- It is being supported by stakeholders in the financial industry and politicians. As was mentioned in the first article, mispricing is a form of price discrimination and creates opportunities for monopolies or oligopolies to exist. Nigerian banks are attracted to such market opportunities and would rather make maximum profits unless the government steps in to curb the markets. The government does have the necessary powers because politicians who buy and sell foreign exchange in high volume use the mispricing premium to make huge amounts of money for their personal gain. So, a powerful lobby makes it possible for such an inefficient setup to exist. If arbitrageurs were allowed in the market, the price difference in the two markets for foreign exchange would disappear, thereby converging prices.
- There is no risk involved in selling in the foreign exchange market. Both educated and non-educated people participate in the foreign exchange markets. Sources of foreign exchange are cheaply gotten from tourists and people coming from abroad. Nigerian import regulations state that non-residents can bring in the local currency, the Naira, up to the amount of N5,000 and foreign currencies of an unlimited amount, provided both are declared on arrival.
- The black market premium is high. It is about 20 naira above the official rates when exchanging dollars for naira. When transactions run into the millions of dollars or pounds, the black markets are more attractive than the official rates market. Speculative losses that could be incurred by buyers and sellers in the market are made up for by the high market premium. That makes the market more riskless.
- There is economies of scale. The value of transactions are very large and huge. When the quantity of transactions run into the millions and the premium or mispricing gap is high, then the market is tempting for banks and politicians not to participate.
Wednesday, April 29, 2015
Arbitrage 2 : Black market and official patronage nullifies arbitrage in Nigerian foreign exchange market
Arbitrage 1 - an opportunity for price differentials to converge in financial markets
The simultaneous purchase and sale of an asset in order to profit from a difference in the price. It is a trade that profits by exploiting price differences of identical or similar financial instruments, on different markets or in different forms.Arbitrage is synonymous with making a good buy. It exists due to inefficiencies in a market. Since that is the case, when an arbitrage opportunity is open, it does not last long before the market converges and it disappears. Availability and access to digital information about markets, prices and supplies is at the fingertips. It is very difficult for the market to allow mispricing or price differences. It usually acts quickly upon pricing inefficiency, so that any opportunity for mispricing is eliminated in seconds. Yet, some arbitrage does exist in the markets. Mispricing is one of the prerequisites for arbitrage to occur and the fact that prices are deliberately doctored not to converge as by government regulation or corruption. Cases of this arise often in developing economies. If there is a mispricing premium, lobby groups would be created to ensure the price difference is sustained in order to gain an economic advantage. An efficient market would not allow such pure cases of arbitrage to last. Any gain due to mispricing will have to be executed instantaneously by arbitrageurs who close up the gap. Another prerequisite is for such arbitrage to exist at economies of scale. Given a price premium and trading in volumes that run into millions daily, it is not long before a shrewd company can take advantage of this inefficiency and create an oligopolistic market, if not a monopoly. That setup would be very difficult to dethrone when established. Such company would seek all it can to bar arbitrageurs from getting knowledge or doing business in that market. In brief, arbitrage and arbitrageurs are good for the economy. They serve as a check against monopolists who would rather price discriminate in order to maximize prices. They ensure that prices converge or are harmonized in markets. They act like a natural law that moves market forces from areas of high prices to areas of low prices. Therefore, consumers and policy makers alike would welcome arbitrage and arbitrageurs. Arbitrage exists mostly in markets that are speculative in nature, especially in foreign exchange and futures markets. So, why am I concerned about arbitrage? I read this article on the mobile money Africa site that piqued my interest. The interesting lines are quoted below:
The Central Bank of Nigeria on Tuesday slashed the naira debit cardholders’ spending overseas from $150,000 to $50,000 per annum.Nigerian foreign exchange market is composed of two components: the official market that sells and buys at the official CBN rate and the parallel or often called “black” market that sells and buys at rates fixed by markets outside the official sources but whose source of foreign exchange is suspiciously being fueled by sources in the official market. Why are Nigerians disturbed by arbitrage? That piqued my interest. I did some research in that area. It is the subject of the second article: Black market and official patronage nullifies arbitrage in Nigerian foreign exchange markets.
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The Managing Director and Chief Executive Officer, Union Bank Plc, Mr. Emeka Emuwa, had after the Bankers’ Committee meeting at the CBN office in Lagos on Thursday, said the amount spent by naira debit cardholders overseas was rising fast and the banks were beginning to notice some arbitra[g]e in the segment.
Tuesday, April 28, 2015
Investors grim on Deutsche Bank's cutting costs strategy to retain global lender rating
Sunday, April 26, 2015
[Links] Readings - girl-child marriages, altruism, confidence fairy and secular stagnation.
