volume required to cover total costs and break even beyond the break even point it s all profit that is sales will exceed expenses break even analysis helps businesses choose pricing strategies and manage costs and operations in stock and options trading break even analysis helps determine the minimum price movements required to cover trading costs and make a profit traders can use break even analysis to set realistic profit targets manage risk and make informed trading decisions | |
what is the breakeven point bep | in corporate accounting the breakeven point bep is the moment a company s operations stop being unprofitable and starts to earn a profit the breakeven point is the production level at which total revenues for a product equal total expenses 1 the breakeven point can also be used in other ways across finance such as in trading investopedia nez riazunderstanding breakeven pointsa breakeven point can be applied to a wide variety of contexts for instance the breakeven point in a property would be how much money the homeowner would need to generate from a sale to exactly offset the net purchase price inclusive of closing costs taxes fees insurance and interest paid on the mortgage as well as costs related to maintenance and home improvements at that breakeven price the homeowner would exactly break even neither making nor losing any money traders also apply beps to trades figuring out what price a security must reach to exactly cover all costs associated with a trade including taxes commissions management fees and so on a company s breakeven point is likewise calculated by taking fixed costs and dividing that figure by the gross profit margin percentage business breakeven pointsthe breakeven formula for a business provides a dollar figure that is needed to break even this can be converted into units by calculating the contribution margin unit sale price less variable costs dividing the fixed costs by the contribution margin will reveal how many units are needed to break even business breakeven fixed costs gross profit margin begin aligned text business breakeven frac text fixed costs text gross profit margin end aligned business breakeven gross profit marginfixed costs | |
what is a breakout | a breakout refers to when the price of an asset moves above a resistance area or moves below a support area breakouts indicate the potential for the price to start trending in the breakout direction for example a breakout to the upside from a chart pattern could indicate the price will start trending higher breakouts that occur on high volume relative to normal volume show greater conviction which means the price is more likely to trend in that direction | |
what does a breakout tell you | a breakout occurs because the price has been contained below a resistance level or above a support level potentially for some time the resistance or support level becomes a line in the sand which many traders use to set entry points or stop loss levels when the price breaks through the support or resistance level traders waiting for the breakout jump in and those who didn t want the price to breakout exit their positions to avoid larger losses this flurry of activity will often cause volume to rise which shows lots of traders were interested in the breakout level the higher than average volume helps confirm the breakout if there is little volume on the breakout the level may not have been significant to a lot of traders or not enough traders felt convicted to place a trade near the level yet these low volume breakouts are more likely to fail in the case of an upside breakout if it fails the price will fall back below resistance in the case of a downside breakout often called a breakdown if it fails the price will rally back above the support level it broke below breakouts are commonly associated with ranges or other chart patterns including triangles flags wedges and head and shoulders these patterns are formed when the price moves in a specific way which results in well defined support and or resistance levels traders then watch these levels for breakouts they may initiate long positions or exit short positions if the price breaks above resistance or they may initiate short positions or exit long position if the price breaks below support even after a high volume breakout the price will often but not always retrace to the breakout point before moving in the breakout direction again this is because short term traders will often buy the initial breakout but then attempt to sell quite quickly for a profit this selling temporarily drives the price back to the breakout point if the breakout is legitimate not a failure then the price should move back in the breakout direction if it doesn t it s a failed breakout 1traders who use breakouts to initiate trades typically utilize stop loss orders in case the breakout fails in the case of going long on an upside breakout a stop loss is typically placed just below the resistance level in the case of going short on a downside breakout a stop loss is typically placed just above the support level that has been breached example of a breakoutimage by sabrina jiang investopedia 2020the chart shows a large increase in volume associated with an earnings release as the price breaks through the resistance area of a triangle chart pattern the breakout was so strong that it caused a price gap the price continued to move higher and didn t retrace to the original breakout point that is a sign of a very strong breakout traders could have used the breakout to potentially enter long positions and or get out of short positions if entering long a stop loss would be placed just below the resistance level of the triangle or even below triangle support because the price had a large gaping breakout this stop loss location may not be ideal after the price continued to move higher following the breakout the stop loss could be trailed up in order to reduce risk or lock in a profit the difference between a breakout and a 52 week high lowa breakout could result in the price moving to a new 52 week high or low if a breakout occurs near the prior high low but not all 52 week highs lows are the result of a recent breakout a 52 week high or low is simply the highest or lowest price seen over the last year a breakout is a move above or below resistance limitations of using breakoutsthere are two main problems with utilizing breakouts the main problem is failed breakouts the price will often move just beyond resistance or support luring in breakout traders the price then reverses and doesn t continue moving in the breakout direction this can happen multiple times before a real breakout occurs support and resistance levels are also subjective 2 not everyone cares about the same support and resistance levels this is why watching volume helps an increase in volume on the breakout shows that the level is important lack of volume shows the level is not important or that the big traders who create big volume aren t ready to participate yet | |
what was the bretton woods agreement and system | the bretton woods agreement was negotiated in july 1944 by delegates from 44 countries at the united nations monetary and financial conference held in bretton woods new hampshire 1under the bretton woods system gold was the basis for the u s dollar and other currencies were pegged to the u s dollar s value the bretton woods system effectively came to an end in the early 1970s when president richard m nixon announced that the u s would no longer exchange gold for u s currency 1the bretton woods agreement and system explainedapproximately 730 delegates representing 44 countries met in bretton woods in july 1944 with the principal goals of creating an efficient foreign exchange system preventing competitive devaluations of currencies and promoting international economic growth the bretton woods agreement and system were central to these goals the agreement also created two important organizations the international monetary fund imf and the world bank while the bretton woods system was dissolved in the 1970s both the imf and world bank have remained strong pillars for the exchange of international currencies 1though the bretton woods conference itself took place over just three weeks the preparations for it had been going on for several years the primary designers of the bretton woods system were the famous british economist john maynard keynes and chief international economist of the u s treasury department harry dexter white keynes hope was to establish a powerful global central bank to be called the clearing union and issue a new international reserve currency called the bancor white s plan envisioned a more modest lending fund and a greater role for the u s dollar rather than the creation of a new currency in the end the adopted plan took ideas from both leaning more toward white s plan 1it wasn t until 1958 that the bretton woods system became fully functional once implemented its provisions called for the u s dollar to be pegged to the value of gold moreover all other currencies in the system were then pegged to the u s dollar s value the exchange rate applied at the time set the price of gold at 35 an ounce 1benefits of bretton woods currency peggingthe bretton woods system included 44 countries these countries were brought together to help regulate and promote international trade across borders as with the benefits of all currency pegging regimes currency pegs are expected to provide currency stabilization for the trade of goods and services as well as financing 1all of the countries in the bretton woods system agreed to a fixed peg against the u s dollar with diversions of only 1 allowed countries were required to monitor and maintain their currency pegs which they achieved primarily by using their currency to buy or sell u s dollars as needed the bretton woods system therefore minimized international currency exchange rate volatility which helped international trade relations more stability in foreign currency exchange was also a factor in the successful support of loans and grants internationally from the world bank 1the imf and world bankthe bretton woods agreement created two institutions the imf and the world bank formally introduced in december 1945 both institutions have withstood the test of time globally serving as important pillars for international capital financing and trade activities 1the purpose of the imf was to monitor exchange rates and identify nations that needed global monetary support the world bank initially called the international bank for reconstruction and development was established to manage funds available for providing assistance to countries that had been physically and financially devastated by world war ii 1 today the imf has 190 member countries and still continues to support global monetary cooperation 2 in tandem the world bank helps to promote these efforts through its loans and grants to governments the bretton woods system collapsein 1971 concerned that the u s gold supply was no longer adequate to cover the number of dollars in circulation president richard m nixon devalued the u s dollar relative to gold after a run on gold reserve he declared a temporary suspension of the dollar s convertibility into gold 1 by 1973 the bretton woods system had collapsed countries were then free to choose any exchange arrangement for their currency except pegging its value to the price of gold they could for example link its value to another country s currency or a basket of currencies or simply let it float freely and allow market forces to determine its value relative to other countries currencies 3the bretton woods agreement remains a significant event in world financial history the two bretton woods institutions it created in the international monetary fund and the world bank played an important part in helping to rebuild europe in the aftermath of world war ii 1 subsequently both institutions have continued to maintain their founding goals while also transitioning to serve global government interests in the modern day | |
is the bretton woods agreement still in effect | the bretton woods system which required a currency peg to the u s dollar and linked the value of the dollar to gold is no longer in effect in the 1960s the dollar had struggled within the system set up under the bretton woods agreement in 1971 president nixon suspended its convertibility into gold today currencies float against each other rather than keeping at firm pegs | |
what is the difference between the gold standard and the bretton woods system | the gold standard refers to any monetary system in which the value of currency is linked to gold currently there are no countries that use the gold standard under the bretton woods system the u s was originally convertible to gold at a rate of 35 per ounce by 1971 this convertibility was severed | |
what backs the u s dollar | previously the u s dollar was backed by gold today the u s dollar isn t backed by anything other than the u s government s own ability to generate revenue the bottom linethe bretton woods agreement established a currency exchange regime system in 1944 following years of negotiations among 44 nations this system required a currency peg to the u s dollar which was in turn pegged to the price of gold the bretton woods system ultimately would go on to collapse in the 1970s the bretton woods agreement also established institutions such as the international monetary fund and the world bank both of which continue to play an important role in the financial world today | |
what is brexit | brexit is a portmanteau of the words british and exit that was coined to refer to the united kingdom s decision in a june 23 2016 referendum to leave the european union eu brexit took place at 11 p m greenwich mean time on jan 31 2020 on dec 24 2020 the u k and the eu struck a provisional free trade agreement ensuring the free trade of goods without tariffs or quotas however key details of the future relationship remain uncertain such as trade in services which make up 80 of the u k economy this prevented a no deal brexit which would have been significantly damaging to the u k economy a provisional agreement was approved by the u k parliament on jan 1 2021 it was approved by the european parliament on april 28 2021 while the deal known as the trade and cooperation agreement tca allowed tariff and quota free trade in goods u k eu trade still faces customs checks this means that commerce is not as smooth as when the u k was a member of the eu ellen lindner investopediathe referendumthe leave side won the june 2016 referendum with 51 9 of the ballot or 17 4 million votes while remain received 48 1 or 16 1 million votes voter turnout was 72 2 the results were tallied on a u k wide basis but the overall figures conceal stark regional differences 53 4 of english voters supported brexit compared to just 38 of scottish voters because england accounts for the vast majority of the u k s population support there swayed the result in brexit s favor if the vote were conducted only in wales where leave voters also won scotland and northern ireland brexit would have received less than 45 of the vote the result defied expectations and roiled global markets causing the british pound to fall to its lowest level against the dollar in 30 years former prime minister david cameron who called the referendum and campaigned for the u k to remain in the eu announced his resignation the following day he was replaced as leader of the conservative party and prime minister by theresa may in july 2016 the article 50 negotiating periodthe process of leaving the eu formally began on march 29 2017 when may triggered article 50 of the lisbon treaty the u k initially had two years from that date to negotiate a new relationship with the eu following a snap election on june 8 2017 may remained the country s leader however the conservatives lost their outright majority in parliament and agreed on a deal with the democratic unionist party this later caused may some difficulty getting her withdrawal agreement passed in parliament talks began on june 19 2017 questions swirled around the process partly because britain s constitution is unwritten and because no country had left the eu using article 50 before a similar move happened though when algeria left the eu s predecessor after gaining independence from france in 1962 and greenland which was a self governing territory left denmark through a special treaty in 1985 on nov 25 2018 britain and the eu agreed on a 599 page withdrawal agreement a brexit deal that touched upon issues such as citizens rights the divorce bill and the irish border parliament first voted on this agreement on jan 15 2019 members of parliament voted 432 to 202 to reject the agreement the biggest defeat for a government in the house of commons in recent history may stepped down as party leader on june 7 2019 after failing three times to get the deal she negotiated with the eu approved by the house of commons the following month boris johnson a former mayor of london foreign minister and editor of the spectator was elected prime minister johnson a hardline brexit supporter campaigned on a platform to leave the eu by the october deadline do or die and said he was prepared to leave the eu without a deal the u k and eu negotiators agreed on a new divorce deal on oct 17 the main difference from may s deal was that the irish backstop clause was replaced with a new arrangement another historic moment occurred in august 2019 when johnson requested that the queen suspend parliament from mid september until oct 14 and she approved this was seen as a ploy to stop members of parliament from blocking a chaotic exit and some even called it a coup of sorts the u k supreme court s 11 judges unanimously deemed the move unlawful on sept 24 and reversed it the negotiating period also led britain s political parties to face their own crises lawmakers left both the conservative and labour parties in protest there were allegations of antisemitism in the labour party and labour leader jeremy corbyn was criticized for his handling of the issue in september johnson expelled 21 mps for voting to delay brexit the u k was expected to leave the eu by oct 31 2019 but parliament voted to force the government to seek an extension to the deadline and delayed a vote on the new deal johnson then called for a general election in the dec 12 election the third general election in less than five years johnson s conservative party won a huge majority of 364 seats in the house of commons out of 650 seats it managed