1) What is Current Account Deficit?

Occurs when a country's total imports of goods, services and transfers are greater than the
country's total export of goods, services and transfers. This situation makes a country a net
debtor to the rest of the world.
A substantial current account deficit is not necessarily a bad thing for certain countries.
Developing counties may run a current account deficit in the short term to increase local
productivity and exports in the future.

2) What is carry trade?

The term carry trade without further modification refers to currency carry trade: investors
borrow low-yielding and lend high-yielding currencies. It tends to correlate with global
financial and exchange rate stability, and retract in use during global liquidity shortages.[2]

The risk in carry trading is that foreign exchange rates may change to the effect that the
investor would have to pay back more expensive currency with less valuable currency.[3] In
theory, according to uncovered interest rate parity, carry trades should not yield a predictable
profit because the difference in interest rates between two countries should equal the rate at
which investors expect the low-interest-rate currency to rise against the high-interest-rate one.
However, carry trades weaken the target currency, because investors sell the borrowed sum
and convert it to other currencies.

By early year 2007, it was estimated that some US$1 trillion may be staked on the yen carry
trade.[4] Since the late-1980's, the Bank of Japan has set Japanese interest rates at very low
levels making it profitable to borrow Japanese yen to fund activities in other currencies. Many
of these activities included matters like subprime lending in the USA, yet also include funding
of emerging markets, especially BRIC countries and resource rich countries.

3) What is the reason for global turmoil in financial markets since 2007?

4) What is the difference between futures and forwards?

Fundamentally, forward and futures contracts have the same function: both types
of contracts allow people to buy or sell a specific type of asset at a specific time at a given
price.
However, it is in the specific details that these contracts differ. First of all, futures
contracts are exchange-traded and, therefore, are standardized contracts. Forward
contracts, on the other hand, are private agreements between two parties and are not
as rigid in their stated terms and conditions. Because forward contracts are private
agreements, there is always a chance that a party may default on its side of the agreement.
Futures contracts have clearing houses that guarantee the transactions, which drastically
lowers the probability of default to almost never.
Secondly, the specific details concerning settlement and delivery are quite distinct.
For forward contracts, settlement of the contract occurs at the end of the contract. Futures
contracts are marked-to-market daily, which means that daily changes are settled day by
day until the end of the contract. Furthermore, settlement for futures contracts can occur
over a range of dates. Forward contracts, on the other hand, only possess one settlement
date.
Lastly, because futures contracts are quite frequently employed by speculators, who bet
on the direction in which an asset's price will move, they are usually closed out prior to
maturity and delivery usually never happens. On the other hand, forward contracts
are mostly used by hedgers that want to eliminate the volatility of an asset's price,
and delivery of the asset or cash settlement will usually take place.

5) What is recession? What should be the central bank policy?

A significant decline in activity spread across the economy, lasting longer than a few
months. It is visible in industrial production, employment, real income and wholesale-
retail trade. The technical indicator of a recession is two consecutive quarters of negative
economic growth as measured by a country's gross domestic product (GDP). Recession is
a normal (albeit unpleasant) part of the business cycle. A recession generally lasts from six
to 18 months.
Interest rates usually fall in recessionary times to stimulate the economy by offering cheap
rates at which to borrow money.
If the interest rates are mainly used to fine tune the business cycle, then they will fall in
recessions, slightly but steadily rise with recovery and, finally, will be increased at the
end of the growth period to brake possible inflationary dynamics.
6) What does a straight fall in unemployment rate show?
7) What is stagflation and deflation?
Stagflation:
A condition of slow economic growth and relatively high unemployment - a time of
stagnation - accompanied by a rise in prices, or inflation. Stagflation occurs when the
economy isn't growing but prices are, which is not a good situation for a country to be in.
This happened to a great extent during the 1970s, when world oil prices rose dramatically,
fueling sharp inflation in developed countries. For these countries, including the U.S.,
stagnation increased the inflationary effects.
Deflation:
A general decline in prices, often caused by a reduction in the supply of money or
credit. Deflation can be caused also by a decrease in government, personal or investment
spending. The opposite of inflation, deflation has the side effect of increased
unemployment since there is a lower level of demand in the economy, which can lead to
an economic depression.

8) Define inflation? What is core inflation?

The rate at which the general level of prices for goods and services is rising, and,
subsequently, purchasing power is falling. As inflation rises, every dollar will buy a
smaller percentage of a good. For example, if the inflation rate is 2%, then a $1 pack of
gum will cost $1.02 in a year.

Most countries' central banks will try to sustain an inflation rate of 2-3%.

Core inflation: A measure of inflation that excludes certain items which face volatile price
movements. Core inflation eliminates products that can have temporary price shocks
because these shocks can diverge from the overall trend of inflation and give a
false measure of inflation.

Core Inflation is thought to be an indicator of underlying long-term inflation. Core

inflation is most often calculated by taking the Consumer Price Index and excluding
certain items from the index, usually energy and food products. Other methods of
 calculations include the outlier’s method, which removes the products that have had the
largest price changes.

9) What is the difference between technical analysis and fundamental

analysis?
These terms refer to two different stock-picking methodologies used for researching and
forecasting the future growth trends of stocks. Like any investment strategy or philosophy,
both have their advocates and adversaries. Here are the defining principles of each of these
methods of stock analysis:

• Fundamental analysis is a method of evaluating securities by attempting to measure

the intrinsic value of a stock. Fundamental analysts study everything from the overall
economy and industry conditions to the financial condition and management of
companies.
• Technical analysis is the evaluation of securities by means of studying statistics
generated by market activity, such as past prices and volume. Technical analysts do
not attempt to measure a security's intrinsic value but instead use stock charts to
identify patterns and trends that may suggest what a stock will do in the future.

In the world of stock analysis, fundamental and technical analysis are on completely
opposite sides of the spectrum. Earnings, expenses, assets and liabilities are all important
characteristics to fundamental analysts, whereas technical analysts could not care less
about these numbers. Which strategy works best is always debated, and many volumes of
textbooks have been written on both of these methods. So, do some reading and decide for
yourself which strategy works best with your investment philosophy.