Wednesday, August 27, 2014

Basics of Fundamental Analysis



Basics of Fundamental Analysis
Depending on the principles underlying the market research, it can be either technical or fundamental. The concept of technical analysis is based on the statement that the relationship between the demand and supply represented in the price chart is complied with rules of mathematics. According to the fundamental analysis, the market is changing under political, economic and financial factors. Taking that into an account, fundamental analysis evaluates information of economic, financial and political nature, which directly or indirectly influences the market price development; in particular, the principal economic indicators of the leading world economies which can have an impact on the rates of main currencies. GNP is in direct proportion to exchange rate: high GNP level indicates good economic condition and inflow of foreign investments, which in their turn raise demand for national currency. Prolonged GNP growth can cause inflation to lower which the interest rate rise is used, as a result demand for currency is growing. Unemployment rate demonstrates ratio between able-bodied and unemployed population which ideally should not exceed the 6% scale. The rise in unemployment level negatively affects the currency rate - it falls down. Inflation has the similar effect on the currency rate and can be measured by price growth rate. Herewith the inflation and unemployment indicators are in inverse proportion. This analysis also includes events, important for the policies of different countries: elections, economic reforms, undertaking of international agreements, etc. The main financial factor which is considered by analysts is the key interest rate of central banks which determines the total profitability of investments into a country’s economy. Growth of this indicator generates favorable conditions for the national currency growth. Besides, the national currency rate is influenced by natural disasters, terrorist attacks, emergency and other force majeure situations. Fundamental analysis, considering the difficulty of evaluating numerous indicators in different countries, is carried out professionally by qualified specialists.

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