this despite receiving only 42 of the vote due to its opponents being fractured between multiple parties brexit negotiationsbritain s lead negotiator in the talks with brussels was david davis he was a yorkshire member of parliament mp until july 9 2018 when he resigned he was replaced by housing minister dominic raab as brexit secretary raab resigned in protest over may s deal on nov 15 2018 he was replaced by health and social care minister stephen barclay the following day the eu s chief negotiator was michel barnier a french politician preparatory talks exposed divisions in the two sides approaches to the process the u k wanted to negotiate the terms of its withdrawal alongside the terms of its post brexit relationship with europe while brussels wanted to make sufficient progress on divorce terms by october 2017 only then moving on to a trade deal in a concession that both pro and anti brexit commentators took as a sign of weakness u k negotiators accepted the eu s sequenced approach one of the most politically thorny issues faced by brexit negotiators was the rights of eu citizens living in the u k and u k citizens living in the eu the withdrawal agreement allowed for the free movement of eu and u k citizens until the end of the transition or implementation period citizens were allowed to keep their residency rights if they continued to work had sufficient resources or were related to someone who did to upgrade their residence status to permanent they had to apply to the host nation the rights of these citizens were revocable if britain left without ratifying a deal eu net migration while still adding to the population as a whole has fallen to a level last seen in 2009 we are also now seeing more eu8 citizens those from central and eastern european countries for example poland leaving the u k than arriving said jay lindop director of the centre for international migration in a government quarterly report released in february 2019 britain s government fought over the rights of eu citizens to remain in the u k after brexit publicly airing domestic divisions over migration following the referendum and cameron s resignation may s government concluded that it had the right under the royal prerogative to trigger article 50 and begin the formal withdrawal process on its own the u k supreme court intervened ruling that parliament had to authorize the measure and the house of lords amended the resulting bill to guarantee the rights of eu born residents the house of commons which had a tory majority at the time struck the amendment down and the unamended bill became law on march 16 2017 conservative opponents of the amendment argued that unilateral guarantees eroded britain s negotiating position while those in favor of it said eu citizens should not be used as bargaining chips some of the economic concerns included the fact that eu migrants were greater contributors to the economy than their u k counterparts leave supporters though read the data as pointing to foreign competition for scarce jobs in britain the brexit bill was the financial settlement that the u k owed brussels following its withdrawal the withdrawal agreement didn t mention a specific figure but it was estimated to be up to 32 8 billion according to downing street the total sum included the financial contribution that the u k would make during the transition period because it was an eu member state and owed a contribution toward the eu s outstanding 2020 budget commitments the u k also received funding from eu programs during the transition period and a share of its assets at the end of it which included the capital it paid to the european investment bank eib a december 2017 agreement resolved this long standing sticking point that threatened to derail negotiations entirely barnier s team launched the first volley in may 2017 with the release of a document listing the 70 odd entities it would take into account when tabulating the bill the financial times estimated that the gross amount requested would be 100 billion net of certain u k assets the final bill would be in the region of 55bn to 75bn davis team meanwhile refused eu demands to submit the u k s preferred methodology for tallying the bill in august he told the bbc he would not commit to a figure by october the deadline for assessing sufficient progress on issues such as the bill the following month he told the house of commons that brexit bill negotiations could go on for the full duration of the negotiation davis presented this refusal to the house of lords as a negotiating tactic but domestic politics probably explained his reticence johnson who campaigned for brexit called eu estimates extortionate on july 11 2017 and agreed with a tory mp that brussels could go whistle if they wanted a penny in her september 2017 speech in florence italy however may said the u k would honor commitments we have made during the period of our membership barnier confirmed to reporters in october 2019 that britain would pay what was owed the new withdrawal agreement replaced the controversial irish backstop provision with a protocol according to the revised deal the entire u k left the eu customs union upon brexit but northern ireland continued following eu regulations and value added tax vat laws for goods while the u k government collected the vat on behalf of the eu this meant there was a limited customs border in the irish sea with checks at major ports the northern ireland assembly can vote on this arrangement up to four years after the end of the transition period the backstop emerged as the main reason for the brexit impasse it was a guarantee that there was no hard border between northern ireland and ireland it was an insurance policy that kept britain in the eu customs union with northern ireland following eu single market rules the backstop which was meant to be temporary and was superseded by a subsequent agreement could only be removed if both britain and the eu gave their consent may was unable to garner enough support for her deal due to it euroskeptic mps wanted her to add legally binding changes as they feared it would compromise the country s autonomy and could last indefinitely eu leaders refused to remove it and ruled out a time limit on granting britain the power to remove it on march 11 2019 the two sides signed a pact in strasbourg france that did not change the withdrawal agreement but added meaningful legal assurances but it wasn t enough to convince hardline brexiteers for decades during the second half of the 20th century violence between protestants and catholics marred northern ireland and the border between the u k countryside and the republic of ireland to the south was militarized the 1998 good friday agreement turned the border almost invisible except for speed limit signs which switch from miles per hour in the north to kilometers per hour in the south negotiators in the u k and eu worried about the consequences of reinstating border controls as britain had to do in order to end freedom of movement from the eu yet leaving the customs union without imposing customs checks at the northern irish border or between northern ireland and the rest of britain left the door wide open for smuggling this significant and unique challenge was one of the reasons soft brexit advocates cited in favor of staying in the eu s customs union and perhaps its single market the issue was further complicated by the tories choice of the northern irish democratic unionist party as a coalition partner the party opposed the good friday agreement and unlike the conservative leader at the time campaigned for brexit under the good friday agreement the u k government was required to oversee northern ireland with rigorous impartiality that proved difficult for a government that depended on the cooperation of a party with an overwhelmingly protestant support base and historical connections to protestant paramilitary groups arguments for and against brexitleave voters based their support for brexit on a variety of factors including the european debt crisis immigration terrorism and the perceived drag of brussels bureaucracy on the u k economy britain was wary of the european union s projects which leave supporters felt threatened the u k s sovereignty the country never opted into the european union s monetary union meaning that it used the pound instead of the euro it also remained outside the schengen area meaning that it did not share open borders with a number of other european nations opponents of brexit also cited a number of rationales for their position a common thread in both arguments was that leaving the eu would destabilize the u k economy in the short term and make the country poorer in the long term in july 2018 may s cabinet suffered another shake up when boris johnson resigned as the u k s foreign minister and david davis resigned as brexit minister over may s plans to keep close ties to the eu johnson was replaced by jeremy hunt who favored a soft brexit some state institutions backed the remain supporters economic arguments bank of england governor mark carney called brexit the biggest domestic risk to financial stability in march 2016 and the following month the treasury projected lasting damage to the economy under any of three possible post brexit scenarios adapted from h m treasury analysis the long term economic impact of eu membership and the alternatives april 2016leave supporters discounted such economic projections under the label project fear a pro brexit outfit associated with the u k independence party ukip which was founded to oppose eu membership responded by saying that the treasury s worst case scenario of 4 300 per household is a bargain basement price for the restoration of national independence and safe secure borders although leave supporters stressed issues of national pride safety and sovereignty they also mustered economic arguments for example johnson said on the eve of the vote eu politicians would be banging down the door for a trade deal the day after the vote in light of their commercial interests vote leave the official pro brexit campaign topped the why vote leave page on its website with the claim that the u k could save 350 million per week we can spend our money on our priorities like the nhs national health service schools and housing in may 2016 the u k statistics authority an independent public body said the figure was gross rather than net which was misleading and undermines trust in official statistics a mid june poll by ipsos mori however found that 47 of the country believed the claim the day after the referendum nigel farage who co founded ukip and led it until that november disavowed the figure and said that he was not closely associated with vote leave may also declined to confirm vote leave s nhs promises since taking office brexit economic responsethough britain officially left the eu 2020 was a transition and implementation period trade and customs continued during that time so there wasn t much on a day to day basis that seemed different to u k residents even so the decision to leave the eu had an effect on britain s economy the country s gross domestic product gdp growth slowed down to around 1 7 in 2018 from 2 2 in 2016 and 2 4 in 2017 as business investment slumped the international monetary fund imf predicted that the country s economy would grow at 1 3 in 2019 and 1 4 in 2020 instead growth was 1 6 in 2019 but 11 in 2020 gdp rebounded however touching 7 6 in 2021 before slowing to 4 1 in 2022 the u k unemployment rate hit a 44 year low at 3 9 in the three months leading up to january 2019 experts attribute this to employers preferring to retain workers instead of investing in new major projects while the fall in the value of the pound after the brexit vote helped exporters the higher price of imports was passed onto consumers and had a significant impact on the annual inflation rate consumer prices index cpi inflation hit 3 1 in the 12 months leading up to november 2017 a nearly six year high that well exceeded the bank of england s 2 target inflation fell in 2018 with the decline in oil and gas prices but soared after the global covid 19 pandemic rising 8 7 in the 12 months preceding april 2023 a july 2017 report by the house of lords cited evidence that u k businesses would have to raise wages to attract native born workers following brexit which was likely to lead to higher prices for consumers international trade was expected to fall due to brexit even with the possibility of a raft of free trade deals dr monique ebell former associate research director at the national institute of economic and social research forecasted a 22 reduction in total u k goods and services trade if eu membership was replaced by a free trade agreement other free trade agreements were not predicted to pick up the slack in fact ebell saw a pact with the briics brazil russia india indonesia china and south africa boosting total trade by 2 2 while a pact with the united states canada australia and new zealand was expected to do slightly better at 2 6 the single market is a very deep and comprehensive trade agreement aimed at reducing non tariff barriers ebell wrote in january 2017 while most non eu free trade agreements seem to be quite ineffective at reducing the non tariff barriers that are important for services trade june 2017 general electionon april 18 may called for a snap election to be held on june 8 despite previous promises not to hold one until 2020 polling at the time suggested may would expand on her slim parliament majority of 330 seats there are 650 seats in the commons labour gained rapidly in the polls however aided by an embarrassing tory flip flop on a proposal for estates to fund end of life care the conservatives lost their majority winning 318 seats to labour s 262 the scottish national party won 35 with other parties taking 35 the resulting hung parliament cast doubts on may s mandate to negotiate brexit and led the leaders of labour and the liberal democrats to call on may to resign speaking in front of the prime minister s residence at 10 downing street may batted away calls for her to leave her post saying it is clear that only the conservative and unionist party the tories official name has the legitimacy and ability to provide that certainty by commanding a majority in the house of commons the conservatives struck a deal with the democratic unionist party of northern ireland which won 10 seats to form a coalition may presented the election as a chance for the conservatives to solidify their mandate and strengthen their negotiating position with brussels but this backfired in the wake of the election many expected the government s brexit position to soften and they were right may released a brexit white paper in july 2018 that mentioned an association agreement and a free trade area for goods with the eu david davis resigned as brexit secretary and boris johnson resigned as foreign secretary in protest but the election also increased the possibility of a no deal brexit the financial times predicted that the result made may more vulnerable to pressure from euroskeptics and her coalition partners this was evident with the irish backstop tussle with her position weakened may struggled to unite her party behind her deal and keep control of brexit scotland s independence referendumpoliticians in scotland pushed for a second independence referendum in the wake of the brexit vote but the results of the june 8 2017 election cast a pall over their efforts the scottish national party snp lost 21 seats in the westminster parliament and on june 27 2017 scottish first minister nicola sturgeon said her government at holyrood would reset its timetable on independence to focus on delivering a soft brexit not one scottish local area voted to leave the eu according to the u k s electoral commission though moray came close at 49 9 the country as a whole rejected the referendum by 62 0 to 38 0 but because scotland only contains 8 4 of the u k s population its vote to remain along with that of northern ireland which accounts for just 2 9 of the u k s population was vastly outweighed by support for brexit in england and wales scotland joined england and wales to form great britain in 1707 and the relationship has been tumultuous at times the snp which was founded in the 1930s had just six of 650 seats in westminster in 2010 the following year however it formed a majority government in the devolved scottish parliament at holyrood partly owing to its promise to hold a referendum on scottish independence that referendum held in 2014 saw the pro independence side lose with 44 7 of the vote turnout was 84 6 far from putting the independence issue to rest though the vote fired up nationalist support the snp won 56 of 59 scottish seats at westminster the following year overtaking the liberal democrats to become the third largest party in the u k overall britain s electoral map suddenly showed a glaring divide between england and wales which was dominated by tory blue with the occasional patch of labour red and all yellow scotland | |
