Раздел IV. Компрессия текста

A

Over the past 15 years, the Swiss franc has increased in value substantially against both the US dollar and the euro. In recent years, factors such as the European debt crisis and accommodative monetary policy from the US Federal Reserve have boosted the franc.

B

Currencies trade in pairs, so they are strong or weak in relation to another currency. The European debt crisis caused investors to seek safe haven in the Swiss franc and loose monetary policy diminished the appeal of the US dollar.

C

The dramatic surge in the Swiss franc in 2015 was due primarily to one key event early in the year. On January 15, the Swiss National Bank (SNB) unexpectedly removed the peg of 1.20 francs per euro. In the initial reaction to the news, the Swiss franc rallied a massive 30% versus the euro and 25% against the US dollar. The move caused major upheaval in the markets and even forced some foreign exchange brokers out of business.

D

The SNB peg was initially set in 2011 after the eurozone crisis caused investors to flock to the Swiss franc in search of a safe haven. The franc is widely viewed as a financial refuge due to the stability of the Swiss government and financial system. The buying interest at the time caused the franc to soar and in turn hurt the Swiss economy by making exports less competitive.

E

However, several important factors had changed in the economic landscape since 2011 that likely contributed to the change in SNB policy. Economic strength in the US and expectations that the Federal Reserve may be ready to hike interest rates in 2015 caused the euro and the Swiss franc to weaken substantially against the US dollar. The expectations of quantitative easing (QE) from the European Central Bank (ECB), which did in fact come to pass, also played an important role.

F

The QE program from the ECB was expected to weaken the value of the euro, which may have required the SNB to print even more francs to maintain the cap. In order to keep EUR/CHF from falling below 1.20, the SNB created francs and used them to buy euros. The continued printing of francs led to some concern over hyperinflation among the Swiss populace and added pressure on the SNB to take action to remove the peg.

G

Looking at the EUR/CHF daily chart we can see that after the sharp fall on January 15th, the franc recovered about 50% before finding major resistance at that level.

H

Despite removing the three-year old peg in January, the Swiss National Bank has stated that it is prepared to intervene again in the foreign exchange market if necessary, citing concerns that the currency is still significantly overvalued. Nonetheless, the Swiss franc remains a safe haven for many investors.

boost (v) – para A

accomodative (adj) – para A

loose (adj) – para B

seek (v) – para B

haven (n) – para B

surge (n) – para C

peg (n) – para C

rally (n) – para C

upheaval (n) – para C

flock (v) – para D

soar (v) – para D

quantitative easing (QE) (phs) – para E

cap (n) – para F

populace (n) – para F

A

An embargo is a complete or partial block of trade and business activities between two nations, usually imposed by one nation against the other as a diplomatic tool. The basic idea is to create hardship for the defiant nation, forcing it to fall in line. But while policymakers use embargoes as a bargaining tool, businesses and their investors on both sides of the border are the ones who absorb the losses, which can run into millions or billions of dollars.

B

In extreme cases, governments will use embargoes to effect complete economic isolation on another nations. Today, that is called a blockade and is tantamount to declaring war on another country. In modern times, embargoes are never complete—at the very minimum, humanitarian aid in the form of food and medical supplies will still cross borders. Nations usually use targeted embargoes that affect only specific industries or activities. They are sometimes called sanctions instead of embargoes.

C

In extreme cases, governments will use embargoes to effect complete economic isolation on another nations. Today, that is called a blockade and is tantamount to declaring war on another country. In modern times, embargoes are never complete—at the very minimum, humanitarian aid in the form of food and medical supplies will still cross borders. Nations usually use targeted embargoes that affect only specific industries or activities. They are sometimes called sanctions instead of embargoes.

D

The restrictions most relevant for businesses are financial and trade sanctions in the form of asset freezes, prohibitions on joint ventures, financial assistance, import and export bans, and more. The impact of these restrictions on international businesses depends on the region, the participation of international community in imposing such restrictions, the length of restrictions, and previous trade history.

E

When nations have been engaging in economic collaboration in the recent past, businesses on both sides tend to suffer more. For example, in July 2014, the European Union and the United States began imposing sanctions on Russia in its energy sector. The U.S. sanctions banned American companies from conducting commercial activities with oil and gas drillers in Russia. The EU sanctions targeted the energy sector slightly differently; it banned Rosneft, Gazpromneft and Transneft (Russian energy companies) from raising long-term debt on European capital markets. The EU also restricted services Russia needed to explore oil and gas in the Arctic and to conduct deep sea and shale extraction projects.