Debating the Confidence Fairy
Effective Altruism
Girls, Not Brides
The Problem With Secular Stagnation
When an economy is in a slump, i.e spending is already low, is it the right time for austerity measures? In this well written and interesting article full of historical anecdotes, Professor Skidelsky argues no, rather it would be a reason for the economy to resort to other measures, like a stimulus program. But, in contrast, another school believes that the confidence that an austerity will work and being boisterous about that assertion, which Paul Krugman calls the "confidence fairy", was as much important than the workability of policy.
Professor Skidelsky thinks otherwise. In brief, political rhetoric cannot make a bad policy work.Gallup’s poll for 2014 showed that approximately 2.3 billion people, a third of the world’s population, perform at least one altruistic act per month. Some countries are notable in giving money to charity, about 91% in Myanmar, while others like the US outdo themselves in helping strangers and donating to charities. Nevertheless, not all altruism, or giving to help others, is altruistic. Even despite this, the author introduces us to an emerging movement, the Effect Altruism movement, whose aim is to give with the heart and the mind. Their happiness derives from helping others. Good read.
Contains the usual arguments for girls education: better society, more mature and adapted mothers, etc but further with the exhortation that the responsibility rests on you and I, all of us, to ensure that girls do not marry before 18, before they are ready for motherhood. As beneficiaries of our parents and societies wisdom, the two authors urges us all to give the girls of this generation and the next a chance to live to their potential.
How can the fact that the pre-2008 financial crisis was occasioned by positive global productivity growth, decline in inflation and a reduction in real (inflation adjusted) interest rates? Arvind Subramanian explains this three movements by stating that the answer lies not in aggregate demand but on the rise of emerging markets especially India and China. Positive productivity shocks from the emerging markets was followed by disinflationary pressures and also a savings glut that brought about a reduction in returns to capital. The savings glut, he explains, were a result of the productivity shocks being resource intensive and mercantilist in origin, while making already prudent Asians more prudent, and profitable companies more profitable.
Wednesday, April 22, 2015
EU antitrust vs Gazprom (2): Politics always interferes with the economics of pricing
EU antitrust vs Gazprom (1): What a monopoly in gas supply and energy entails
Tuesday, April 21, 2015
Military cyber security firm, Raytheon, targets commercial Internet security
“Today’s enterprises are more vulnerable than ever due to the proliferation of cloud computing, mobile devices, and the Internet of things…In the “internet of things” devices like computers, smartphones, and sensors will be connected to each other in ways unimaginable before, without human-to-device or device-to-device interaction. A flaw in one area of the network can be exploited by cyber-spies and cyber-criminals. By partnering with Websense, Raytheon is bringing its expertise in the military arena to the civil and commercial field. The cyber-security security industry is huge. In 2014, it was reported that cyber-crime costs the global economy about $445 billion every year, with the damage to business from intellectual property thefts exceeding $160 billion. Losses connected to personal information, such as stolen credit card data, was put at up to $150 billion. Raytheon though is not the only company gearing itself in the cyber security market. Last month its rival company, Blue Coat Systems Inc., was acquired by Bain Capital LLC of Boston for $2.4 billion. Blue Coat Systems is known for transacting government contracts. Raytheon is famed for the Tomahawk, Patriot, and Sidewinder guided- missile systems and is a major maker of radar and electronic warfare gear.
...
Our goal is to provide an integrated defense.”
Monday, April 20, 2015
Building green clean homes from an innovative UK university research on straw
What market need did ModCell serve on inception?
Finlay White: ModCell initially started selling into the educational market - building additional classrooms, University buildings etc.
That could have been possible due to your affiliation with the University of Bath?
Finlay White: The panel was invented by an architect (Craig White) and a structural engineer (Tim Mander). It was first used at the University of the West of England, Bristol. It was identified that the straw bale panel would always be a victim of people’s perceptions i.e. 'It’s straw, surely it’s a fire risk’ or/and ‘Straw will rot’ or and/and ‘What about vermin?’ etc. So it was decided at an early stage to be a researched based company to satisfy the preconceptions around using straw. We approached Professor Pete Walker of the University of Bath to see how we could gain funding for research (our MD, Craig White, had worked with Pete Walker on previous occasions due to both being involved as lecturers in the built environment). UK Government matched funding options were identified and a joint submission to the UK DBERR (Department for Business, Enterprise and Regulatory Reform). We were successful with this research application. A number of other research options have since been identified, with a number of these additional funding streams have also been won (including matched funding from the DTi - Department for Trade and Industry, TSB - Technology Strategy Board, Innovate UK, European Commission) The vast majority of these have been with the University of Bath. Our relationship with them is excellent and the research has had very positive outcomes, including UK and European certification being won as an outcome of the research. So far over £4 million of matched funding research has occurred and three research programmes are currently taking place.
