Trablog
  • Home
  • LifeStyle
  • Gaming
  • Sport
  • Food
  • Travel
  • Fashion
  • Technology
  • Economy
Saturday, July 19, 2025
No Result
View All Result
  • Home
  • LifeStyle
  • Gaming
  • Sport
  • Food
  • Travel
  • Fashion
  • Technology
  • Economy
No Result
View All Result
Trablog
No Result
View All Result
Home Economy

Basic Economic and Financial Market Concepts

November 22, 2023
in Economy
0
Basic Economic and Financial Market Concepts
1
SHARES
3
VIEWS
Share on FacebookShare on Twitter

Financial Independence Financial independence represents a state in which our income, derived from sources not dependent on a monthly salary, covers all our expenses. In other words, when passive income, received regardless of whether you get up and go to work in the morning, covers all your expenses, you have achieved financial independence. Imagine being in a situation where you can choose how much to work, if at all. A dream!

Inflation Inflation refers to a decrease in the value of our money. But what exactly does that mean? Let’s say I have one shekel with which I can buy one liter of milk today (just for example). I put that shekel under my pillow and it stays there for a year. After a year, I go to the grocery store to buy my milk, but the seller informs me that the milk now costs 2 shekels.

Free Lots Of Numbers Stock Photo

What happened here is a reduction in my purchasing power due to a price increase at a rate of 100% (from one shekel to two shekels). Therefore, the annual inflation rate was 100%.

The entity responsible for controlling inflation to prevent it from spiraling out of control (as it did in the 1980s, reaching up to 400%!) is the central bank. As of 2019, the inflation target of the Bank of Israel is 1%-3%, as low inflation encourages economic growth.

Because of inflation, when your money lies in the bank (or under the pillow), you are actually losing money.

Index An index tracks and refers to a group of units as a whole, with each unit contributing to the group’s average according to its relative size within the group. For a full explanation of what an index is, click here.

Interest Interest is a term in economics that refers to the additional sum of money paid by a borrower (the one who takes the money) to a lender (the one who lends the money) in exchange for the right given by the lender to the borrower to use a certain amount of money (called “loan principal” or “loan amount”) for a specified period of time (called the “loan period”).

In simple terms, interest is the “price of money” or essentially the “price” of transferring money from the future to the present. Want money now that you don’t have? Pay interest on top of returning the money you borrowed (for example, from the bank).

Interest can be: fixed (the same interest rate throughout the loan period), variable (based on predetermined conditions), or tied to an index.

For example, the interest on a bank loan is 5% and is linked to the consumer price index. If the consumer price index rises by 10%, my interest rate will now be 5.5%.

Free Arranged Paper Clips around an Eraser Stock Photo

Return on Investment (ROI) ROI is essentially interest but from the opposite direction. Usually, when talking about the amount of money I pay to someone else, we use the term interest. When talking about the amount of money I receive from an investment I made, we use the term ROI.

Compound Interest Compound interest is exactly like simple interest except that the interest amount is recalculated each time based on the current debt. In other words, interest is added to the original principal each time, and essentially the interest amount is now calculated not only on the basis of the original principal but on the sum of the original principal and the interest amount for the given period.

Let’s understand this through an example. Suppose I took a loan from the bank as follows:

For simplicity, let’s assume that I am not paying back any amount during the loan period but only at the end of the loan period.

If it were simple interest, at the end of two years, I would owe the bank 11,000 shekels (10,000 on account of the principal and an additional 1,000 shekels as interest).

For the first year, I owed the bank 500 shekels (5% of 10,000 shekels), and for the second year, I owed an additional 500 shekels (5% again of the ending balance of 10,000 shekels).

Free Document on a Clipboard Stock Photo

However, since interest calculation occurs once per year, the calculation method is as follows:

At the end of year one, I owe the bank: 10,000 shekels + 500 shekels (5% of 10,000 shekels). Thus, at the end of year one, my debt jumps to 10,500 shekels.