when britain voted to leave the eu scotland fulminated a combination of rising nationalism and strong support for europe led almost immediately to calls for a new independence referendum on nov 3 2017 when the supreme court ruled that devolved national assemblies such as scotland s parliament could not veto brexit the demands grew louder | on march 13 of that year sturgeon called for a second referendum to be held in the autumn of 2018 or spring of 2019 holyrood backed her by a vote of 69 to 59 on march 28 the day before may s government triggered article 50 sturgeon s preferred timing was significant since the two year countdown initiated by article 50 ended in the spring of 2019 when the politics surrounding brexit could be particularly volatile scotland s economic situation also raised questions about its hypothetical future as an independent country the crash in oil prices dealt a blow to government finances in may 2014 its government forecasted 2015 2016 tax receipts from north sea drilling of 3 4 billion to 9 billion but only collected 60 million less than 1 of the forecasts midpoint in reality these figures were hypothetical since scotland s finances were not and are not fully devolved but the estimates were based on the country s geographical share of north sea drilling so they illustrated what it might expect as an independent nation the debate over what currency an independent scotland would use was revived former snp leader alex salmond who was scotland s first minister until november 2014 told the financial times that the country could abandon the pound and introduce its own currency allowing it to float freely or pegging it to sterling he ruled out joining the euro but others contended that it would be required for scotland to join the eu another possibility would be to use the pound which would mean forfeiting control over monetary policy upsides for someon the other hand a weak currency that floats on global markets can be a boon to u k producers that export goods industries that rely heavily on exports could actually see some benefit in 2023 the top 10 exports from the u k were in u s dollars some sectors were prepared to benefit from the exit multinationals listed on the ftse 100 saw earnings rise as a result of a soft pound a weak currency was also a boon to the tourism energy and service industries in may 2016 the state bank of india india s largest commercial bank suggested that brexit would benefit india economically while leaving the eurozone meant that the u k no longer had unfettered access to europe s single market it would allow for more focus on trade with india india would also have more wiggle room if the u k were no longer under european trade rules and regulations u k eu trade after brexitmay advocated a hard brexit by that she meant that britain should leave the eu s single market and customs union and negotiate a trade deal to govern their future relationship these negotiations would have been conducted during a transition period once a divorce deal was ratified the conservatives poor showing in the june 2017 snap election called popular support for a hard brexit into question many in the press speculated that the government could take a softer line the brexit white paper released in july 2018 revealed plans for a softer brexit it was too soft for many mps in her party and too audacious for the eu the white paper said the government planned to leave the eu single market and customs union however it proposed the creation of a free trade area for goods which would avoid the need for customs and regulatory checks at the border and mean that businesses would not need to complete costly customs declarations and it would enable products to only undergo one set of approvals and authorizations in either market before being sold in both this meant the u k would follow eu single market rules regarding goods the white paper acknowledged that a borderless customs arrangement with the eu one that allowed the u k to negotiate free trade agreements with third countries was broader in scope than any other that exists between the eu and a third country the government was correct that there was no example of this kind of relationship in europe the four broad precedents that existed were the eu s relationship with norway switzerland canada and wto members the first option was for the u k to join norway iceland and lichtenstein in the european economic area eea which provides access to the eu s single market for most goods and services agriculture and fisheries are excluded at the same time the eea is outside the customs union so britain could have entered into trade deals with non eu countries but the arrangement was hardly a win win the u k would be bound by some eu laws while losing its ability to influence those laws through the country s european council and european parliament voting rights in september 2017 may called this arrangement an unacceptable loss of democratic control david davis expressed interest in the norway model in response to a question he received at the u s chamber of commerce in washington it s something we ve thought about but it s not at the top of our list he said he was referring specifically to the european free trade association efta which like the eea offers access to the single market but not the customs union the efta was once a large organization but most of its members left to join the eu today it comprises norway iceland lichtenstein and switzerland all but switzerland are also members of the eea switzerland s relationship with the eu which is governed by around 20 major bilateral pacts with the bloc is broadly similar to the eea arrangement along with these three switzerland is a member of the european free trade association switzerland helped set up the eea but its people rejected membership in a 1992 referendum the country allows the free movement of people and is a member of the passport free schengen area it is subject to many single market rules without having much say in making them it is outside the customs union allowing it to negotiate free trade agreements with third countries usually but not always it has negotiated alongside the eea countries switzerland has access to the single market for goods with the exception of agriculture but not services except insurance it pays a modest amount into the eu s budget brexit supporters who wanted to take back control wouldn t have embraced the concessions that the swiss made on immigration budget payments and single market rules the eu would probably not have wanted a relationship modeled on the swiss example either switzerland s membership in the efta but not the eea and schengen but not the eu is a messy product of the complex history of european integration and not surprisingly a referendum a third option was to negotiate a free trade agreement with the eu along the lines of the comprehensive economic and trade agreement ceta a pact that the eu finalized but didn t fully ratify with canada the most obvious problem with this approach is that the u k had only two years from triggering article 50 to negotiate such a deal the eu refused to discuss a future trading relationship until december of that year at the earliest to give a sense of how tight that timetable was ceta negotiations began in 2009 and concluded in 2014 but just over half of the eu s 28 national parliaments actually ratified the deal persuading the rest could take years even subnational legislatures can stand in the way of a deal the walloon regional parliament which represents fewer than four million mainly french speaking belgians single handedly blocked ceta for a few days in 2016 to extend the two year deadline for leaving the eu britain needed unanimous approval from the eu several u k politicians including chancellor of the exchequer philip hammond stressed the need for a transitional deal of a few years so that among other reasons britain could negotiate eu and third country trade deals but this notion was met with resistance from hardline brexiteers in some ways comparing britain s situation to canada s is misleading canada already enjoys free trade with the u s through the u s mexico canada agreement usmca which was built on the north american free trade agreement nafta this means that a trade deal with the eu was not as crucial as it is for the u k canada s and britain s economies are also very different ceta does not include financial services one of britain s biggest exports to the eu speaking in florence italy in september 2017 may said the u k and eu can do so much better than a ceta style trade agreement since they were beginning from the unprecedented position of sharing a body of rules and regulations she did not elaborate on what much better looked like besides calling on both parties to be creative as well as practical monique ebell formerly of the national institute of economic and social research stressed that even with an agreement in place non tariff barriers were likely to be a significant drag on britain s trade with the eu she expected total u k foreign trade not just flows to and from the eu under an eu u k trade pact she reasoned that free trade deals did not generally handle services trade well services are a major component of britain s international trade the country enjoys a trade surplus in that segment which is not the case for goods free trade deals also struggle to rein in non tariff barriers admittedly britain and the eu started from a unified regulatory scheme but divergences would only multiply post brexit if britain and the eu weren t able to come to an agreement about their relationship they would have had to revert to wto terms but this default solution wouldn t have been straightforward either since britain was a wto member through the eu it would have to split tariff schedules with the bloc and divvy out liabilities arising from ongoing trade disputes trading with the eu on wto terms was the no deal scenario that the conservative government presented as an acceptable fallback though most observers see this as a negotiating tactic in july 2017 u k secretary of state for international trade liam fox said people talk about the wto as if it would be the end of the world but they forget that is how they currently trade with the united states with china with japan with india with the gulf and our trading relationship is strong and healthy but for certain industries the eu s external tariff would have hit hard britain exports 77 of the cars it manufactures and 58 of these go to europe the eu levies 10 tariffs on imported cars monique ebell of the niesr estimated that leaving the eu single market would reduce overall u k goods and services trade not just that with the eu by 22 to 30 nor would the u k only be giving up its trade arrangements with the eu under any of the scenarios above it would probably have lost the trade agreements that the bloc struck with 63 developing countries as well as progress in negotiating other deals replacing these and adding new ones would have been an uncertain prospect in a september 2017 interview with politico fox said his trade office which was formed in july 2016 turned away some developing countries looking to negotiate free trade deals because it lacked the capacity to negotiate fox wanted to roll the terms of existing eu trade deals over into new agreements but some countries were unwilling to give britain 66 million people 2 6 trillion gdp the same terms as the eu excluding britain around 440 million people 13 9 trillion gdp impact on the u s companies in the u s across a wide variety of sectors have made large investments in the u k over many years in fact american corporations have derived 9 of global foreign affiliate profit from the united kingdom since 2000 the u s also hires a lot of brits making u s companies one of the u k s largest job markets the output of u s affiliates in the united kingdom was 129 3 billion in 2021 the united kingdom plays a vital role in corporate america s global infrastructure from assets under management aum to international sales and research and development r d advancements american companies have viewed britain as a strategic gateway to other countries in the european union brexit is believed to jeopardize the affiliate earnings and stock prices of many companies strategically aligned with the united kingdom american companies and investors that have exposure to european banks and credit markets may be affected by credit risk european banks may have to replace 123 billion in securities depending on how the exit unfolds furthermore u k debt may not be included in european banks emergency cash reserves creating liquidity problems european asset backed securities have been in decline since 2007 who s next to leave the eu political wrangling over the eu wasn t limited to britain even following britain s departure most eu members had strong euroskeptic movements that while they struggled to win power at the national level heavily influenced the tenor of national politics in the years that followed there is still a chance that such movements could secure referendums on eu membership in a few countries at some point in the future in may 2016 global research firm ipsos released a report showing that a majority of respondents in italy and france believe their countries should hold a referendum on eu membership the fragile italian banking sector has driven a wedge between the eu and the italian government which provided bailout funds to save mom and pop bondholders from being bailed in as eu rules stipulate the government abandoned its 2019 budget when the eu threatened it with sanctions it lowered its planned budget deficit from 2 5 of gdp to 2 04 matteo salvini the far right head of italy s northern league and the country s deputy prime minister called for a referendum on eu membership hours after the brexit vote saying this vote was a slap in the face for all those who say that europe is their own business and italians don t have to meddle with that the northern league has an ally in the populist five star movement whose founder former comedian beppe grillo called for a referendum on italy s membership in the euro though not the eu the two parties formed a coalition government in 2018 and made giuseppe conte prime minister conte ruled out the possibility of italexit in 2018 during the budget standoff marine le pen the leader of france s euroskeptic national front hailed the brexit vote as a win for nationalism and sovereignty across europe like a lot of french people i m very happy that the u k people held on and made the right choice what we thought was impossible yesterday has now become possible she lost the french presidential election to emmanuel macron in may 2017 gaining just 33 9 of votes he won the election again in 2022 beating le pen once more macron has warned that the demand for frexit will grow if the eu does not see reforms according to a 2020 2022 european social survey poll 16 of french citizens want the country to leave the eu down from 24 3 in a 2016 2017 poll | |
when did britain officially leave the european union | britain officially left the eu on jan 31 2020 at 11 p m gmt the move came after a referendum voted in favor of brexit on june 23 2016 | |
what were the reasons behind brexit | there were many reasons why britain voted to leave the european union but some of the main issues behind brexit included a rise in nationalism immigration political autonomy and the economy the leave side garnered almost 52 of the votes while the remain side received about 48 | |
how many countries are part of the eu post brexit | britain s departure from the european union left 27 member states they are austria belgium bulgaria croatia cyprus the czech republic denmark estonia finland france germany greece hungary ireland italy latvia lithuania luxembourg malta the netherlands poland portugal romania slovakia slovenia spain and sweden the bottom linethe european union was established in november 1993 with the maastricht treaty the original members included belgium denmark france germany greece ireland italy luxembourg netherlands portugal spain and the united kingdom fifteen other countries would gain membership in the union rising nationalist sentiment coupled with concerns over the economy and british sovereignty led the majority of voters in the u k to vote to leave the eu britain left the union at the end of january 2020 in what is commonly called brexit but the move didn t come without challenges it required two years of negotiating a deal and a year long transition period before everything became final | |
what is brick and mortar | brick and mortar refers to a traditional street side business that offers products and services to its customers face to face in an office or store that the business owns or rents the local grocery store and the corner bank are examples of brick and mortar companies understanding brick and mortarmany consumers still prefer to shop and browse in a physical store in brick and mortar stores consumers can speak with employees and ask questions about the products or services brick and mortar stores can offer experience shopping whereby consumers can test a product such as a video game or laptop at best buy or have lunch in nordstrom s cafe while shopping at the store brick and mortar businesses also provide consumers with instant gratification when a purchase is made some consumers are wary of using credit cards or other forms of payment online these customers often associate legitimacy with a brick and mortar business as a physical presence can foster a perception of trust however there can be disadvantages for corporations that run brick and mortar stores including the costs associated with leasing the building employees to conduct transactions and utility expenses such as electricity heat and water brick and mortar store saleson a per store basis publicly traded retailers typically report same store sales or comparable store sales in their quarterly and annual sec regulated earnings reports these financial metrics provide a performance comparison for the established stores of a retail chain over a specified period of time brick and mortar businesses that include restaurants grocery stores and general merchandise stores use these figures to evaluate their financial performance to guide corporate decision making regarding their stores on a macroeconomic level the u s census bureau releases retail sales figures every month and e commerce retail sales figures every quarter 12 global non store retailing such as direct door to door selling and e commerce posted sales of 4 217 billion in 2023 and predicts 4 712 billion for 2024 3many brick and mortar stores have found it difficult to compete with web based stores like amazon com however companies such as costco thrive by offering its members services such as online pickup successful brick and mortar store examplewith all the negative press surrounding brick and mortar stores combined with the popularity of amazon one might think that the brick and mortar business model is dead however costco is bucking the trend costco wholesale corporation cost is a membership retailer that charges an annual fee of between 60 and 120 to each customer consumers receive cost savings and service benefits for being a member costco had over 127 million members and a 92 7 renewal rate in the united states and canada at the end of fiscal year 2023 4costco is the top third retailer in 2023 according to the national retail federation 5 costco sells 10 000 products on its website and offers consumers the option to buy goods online and pick them up in the store which helps offer its members a compelling alternative to amazon types of brick and mortar storesthere are several areas where brick and mortar stores still provide a resilient business model these are typically situations where a face to face shopping experience provides more convenience than online shopping for example advantages and disadvantages of brick and mortar storesbrick and mortar stores offer the advantage of an in person shopping experience which may be important when the product must be inspected by the shopper they are also more convenient when the product cannot easily be delivered online such as a haircut some business types are more appropriately suited to brick and mortar forms such as hair salons veterinarians gas stations auto repair shops restaurants and accounting firms marketing strategies for brick and mortar businesses must highlight the advantages a consumer has when purchasing at a physical store on the other hand brick and mortar stores tend to suffer higher overhead costs than online stores and they can reach fewer customers 6 commercial rental space tends to be more expensive than warehouse space especially if the store relies on foot traffic or a downtown location moreover they need to hire enough staff to keep the store open as well as pay for cleaning insurance and office maintenance provides a more personal experience more effective for goods that must be effective or do not ship easily more effective for some services higher costs for rent higher staffing costs difficult to serve customers outside a specific geographic area adaptations for brick and mortar storesthe rise of electronic commerce e commerce and online businesses has led many to contemplate the future of the brick and mortar business it is increasingly common for brick and mortar businesses to also have an online presence in an attempt to reap the benefits of each particular business model for example some brick and mortar grocery stores such as safeway allow customers to shop for groceries online and have them delivered to their doorstep in as little as a few hours the increasing prevalence of these hybrid business models has spawned offshoot terms such as click and mortars and bricks and clicks despite fairly sustained growth in the broader brick and mortar landscape many traditional retailers are closing stores nationwide including gymboree the limited radio shack and gamestop meanwhile other stores such as sears and payless shoesource have declared bankruptcy the importance of the brick and mortar model has been given credence by several large online e commerce companies opening physical locations to realize the advantages of traditional retail for example amazon com inc has opened brick and mortar stores to help market its products and strengthen customer relations however it hasn t always been with success in amazon s 2023 annual report it noted most of its 767 million of other operating expenses were related to asset impairment for physical store closures as well as fulfillment network facility closures 7 | |
