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What Is The Dotcom Bubble Of 2000? The "dotcom" bubble refers to the rapid rise and subsequent freefall in the price of internet stocks and the broader NASDAQ market that took place in the late 1990s. The collapse in 2000 prefigured the overall sharp drop in stock prices and the recession that followed, exacerbated by the terrorist attacks on 11th September 2001. NASDAQ, which to this day is heavily weighted…

During times of extreme pricing volatility or market panic, the term "circuit breaker" is frequently used by traders, brokers and the financial media. Amid extraordinary events such as viral outbreaks or terrorist attacks, these devices are designed to prevent full-blown market crashes. Circuit Breaker Defined In the physical world, a circuit breaker is a safety mechanism used to cut the flow of electricity through a closed path. When engaged, electrical…

What Is The CAPE Ratio? The cyclically-adjusted price-to-earnings (CAPE) ratio is a variation on the standard price-to-earnings (PE) ratio that seeks to determine if stocks are in a bubble. While the more common PE ratio measures a stock or stock index's valuation over the next year or so, the CAPE ratio is calculated by using an average of corporate earnings over the past 10 years, adjusted for inflation. By using…

What Is The Wall Of Worry? The "wall of worry" refers to a tendency in financial markets for stocks to rise in the face of seemingly difficult or insurmountable problems. It usually turns out, however, that these problems—though serious—are temporary and eventually resolved or able to be put off to the future. Generally, stocks are able to "climb the wall of worry" because many investors see potential problems as a…

What Is An Asset-Backed Security? Asset-backed securities (ABS) are fixed-income instruments similar to bonds that are collateralised by a pool of loans, the payments on which are channeled to the holders of the securities in the form of interest payments. When the loans are paid off, holders of the ABS receive their principal back. ABS issues are structured by a lender or investment firm using different types of loans. The…

The relative values of international currencies play a key role in global finance. Three areas that are particularly sensitive to exchange rate fluctuations are intercountry trade, pricing stability and regional economic growth. In practice, governments and central banking authorities implement a collection of unique mechanisms to promote the stability of their domestic money. Central banks frequently employ devices such as interest rate adjustments, debt purchases and pegs to manage exchange…

Monetary Policy Versus Fiscal Policy Governments have two main ways to influence their economies: Monetary policy is the actions taken by a country's central bank to regulate interest rates, control the supply of money and the amount of funds banks must hold rather than lend to their customers. Fiscal policy is the spending and taxation policies of the government that can influence how much money businesses and consumers have to…

What Is A Reserve Currency? A reserve currency is a currency that is widely accepted around the world as a method of payment between countries for goods and services. Reserve currencies are also widely held by governments and central banks as foreign exchange reserves and to settle international debt obligations. Past And Current Reserve Currencies The U.S. dollar (USD) has been the primary reserve currency since the end of World…

What Is A Target Date Fund? A target date fund is a mutual fund designed for retirement that automatically rebalances the fund's assets as the investors in the fund draw closer to retirement age. In the years prior to retirement, the fund is more aggressive and heavily invested in growth stocks, but as the holders near retirement the fund becomes more conservative. At this point, its allocation shifts to include…

The Glass-Steagall Act was a 1933 U.S. law signed by President Franklin Roosevelt shortly after he took office that effectively separated commercial banking from investment banking. The act is named for its sponsors, Sen. Carter Glass, D-Virginia, a former Treasury secretary, and Rep. Henry Steagall, D-Alabama, the chairman of what was then called the House Banking and Currency Committee. Glass-Steagall was largely repealed in 1999 by the Gramm-Leach-Bliley Act, which…

What Is Keynesian Economics? Keynesian economics is an economic theory that argues that governments should spend heavily on infrastructure projects and unemployment benefits during economic downturns in order to stimulate consumer and business spending, growth and job creation. The theory was developed by British economist John Maynard Keynes in his 1936 book, The General Theory of Employment, Interest, and Money. It was published during the Great Depression, when nothing seemed…