An Introduction To LIBOR

What Is LIBOR?
LIBOR is equivalent to the federal funds rate, or the interest rate one bank charges another for a loan. The advent of LIBOR can be traced to 1984, when the British Bankers Association (BBA) sought to add proper trading terms to actively traded markets, such as foreign currency, forward rate agreements and interest rate swaps. LIBOR rates were first used in financial markets in 1986 after test runs were conducted in the previous two years. Today, LIBOR has reached such stature that the rate is published daily by the BBA at about 11:45am GMT.

LIBOR's reach is felt thousands of miles away from the Thames; it is used as the key point of reference for financial instruments, such as futures contracts, the U.S. dollar, interest rate swaps and variable rate mortgages. LIBOR takes on added significance in times of tight credit as foreign banks yearn for U.S. dollars. This scenario usually sends LIBOR for dollars soaring, which is generally a sign of imminent economic peril.

The Reach of LIBOR
 LIBOR is set by 16 international member banks and, by some estimates, places rates on a staggering $360 trillion of financial products across the globe. Included in those products are adjustable rate mortgages (ARMs). In periods of stable interest rates, LIBOR ARMs can be attractive options for homebuyers. These mortgages have no negative amortization and, in many cases, offer fair rates for prepayment. The typical ARM is indexed to the six-month LIBOR rate plus 2-3%.

LIBOR's reach doesn't end with the homeowner. The rate is also used to calculate rates for small business loans, student loans and credit cards. More often than not, LIBOR's heavy hand isn't felt directly by homeowners or others in need of a loan. When the U.S. interest rate environment is stable and the economy flourishes, all is usually well with LIBOR. Unfortunately, there is another side to that coin. During times of economic uncertainty, especially in developed countries, LIBOR rates show signs of excessive volatility, making it harder for banks to make and receive loans among each other. That problem is passed down to people seeking loans from the bank. If cash is scarce or at a premium for your local bank, the bank simply charges you, the borrower, a higher interest rate, or worse, doesn't loan you the money at all.

If Times Are Bad, Watch LIBOR
Another prominent trait of LIBOR is that it can dilute the effects of Fed rate cuts. Most investors think it's great when the Fed cuts rates, or at least they welcome the news. If LIBOR rates are high, the Fed cuts look a lot like taking a vacation to Hawaii and getting rain every day. High LIBOR rates restrict people from getting loans, making a lower Fed discount rate a nonevent for the average person. If you have a subprime mortgage, you need to watch LIBOR rates with a close eye as almost $1 trillion in subprime ARMs are indexed to LIBOR.

While LIBOR action in relation to the foreign exchange markets pertains more to currencies, such as the euro, the British pound, the Japanese yen, and others, its daily impact on the value of the dollars spent in the United States is negligible, though it is worth noting that LIBOR is very relevant to rates on the euro, or U.S. dollars held by foreign banks. The euro accounts for roughly 20% of total dollar reserves.

Bottom Line
LIBOR isn't sexy, and it's doubtful anyone is looking forward to the next release of LIBOR data with the same anticipation of seeing the next James Bond movie. That said, anyone with a credit card or a desire to own a home needs to be of aware of LIBOR. LIBOR is the true British monarchy, at least for the global financial markets - and your personal bottom line.

Source: Investopedia

African Consumers 'Underestimated' By Western Firms

Western companies operating in Africa have long underestimated the continent's consumers, according to a top executive in one of the world's biggest consumer goods groups.

Frank Braeken, executive vice president of Unilever in Africa, said that for a long time multinationals have thought of the vast continent as a "monolithic" market, failing to address its diversity.

"The African consumer has been underestimated, underserved and underserviced," said Braeken. "What I mean is we have looked at it a little bit generically, like 'the Africans,' a little bit patronizing generically. Now we start to take the African consumer seriously."

Unilever, the maker of brands such as Lipton and Knorr, has been active in the continent for more than a century, with a presence in 15 countries and employing thousands of workers there.

Yet, despite its long history and deep presence, Braeken acknowledged that the company had been slow in engaging with the diverse types of consumers in the continent.

"I'm almost somewhat ashamed to admit that we are still very much in learning mode about what the differences are within Africa."

Braeken said that it was becoming increasingly clear that there were major differences between the different countries in the continent.

"What we now increasingly do is we think much more in terms of sub-clusters, where you have east Africa, where you have west Africa, where you have southern Africa," he said.

The human side of market research

"It is more about how you define the brand mix, how you bring it to the consumer, that we localize and that we make it relevant for the local consumer."

A recent survey by Nielsen has identified seven types of consumers that companies targeting African markets need to be aware of.

