Economics & Finance 28th July2017 Ayesha Sayed

WHAT IS ECONOMICS We have unlimited wants but limited resources. Economics deals with deciding on the best possible options we have given the scarcity of what we want. Think of resources such as land, water, agricultural commodities, financial provisions, technology, time, etc. Ayesha Sayed

What is Finance? Finance is about: Identifying risk Measuring risk Reducing risk Risk = Uncertainty Ayesha Sayed

GROSS DOMESTIC PRODUCT GDP represents the wealth of a country How does the meteorite impact affect the South African economy and our welfare? Ayesha Sayed

GDP=C+I+G+NX CONSUMPTION (C) + Final goods and services (output) used to consume. Not for use to produce another output An increase in C will increase GDP How does the meteorite affect our consumption of maize and other commodities affected by the meteor impact. Ayesha Sayed

GDP=C+I+G+NX INVESTMENT (I) + This refers to new capital goods that are purchased Higher investments leads to higher GDP Foreign direct investment refers to investments made into SA by foreign individuals/countries/entities. How does the meterorite impact affect investment especially in the manufacturing industry? Ayesha Sayed

GDP=C+I+G+NX GOVERNMENT SPENDING (G)+ The government’s spending on the economy such as: infrastructure, education, housing, water and sanitation, etc. Increasing government spending increases GDP How does a government pay for these services? How will the meteor impact affect government spending and How will the government pay for it? Increase tax? Borrow more? Ignore the debt?! Ayesha Sayed

GDP=C+I+G+NX NET EXPORTS (NX)=Exports-Imports (E>I +) Exports are goods produced in South Africa and purchased by a foreign country, it increase GDP SA is a net exporter of mostly primary goods from the agricultural, forestry and fishery sectors. Imports are foreign goods being purchased by South African citizens, it decreases GDP. So NX can be negative or positive. The exchange rate affects trade: a weaker Rand stimulates exports but it also can cause higher inflation which increases the cost of living. Ayesha Sayed

What is a derivative? Any security whose value is determined by, or derived from, the value of another asset. Ayesha Sayed

How does a futures contract work? Ayesha Sayed

WHAT IS “INFORMATION ASSYMETRY”? deals with the study of decisions in transactions where one party has more or better information than the other. This creates an imbalance of power in transactions, which can sometimes cause the transactions to go awry, a kind of market failure in the worst case. Information is POWER Ayesha Sayed

Who are the different STAKEHOLDERS that will be impacted by the meteor strike? Ayesha Sayed

Maize is undoubtedly South Africa’s most important field crop and the staple food of the population. About 61% of maize produced in South Africa is white which is primarily used for human consumption, while the remaining 39% is yellow and is predominantly used for animal feed production. Ayesha Sayed

Ayesha Sayed

Ayesha Sayed

How will a meteor impact affect food security and how can you use derivatives to “reduce” the risks to food supply and food security? Ayesha Sayed

Links What are derivatives? https://www.youtube.com/watch?v=FLGRPYAtReo How Grain Futures Contracts Revolutionized Finance: http://openmarkets.cmegroup.com/11931/grain-futures-contracts-revolutionized-finance Understanding the Grain Delivery Process: https://institute.cmegroup.com/courses/introduction-to-grains-and-oilseeds/modules/understanding-the-grain-delivery-process Infographic: The Facts Behind Food Prices: http://www.cmegroup.com/trading/agricultural/the-facts-behind-food-prices.html Infographic: What is Hedging: https://visual.ly/community/infographic/business/what-hedging Annual Report 2016. Department of Agriculture, Forestry & Fisheries: http://www.daff.gov.za/daffweb3/Portals/0/Annual%20Report/Annual%20Report%202015%20-%202016.pdf Ayesha Sayed