National Debt

National Debt

National debt is the total amount owed by central government which has accumulated over time. It is the total amount of borrowing accumulated by the government that is still outstanding. It is the total amount that the government owes to individuals and institutions.

K percent rule

According to K percent rule the money supply should be increased at a constant percentage rate year in and year out, irrespective of cyclical changes in national income.

According to Milton Friedman "The stock of money [should be] increased at a fixed rate year-in and year-out without any variation in the rate of increase to meet cyclical needs." (Friedman 1960) Giving governments any flexibility in setting money growth will lead to inflation according to Friedman. The main policy to be avoided is countercyclical monetary policy, the standard Keynesian policy recommendation at the time. For this reason, the central bank should be forced to expand the money supply at a constant rate, equivalent to the rate of growth of real GDP.

Derivative instruments

A derivative is a financial instrument whose value depends on underlying variables. The most common derivatives are futures, options, and swaps but may also include other tradable assets such as a stock or commodity. A derivative is essentially a contract whose payoff depends on the behavior of a benchmark.

Derivatives are broadly categorized by the relationship between the underlying asset and the derivative (e.g., forward, option, swap); the type of underlying asset (e.g., equity derivatives, foreign exchange derivatives, interest rate derivatives, commodity derivatives or credit derivatives); the market in which they trade (e.g., exchange-traded or over-the-counter); and their pay-off profile.

Derivatives can be used for speculating purposes ("bets") or to hedge ("insurance"). Very commonly, companies buy currency forwards in order to limit losses due to fluctuations in the exchange rate of two currencies.

Arms index

The Arms Index, also known as TRIN, an acronym for TRading INdex, was developed in 1967 by Richard Arms. It is a volume-based indicator, which determines market strength and breadth by analysing the relationship between advancing and declining issues and their respective volume; it is used to measure intra-day market supply and demand, and it can be applied over short or longer time periods.

The index is calculated using the following formula:

Arms index or TRIN= (number of advancing issues)/ (number of declining issues) (Total up volume)/ (total down volume).

An index value of 1.0 indicates that the ratio of up volume to down volume is equal to the ratio of advancing issues to the declining issues. The market is said to be in a neutral state when the index equals 1.0 since the up volume is evenly distributed over the advancing issues and the down volume is evenly distributed over the declining issues.

Market conversion price

Market conversion price is the price that an investor effectively pays for common stock by purchasing a convertible security and then exercising the conversion option. This price is equal to the market price of the convertible security divided by the conversion ratio.

Conversion ratio is the number of shares of common stock one receives by exercising the conversion option. In order for the exercise of the option to be worthwhile, the market conversion price must be lower than the market price of common stock. It is also called the conversion parity price and the conversion value.