"Rather than just a continent, Africa must be viewed as 54 separate and distinct countries with a wide array of political, economic, geographical, cultural and social features," said Nielsen's "The Diverse People of Africa" report.

According to the research firm, there is no "single African consumer." Instead, Nielsen says its seven types of consumers can be grouped in three tiers based on monthly income and average spending.

In the first tier belong the "Trendy Aspirants" and "Progressive Affluents" (wealthy, urban, well-educated Africans with high income and consumer packaged goods spending (CPG)).

The second group is comprised of "Balanced Seniors" and "Struggling Traditionals" (middle aged, mid-income Africans with average CPG category spend), while the third one includes "Evolving Juniors," "Wannabe Bachelors" and "Female Conservatives" (this is the continent's biggest tier, consisting of consumers who spend much less than average on CPG categories -- see fact box).

Meanwhile, household spending in Africa is projected to increase from $860 billion in 2008 to $1.4 trillion in 2020, according to a report by McKinsey.

The growth in spending on consumer goods, telecoms and banking can turn Africa's consumers into an increasingly attractive business proposition, creating markets large enough to be appealing for multinational firms, said McKinsey.

Braeken said the emergence of a stronger middle class is only one part of the story. He argued that the focus should be on how companies can foster innovation and organizational capability to tap the collective spending power of both the high and low ends of the continent's consumer market.

"By having a product that is more affordable you reach down, so certainly you have more consumers in your catchment area," he said, noting that Unilever has doubled the number of stores it goes to physically in the last few years to over 400,000. "So certainly your products can be found in more places in Africa, so you expand your catchment area -- that to us is the real story of our growth in Africa at this moment."

Looking ahead, Braeken said he was very positive about the continent's future but warned that there were still many issues that needed to be addressed, citing infrastructure, good governance, corruption and fostering local talent.

"I'm very optimistic about Africa, but I say it always with a tinge of hesitation because one of the big risks is that we get carried away and therefore forget to talk about the real challenges that are still ahead of it," he said.

"We have to keep on talking about the real issues and then I am sure that Africa can continue that path that it's on now, and we will see not only Unilever but many other companies easily double in size from what they are today."

Source: CNN Marketplace Africa

China Cuts Interest Rates

China's central bank said Thursday it would cut interest rates, the second time in less than a month that the bank has acted to jumpstart a slowing economy.
The People's Bank of China brought its one-year lending rate down by 0.31 percentage point to 6%. The bank trimmed one-year benchmark deposit rates by 0.25 percentage point to 3%.
The rate cuts follow a slew of recent disappointing economic data, causing concern about a slowdown in growth. Economists are especially watchful, since China is now the world's second-largest economy behind the United States.
Readings earlier this week showed that China's manufacturing sector weakened in June. The Chinese government, in its survey of purchasing managers, noted that there was a sharp drop in new export orders as weakness in other parts of the world affected the Chinese economy.

In June, the central bank responded to economic concerns by cutting interest rates for the first time since 2008. The bank also tried to spur growth in May by cutting the amount of money banks are required to hold in reserves, freeing up those funds in order to boost investment.
While China's gross domestic product, the broadest measure of economic health, continued to grow at an 8.1% annual rate for the first quarter, the number was down sharply from the 8.9% growth at the end of last year.

Economists were surprised by the announcement, expecting the next benchmark rate cut no earlier than the end of July.
"There was widespread anticipation that the required reserve ratio would be cut again soon, but most were expecting the next benchmark rate cut to be delayed," said Mark Williams, chief Asia economist at Capital Economics. "This is a step beyond what was expected from policymakers."
Williams said that there are two explanations for why the decision came earlier than he initially thought. The first reason, he said, is that policymakers weren't happy with June data and decided to take swift action.
"Reports in the last couple of days have suggested that lending by the major banks was lower in June than in May, when economic recovery depends on a rebound in credit growth," he said.
The second reason is that the central bank wanted to keep pace with Europe's central bank, which cut its main lending rate to 0.75% on Thursday.
"Policymakers may have felt that cutting rates on the day that the ECB is widely expected to do the same would deliver a bigger impact, encouraging talk of a coordinated response to the slowdown in the global economy."
The announcement is seen as another step toward liberalizing the Chinese economy, something that Jay Bryson, global economist at Wells Fargo Securities, said the nation has been working toward for the last two years.
"In the U.S., the Fed isn't telling banks how much they can charge or pay for deposits ... in China, they're moving away from that," he said. "If China wants to have a world-class financial system, it needs to have a liberalized financial market, and this shows that they're moving in that direction."

