A/ ASSIGNMENT RECAP

• Write a 1000 word analytical report examining the money and debt markets of an assigned developed Asia-Pacific country,

• Answering questions on government budget balances and monetary policy

• Comparing payment systems and bond yields between the country and Vietnam in order to recommend an investment. 

Structure:

1. Question 1 (Suggested 400 words)

2. Question 2 (Suggested 600 words)

B/ KEYWORD EXPLANATIONS

1. Government Budget Balance 

The difference between government revenue and spending over a fiscal year. Surplus if revenue exceeds spending; deficit if spending is higher. Budget balances indicate whether the economy is strong with extra government money or weak with debt funding needed.

2. Monetary Policy

Central bank actions to regulate money supply, interest rates, and inflation through tools like open market operations and reserve requirements.

3. Payment System

A country's payment system refers to the entire infrastructure and set of arrangements in place to facilitate the transfer of funds or value between individuals, businesses, and institutions within that country. It plays a crucial role in the functioning of the economy and the financial system. 

4. Treasury Bonds 

Treasury bonds, also known as T-bonds, are long-term debt securities issued by the government to raise funds. These bonds have a fixed interest rate and a maturity date, typically ranging from 10 to 30 years. Investors purchase Treasury bonds, and in return, they receive periodic interest payments and the bond's face value at maturity.

5. Treasury Rates

Treasury rates, often referred to as Treasury yields or yields on Treasury securities, represent the interest rates paid on government debt securities, including Treasury bills, notes, and bonds. These rates are determined by the market and fluctuate based on supply and demand dynamics and economic conditions.

6. Bond Yield

Bond yield refers to the annual income an investor can earn from a bond investment, expressed as a percentage of the bond's face value. It represents the return an investor can expect to receive from the bond, considering both interest payments and potential changes in the bond's market price.

C/ DETAILED OUTLINE 

Question 1

1. Government Budget Balance Analysis (200 words)

• Begin by clearly stating the country you have been assigned to analyze

• Gather data on the government budget balances for the years 2021 and 2022.

• Calculate the government budget balance for each year (Budget Balance = Total Revenues - Total Expenditures)

• Analyze the reasons behind the government budget surpluses or deficits for each year.

• Surpluses may result from:

• Higher revenues (e.g., increased tax collection)

• Lower expenditures (e.g., reduced government spending)

• Deficits may result from:

• Lower revenues (e.g., economic downturn affecting tax revenues)

• Higher expenditures (e.g., increased government spending during a crisis)

2. Influence on Monetary Policy

• You can consider the following point for your analysis

• Impact of Budget Surpluses on Monetary Policy:

• Impact of Budget Deficits on Monetary Policy:

Example: 

•  "Germany's budget surplus in 2021 led to reduced government borrowing, which, in turn, lowered demand for loans in financial markets. This decrease in demand put downward pressure on interest rates, prompting the central bank to consider lowering its policy rates to stimulate investment and economic growth. 

• In contrast, the budget deficit in 2022 increased government borrowing needs, potentially raising interest rates due to higher demand for loans. The central bank may have responded by tightening monetary policy to control inflationary pressures and stabilize the economy.