how many brick and mortar stores are there in the united states | there are just over a million retail establishments in the united states the exact number was 1 078 177 as of q4 2023 8can brick and mortar compete with e commerce yes brick and mortar stores can compete with e commerce the physical space can have an advantage with engaging interactive in store experiences brick and mortars can also boast the advantage of providing the good or service immediately finally in person shops can leverage services like click and collect in store returns for online purchases and localized marketing for more niche services | |
what is brick and mortar banking | brick and mortar banking refers to the practice of depositing and borrowing money through online banking applications or websites compared to visiting a branch in person many retail banks are now eliminating some of their branches to provide more services by mail telephone or on the web | |
what are the costs associated with running a brick and mortar store | the costs associated with running a brick and mortar store include rent utilities payroll inventory insurance and marketing expenses additional costs may involve store maintenance security and technology investments initial setup costs such as store design fixtures and signage if you re thinking of starting a brick and mortar store but aren t sure what your specific costs may be check out the small business association s start up cost calculator 9the bottom linebrick and mortar is a colloquial term that refers to retail stores and offices that customers can visit in person in comparison to online stores without a customer facing storefront although they provide a more personal shopping experience these stores are often being undercut by online stores with much lower overhead costs however some businesses such as hair salons and grocery stores are still largely done in person | |
what is bridge financing | bridge financing often in the form of a bridge loan is an interim financing option used by companies and other entities to solidify their short term position until a long term financing option can be arranged bridge financing normally comes from an investment bank or venture capital firm in the form of a loan or equity investment bridge financing is also used for initial public offerings ipo or may include an equity for capital exchange instead of a loan | |
how bridge financing works | bridge financing bridges the gap between the time when a company s money is set to run out and when it can expect to receive an infusion of funds later on this type of financing is most normally used to fulfill a company s short term working capital needs there are multiple ways that bridge financing can be arranged which option a firm or entity uses will depend on the options available to them a company in a relatively solid position that needs a bit of short term help may have more options than a company facing greater distress bridge financing options include debt equity and ipo bridge financing types of bridge financingone option with bridge financing is for a company to take out a short term high interest loan known as a bridge loan companies who seek bridge financing through a bridge loan need to be careful however because the interest rates are sometimes so high that it can cause further financial struggles if for example a company is already approved for a 500 000 bank loan but the loan is broken into tranches with the first tranche set to come in six months the company may seek a bridge loan it can apply for a six month short term loan that gives it just enough money to survive until the first tranche hits the company s bank account sometimes companies do not want to incur debt with high interest if this is the case they can seek out venture capital firms to provide a bridge financing round and thus provide the company with capital until it can raise a larger round of equity financing if desired in this scenario the company may choose to offer the venture capital firm equity ownership in exchange for several months to a year s worth of financing the venture capital firm will take such a deal if they believe the company will ultimately become profitable which will see its stake in the company increase in value bridge financing in investment banking terms is a method of financing used by companies before their ipo this type of bridge financing is designed to cover expenses associated with the ipo and is typically short term in nature once the ipo is complete the cash raised from the offering immediately pays off the loan liability these funds are usually supplied by the investment bank underwriting the new issue as payment the company acquiring the bridge financing will give a number of shares to the underwriters at a discount on the issue price which offsets the loan this financing is in essence a forwarded payment for the future sale of the new issue example of bridge financingbridge financing is quite common in many industries since there are always struggling companies the mining sector is filled with small players who often use bridge financing in order to develop a mine or to cover costs until they can issue more shares a common way of raising funds in the sector bridge financing is rarely straightforward and will often include a number of provisions that help protect the entity providing the financing a mining company may secure 12 million in funding in order to develop a new mine which is expected to produce more profit than the loan amount a venture capital firm may provide the funding but because of the risks the venture capital firm charges 20 per year and requires that the funds be paid back in one year the term sheet of the loan may also include other provisions these may include an increase in the interest rate if the loan is not repaid on time it may increase to 25 for example the venture capital firm may also implement a convertibility clause this means that they can convert a certain amount of the loan into equity at an agreed upon stock price if the venture capital firm decides to do so for example 4 million of the 12 million loan may be converted into equity at 5 per share at the discretion of the venture capital firm the 5 price tag may be negotiated or it may simply be the price of the company s shares at the time the deal is struck other terms may include mandatory and immediate repayment if the company gets additional funding that exceeds the outstanding balance of the loan | |
what is a bridge loan | a bridge loan is a short term loan used until a person or company secures permanent financing or pays an existing obligation it allows the borrower to meet current obligations by providing immediate cash flow bridge loans have relatively high interest rates and are usually backed by some form of collateral such as real estate or the inventory of a business these types of loans are often used in real estate and are also called bridge financing or a bridging loan investopedia jessica olah | |
how a bridge loan works | also known as interim financing gap financing or swing loans bridge loans bridge the gap during times when financing is needed but not yet available both individuals and companies use bridge loans and lenders can customize these loans for many different situations 1bridge loans can help homeowners purchase a new home while they wait for their current home to sell borrowers use the equity in their current home for the down payment on the purchase of a new home while they wait for their current home to sell a bridge loan gives the homeowner some extra time and more often than not some peace of mind while they wait however these loans normally come at a higher interest rate than other credit facilities such as a home equity line of credit heloc 2typically lenders only offer real estate bridge loans to borrowers with excellent credit and low debt to income dti ratios bridge loans roll the mortgages of two houses together giving the buyer flexibility as they wait for their former house to sell however in most cases lenders only offer real estate bridge loans worth 80 of the combined value of the two properties meaning that the borrower must have significant home equity in the original property or ample cash savings on hand 2businesses turn to bridge loans when they are waiting for long term financing and need money to cover expenses in the interim for example imagine a company is doing a round of equity financing expected to close in six months it may opt to use a bridge loan to provide working capital to cover its payroll rent utilities inventory costs and other expenses until the round of funding goes through in the case of real estate bridge loans people who still haven t paid off their mortgage end up having to make two payments one for the bridge loan and one for the mortgage until the old home is sold 3example of a bridge loan | |
when olayan america corp wanted to purchase the sony building in new york city in 2016 it took out a bridge loan from ing capital the short term loan was approved very quickly allowing olayan to seal the deal on the sony building with dispatch the loan helped to cover part of the cost of purchasing the building until olayan secured more permanent long term funding 4 | bridge loans vs traditional loansbridge loans typically have a faster application approval and funding process than traditional loans however in exchange for the convenience these loans tend to have relatively short terms high interest rates and large origination fees generally borrowers accept these terms because they require fast convenient access to funds they are willing to pay high interest rates because they know the loan is short term and plan to pay it off quickly with low interest long term financing in addition most bridge loans don t have repayment penalties | |
what are the pros of bridge loans | bridge loans provide short term cash flow for example a homeowner can use a bridge loan to purchase a new home before selling their existing one | |
what are the cons of bridge loans | bridge loans typically have higher interest rates than traditional loans also if you are waiting to sell your home and still have a mortgage you ll have to make payments on both loans | |
how do i qualify for a bridge loan | for a real estate bridge loan you ll need an excellent credit score lenders also prefer borrowers with low debt to income dti ratios the bottom linea bridge loan short term financing used until a person or company secures permanent financing or settles an existing obligation is often used in residential real estate but many types of businesses use them as well homeowners can use bridge loans toward the purchase of a new home while they wait for their current home to sell businesses seek bridge loans when they are awaiting longer term financing and need money to cover expenses in the interim but these loans normally carry a higher interest rate than other available credit facilities | |
what is broad money | broad money is a category for measuring the amount of money circulating in an economy it is defined as the most inclusive method of calculating a given country s money supply and includes narrow money along with other assets that can be easily converted into cash to buy goods and services understanding broad moneybecause cash can be exchanged for many kinds of financial instruments it is not a simple task for economists to define how much money is circulating in the economy money supply is measured in different ways economists use a capital letter m followed by a number to refer to the measurement they are using in a given context the formula for calculating money supply varies from country to country broad money is the broadest measure encompassing narrow money such as cash and checkable deposits along with less liquid assets such as certificates of deposit foreign currencies money market accounts marketable securities treasury bills and anything else that can be easily converted into cash but not including company shares example of broad moneyin the united states the most common measures of money supply are m1 and m2 in march 2006 the federal reserve stopped publishing m3 statistics 1 these measurements vary according to the liquidity of the accounts included m0 typically includes only the most liquid instruments such as coins and notes in circulation at the other end of the scale is m3 which is categorized as the broadest measurement of money different countries define their measurements of money in slightly different ways in academic settings the term broad money is used to avoid misinterpretation in most cases broad money means the same as m3 while m0 and m1 usually refer to narrow money the federal reserve tracks m1 and m2 money supply m1 is defined as currency in the hands of the public travelers checks demand deposits and checking deposits m2 includes m1 plus savings accounts money market mutual funds and time deposits under 100 000 1 benefits of broad moneywidening the scope of the total money in circulation comes with several advantages above all it helps policymakers to better grasp potential inflationary trends central banks often look at broad money alongside narrow money to set monetary policy economists have found close links between money supply inflation and interest rates central banks such as the federal reserve use lower interest rates to increase the money supply when the goal is to stimulate the economy conversely in an inflationary setting interest rates are raised and the money supply diminishes leading to lower prices in simple terms if there is more money available the economy tends to accelerate because businesses have easy access to financing if there is less money in the system the economy slows and prices may drop or stall in this context broad money is one of the measures that central bankers use to determine what interventions if any they could introduce to influence the economy | |