Source: CNN

Top 10 Highest-Paying Jobs For 2011

If you're deciding how you'd like to break into the job market, or if you're looking to embark on your second (or third, or fourth) career, there are a lot of factors to consider. While your ideal career should primarily be something that interests you, you would do well to check out the pay, type of education required, number of jobs available and years of experience required for the position. With the help of online salary database and career site PayScale.com, we have compiled a list of 10 high-paying jobs that scored the best when considering all of these factors together. (Do you dream of ditching your long commute to work in the comfort of your home? These jobs could be for you!

Civil Engineer - $80,000If designing functional, necessary components such as roads, bridges, buildings or airports interests you, civil engineering might be right up your alley. You can specialize in a particular type of civil engineering, but almost all of them will require a bachelor's degree in engineering, and a license from the state. According to the Bureau of Labor Statistics (BLS), to be licensed, you will have to complete at least four years of relevant work experience and pass an exam.
This career scored the highest for ease of employment – that is, how common the available jobs are, and how easy it is to get them once you have the required skills, education and experience. Experience is key for this profession; the salary of $80,000 is based on at least six years of relevant work in the field.

Nurse Anesthetist - $156,000These registered nurses specialize in administering anesthesia and monitoring patients who are recovering from anesthesia. They are independent practitioners, but may be supervised by anesthesiologists, surgeons or dentists, and, according to the BLS, they require a specialized graduate education above and beyond their registered nursing degrees.
Although it will take a few extra years to get the advanced degree this career requires, the salary given is based on only two years of experience, making this career quick to pay off.

Physician Assistant - $92,000Physician's assistants, or PAs, practice medicine under the supervision of a doctor or surgeon. They work as part of a healthcare team and, unlike medical assistants, are able to examine and treat patients, and make diagnoses.
Physician's assistants must complete a college degree, and often have some health-related work experience before entering a post-graduate program that takes about two years to complete, versus the standard four year medical degree. They must also pass a national exam to be licensed practitioners. The salary quoted is based on four years of experience.

Construction Estimator - $68,000If you are building something, it is crucial to know what it's going to cost you. Construction estimators do just what their title suggests - they create cost estimates for construction companies based on materials, labor, location and projected timelines. A bachelor's degree (in a related field such as construction management) and work experience will be required to step into this career. The salary estimated is based on five years of experience. (Find out how professional resume writers can help you land a coveted career.

Actuary - $133,000Do you love statistics? Actuaries do. They evaluate and quantify the likelihood of events, and apply that knowledge to help minimize losses to companies. For example, insurance companies employ actuaries to determine how likely it is that you will crash your car, and then assign a premium to you that reflects that likelihood. According to a study done by CareerCast.com in 2010, actuary was the number one job. The same study for 2011 puts this number-crunching career at number three on the list. The salary listed based on four years' experience.

Project Manager, Construction - $90,000While construction estimator may not have been exactly what you were looking for, if construction is still where your heart lies, consider being a project manager. According to the BLS, 61% of these hard-working individuals are self-employed.
Since it requires the most years of experience on this list at ten years, make sure working in this industry is what you want to do!

Management Consultant - $117,000Companies will hire a management consultant to improve their systems, efficiency and overall profits. To work as a management consultant, you will need a bachelor's degree or higher in a business or management program, and likely several years on the job. The salary here is based on five years of experience.

Account Manager, Sales - $83,000Basically, a sales account manager is in charge of a company's sales team. They manage accounts and oversee their team's goals. They usually require a bachelor's degree, although a proven sales record is arguably more important. The salary above is based on only a year's experience.
Overall employment for sales managers is expected to increase by 13% through 2018, according to the BLS.

Structural Engineer - $83,000
If being a civil engineer didn't sound quite right, consider taking that engineering degree a slightly different way. Structural engineering is often considered a specialized form of civil engineering, but there are programs that deal specifically with structural engineering. As with civil engineering, you will need to be licensed by your state to work. The salary quoted is based on four years of experience
 
Physical Therapist - $75,000If you have suffered an injury or are dealing with any number of medical conditions, you may have been referred to a physical therapist (PT). These individuals work to promote the health of those with injuries, arthritis, or diseases such as cerebral palsy in order to help manage symptoms and pain and improve the quality of life. You will need a master's degree to work in this profession, but the salary estimated is based on four years of experience – not too long of a wait.

 

The Bottom LineCareers fall in and out of favor, but the number one concern you should have when picking one is that you will enjoy the work. There's little sense in devoting the time and energy to learning a craft if you will hate it once you graduate! (The CFA Institute provides members with a variety of ongoing career and networking benefits.

Source: Investopedia