Category: Level II Economics

In Level II economics we’re given the formula for the mark-to-market value of a currency forward contract.  Similarly, in Level II derivatives we’re given the formula for the value of a currency forward contract.  These two formulae look rather different from each other. In fact, they are identical (after accounting for the difference between nominal…

There are four articles on economic growth theories: Synopsis Classical growth theory Neoclassical growth theory Endogenous growth theory (you are here) Endogenous Growth Unlike the exogenous growth theories (classical growth and neoclassical growth), endogenous growth theory views technological advancement as a result of investment in physical capital and human capital (as opposed to an external…

There are four articles on economic growth theories: Synopsis Classical growth theory Neoclassical growth theory (you are here) Endogenous growth theory Neoclassical Growth Neoclassical growth theory is more complicated than classical growth theory, but it’s not too bad. (OK, maybe it is; I’m just trying to encourage you to keep reading.)  It does require a…

There are four articles on economic growth theories: Synopsis Classical growth theory (you are here) Neoclassical growth theory Endogenous growth theory Classical Growth Theory Classical growth theory is pretty easy (and a bit depressing); the basic idea, in a nutshell, is that when wages rise above the subsistence level (the minimum amount people need to…

There are a number of theories that attempt to explain the growth of an economy; they fit broadly into two categories: Exogenous: economic growth is caused by factors that are external to the economy itself (the prefix exo- meaning outside) Endogenous: economic growth is caused by factors that are internal to the economy itself (the…

Triangular arbitrage is nothing more than determining whether an arbitrage opportunity exists amongst three currencies with three exchange rates; the complicating factor is that the exchange rates each have a bid rate and an ask rate.  (Note: the arbitrage could, in fact, involve more than three currencies.  As the principles are the same, only three…