volume22.html

Bulls dance on interest rate cuts.  

Stock markets responded very positively to the Federal Reserve Bank’s bold action to cut the interest rates. The Federal Reserve Bank lowered two rates, the discount rate by half a percentage point (or 50 basis points) to 5.25% and the Federal Funds rate by half a percentage point (or 50 basis points) to 4.75%.

Investors were expecting a quarter percent (or 25 basis points) cut in the interest rate. Instead, the Federal Reserve Bank surprised them by a 50 basis point cut. This interest rate cut should help the economy and credit crisis that we have talked about in our previous newsletters. The S&P500 gained 42 points, the Dow gained 378 points and the NASDAQ was up by 77 points for the week ending September 21th, 2007.

What does interest rate cut mean to you? We will discuss it in the coming weeks.

What is the discount rate?

The discount rate is the interest rate the Federal Reserve Bank charges on loans it makes to banks. It is an important rate because it becomes the basis for most consumers borrowing rates for car loans, mortgage loans, student loans, business loans, etc. When the discount rate goes down, then the borrowing rate also goes down. In other words, since it has become less expensive to borrow money, it will help the credit crisis.

Now 5.25% 

What is the Federal funds rate?

The Federal funds rate, also known as the Fed funds rate, is the rate that banks charge each other on overnight loans made between them. These loans are generally made so that banks can cover their daily cash needs. So when the Fed funds rate goes down, banks like to keep less cash to themselves and they are willing to make more money available to people for car loans, mortgages, businesses, etc. Why is that? As banks are now getting lower interest on their cash from other banks, they will find it more profitable to give loans out to people for higher interest rates.  By making more money available for loans, banks help to reduce the liquidity crunch.

Now 4.75%

What is “Basis Point”?

Interest rates are expressed as a percentage per year (or the Latin equivalent per annum, or p.a.). Interest rate changes are often expressed in basis points. One percent equals one hundred basis points.  So a fifty-basis point cut in interest rate means a 0.5% reduction in interest rate.  You will read and hear about the basis points in most of the business, economy, and interest rate related news.

Google stock zooms to a new high!

Google stock reached a new high this week to $560 per share.  Yes, you read it right. Google’s stock was up over $33 per share this week to reach a new high of $560.  Experts are more confident that Google will continue to expand its internet search and advertisement users and businesses.  

Google was founded just 9 years ago by Sergey Brin and Larry Page, two young computer science doctoral students at Stanford University . The Google stock has increased by more than six times from its first public stock sale (also called initial public offering) price of $85 in August 2004.

Google competes with big companies like Yahoo and Microsoft for the search engine business.  In August, 2007 the company handled more than half (over 50%) of all search requests. Yahoo is a distant second at 20% followed by Microsoft at 13%.

In 2006, Google had sales of over $13 billion and employed over 10,000 people.  Google is known for its advertising and Internet search solutions worldwide.  Google also owns YouTube, the company that lets users find, upload, view, and share video content.  It is based in Mountain View, California.

$560 per share!

Learn more about…

What is Credit History?  Why is it important to have a good credit history? Volume 12.

What is the Currency and Foreign Currency Exchange rate? Volume 14.  What is a stronger or a weaker currency? Volume 20. 

What is the Economy, Business, Workers, Goods,  Services,  Stocks, the DOW, the S&P500, and the NASDAQ? Volume 16.

How does money grow in a bank? Volume 21.

Coming soon…How to read published stock information?