Did your customers voice concerns about the sustainability of straw-built houses?
Finlay White: We tend to answer this question before we're ask[ed] it. When talking to people we inform [them] that in the UK there is currently over 3,000,000 tonnes of unallocated straw bale surplus in the UK every year. By unallocated, we mean what is left over after the 9,000,000 tonnes that is grown each year has been used for other purposes e.g. animal bedding, ploughed back into the field etc. This 3,000,000 tonnes equates to roughly 500,000 average sized (90m2) 3 bedroom homes…. In the UK, the target for new homes is 240,000 a year (less than half this number is actually being built at the moment). So, there is more than enough of this ANNUAL co-product to cope with ALL UK building being built each year. Also the production of straw, or should I say of wheat/Barley etc, is actually what is left in the field after the crop of wheat/barley have been harvested. We are not replacing a food crop for a non-food crop. As the straw grows it also sequesters CO2 from the atmosphere. It retains the Carbon atom, through photosynthesis, and releases two oxygen atoms back into the atmosphere. A 1m3 of straw has 211kg of CO2 sequestered. We offer a ‘Carbon negative’ building system. A 3 x 3.2 m2 panel has 1400kg of CO2 sequestered in it.
I’m pretty sure that we offer one of the most sustainable building solutions in the world.
Your product is new, innovative, methinks. How has UK regulations affected your business?
Finlay White: The UK building regulations and European low carbon goals have influenced us greatly. The need to meet these regulations has helped us gain greater market acceptance. This is as a result of achieving the required certification of our panels to meet these codes. We have a daily task of overcoming peoples preconceived ideas about using straw in buildings i.e. “fire’, ‘decay' and ‘vermin’. The certification we have for our panels allows us to illustrate that the preconceptions are incorrect.
Do you cover markets outside the UK?
Finlay White: Not at this moment but we are looking to expand to other countries through licensing of our system or joint ventures. We are happy to speak to business[es] about this opportunity.
This innovative offsite-manufactured straw panels can be easily supplied, installed and buildings created with specifications that meet building regulations. As a business or homeowner, you can visit the ModCell website and ask for a quote.Saturday, April 18, 2015
Nigerian economy to heave sighs of relief as oil rises beyond $60 dollars
Barbie Doll maker, Mattel Inc., gets innovative as shares rise despite overseas market loss
We are already benefitting from better decision-making, alignment and enhanced accountability. And we’ve begun to refocus our culture on creativity, innovation and improving our speed to market. While we still have a lot of work to do, we’re starting to see progress with our core brands like Barbie and Fisher-Price, and I am confident we are making the changes necessary to perform better in the future.Christopher Sinclair is replacement for the former CEO, Bryan Stockton, who was fired in January. Mattel has also been in talks with Quirky, a company that turns ideas to business based on crowd sourcing. While the Quirky partnership could help give Mattel a fresh take on toys and possibly yield a hit or two, these partnerships often account for only a small part of the large companies’ overall businesses.
Friday, April 17, 2015
Exploitation and violence under the Mediterranean Sea enroute to Italy?
Internet giant, Netflix, shares surge on 62 million subscriber base
Thursday, April 16, 2015
Nokia targeting wireless networking market share - To merge with Alcatel-Lucent
Wednesday, April 15, 2015
[Links] Reading: Financial oppression, preferential treatment of gold imports by the RBI
China's Financial Repression and Alibaba's Banking Arbitrage
Chinese financial repression is stark. It’s citizens save about 50% of GDP as a buoy against health and retirement uncertainties in a country where social security nets doesn’t exist. To harness these huge deposits from its people, the four big banks practice financial repression. They take deposits at ridiculously low rates and lend them to the government.
Furthermore, in order to avoid having overly curious customers, they restrict investment options making them few and privileged. It is really a welcome sign that internet companies like Tencent and Alibaba are opening online banks. They intend capturing the undiscovered huge Chinese deposits, then investing them in higher yielding money market funds. Whether the Chinese government will allow this practice to last long can only be imagined.The FM’s gold schemes will not control gold imports. This simple measure will
Gold imports made a significant 3% contribution to India’s 4.7% current account deficit (CAD) for financial year, FY, 2013. Troublesome at best, the current Finance Minister, has initiated two measures to stem these imports.
- Gold monetization scheme.
- Creating a Sovereign Gold Fund, whose assets would be more attractive than gold deposits in financial institutions.