what is a broker | a broker is an individual or firm that acts as an intermediary between an investor and a securities exchange a stockbroker buys and sell stocks among other securities on behalf of investors because securities exchanges only accept orders from individuals or firms who are members of that exchange individual traders and investors need the services of exchange members brokers provide that service and are compensated in various ways either through commissions fees or through being paid by the exchange itself investopedia regularly reviews all the top brokers and maintains a list of the best online brokers and trading platforms to help investors decide what broker is best for them investopedia candra huffunderstanding brokersas well as executing client orders brokers may provide investors with research investment plans and market intelligence 1 they may also cross sell other financial products and services that their brokerage firm offers such as access to a private client offering that provides tailored solutions to high net worth clients in the past only the wealthy could afford a broker and access the stock market however online brokering triggered an explosion of discount brokers which allow investors to trade at a lower cost but without personalized advice discount vs full service brokersdiscount brokers can execute many types of trades on behalf of a client for which they charge little or no commission for trades their low fee structure is based on volume and lower costs they don t offer investment advice and brokers usually receive a salary rather than a commission most discount brokers offer an online trading platform that attracts a growing number of self directed investors such services usually charge 0 in commissions full service brokers offer a variety of services including market research investment advice and retirement planning on top of a full range of investment products for that investors can expect to pay higher commissions for their trades brokers receive compensation from their brokerage firm based on their trading volume as well as for the sale of investment products an increasing number of brokers offer fee based investment products such as managed investment accounts real estate brokersin the real estate industry a broker is a licensed real estate professional who typically represents the seller of a property a broker s duties when working for a seller may include it is not uncommon to have a real estate broker work for a buyer also in which case the broker is responsible for broker regulationsecurities brokers register with the financial industry regulatory authority finra the broker dealers self regulatory body in serving their clients brokers are held to a standard of conduct based on the suitability rule which requires there be reasonable grounds for recommending a specific product or investment the second part of the rule commonly referred to as know your client or kyc addresses the steps a broker must use to identify their client and their savings goals which helps them establish the reasonable grounds for their recommendations this standard of conduct differs significantly from the standard applied to financial advisors registered with the securities and exchange commission sec as registered investment advisors rias under the investment advisers act of 1940 rias are held to a strict fiduciary standard to always act in the best interest of the client while providing full disclosure of their fees real estate brokers in the u s are licensed by each state not by the federal government each state has its own laws defining the types of relationships that can exist between clients and brokers and the duties of brokers to clients and members of the public 2a securities broker must make a reasonable effort to obtain information on the customer s financial status tax status investment objectives and other information used in making a recommendation examples of brokersfull service brokers tend to use their role at a brokerage as an ancillary service available to high net worth clients along with many other services such as retirement planning or asset management examples of a full service broker might include offerings from a company such as morgan stanley goldman sachs or bank of america merrill lynch the larger brokerage firms tend to carry an inventory of shares available for sale to their customers they do this to help reduce costs from exchange fees but also because it allows them to offer rapid access to popularly held stocks other full service broker firms are actually agency brokers this means that unlike many larger brokers they carry no inventory of shares but act as agents for their clients to get the best trade executions an example of this would be if a high net worth investor named amy wanted to place a large buy order for tesla inc tsla stock amy would call or message her broker telling them to execute the buy order of say 10 000 shares this is an order of more than 1 million so amy feels more comfortable having a broker execute the trade directly the broker receives the order and if the brokerage has those shares available they will most likely fill amy s order immediately if it doesn t it could buy those shares on the exchanges or from other brokerages they may not place the order in the amount of 10 000 grabbing instead 500 to 1 000 shares at a time to deliver to amy after the funds settle | |
what exactly does a broker do | a broker facilitates trades between individuals companies and the exchanges where the broker is licensed depending on the nature of the trade and marketplace a broker can either be a human being who is processing the trade themselves or a computer program that is only monitored by a human typically stock trades are computerized whereas something like real estate requires a more personal touch | |
do brokers make money | yes brokers make money the salary a broker receives depends on a lot of factors mainly the worth of the clients they are servicing or if they are brokers for businesses such as commercial real estate owners and sellers a typical stockbroker may make a salary and a commission on trades managed and had an average salary of around 160 772 as of may 2024 3 | |
what is a broker and why do i need one | a broker is an intermediary between those who want to invest and make trades and the exchange at which those trades are processed you need a broker because stock exchanges require that those who execute trades on the exchange be licensed another reason is a broker ensures a smooth trading experience between an investor and an exchange and as is the case with discount brokers usually won t charge a commission for normal trades | |
how do you become a broker | becoming a broker depends on a few things first having a background or degree in finance or economics will be extremely helpful this may get you noticed but to actually be hired and perform as a broker you will need to be appropriately licensed the bottom linebrokers make a decent salary working through the day ensuring smooth transactions between their clients and the exchanges brokers can physically present trades but more often than not they monitor trades from their computers and are only needed to intervene in the case of an exceptionally large or unique trade | |
what is a broker dealer | a broker dealer b d is a person or firm in the business of buying and selling securities for its own account or on behalf of its customers the term broker dealer is used in u s securities regulation parlance to describe stock brokerages because most of them act as both agents and principals a brokerage acts as a broker or agent when it executes orders on behalf of its clients whereas it acts as a dealer or principal when it trades for its own account understanding a broker dealerbroker dealers fulfill several important functions in the financial industry these include providing investment advice to customers supplying liquidity through market making activities facilitating trading activities publishing investment research and raising capital for companies broker dealers range in size from small independent boutiques to large subsidiaries of giant commercial and investment banks there are two types of broker dealers there are over 3 378 broker dealers to choose from according to a 2022 report from the financial industry regulatory authority finra some of the largest broker dealers include fidelity investments charles schwab and edward jones 1 | |
how a broker dealer works | by definition broker dealers are buyers and sellers of securities and they are also distributors of other investment products as the name implies they perform a dual role in carrying out their responsibilities as dealers they act on behalf of the brokerage firm initiating transactions for the firm s own account as brokers they handle transactions buying and selling securities on behalf of their clients in their dual roles they perform a couple of vital functions they facilitate the free flow of securities on the open market and they buy or sell securities in their own accounts to ensure there is a market in those securities for their clients in this regard broker dealers are essential and they are also well compensated earning a fee on either or both sides of a securities transaction special considerationsbroker dealers that are tied directly to investment banking operations also engage in the underwriting of securities offerings when a broker dealer acts as an agent of the issuing company either as a principal underwriter of the stock or bond offering or as a member of the underwriting syndicate they enter into a contractual arrangement acting on a firm commitment with the issuer that obligates them to distribute a certain amount of the securities offered to the public in exchange for an underwriting fee they may also acquire a piece of the securities offering for their own accounts and may be required to do so if they are unable to sell all of the securities once the underwriting process is completed and the securities are issued the broker dealers then become distributors and their clients are typically the target of their distribution efforts in that effort the financial advisors of the firms then act as brokers to solicit their clients and recommend the purchase of the security for their accounts in this regard the broker dealers are facilitating the interests of the issuer themselves in the collection of a distribution fee and their clients although their only contractual obligation is to the issuer | |
a brokerage account is an investment account held at a licensed brokerage firm an investor deposits funds into their brokerage account and the brokerage firm transacts orders for investments such as stocks bonds mutual funds and exchange traded funds etfs on their behalf | the assets in investment accounts belong to the investors who normally must report the income derived from the account on their taxes investopedia michela buttignolunderstanding brokerage accountsthere are several types of brokerage accounts and brokerage firms giving investors the chance to choose the model that best suits their financial needs some full service brokers provide extensive investment advice and other services but charge high fees on the other end of the compensation spectrum most online brokers provide a secure interface through which investors can place trade orders they charge relatively low fees for this service robo advisors are digital platforms that offer financial planning and investment services driven by algorithms not people typically they are low cost and require low account opening minimum amounts brokerage accounts may differ in terms of order execution speed analytical tools the scope of tradable assets and the extent to which investors can trade on margin for any type of brokerage the most basic account is a cash account this allows you to buy investments using the money deposited in the account however you can t sell short buy on margin trade options or take advantage of other more sophisticated products to do so you need a margin account with a margin account you can borrow money from your brokerage for additional purchases the securities in your account serve as collateral the brokerage charges regular maintenance interest on this loan and it may request additional money from you immediately if the securities in the account lose too much value this request is known as a margin call if you can t meet a margin call your broker may sell your securities types of brokerage accountsinvestors seeking the expertise of a financial advisor can consider full service brokerage firms such as merrill morgan stanley wells fargo advisors and ubs among others financial advisors are paid to help their clients develop investment plans execute their transactions monitor their investments and the markets and more financial advisors work on either a nondiscretionary basis where clients must approve transactions or on a discretionary basis where transactions don t require prior client approval full service brokerage accounts charge either commissions on trades or advisor fees a commission account generates a fee anytime an investment is bought or sold whether the recommendation came from the client or the advisor and whether the trade is profitable by contrast an advisor fee account involves flat annual fees ranging from 0 5 to 2 of the total account balance 1 in exchange for this fee no commissions are charged when investments are bought or sold investors should discuss compensation models with financial advisors at the onset of relationships do it yourself traders should be careful about trading low volume stocks which may not have enough liquidity to allow investors to enter or exit positions easily investors who favor a do it yourself investment approach might consider a discount brokerage firm these firms charge significantly lower fees than their full service counterparts however discount brokerage firms such as charles schwab schw fidelity fis and e trade etfc offer fewer services in exchange for these lower fees this may suit investors who are most concerned with keeping costs low and executing trades via easy to use online trading platforms for example an investor who decides on a typical discount broker can expect to open a regular taxable brokerage account or retirement account with a 500 minimum required amount little or no commission is charged to buy or sell most stocks options or etfs some discount brokers may charge fees for non u s or thinly traded stocks but this varies from broker to broker the purchase of treasury bonds typically involves no commission but bonds traded in the secondary market may many brokers including schwab fidelity and e trade also offer a wide variety of mutual funds for no transaction cost 234robo advisors are accounts where they not the account holder select the investments using algorithms without human participation moreover those investments are usually restricted to mutual funds or etfs the cost can be around 0 25 to 0 50 of assets under management per year 5 the minimum required to open an account can range from 0 to 500 to over 5 000 robo advisors might be right for people new to investing and experienced investors who prefer a hands off approach to portfolio management those investors who prefer a personal relationship and a choice of services may also want to work with a brokerage firm that s part of their community they could consider a regional firm that falls between full service and discount brokerage firms on the cost scale such companies include raymond james financial inc rjf janney montgomery scott and edward jones these brokerages act as broker dealers and financial advisors they can require a sizable minimum account size and cater to individuals with slightly higher net worth than other brokerages over time though their services tend to be less expensive than those of larger full size brokerages online brokerages are a good choice for investors who prefer to select their own investments and execute their own trades via a website or mobile app however many also offer research and analysis tools to help investors make informed decisions many charge commission on each transaction some charge no commissions robinhood markets inc hood is an online broker that offers commission free trading on stocks etfs and options the firm generates its revenue from payment for order flow pfof margin interest income from cash holdings and more 6 pfof is the compensation a brokerage receives for directing trades to a specific market maker the amount paid is usually a fraction of a penny per share other zero commission brokers include charles schwab fidelity e trade and vanguard a cash brokerage account requires you to deposit cash to start trading this account limits your options to the basics such as purchasing stock for example short selling a stock is not possible within cash accounts cash accounts can be either discount or full service accounts a margin account allows you to borrow money to start trading the broker acts as a lender and the borrowed funds allow for larger trades and more advanced trades such as short selling a stock the investor pays interest on the loaned amount of money the brokerage may demand an immediate deposit of funds from an investor if the value of their account drops below a specific level because of market changes margin accounts can also be discount or full service brokerage accounts while a margin account offers you more flexibility there is some risk involved if you are new to investing it s best to stick with a cash account at first to choose the best brokerage for your needs consider your investing style your short and long term goals the types of investments you seek and the level of service and support you want cost may drive the choice for some novices or highly experienced investors yes brokerage accounts are generally a safe place to keep your money however that doesn t mean that they re without risk the securities investor protection corporation sipc is a nonprofit organization that provides coverage to investors in case their brokerage firm faces financial difficulties or goes bankrupt the sipc safeguards customers assets including cash and securities like stocks and bonds held within a brokerage account at an sipc member firm 7the protection offered by sipc is limited to 500 000 per customer per brokerage firm this coverage includes up to 250 000 protection for cash within the account it s important to note that sipc protection does not cover investment losses because of market fluctuations or poor investment decisions instead it focuses on protecting customers assets in the event of a brokerage firm failure or misconduct most brokerage firms in the u s are members of sipc providing their customers with this added layer of protection for their investments even with sipc protection consider the risks and only invest money you re willing to lose | |
when opening a brokerage account don t settle for the first one you find it s essential to ensure you choose the right one | the first step to choosing the right brokerage account is to consider your needs | |
are you an active or passive investor are you looking to focus only on mutual funds etfs stocks bonds other securities or a combination of all the above do you mainly plan on making basic market orders or do you want more advanced order types | some brokers focus on different types of investors one might have features that appeal to buy and hold investors who mostly want to buy mutual funds and etfs others will have features that appeal to frequent traders and people who are interested in things like options once you ve considered your needs you can compare different brokers to see what they offer and how those services align with what you re looking for | |