F

The U.S. sanctions came as a big jolt to the $723 million joint venture set for 2015 between Exxon Mobil Corporation (NYSE: XOM) and Russia’s Rosneft Oil Company (69.5 percent state-owned). Reportedly, Exxon may lose up to $1 billion as a result.

G

While the EU meant to take Russia to task with these sanctions, they directly punished EU corporations as well. In 2013, British Petroleum, BP Inc (NYSE ADR: BP) acquired a 19.75 percent stake in Rosneft Oil Company. The joint EU/U.S. sanctions against Russian resulted in drop in Rosneft’s share price and investment value—a drop which British Petroleum must also bear at 19.75 percent ownership. While the EU/U.S. sanctions were meant to send a strong message to Russia, the pain has been shared among U.S. and EU companies and their investors.

H

The effects of sanctions and embargoes also have a way of bleeding outside their set policy areas. Rolls-Royce Holdings Plc (LON: RR), for example, has also felt the effects of the energy sector sanction. The English luxury automaker announced that it anticipated a fall in its revenue as some Russian customers delayed or canceled orders.

I

As Isaac Newton proved in his third law of motion, exerting force on an object results in an equal and opposite force. Russia retaliated against the energy sanction by imposing a full, one-year embargo against agricultural, dairy, and poultry products from all the regions and nations cooperating in sanctions against it. These include the EU, the United States, Canada, Australia, and Norway. The United States exports $1.3 billion to Russia in agriculture, dairy, and poultry products.

J

The EU’s agricultural exports to Russia come in at a much higher $15.8 billion. The European Union is particularly worried about the effect of the Russian sanction on its precarious economic recovery and has also felt backfire from its own business community. The Chairman of the Association of European Business in Russia (AEB) once said, “Sanctions against Russia are de facto sanctions against European business.”

K

Embargoes and sanctions can continue for decades, adding up to billions in lost revenue for businesses. Around 35 years ago, Germany and United States were Iran’s largest trading partners. After the 1979 revolution, the United States and other nations imposed an embargo against Iran which changed the trading landscape for the long term. According to a report by the National Iranian American Council (NIAC), U.S. businesses lost the biggest chunk among nations enforcing sanctions against Iran. According to NIAC, “from 1995 to 2012, the US sacrificed between $134.7 and $175.3 billion in potential export revenue to Iran.”

L

Still embargoes can also be a great opportunity. By artificially ending trading relationships, they open a business need that other countries can jump into. Today, China and many other nations from Asia and Middle East are among Iran’s biggest trading partners. China has invested heavily in Iran’s oil and gas sector. In 2011, China and Iran signed agreements that give Chinese companies exclusive rights to some resource-rich regions in Iran.

M

Embargoes oppose the basic spirit of business, which is to expand and move into areas of opportunities according to profit. Trade restrictions cause strain on businesses of all participating countries in the form of lost opportunities, profits, relationships, and resources.

defiant (adj) – para A

bargain (n)- para A

reportedly (adv) – para F

take smb to task (phr) – para G

tantamount (adj) – para B

bear (v) – para G

target (n) – para C

revenue (n) – para H

asset (n) – para D

retaliate (v) – para I

joint venture (n) – para D

precarious (adj) – para J

ban (n) – para D

recovery (n) – para J

impose (v) – para D

backfire (n) – para J

collaboration (n) – para E

chunk (n) – para K

long-term (adj) – para E

strain (n) – para M

jolt (n) – para F

A

Microeconomics is the study of how individuals and businesses make choices on how to best use limited resources. The field interests investors as individual consumer spending accounts for about two-thirds of the U.S. economy. Microeconomics and macroeconomics (the study of the larger aggregate economy) together make up the two main branches of economics.

B

So how do the principles of microeconomics affect everyday life? Most people have a limited amount of time and money. They cannot buy or do everything they want, so they make calculated decisions on how to use limited resources to maximize personal satisfaction. Similarly, a business also has limited time and money. Businesses also make decisions that result in the best outcome for the business which may be to maximize profit.

C

Microeconomics uses certain principles to explain how individuals and business make decisions. One of the basic principles of microeconomics is that individuals make decisions to maximize their satisfaction. In microeconomics, this is called maximizing utility.

D

Another economic principle that comes into play as consumers make decisions is opportunity cost. When an individual makes a decision, he/she also calculates the cost of forgoing the next best alternative. For instance, if you use your frequent flier miles to take a trip to the Bahamas, you will no longer be able to redeem the miles for cash. The missed cash is an opportunity cost.

E

Diminishing marginal utility, another economic input, describes the general consumer experience that the more you consume of something, the lower the satisfaction you get. For instance, when you eat one burger you may feel very satisfied. But if you eat a second burger, you may feel a lesser amount of satisfaction than with the first burger.