At the end of year two, I owe the bank: 10,500 shekels (the debt from the end of year one) + 525 shekels (5% of the ending balance of 10,500 shekels).

So, at the end of the two years, I owe the bank 11,025 shekels.

Compound interest has tremendous power, as if the loan were to continue, each time the debt of the past year would increase, leading to substantial growth in the debt.

Free White Ruled Notebook Stock Photo

Of course, compound interest also works to our advantage when talking about returns on investments. For instance, if I invested 1,000 shekels in the market, and after year one, it earned a return of 10%, then at the end of year one, I’d have a portfolio worth 1,100 shekels. Now, leaving that money in the market for another year, during which it earned another 10% return, the gain would be calculated not just on the original 1,000 shekels but on the ending balance of 1,100 shekels. So, the final balance at the end of year

two would be 1,210 shekels (as 10% of 1,100 shekels is 110 shekels).

Previous Post

Top 10 Strongest Currencies in the World Right Now

Next Post

Exploring the Next Wave of Innovation: The Cutting-Edge Technology on Apple Watch

Next Post
Exploring the Next Wave of Innovation: The Cutting-Edge Technology on Apple Watch

Exploring the Next Wave of Innovation: The Cutting-Edge Technology on Apple Watch

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Exploring the 5 Most Utilized Virtual Currencies: Shaping the Future of Finance

Exploring the 5 Most Utilized Virtual Currencies: Shaping the Future of Finance

November 20, 2023
Exclusive PC Deal: Helldivers 2 Receives Temporary Price Drop Alongside Bonus Steam Game Offer

Exclusive PC Deal: Helldivers 2 Receives Temporary Price Drop Alongside Bonus Steam Game Offer

December 8, 2023
Crafting Sephiroth’s Iconic Theme: A Composer’s Struggle and Triumph

Crafting Sephiroth’s Iconic Theme: A Composer’s Struggle and Triumph

April 17, 2024
The Epitome of Fashion Excellence

The Epitome of Fashion Excellence

November 16, 2023
A Road Trip from France to Hungary: Exploring Europe’s Diversity and Charm

A Road Trip from France to Hungary: Exploring Europe’s Diversity and Charm

April 30, 2024
Exploring the Rich Heritage: Five Must-Visit Places in Italy

Exploring the Rich Heritage: Five Must-Visit Places in Italy

January 18, 2024
Navigating a Relationship When Desire Fades

Navigating a Relationship When Desire Fades

April 4, 2024

Fashion designer Kathryn Marie Gallagher, renowned for styling icons like Lady Gaga and Laverne Cox, has had the cause of her death disclosed.

February 1, 2024

Reviving a Tuscan Gem: Monteverdi Tuscany – Where History, Cuisine, and Hospitality Converge

April 29, 2024

Luca Nardi Shocks Childhood Tennis Idol Novak Djokovic at Indian Wells

March 6, 2024

The Drama of Flawed Football Giants

April 14, 2024

Confirmation: Sushi Set to Make Its Debut at Costco Locations Soon!

February 27, 2024

Understanding the Basics of Economics: 5 Key Concepts

November 20, 2023

7 Tartare Interpretations: From Traditional Beef to Innovative Avocado

March 8, 2024

Top 10 Italian Desserts You Must Try

February 22, 2024

Embracing a Holistic Lifestyle: Tips for a Balanced and Fulfilling Life

March 14, 2024

Categories

  • Economy
  • Fashion
  • Food
  • Gaming
  • LifeStyle
  • Sport
  • Technology
  • Travel

Recent News

Tesco Mobile: A Leading Mobile Network in the UK

Tesco Mobile: A Leading Mobile Network in the UK

February 7, 2025
The Evolution of Streetwear for the Further Represent Clothing

The Evolution of Streetwear for the Further Represent Clothing

December 23, 2024
  • Imprint

© 2024 trablog.

No Result
View All Result
  • Home
  • Lifestyle
    • Fashion
    • Food
    • Travel

© 2024 trablog.