how to open a brokerage account | opening a brokerage account is a simple process that takes just a few minutes once you ve selected a firm and the type of account you want to open taxable or tax advantaged get the following personal information ready the setup process will include questions about your financial needs investment goals investing style and risk tolerance you ll need to fund your account once you ve created your profile and your account is open to open an account you must first choose a brokerage that suits your needs if you re still unsure step back and consider for instance whether you re an engaged investor who follows the markets daily or someone who wants to leave that to others do you take a conservative income focused or aggressive growth focused approach to investing are you investing for short term goals or retirement how easy is it to use a broker s website understanding such topics can help you choose a firm and decide whether to open a taxable brokerage account or a tax advantaged retirement account standard brokerage account vs ira brokerage accountinvestors can open a standard brokerage account and an individual retirement account ira in fact you can open an ira even if you already have a workplace retirement plan such as a 401 k it s a good idea because it gives you an additional tax advantaged opportunity to save for retirement knowing the difference between a standard brokerage account and an ira account opened at a brokerage can help you decide whether you should open one or the other or both investments are taxedyou can deposit and withdraw funds as often as you like and with no limit on depositsdeposits are not tax deductibleyou can invest in any securities offered by your brokerage used for all kinds of purposes e g to build wealth over the long term and reach short term financial goals such as buying a home | |
what is a brokerage firm | a brokerage firm or brokerage company is a middleman who connects buyers and sellers to complete a transaction for stock shares bonds options and other financial instruments brokers are compensated in commissions or fees that are charged once the transaction has been completed most discount brokerages now offer their customers zero commission stock trading the companies make up for this loss of revenue from other sources including payments from the exchanges for large quantities of orders and trading fees for other products like mutual funds and bonds brokers may work for brokerage companies or operate as independent agents understanding brokerage firmsin a perfect market in which every party had all of the necessary information there would be no need for brokerage firms that is impossible in a market that has a huge number of participants making transactions at split second intervals the nasdaq alone has in excess of 35 million trades per day 1brokerage companies exist to help their clients match two sides for a trade bringing together buyers and sellers at the best price possible for each and extracting a commission for their service full service brokerages offer additional services including advice and research on a wide range of financial products types of brokeragesthe amount you pay a broker depends on the level of service you receive how personalized the services are and whether they involve direct contact with human beings rather than computer algorithms full service brokerages also known as traditional brokerages offer a range of products and services including money management estate planning tax advice and financial consultation these companies also offer stock quotes research on economic conditions and market analysis highly trained and credentialed professional brokers and financial advisers are available to advise their clients on money matters traditional brokerages charge a fee a commission or both for regular stock orders full service brokers may charge as much as 100 for broker assisted trades however many are switching to a wrap fee business model in which all services including stock trades are covered by an all inclusive annual fee the fee averages 1 to 3 of assets under management aum many full service brokers seek out affluent clients and establish minimum account balances that are required to obtain their services often starting at six figures or more some full service brokerages offer a lower cost discount brokerage option as well merrill lynch wealth management morgan stanley and edward jones are among the big names in full service brokerages a discount brokerage is an online brokerage the online broker s automated network is the middleman handling buy and sell orders that are input directly by the investor the introduction of the first discount brokerage is often attributed to charles schwab corp which launched its first website in 1995 competitors soon appeared as they have evolved the brokerages have added tiered services at premium prices fierce competition on the web and later on phone apps have led most competitors to drop their fees to zero for basic stock trading services charles schwab remains one of the biggest names in online brokerages along with others including fidelity investments and interactive brokers the same names pop up for mobile brokerage apps along with newer competitors such as robinhood and acorns a robo advisor is an online investment platform that uses algorithms to implement trading strategies on behalf of its clients in an automated process most robo advisors are programmed to follow long term passive index strategies based on modern portfolio theory mpt although several robo advisors allow clients to modify their investment strategy somewhat if they want more active management some even have human advisors waiting in the wings robo advisors have their appeal not the least of which is very low entry fees and account balance requirements most charge no annual fee zero commissions and set their account requirements to a few dollars access to an advisor comes with a fee typically 0 25 to 0 50 of aum per year that s still far less than the cost of a traditional broker independent vs captive brokerageif you re buying or selling certain financial products including mutual funds and insurance it s important to know whether your broker is affiliated with certain companies and sells only its products or can sell you the full range of choices you should also find out whether that broker holds to the fiduciary standard or the suitability standard the suitability standard requires the broker to recommend actions that are suitable to your personal and financial circumstances the higher fiduciary standard requires the broker to act in your best interests registered investment advisors rias are the most common type of independent broker found today independent brokerages are not affiliated with a mutual fund company they may be able to recommend and sell products that are better for the client they are required to hold to the fiduciary standard meaning that they must recommend the investments most in the client s best interest a captive brokerage is affiliated with or employed by a mutual fund company or insurance company and can sell only their products these brokers are employed to recommend and sell the range of products that the mutual or insurance company owns the products they recommend may not be the best choice available to the client | |
is it worth it to use a full service broker | people who use full service brokers want the advice and attention of an expert to guide their financial affairs these are usually complex as these clients tend to be high net worth individuals with complex financial affairs they are willing and able to pay an average of 1 to 3 of their assets per year for the service people who use an online discount broker may feel confident in their ability to handle their own finances and make their own decisions | |
how does a brokerage firm work | a broker is essentially a middleman brokers match buyers with sellers complete the transaction between the two parties and pocket a fee for their service if you use an online brokerage to buy stock there s no human standing between you and the transaction the brokerage software makes the match if you use a full service brokerage the process is much the same except that someone else is pressing the keys on the keyboard however the full service brokerage may have identified a good investment opportunity discussed it with the client and acted in the client s behalf in making the transaction | |
how does a brokerage firm make money | generally brokerages make money by charging various fees and commissions on transactions they facilitate and services they provide the online broker who offers free stock trades receives fees for other services plus fees from the exchanges full service brokerages increasingly charge a so called wrap fee an all in one charge for all or most services this is usually 1 to 3 of the amount in the client s account per year and covers advisory services and investment research as well as trading fees | |
what is a brokerage fee | a brokerage fee is a fee or commission a broker charges to execute transactions or provide specialized services on behalf of clients brokers charge brokerage fees for services such as purchases sales consultations negotiations and delivery there are many instances of brokerage fees charged in various industries such as financial services insurance real estate and delivery services among others understanding brokerage feesbrokerage fees also known as broker fees are based on a percentage of the transaction as a flat fee or as a hybrid of the two brokerage fees vary according to the industry and type of broker in the real estate industry a brokerage fee is typically a flat fee or a standard percentage charged to the buyer the seller or both mortgage brokers help potential borrowers find and secure mortgage loans their associated fees are between 1 and 2 of the loan amount in the insurance industry a broker unlike an agent represents the interests of the customer and not the insurer brokers find the best insurance policies to meet customers needs and will charge fees for their services in rare instances brokers may collect fees from both the insurer and the individual buying the insurance policy in the financial securities industry a brokerage fee is charged to facilitate trading or to administer investment or other accounts the three main types of brokers that charge brokerage fees are full service discount and online stock brokerage fee breakdownfull service brokers offer a wide range of products and services such as estate planning tax consultation and preparation and other financial services as a result they earn the largest brokerage fees not so long ago it was not uncommon for a full service broker to charge upward of 100 per trade for orders placed with a human broker the standard commission for full service brokers today is between 1 to 2 of a client s managed assets for example tim wants to purchase 100 shares of company a at 40 per share tim s broker earns a commission of 80 for facilitating the transaction 40 share x 100 shares 4 000 4 000 x 02 commission 80 when the commission is added the total cost of the trade is 4 000 80 4 080 a 12b 1 fee is a recurring fee that a broker receives for selling a mutual fund the fees range from 0 25 to 1 00 of the total value of the trade annual maintenance fees range from 0 25 to 1 5 of the assets because discount brokers offer a narrower selection of products and provide no investment advice they charge lower fees than full service brokers do discount brokers charge a flat fee for each trade transaction the per trade flat fee ranges from less than 5 to more than 30 per trade account maintenance fees are usually around 0 5 per year based on assets held online brokers have the least expensive brokerage fees their primary role is to allow investors to conduct online trading customer service is limited many online brokers have removed a specific commission fee for trades on stock shares but commission fees for options or futures trades still apply the fees vary and may be based on a per contract or per share charge account maintenance fees vary between 0 to 50 per account per year reduction of brokerage fees to zeroinvestors can reduce account maintenance fees by comparing brokers their provided services and their fees buying no load mutual funds or fee free investments can help avoid per trade fees it is important to read the fine print or fee schedule and ask questions about any fees charged today many online platforms like robinhood offer 0 trading in many stocks and etfs as well as many others that have since joined the commission free movement the disappearance of outright brokerage fees for trades has been the result of intense competition resulting in fee compression these services instead make money by selling your order flow or loaning your stock positions to short sellers 1fees for money management have also been compressed through online services called roboadvisors which use algorithms to automatically establish and maintain an optimal investment portfolio these services charge far less than a human advisor generally between 0 25 and 0 50 per year based on assets held with some even lower | |
is it normal to pay a brokerage fee | traditionally most investors and traders had to pay fees to their brokers to execute trades and maintain their accounts with the advent of internet based trading online account management and fierce competition among brokerage firms today s fees on most stock and etf trades have dropped to zero at several platforms | |
which brokers charge 0 fees on stock trades | robinhood was one of the first large online broker to offer free trading in stocks and etfs in 2013 when its app officially launched since then many brokerages have followed suit including charles schwab fidelity merrill edge e trade interactive brokers td ameritrade webull j p morgan vanguard sofi and ally invest among others note that many of these platforms still charge commissions for trading in otc stocks options futures or other non stock securities | |
what is a typical commission for options trades | many brokers charge a fixed commission plus a per contract fee for options trades this could be something like 5 95 1 00 per contract so the total fee on a 10 lot trade would be 5 95 10 15 95 the exact commission structure will vary based on your broker and the level of trading that you do with them for example e trade charges 0 65 per contract but reduces it to 0 50 per contract for accounts with more than 30 trades in a month 2 | |
what is the typical brokerage fee for a real estate deal | realtors and real estate brokers typically charge around 5 to 6 of the selling price of a house this is often split between the seller s agent and the buyer s agent some discount real estate brokerages may charge a lower rate or instead offer a fixed fee service the bottom linebrokerage fees are the cost of doing business with a broker and can take away from the returns of your portfolio when choosing a broker take the time to assess the services you re receiving and whether the cost of those services benefit you additionally consider if any other fees are necessary or just in the interest of the broker today through online brokers brokerage fees for simple stock investing are very low or nonexistent allowing you to keep larger portions of your investment returns | |
what is a brown bag meeting | a brown bag meeting is an informal meeting or training that generally occurs in the workplace around lunchtime this type of meeting is referred to as a brown bag meeting or a brown bag seminar because participants typically bring their lunches which are associated with being packed in brown paper bags meetings of this kind don t necessarily have to occur during the lunch hour and can take place at any time during the workday or after hours they usually are held in conference rooms understanding brown bag meetingsbrown bag meetings are informal training and learning sessions offered by employers to their staff these meetings are also called lunch and learn sessions the brown bag meeting is an efficient and straightforward way for corporations to save money while training or informing staff the underlying assumption is that employees will bring their own lunch to the meeting formal meetings are usually catered or held offsite with the company assuming all dining costs depending on the number of attendees these costs can be significant other organizations such as nonprofits and academic institutions also offer brown bag meetings these meetings are usually informative range from one to four hours and have a small number of participants types of brown bag meetingsthere are four primary types of brown bag meetings a seminar meeting is the most common and usually includes a guest speaker or expert who transfers their knowledge and experience about a specific topic to the gathering this format often includes a short question and answer period at the end of the session in a small group meeting each participant answers a single question or a set of pre defined questions other attendees may comment ask for more information or clarity and discuss the responses the process continues until all participants answer the topic questions this format allows for the maximum transfer of knowledge and experience and reinforces group dynamics small group meetings are frequently referred to as workshops brown bag meetings promote accuracy and consistency as the audience receives the same message or training a combination meeting is a hybrid of a seminar and a small group meeting the meeting starts with a speaker presenting a key topic for the meeting the remaining time is spent operating in a small group format the small group format is useful for problem solving brainstorming and team building the attendees will frequently reconvene and each small group will present its findings to the group at large the social meeting type allows participants the opportunity to get to know each other in a relaxed setting participants may learn each person s role and career objectives this format builds trust and promotes cohesiveness these meetings can also help disseminate topics not specifically related to work but that can be useful for employees these include healthy living investing retirement options technology related topics and safety outside the workplace simply put there is no limit to what employers can cover during these informal meetings the benefits of brown bag meetingsbrown bag meetings promote dialogue and information sharing among participants sharing among participants enhances training and ensures consistent dissemination of information they also promote teamwork reinforce company values and missions and increase employee morale they can also help employees learn about and develop important skills they can use outside the workplace the sessions can be structured or unstructured and are often used to transfer knowledge solve problems brainstorm and build trust among attendees meetings may include presentations they may also be led by speakers who provide expert advice discuss policy changes or talk about innovative products and services brown bag meetings are useful for cross training project management initiatives and cross functional team meetings most brown bag meetings take place to inform employees about important work related issues including human resources training and policy changes brown bag meeting faqsbrown bag sessions are informal business meetings or training usually held in an office setting during lunchtime participants are allowed or even encouraged to bring their own lunch since the organizer will not cater food to keep the session organized consider appointing a moderator they help facilitate discussions between participants and the speaker or trainer and ensure that the schedule is adhered to a brown bag meeting is an informal business meeting or training occurring around lunchtime the term brown bag refers to the practice of employees bringing brown bagged lunches to these meetings a seminar is a meeting or training in which a guest or expert speaker presents a specific topic relevant to their audience and allows participants to engage in discussion the term brown bag refers to the brown bag lunches that employees would bring to informal business meetings and training | |
