Page 93 - DMGT549_INTERNATIONAL_FINANCIAL_MANAGEMENT

International Financial Management

Notes The preponderance of food commodities makes the CRB Index less reliable in terms of
general inflation. Nevertheless, the index is a popular tool that has proved quite reliable
since the late 1980s.
(f) The “Journal of Commerce” Industrial Price Index (JoC): The “Journal of commerce”
industrial price index consists of the prices of 18 industrial materials and supplies processed
in the initial stages of manufacturing, building, and energy production. It is more sensitive
than other indexes, as it was designed to signal changes in inflation prior to the other price
indexes.

Merchandise Trade Balance

This is one of the most important economic indicators. Its value may trigger long-lasting changes
in monetary and foreign policies. The trade balance consists of the net difference between the
exports and imports of a certain economy. The data includes six categories:
1. Food;
2. Raw materials and industrial supplies;

3. Consumer goods;
4. Autos;
5. Capital goods;
6. Other merchandise.

Employment Indicators

The employment rate is an economic indicator with significance in multiple areas. The rate of
employment, naturally, measures the soundness of an economy. The unemployment rate is a
lagging economic indicator. It is an important feature to remember, especially in times of
economic recession. Whereas people focus on the health and recovery of the job sector,
employment is the last economic indicator to rebound. When economic contraction causes jobs
to be cut, it takes time to generate psychological confidence in economic recovery at the managerial
level before new positions are added. At individual levels, the improvement of the job outlook
may be clouded when new positions are added in small companies and thus not fully reflected
in the data. The employment reports are significant to the financial markets in general and to
foreign exchange in particular. In foreign exchange, the data is truly affective in periods of
economic transition – recovery and contraction. The reason for the indicators’ importance in
extreme economic situations lies in the picture they paint of the health of the economy and in the
degree of maturity of a business cycle. A decreasing unemployment figure signals a maturing
cycle, whereas the opposite is true for an increasing unemployment indicator.

Employment Cost Index (ECI)

Employment cost index measures wages and inflation and provides the most comprehensive
analysis of worker compensation, including wages, salaries, and fringe benefits. The ECI is one
of the Fed’s favorite quarterly economic statistics.

Consumer Spending Indicators

Retail sales is a significant consumer spending indicator for foreign exchange traders, as it
shows the strength of consumer demand as well as consumer confidence component in the
calculation of other economic indicators, such as GNP and GDP.

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