F

Two other important economic principles are supply and demand. Market supply refers to the total amount of a certain good or service available on the market to consumers, while market demand refers to the total demand for the good or service. The interplay of supply and demand helps determine prices for a product or service, with higher demand and limited supply typically making for higher prices.

G

To help understand how microeconomics affects everyday life, let’s study the process of renting an apartment. In a city like New York, there is a limited supply of housing and high demand. Going by the principles of microeconomics, that’s why housing costs in New York are high.

H

To rent an apartment, first you must determine a budget. For this, you will have to take into account your income and how much money you are looking to spend on housing, in such a way as to maximize your utility, or satisfaction. If you allocate too much of your income to rent, you will not have a lot of money left for other expenses. Thus, you will have to decide what is the most amount of money you are willing to part with, what amenities you must have in your apartment, and acceptable neighborhoods. It’s about maximizing utility.

I

Based on all the above factors, you set a budget to get the most satisfaction for the least possible rent. You will not pay more than you have to in order to get what you want. Considering that in this supply-constrained market there are others also interested in renting the apartments that are more in demand, you might find that you will have to increase your budget. To do this, you will have to cut down on spending in another area, like entertainment, travel, or eating out. That is the opportunity cost of finding the right apartment.

J

Similarly, a landlord will seek to rent an apartment at the highest possible price possible, since his / her motivation generally is to get the best return by renting out the apartment. In setting the rent, he / she would have to take into account the demand for the apartment and the neighborhood. If there are enough potential renters interested in the apartment, he / she would set a higher rent. If he/she were to set the rent too high, compared to what other landlords in the neighborhood are charging for comparable apartments, he / she would find that renters are not interested. The business owner, in this case the landlord, also makes decisions based on supply and demand.

K

And while he / she would attract a larger pool of prospective renters by setting a rent that is lower than what other neighborhood landlords are charging for comparable apartments, he / she would be missing out on some rental income which will not maximize her utility. Thus, both you and the landlord will make decisions to get the best outcome for yourselves given the constraints you face.

L

In a capitalist economy, both consumers and business make thousands of big and small decisions each year guided by the principles of microeconomics. Consumers seek to maximize their satisfaction when they go out and shop for anything from paper towels to apartments, houses, and cars. Businesses set prices and make other decisions based on microeconomics. The prices that consumers will pay depends on the supply of a good, as well as how much others are willing to pay for.

account for (v) – para A

make up (v)- para A

maximizing utility (phr) – para C

opportunity cost (phr) – para D

forgo (v) – para D

redeem (v) – para D

flier miles (phr) – para D

diminishing marginal utility (phr) – para E

refer to (v) – para F

make for (v) – para F

take into account (v) – para H

allocate (v) – para H

part with (v) – para H

amenity (n) – para H

cut down on (v) – para I

eat out (v) – para I

similarly (adv) – para J

seek (v) – para J

charge (v) – para J

miss out (v) – para K

constraint (n) – para M

A

Investors are gaining confidence in the U.S. economy which has been faring well even amidst a global slowdown. Consequently, the U.S. dollar has been getting stronger relative to most major currencies in the world. In this article we will discuss the effect of a strong and rising U.S. dollar on emerging economies like Brazil, India, and China; in oil-exporting countries like Russian and Saudi Arabia, in the eurozone; and at home.

B

The U.S. dollar is the most important and trusted currency in the world. Most international trade is conducted in U.S. dollars, so its value has a significant and direct effect on the international trade of most, if not all, countries. Major commodities such as gold and petroleum are quoted in U.S. dollars in the international market. The U.S. dollar is also the foremost reserve currency in the world. It comprises the largest percentage of foreign reserves held by governments and private institutions across the world. In fact, the majority of U.S. bank notes are held outside the United States and by non-residents – such holdings are called eurodollar.

C

To track the reasons behind the current rising of the U.S. dollar, we must go back to 2009 when the U.S. Federal Reserve Bank (the Fed) began the largest program of quantitative easing in economic history. The Fed printed money to buy up bonds in an effort to stimulate the recession-deadened economy. It managed to add $3.5 trillion to its balance sheet. This resulted in an excess supply dollars in the international market.

D

The money the Fed pumped into the U.S. economy found its way into emerging markets (mostly), to the promise of better growth and higher interest from their fixed-income instruments. The dollar's value thus dropped relative to most currencies in the world. In October 2014, the Fed decided to end the quantitative easing program, shutting of the spigot of dollars. This, coupled with an expectation of a U.S. interest rate hike, has sent the dollar soaring against most currencies.