what is a brownfield investment | a brownfield also known as brown field investment is when a company or government entity purchases or leases existing production facilities to launch a new production activity this is one strategy used in foreign direct investment the alternative to this is a greenfield investment in which a new plant is constructed the clear advantage of a brownfield investment strategy is that the buildings are already constructed the costs and time of starting up may thus be greatly reduced and the buildings already up to code brownfield land however may have been abandoned or left unused for good cause such as pollution soil contamination or the presence of hazardous materials understanding a brownfield investmentbrownfield investing covers both the purchase and the lease of existing facilities at times this approach may be preferable as the structure already stands not only can it result in cost savings for the investing business but it can also avoid certain steps that are required to build new facilities on empty lots such as building permits and connecting utilities brownfield sites may be found in unattractive locations making it harder to develop for the public or employees so if investors can t be attracted it won t be able to sustain itself the term brownfield refers to the fact that the land itself may be contaminated by the prior activities that have taken place on the site a side effect of which may be the lack of vegetation on the property when a property owner has no intention of allowing further use of vacant brownfield property it is referred to as a mothballed brownfield sites that are significantly contaminated such as by extreme hazardous waste are not considered to be brownfield properties brownfield investment and foreign direct investmentbrownfield investing is common when a company looks toward a foreign direct investment fdi option often a company considers facilities that are either no longer in use or are not running at full capacity as options for new or additional production the environmental protection agency epa has a program known as the brownfields and land revitalization program that seeks to revitalize land by providing grants and technical assistance while additional equipment may be required or existing equipment may need to be modified this can often be more cost effective than building a new facility from the ground up this is especially true in cases where the previous use is similar in nature to the new intended use the addition of new equipment is still considered part of a brownfield investment while the addition of any new facilities to complete production do not qualify as brownfield instead new facilities are considered greenfield investing brownfield vs greenfield investingwhile brownfield investing involves the use of previously constructed facilities that were once in use for another purpose greenfield investing covers any situation in which new facilities are added to previously vacant land the term greenfield relates to the idea that before the construction of a new facility the land may have literally been a green field such as an empty pasture covered in green foliage prior to use the disadvantages of brownfield investmentsbrownfield investments can run the risk of leading to buyer s remorse even if the premises had been previously used for a similar operation it is rare that a company looking finds a facility with the type of capital equipment and technology to suit its purposes completely if the property is leased there may be limitations on what kinds of improvements can be made | |
what is a bubble | a bubble is an economic cycle that is characterized by the rapid escalation of market value particularly in the price of assets this fast inflation is followed by a quick decrease in value or a contraction that is sometimes referred to as a crash or a bubble burst typically a bubble is created by a surge in asset prices that is driven by exuberant market behavior during a bubble assets typically trade at a price or within a price range that greatly exceeds the asset s intrinsic value the price does not align with the fundamentals of the asset the cause of bubbles is disputed by economists some economists even disagree that bubbles occur at all on the basis that asset prices frequently deviate from their intrinsic value however bubbles are usually only identified and studied in retrospect after a massive drop in prices occurs | |
how a bubble works | an economic bubble occurs any time that the price of a good rises far above the item s real value bubbles are typically attributed to a change in investor behavior although what causes this change in behavior is debated bubbles in equities markets and economies cause resources to be transferred to areas of rapid growth at the end of a bubble resources are moved again causing prices to deflate the japanese economy experienced a bubble in the 1980s after the country s banks were partially deregulated 1 this caused a huge surge in the prices of real estate and stock prices the dot com boom also called the dot com bubble was a stock market bubble in the late 1990s it was characterized by excessive speculation in internet related companies 2 during the dot com boom people bought technology stocks at high prices believing they could sell them at a higher price until confidence was lost and a large market correction occurred investopedia julie bangthe research of american economist hyman p minsky helps to explain the development of financial instability and provides one explanation of the characteristics of financial crises through his research minsky identified five stages in a typical credit cycle 3 while his theories went largely under the radar for many decades the subprime mortgage crisis of 2008 renewed interest in his formulations which also help to explain some of the patterns of a bubble this stage takes place when investors start to notice a new paradigm like a new product or technology or historically low interest rates this can be basically anything that gets their attention prices start to rise then they get even more momentum as more investors enter the market this sets up the stage for the boom there is an overall sense of failing to jump in causing even more people to start buying assets | |
when euphoria hits and asset prices skyrocket it could be said that caution on the part of investors is mostly thrown out the window | figuring out when the bubble will burst isn t easy once it has burst it will not inflate again it is possible to have an echo bubble which is only a temporary rally but anyone who can identify the early warning signs will make money by selling off positions asset prices change course and drop sometimes as rapidly as they rose investors want to liquidate them at any price asset prices decline as supply outshines demand examples of bubblesrecent history includes two very consequential bubbles the dot com bubble of the 1990s and the housing bubble between 2007 and 2008 however the first recorded speculative bubble which occurred in holland from 1634 to 1637 provides an illustrative lesson that applies to the modern day 4while it may seem absurd to suggest that a flower could bring down a whole economy that is exactly what happened in holland in the early 1600s the tulip bulb trade initially started by accident a botanist brought tulip bulbs from constantinople and planted them for his own scientific research neighbors then stole the bulbs and began selling them the wealthy began to collect some of the rarer varieties as a luxury good as their demand increased the prices of bulbs surged some rare varieties of tulips commanded astronomical prices bulbs were traded for anything with a store of value including homes and acreage at its peak tulip mania had created such a frenzy that fortunes were made overnight the creation of a futures exchange where tulips were bought and sold through contracts with no actual delivery fueled the speculative pricing the bubble burst when a seller arranged a big purchase with a buyer and the buyer failed to show at this point it was clear that price increases were unsustainable this created a panic that spiraled throughout europe driving the worth of any tulip bulb down to a tiny fraction of its recent price dutch authorities stepped in to calm the panic by allowing contract holders to be freed from their contracts for 10 of the contract value in the end fortunes were lost by noblemen and laymen alike 4the dot com bubble was characterized by a rise in equity markets that was fueled by investments in internet and technology based companies it grew out of a combination of speculative investing and the overabundance of venture capital going into startup companies investors started to pour money into internet startups in the 1990s with the express hope that they would be profitable as technology advanced and the internet started to be commercialized startup companies in the internet and technology sector helped fuel the surge in the stock market that began in 1995 the subsequent bubble was formed by cheap money and easy capital many of these companies barely generated any profits or even a significant product regardless they were able to offer initial public offerings ipos their stock prices saw incredible highs creating a frenzy among interested investors but as the market peaked panic among investors ensued this led to about a 10 loss in the stock market the capital that was once easy to obtain started to dry up companies with millions in market capitalization became worthless in a very short amount of time as the year 2001 ended a good portion of the public dot com companies had folded the u s housing bubble was a real estate bubble that affected more than half of the united states in the mid 2000s it was partially the result of the dot com bubble as the markets began to crash values in real estate started to rise at the same time the demand for homeownership started to grow at almost alarming levels interest rates started to decline a concurrent force was a lenient approach on the part of lenders this meant that almost anyone could become a homeowner banks reduced their requirements to borrow and started to lower their interest rates adjustable rate mortgages arms became a favorite with low introductory rates and refinancing options within three to five years many people started to buy homes and some people flipped them for profits but when the stock market began to rise again interest rates also started to rise for homeowners with arms their mortgages started to refinance at higher rates the value of these homes took a nosedive which triggered a sell off in mortgage backed securities mbss this eventually led to an environment that resulted in millions of dollars in mortgage defaults | |
what is a budget | a budget refers to an estimation of revenue and expenses that s made for a specified future period of time budgeting usually occurs on an ongoing basis with individual budgets being re evaluated regularly budgets can be made for any entity that needs or wants to spend money including governments and businesses people and households of any income level investopedia julie bangunderstanding budgetinga budget is a microeconomic concept that reveals the trade off made when one good is exchanged for another in terms of the bottom line or the end result of this trade off a surplus budget means profits are anticipated a balanced budget means revenues are expected to equal expenses and a deficit budget means expenses will exceed revenues these principles hold true whether the budget is intended for an individual a family or a company first let s take a quick look at the budgeting process for a corporation and then personal budgeting corporate budgetsbudgets are an integral part of running any business efficiently and effectively corporate budgeting begins by establishing assumptions for the upcoming budget period these assumptions are related to projected sales trends cost trends and the overall economic outlook of the market industry or sector specific factors affecting potential expenses are addressed and monitored the budget is published in a packet that outlines the standards and procedures used to develop it including the assumptions about the markets key relationships with vendors that provide discounts and explanations of how certain calculations were made the sales budget is often the first to be developed as subsequent expense budgets cannot be established without knowing future cash flows budgets are developed for all the different subsidiaries divisions and departments within an organization for a manufacturer a separate budget is often developed for direct materials labor and overhead all budgets get rolled up into the master budget which also includes budgeted financial statements forecasts of cash inflows and outflows and an overall financing plan at a corporation the top management reviews the budget and submits it for approval to the board of directors there are two major types of budgets static budgets and flexible budgets a static budget remains unchanged over the life of the budget regardless of changes that occur during the budgeting period all accounts and figures originally calculated remain the same a flexible budget has a relational value to certain variables the dollar amounts listed on a flexible budget change based on sales levels production levels or other external economic factors both types of budgets are useful for management a static budget evaluates the effectiveness of the original budgeting process while a flexible budget provides deeper insight into business operations derek notman cfp chfc cluintrepid wealth partners llc madison withe importance of budgeting cannot be understated a budget also known as cash flow is arguably more important than the actual cash that you have in your bank and investment accounts your cash flow is what allows you to pay for everything or not without knowing your cash flow you could be putting yourself into a bad financial situation and not even know it you can only get by without knowing your cash flow for so long before you get into financial trouble so make the time to know the flow of your cash budgeting should be something that everyone does regardless of their financial situation personal budgetsindividuals and families can have budgets too creating and using a budget is not just for those who need to closely monitor their cash flows from month to month because money is tight almost everyone can benefit from budgeting even people with large paychecks and plenty of money in the bank may find it difficult to cover the expense of an unexpected home repair to manage your monthly expenses prepare for life s unpredictable events and afford big ticket items without going into debt budgeting is essential keeping track of how much you earn doesn t require you to be a math whiz and doesn t mean you can t buy the things you want | |
what it does mean is that you can maintain control over where your money goes and enjoy greater financial confidence and success | the specifics of budgeting will depend on your personal financial situation and goals in most cases though the approach is the same no matter where you stand financially follow these seven steps to create your budget and adjust it as needed to reach specific financial goals once you ve created a budget you may have to do some juggling especially in the first few months this means adjusting spending here and there so that you stay within your planned budget for income and expenses and be sure to put it in writing if you see it and commit to it you ll have more incentive to stick to it 11 budgeting myths that can block your successbudgeting is a wonderful tool for managing your finances but many people think it s not for them it s important to become aware of budgeting myths the erroneous logic that stops people from keeping track of their money and allocating it in ways that benefit them most then you can create a budget that can help you live within your means reach important goals and build lasting wealth here are 11 budgeting myths getting and keeping a handle on your monthly income and expenses allows you to make sure that your hard earned money is being put to its highest and best purpose for those who enjoy an income that covers all bills with money left over a budget can help maximize savings and investments if one s monthly expenses typically consume the lion s share of net income any budget should focus on identifying and classifying all the expenses that occur during the month quarter and year and for people whose cash flow is tight the budget can be crucial to identifying expenses that could be reduced or cut and minimizing any wasteful interest being paid on credit cards or other debt generally speaking you don t need to be great at math to make and follow a budget first of all understanding general concepts relating to your income spending debt saving and allocating your funds are important then the basic ability to add and subtract is most of what s called for that s especially true if you re budgeting manually with pencil and paper and now thanks to budgeting software programs math barely enters into it you simply have to be able to follow instructions many of these programs are free and legitimate or if you know how to use spreadsheet software you can make your own ledger it s as simple as creating one column for your income another column for your expenses and then keeping a running tab on the difference between the two no one s job is truly safe if you work for a corporation being laid off due to a difficult economy downsizing or a takeover always is a possibility if you work for a small company it could die with its