Educational articles

Strategies to stimulate the economy

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When growth and inflation are at low levels, central banks and governments can use various methods to stimulate the economy to increase inflation, increase spending, and increase employment. Here are some of the strategies that can be undertaken to achieve economy growth. Lowering Interest Rates When the central bank lowers the interest rate, it wants to change the behaviour of borrowers and lenders by making loans cheaper for individuals and businesses. The Reserve Banks of Australia (RBA) has the goal …

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What to do when you own an insolvent company

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Unfortunately, sometimes companies on the Australian stock exchange become insolvent and investors risk their capital in that company. However, this is not a usual occurrence but may have negative implications to the investor. What does insolvent mean? A situation of insolvency in a company occurs when the organisation cannot pay off its debt obligations and bills. This mean the firm’s liabilities exceed the assets that the company currently owns. It is a criminal offence for a company to trade insolvent …

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How low interest rates affects the different sectors

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Australia’s official cash rate is now the lowest in history. In this article we discuss how low interest rates affect each sector of the Australian Stock Exchange. Consumer discretionary Low interests are a negative sign for consumer discretionary as it means that the growth of the economy is slow. Consumers become selective about what they purchase and will deter spending on non-essential items. Consumer discretionary stocks suffer in low interest rate environments as individuals do not want to spend money …

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A beginner’s guide to small caps

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1.Size A small cap is classified as a company with a market capitalization between $300 million and $2 billion. 2.Risk Small caps are riskier than larger cap stocks as they are smaller companies and may still be in the growth stage.  Larger caps generally have a more mature business and have more resources to weather any economic downturns. As large cap stocks have been operating for a while, they have established clients and are more stable companies. 3.Returns As large …

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The 6 dangers of low interest rates

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We have had low interest rates in Australia for a few years now and the RBA has just announced another cut of 0.25%. This makes the official cash rate the lowest in history at 1.25%. Rates are lowered when regulators see a need for the economy to be stimulated. Lower interest rates are good for the share markets as companies can expand by cheaper borrowing. However, it can also lead to some negative repercussions. These are the 6 dangers of …

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