E

A strong U.S. dollar will first and foremost have an impact at home. U.S. consumers can rejoice as imported goods will become cheaper and oil prices will go down--most American will see greater discretionary income. A strong dollar also slows inflation which gives the Fed more leeway to continue with an expansive monetary policy (increasing the supply of money without worrying about inflation in the near term). This is likely to further spur economic growth.

F

However, a strong U.S. dollar is a double-edged sword. Just as foreign goods become cheaper at home, American-made goods will become more expensive for the rest of the world. That means some exports will no longer be competitive on the international market. Exports will likely see a dip (lower growth in economies across the world may also contribute to this). A dip in exports will affect U.S. companies who rely on revenue from international markets. Apple (APPL), Procter & Gamble (PG), and Johnson & Johnson (JNJ) are good examples – each depends on international markets for at least 40 percent of yearly revenues.

G

In Latin American, emerging economies like Chile, Brazil, and Venezuela will suffer under a strong U.S. dollar. These countries are commodity exporters. The international markets price commodities in U.S. dollars and a strong dollar will make commodities dearer for other countries. With less demand, the price of commodities will fall across the board. In Chile, the price of copper (which makes up 40 percent of the nation’s exports) has already declined by 10 percent. However, countries that are net importers of oil may be able to make up the difference by saving in oil. As a commodity, oil prices also decrease with a rising dollar.

H

In Asia, emerging markets India and China are net importers of both oil and commodities. As we saw above, economies that import commodities benefit from the cheaper commodity prices brought about by a strong dollar. India and China will also benefit by an increased demand for exported manufactured goods as the rising dollar increases how much U.S. consumers can afford to buy.

I

However, China is exposed to $1 trillion of non-bank borrowing (borrowing from non-bank financial institutions). These corporations are going to find it hard to repay the debt as the dollar gets strong because it will take more of the yuan to pay off the same debt. For example, a $1 trillion debt when the U.S. dollar and Chinese yuan exchange rate is 1 to 6 will cost $6 trillion yuan to pay off. However, if the U.S. dollar grows stronger (say 1 dollar to 6.2 yuan), the same debt will then require $6.2 trillion yuan to pay off. It is a grim scenario as China is also dealing with it's own economic slowdown due to a decreasing global demand for Chinese goods.

J

Russia and the major oil exporters in the Middle East including Saudi Arabia, Iraq, and Iran are all facing the heat of a strong dollar as it pushes oil prices down. The Organization of Petroleum Exporting Countries (OPEC) has not responded as it normally would by cutting supply. It is hoping that by glutting the market with oil and pushing prices down, it will capture a larger market share. The lower prices will make a huge dent in trade accounts of most oil exporting countries. The currency of these countries will also fall relative to the U.S. dollar. For example, the Russian ruble has already declined in value by over 35 percent relative to the dollar.

K

Lastly, countries in the eurozone will also be mostly negatively affected by a strong U.S. dollar. They are going to find it hard to raise prices even after the European Central Bank (ECB) launched a quantitative easing plan earlier this year (the central bank will purchase bonds worth 60 billion euros a month for a total of 720 billion euros in the hope of kickstarting the eurozone's stagnating and deflationary economy). However, a strong U.S. dollar will be good for tourism in Europe as more American, lured by a weak euro, will vacation in Europe.

L

The U.S. dollar exerts a great influence on the world economy. With the dollar set to rally through the next few years, many countries will be caught up in the wake. The effect of a strong dollar will differ for countries depending on each nation’s economic structure and policies .

gain confidence (phr) – para A

fare (v) – para A

consequently (adv) – para A

relative to (adj) – para A

emerge economies (phr) – para A

commodity (n) – para B

comprise (v) – para B

quantitative easing (phr) – para C

recession-deadened economy (phr) – para C

balance sheet (phr) – para C

pump (v) – para D

fixed-income (n) – para D

shut (v) – para D

spigot (n) – para D

hike (n) – para D

first and foremost (phr) – para E

discretionary income (phr) – para E

leeway (n) – para E

spur (n) – para E

double-edged sword (phr) – para F

dip (n) – para F

rely on (v) – para F

across the board (phr) – para G

bring about (v) – para H

borrow (v) – para I

repay (v) – para I

pay off (v) – para I

exchange rate (phr) – para I

grim(adj) – para I

slowdown(n) – para I

due to (prep) – para I

push down (v) – para J

respond (v) – para J

glut (v) – para J

capture (v) – para J

worth (adj) – para K

kickstart (v) – para K

stagnate (v) – para K

exert influence (phr) – para L

catch up (v) – para L