How Can Economics Tuition Help In Investment?

Individuals take economics tuition for various reasons. Some individuals take it to get a good grade in the examination and some individuals take it to help them in investment. The question is, how can economics tuition help in investment?

How Can Economics Tuition Help In Investment In The Stock Market?

The share price of a company depends on the profitability to a large extent and this will be taught in economics tuition. When the profit of a company rises, it can distribute more dividends to its shareholders. In the event that the company does not pay out more dividends, the net book value will rise. Therefore, the demand for the shares will rise which will lead to a rise in the price. Individuals who are holding a large proportion of their wealth in the shares of the company will experience a substantial rise in their wealth. Therefore, if an individual predicts a rise in the profitability of a company, they can accumulate the shares which will lead to an increase in their wealth should the profitability of the company rises. The share price of a company does not only depend on the profitability of the company, but it also depends on the performance of the economy. In a good economic environment, sentiment tends to increase and therefore individuals are likely to hold a larger proportion of their wealth in stocks. In economics tuition, one can learn the economic indicators which can be used to gauge the performance of the economy. This is particularly true if the economics tutor does not only have a university qualification in economics, but also has working experience in the field.

How Can Economics Tuition Help In Investment In The Forex Market?

Forex market trading has increased substantially over the last few decades. According to some statistics, trading in the forex market has exceeded five trillion dollars a day, which is a substantial amount of money. However, not everyone who trades in the forex market is able to make a profit. Those who are able to make a profit generally have more knowledge about the forex market. In this regard, economics tuition can help an individual make profitable trades in the forex market. For example, the exchange rate generally varies directly with interest rates. A rise in interest rates will lead to an increase in hot money inflows resulting in an increase in the demand for domestic currency. In addition, hot money outflows will fall which will lead to a decrease in the supply of domestic currency. When this happens, the exchange rate will rise. The converse is also true. The question is, how can this piece of knowledge, which can be learned in tuition from a good economics tutor, help make profitable trades in the forex market? Take the United States for example. The Federal Fund Rate has been kept near zero by the Federal Reserve for nearly 7 years since December 2008. In recent months, the US economy has been showing signs of recovery and this means that the time has come for the Federal Reserve to tighten monetary policy to raise interest rates. An individual in Singapore can convert some of their liquid assets such as cash from the Singapore dollar to the US dollar before the rate hike. When the rate hike occurs, the US dollar will appreciate. The individual can then convert their cash from the US dollar back into the Singapore dollar. In doing so, they will have more liquid assets in Singapore dollars.

How Can Economics Tuition Help In Investment In The Bond Market?

Bonds are considered a close substitute for bank savings as they are a safe investment compared to stocks. This is especially true for government bonds issued by governments with a healthy fiscal position, such as the Singapore government. However, without some knowledge about the bond market, individuals who invest in bonds may suffer capital losses. In an adverse environment, the capital losses may be greater than the coupons earned on the bonds resulting in negative returns. Tuition, under the tutelage of a good and experienced economics tutor, is useful for learning knowledge about investment in the bond market. Bond prices vary inversely with interest rates. For example, a rise in interest rates will induce people to convert some of their wealth from bond holdings to bank savings. When this happens, the supply of bonds will rise which will lead to a fall in the prices. Individuals who are holding a large proportion of their wealth in bonds will suffer substantial capital losses. Therefore, if an individual predicts a rise in interest rates in the near term, they should reduce their bond holdings to minimise capital losses. In contrast, if they predict lower interest rates and therefore a rise in bond prices, they may increase their bond holdings to increase their wealth should interest rates fall. Economics tuition can help individuals understand the inverse relationship between interest rates and bond prices and therefore avoid or reduce capital losses from bond investment.

The above examples are only some of the ways in which economics tuition can help in investment.

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Principal Economics Tutor: Mr. Edmund Quek