Practical steps to PIN security when ATM skimming threatens
The practice is not new but it keeps on evolving as security agents keep getting to tabs with the crime. Some of the ways ATM skimmers operate are:
- Using a surveillance camera. This is the usual practice because the cameras are cheap and easy to install. Without knowing it, while cashing, the cameras are filming your transaction and storing it in a memory or sending it through radio link to a car parked nearby.
- Pin Pad Overlays. These are pads that resemble the ATM keyboard itself. They can be placed on top of the keys. While inserting your PIN details, the microchip on it will be recording your transaction. It’s the most efficient form of ATM skimming but the pads are very expensive.
- Using audio recorders. This is rarely common but if there is an audiophile who can distinguish the different sounds of each key, then this mode of ATM skimming is practically a walk to the bank.
Bank security officers are no foolproof against determined skimmers, but better something than no assurance.
There are several ways you can protect yourself. These measures are purely preventive in nature. Remember, when you signed the agreement with your banker for an ATM card, you indemnified him against any loss of your money in case someone gets hold of your PIN. Some precautions you can take against PIN theft is:
- When making an ATM transaction, cover your hands with one hand. A camera may be nearby. Some persons have found this inconvenient but it is the safest measure if there is a camera recording your every keystrokes. It is doubly discomforting if someone is behind you who wants to use the ATM such that you have to be covering your keystrokes and shielding your actions from that persons view. This is a fact of life.
- Don’t use ATMs that are placed in dark corners or where people do not usually frequent. If not skimmed, you could literally be robbed.
- If you think a machine has been tampered with, report to bank officials. Don’t even use it at all.
- Advise your banker to use an ATM machine with anti-skim features. They are now available.
- Some banks employ low paid workers and security men to patrol the grounds for signs of suspicious characters. A determined ATM skimmer though can evade the system.
- As in life and everything else, change is inevitable. Try to change your PIN on a regular basis.
Tuesday, April 14, 2015
[Photos] The impact of water on human living
Access to a secure, safe and sufficient source of fresh water is a fundamental requirement for the survival, well-being and socioeconomic development of all humanity. Yet, we continue to act as if fresh water were a perpetually abundant resource. It is not.Recent events are putting those statements into light. The impact of water on our lives cannot be categorized fully. At least, we can start somewhere. The 12 photos below are beginning paces.
Friday, April 10, 2015
US-China Relationship: Crafting future of global war or peaceful prosperity? Time will tell!
Thursday, April 9, 2015
Shares of renewable energy companies are still steady one year after oil price plunge
Green Plains Inc. (NASDAQ:GPRE)
JA Solar Holdings. (NASDAQ:JASO)
Ballard Power Systems. (NASDAQ:BLDP)
Green Plains Renewable Energy produces Ethanol fuel. It ships about 1 billion gallons of ethanol per year.
This is the world's largest solar cell producer. The company is based in the People's Republic of China. JA Solar employs more than 1, 400 people around the world.
Ballard Power Systems, Inc. is a global leader in PEM (proton exchange membrane) fuel cell technology. Ballard has designed and shipped close to 150 MW of hydrogen fuel cell technology to date.
Wednesday, April 8, 2015
Bill Gates: Using military and world medicine to fight germs and epidemics like Ebola
Strong health systems in poor countries.
The world should be able to be alerted and react quickly to outbreaks that occur in these outlying areas of the world.
A medical reserve corp.
These should be medical experts, kept in readiness, and on short notice for an outbreak of the likelihood or greater than Ebola.
Use of military logistics for medical purposes.
There will be a need to pair these medical reserve corps with the logistics, speed and security the military already possesses.
Germ games simulations.
Germs are winning the battle against humans. A good working germ games simulation facility will up the ante in favor of mankind.
Advanced R&D.
In the areas of vaccines and diagnostics, advanced research and development efforts will have to be funded for the benefit of the world.
Eurozone confidence rising as deflationary fears eases
- Rebound in energy production in France might increase its GDP by 0.4%.
- Forecasted rise in European quarter-over-quarter GDP growth for Q1 and Q2.
- Investor confidence, as measured by the Sentix Investor Confidence Index is on the rise.
- Eurozone composite Purchasing Managers' Index, also an indicator of manufacturing confidence, is on the rise.
Tuesday, April 7, 2015
Samsung S6 Edge bend test latest - SquareTrade report misleading in normal conditions
I downloaded the SquareTrade video. SquareTrade reports that the S6 bends at the 110lbf (50kgf) mark.
Samsung in another video is stating that the video might be misleading for two reasons:
- It takes about 80lbf to break five 2B pencils at once.
- 8olbf was applied to the S6, both front and back. Galaxy S6 and Galaxy S6 edge did not show any sign of a bend.
- 80lbf is considered an extreme condition. More than most devices will ever encounter in normal everyday use.