owner be bought out or just fold you should always be prepared for a job loss by having at least three months worth of living expenses in the bank it s easier to accumulate this financial cushion if you know the amount you re bringing in and spending each month which can be monitored with a budget unemployment compensation is not a sure thing let s say a bad situation at work leaves you with no choice but to quit your job unless you can prove constructive discharge that is that you were virtually forced to resign your departure will be considered voluntary making you ineligible for unemployment insurance besides the benefits may fall well short of the wages you re used to in even the highest paying states the average is less than 500 per week 1budgeting is not synonymous with spending as little money as possible or making yourself feel guilty about every purchase the aim of budgeting is to make sure you re able to spend on what s needed and save a little each month ideally at least 10 of your income at the very least budgeting can make sure that you aren t spending more than you earn unless you re on a very tight budget you should be able to buy baseball tickets and go out to eat tracking your expenses does not change the amount of money you have available to spend every month it just shows you where that money is going and allows you to make decisions about changing your spending habits if you don t have any major savings goals e g upsizing your living situation starting your own business it s hard to drum up the motivation to stash away extra cash each month however your situation and your attitudes likely will change over time let s say that you and your partner live in new york city in a small one bedroom apartment and things are going fine for both of you until your family dynamic changes for instance you may have a child or an in law who comes to stay with you indefinitely this may mean you ll need and want more room to accommodate the new addition if you don t save up for anything big you may not be able to afford this change in your living situation down the road yes the catch 22 of student financial aid is that the more money you have the less aid you ll be eligible for that s enough to make anyone wonder if it isn t better to spend it all and have no savings in order to qualify for the maximum amount of grants and loans but that catch mainly applies to earned income whether you are an adult student going back to school or the parent of a student headed to college the free application for federal student aid fafsa form used for stafford loans perkins loans or pell grants does not require you to report the value of your primary residence if you own a home or the value of your retirement accounts 23so if you want to save money without compromising your financial aid eligibility you can do so by using your savings to buy a house prepay your mortgage or contribute more money to your retirement accounts the savings that you put into these assets can still be accessed if you face an emergency but you won t be penalized for it even if you employ all the available legal strategies to maximize your financial aid eligibility you still won t always qualify for as much aid as you need so it s not a bad idea to have your own source of funds to make up for any shortfall good for you but being debt free without any savings won t pay your bills in an emergency a zero balance can quickly become a negative balance if you don t have a safety net budgeting can help you create one it s never a good idea to count on unpredictable sources of income this may be the year that your company is unable to give you a raise or as much of a raise as you hope for the same is true of bonus money tax refunds are more reliable but this depends in part on how good you are at calculating your own tax liability some people know how to figure how much they ll get in a refund or how much they will owe as well as how to adjust this figure through changes in payroll withholding throughout the year however changes in tax deductions irs regulations or other life events can mean a nasty surprise when you prepare your tax return if you re still not convinced that budgeting is for you here s a way to protect yourself from your own spending habits set up an automatic transfer from your checking account to a savings account that you don t see regularly i e at a different bank schedule the transfer to happen right after you get paid if you are saving for retirement you may have the option of contributing a set amount regularly to a 401 k or other retirement savings plan this way you can pay yourself first have enough money for the transfer and know that you can meet your savings goal sometimes budgeting just isn t a priority because you have too much on your plate but there are certain government programs that can help you manage your household expenses for instance the supplemental nutrition assistance program snap helps recipients of all income levels work with their food budgets to make their benefits go further 4at the very least set up that budget so you get a feel for spending limits any change in how you originally planned to allocate your funds whether you re paying all you can to get rid of debt or whether your slipping too far into debt budgeting conceptsin general traditional budgeting starts with tracking expenses eliminating debt and once the budget is balanced building an emergency fund but to speed up the process you could start by building a partial emergency fund this emergency fund acts as a buffer as the rest of the budget is put in place and should replace the use of credit cards for emergency situations the key is to build the fund at regular intervals consistently devoting a certain percentage of each paycheck toward it and if possible putting in whatever you can spare on top this will get you to think about your spending too you should only use your emergency fund for true emergencies for instance if you lose your job and need to pay for expenses you could tap into your rainy day fund until you join the workforce again you can also use this money if you have an unexpected medical emergency that arises you would save money if you used your emergency fund to eliminate credit card debt but the purpose of the fund is to prevent you from having to use your credit card for paying for unexpected expenses with a proper emergency fund you will not need your credit card to keep you afloat when something goes wrong once you have a buffer between you and high interest debt you can start the process of downsizing the more space you can create between your expenses and your income the more income you will have to pay down debt and invest this can be a process of substitution as much as elimination for example cancel any recurring subscriptions that you don t regularly use or need use half of the money you save to invest for a goal or to pay off outstanding debts save the other half to bulk up your emergency fund although eliminating expenses entirely is the fastest way to a solid budget substitution tends to have more lasting effects so consider people can sometimes cut too many expenses so that they end up with a budget that they can t stick to substitution in contrast keeps the basics while trimming costs once you have your budget in place and have more money coming in than going out you can start investing to create more income it is better to have no debt before you begin investing if you are young however the rewards of investing in higher risk high return securities like stocks can outweigh most low interest debt over time keep your receipts so that you know exactly how much you spend each month this can help you determine how much to budget for any expenses that may change from month to month sticking to a budgetyou ve got your budget set up now you ve got to stick to it but that credit card still calls your name your clothes budget seems awfully small and you feel deprived at such moments it helps to revisit the whole reason for a budget to help you manage your finances achieve financial goals and lead a life free from fear of financial pitfalls your budget can keep you out of overwhelming debt and help you build a financial future that will give you more freedom not less so think about the future you want and remember that keeping to your budget will help you get there adding to your debt load on the other hand will mean that your financial future could be less bright every time you enter your spending in your software or budget notebook review everything that s been spent to date and compare it to income received this will keep you abreast of where things stand and encourage you to keep at it especially if you are reining in your spending as intended this daily or weekly activity can give you an enormous sense of accomplishment and keep you on track make it more difficult to make impulse purchases in other words set up barriers that give you time to think is this purchase necessary opt out of retailer email lists remove your stored payment information on your favorite online shops so you can t just click to order adjust your phone settings to block tracking and advertising as much as possible if you feel like you re the only one in your group who is on a budget search for some like minded folks you could find an online forum a monthly meeting or even a couple of friends who will listen to your concerns and share their budgeting experiences set up accountability calls with your frugal buddies to talk things over and keep temptation at bay just know that you re not the only person setting sensible financial limits for yourself there s something powerful about handing over a stack of 20 bills for a purchase you have to confront the money you re about to spend and accept that the spending is worth it swiping a debit card on the other hand may not feel nearly as real similarly paying bills by writing checks and promptly entering the sums in your register keeps you up to date on how your account is affected in a way that autopay doesn t you don t have to use cash exclusively or completely forgo online payments but handling transactions in hands on ways can make you realize how much you re spending and enhance the power of self regulation if you constantly look at what you have to give up the very act of budgeting becomes distasteful a mixture of long and short term gifts to yourself will help keep you motivated | |
when you ve been faithful to your budget for a month give yourself a reward even small ones such as a night out with friends a concert or a little extra cash for spending can help | keep visual reminders of these rewards or the things you re saving up for start building associations in your brain that make sticking to your budget an enjoyable activity with happy results it s difficult to predict correctly how much money you ll need in every category of your budget for instance a new job may necessitate a wardrobe change and your existing clothing budget may not cut it that s why it s important to conduct a regular check on how well your budget is working it may need tweaking this is to be expected just make sure that you always keep your long term financial goals in the picture learn all you can about finances money management and how you can best invest in yourself talk to your financially savvy friends and seek out real world tips and advice from people who are doing well with their money the more you learn about handling money wisely and the rewards that can result from such an effort the more concrete and acceptable the reasons for budgeting will be 8 ways to budget when you re brokebudgeting is smart but if you re suffering from mounting bills and a lack of funds it may not be where your focus is in such circumstances consider some additional steps that you can take to gain control of your finances | |
don t be afraid to request bill extensions or payment plans from creditors skipping or delaying payments only worsens your debt and late fees ding your credit score | go over all your bills to see what can and should be paid first prioritize those that are late and then set up a payment schedule based on your paydays call the bill companies to see how much you can pay now to get back on track toward a positive status explain that you are taking strict measures to catch up be forthright about the amount you can afford to pay now don t just promise to pay the full amount later stashing 10 of your income into your savings account is daunting or impossible when you re living paycheck to paycheck it doesn t make sense to have 100 in a savings plan if you are fending off debt collectors your savings can wait until you can reclaim financial stability to fix your finances you need to get a handle on your outlay first online banking and online budgeting software can help you categorize spending so you can make adjustments many people find that just by looking at aggregate figures for discretionary expenses they are spurred to reduce excessive spending hopefully your budget has given you a sense of where your money goes now it s time to tighten up start cutting back on items that you wouldn t miss change habits that are costing you like letting food spoil before you can eat it prepare meals at home instead of going to restaurants or getting takeout you may be able to reduce some expenses that you shouldn t drop for example you might be able to lower your auto insurance premium by switching carriers those ultra high interest rates on your credit cards aren t fixed in stone call the card company and ask for a reduction in the annual percentage rates apr if you have a good payment record your request might be approved this won t lower your outstanding balance but it will keep it from mushrooming as fast once you ve gone through these steps monitor your progress for a few months you can do this by writing everything you spend in a notebook with budgeting apps on your phone or with the software you may already use for your budget ensure that every cent is accounted for fine tune and adjust your spending as needed after each month this not only can help get you out of financial trouble it also can put the spotlight back on the importance of your budget for the time being saving and investing is out but consider ways to increase your earnings working overtime getting a second job or picking up some freelance work | |
how do you create a budget | creating a budget takes some work you ll need to calculate every type of income you receive each month next track your spending and tabulate all your monthly expenses including your rent or mortgage utility payments debt transportation costs food miscellaneous spending and more you may have to make some adjustments initially to stay within your budget but once you ve gone through the first few months it should become easier to stick to it | |
what is the 50 20 30 budget rule | the 50 20 30 budget rule was popularized by sen elizabeth warren d mass in her book all your worth the ultimate lifetime money plan the plan entails dividing all of your after tax income into 50 for your actual needs 30 for anything you want and 20 for savings 5 | |
how does budgeting help a business | just like budgets help people corporate budgeting helps businesses stay on top of their finances it also helps business leaders make very important investment decisions manage and meet goals and objectives and identify any financial hurdles that come their way the bottom linea budget often conjures up images of complicated financial documents but in reality it s a money management tool that can be used by various entities including governments businesses and individuals households of every income level budgets can help prepare you to make better decisions about your money so that you can secure a brighter financial future | |
what is a budget deficit | a budget deficit occurs when government expenses exceed revenue many people use it as an indicator of the financial health of a country it is a term more commonly used to refer to government spending and receipts rather than businesses or individuals budget deficits affect the national debt the sum of annual budget deficits and the cumulative total a country owes to creditors investopedia joules garciaunderstanding budget deficits | |
when a budget deficit is identified current expenses exceed the income received through standard operations to correct its nation s budget deficit often referred to as a fiscal deficit a government may cut back on certain expenditures or increase revenue generating activities | a budget deficit can lead to higher levels of borrowing higher interest payments and low reinvestment which will result in lower revenue during the following year the opposite of a budget deficit is a budget surplus when a surplus occurs revenue exceeds current expenses resulting in excess funds that can be further allocated when the inflows equal the outflows the budget is considered balanced in the early 20th century few industrialized countries had large fiscal deficits however during the first world war deficits grew as governments borrowed heavily and depleted financial reserves to finance the war and their growth these wartime and growth deficits continued until the 1960s and 1970s when world economic growth rates dropped 1 | |
what causes a budget deficit | both levels of taxation and spending affect a government s budget deficit common scenarios that create deficits by reducing revenue and increasing spending include budget deficits may occur as a way to respond to certain unanticipated events and policies such as the increase in defense spending after the september 11 terrorist attacks 2effects of a budget deficitbudget deficits affect individuals businesses and the overall economy as the government takes steps to improve the deficit spending for programs such as medicare or social security may be curtailed improvements to infrastructure may also be affected to increase revenue tax hikes may occur for high income earners or large corporations which may affect their ability to invest in new business ventures or hire new employees strategies used to reduce budget deficitscountries counter budget deficits by promoting economic growth through fiscal policies such as reducing government spending and increasing taxes determining the best strategies regarding which spending to cut or whose taxes to raise are often widely debated to pay for government programs while operating under a deficit the federal government borrows money by selling u s treasury bonds bills and other securities |
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