According to Investopedia, a government-sponsored enterprise (GSE), “consists of privately held corporations with public purposes created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy.” The Federal Home Loan Banks provide loans to local banks at preferred lending rates to enhance commercial and mortgage bank liquidity. The implied federal subsidizing allows them to trade more competitively than strictly private securities.The long position is an investment where the investor owns a security such as stock or currency with the expectation that the price for their investment will rise. This allows the investor to sell his security at the higher price for a profit. Normally, the owner sees this as a long-term investment and doesn’t anticipate a quick return on his investment.A short position investment is where an investor does not own the security, but borrows it with some sort of collateral. The short seller’s goal is to sell the security at a higher price, with the expectation of repurchasing it at a lower price, therefore allowing himself to collect the difference. Short selling is an important part of market liquidity. Allowing investors to short sell plays an important role in the capital markets.Naked shorting is when an investor sells the shares that he does not own, or has not borrowed, and agrees to deliver them to the buyer within a fixed time. The seller buys the shares once the price has fallen and before he must deliver them to the buyer. If the price of the stock falls during the “borrowed” time, the stocks are purchased at a lower price, and sold to the investor at the higher price, allowing the “borrower” to pocket the difference. Should the price rise, the “borrower” will be left to pay the difference when the broker requires the certificate. Naked short selling can be risky because there is no limit to potential losses.Retail investors and traders are not permitted to naked short a stock. Naked short selling is not necessarily a violation of the federal securities laws, or the Commission’s rules, and is not always done intentionally. At times stocks are sold but fail to deliver from the seller to the buyer within the mandatory three-day stock settlement period with no fault of the seller.”A broker-dealer that makes a market in a security stands ready to buy and sell the security on a regular and continuous basis at a publicly quoted price, even when there are no other buyers or sellers. Therefore, market makers must sell a security to a buyer even when there are temporary shortages of that security available in the market.” (Zipper01) Consequently, only bona fide market makers may engage in market making.These market makers, however, do not have to locate stock before selling short, since they need to have the ability to provide liquidity.Since the SEC suspension of naked shorting post June 2008, many countries have banned the practice of naked shorting.To list a few that followed the post June 2008 suspension on naked shorting are nations such as Paris, France, Spain, Italy, Belgium, and Germany. Consequently, these nations now have strict bans on naked shortingA “short squeeze” is a situation in which a heavily shorted stock or commodity moves sharply higher, forcing more short sellers to close out their short positions and adding to the upward pressure on the stock. A short squeeze implies that short sellers are being squeezed out of their short positions, usually at a loss. A short squeeze is generally triggered by a positive development that suggests the stock may be embarking on a turnaround. Although the turnaround in the stock’s fortunes may only prove to be temporary, few short sellers can afford to risk runaway losses on their short positions and may prefer to close them out even if it means taking a substantial loss.According to the International Swaps and Derivatives Association (ISDA) the national value of the CDS’s worldwide in 2007 was $62.2 trillion. The total GDP of all the countries in the world in 2008 was about $60 trillion. The total value of household real estate in the U.S. at the time was only about $19.9 trillion. This indicates that much of the activity was not in providing insurance against risk but was sheer speculation.According to the International Swaps and Derivatives Association (ISDA) the national value of the CDS’s worldwide in 2007 was $62.2 trillion. The total GDP of all the countries in the world in 2008 was about $60 trillion. The total value of household real estate in the U.S. at the time was only about $19.9 trillion. This indicates that much of the activity was not in providing insurance against risk but was sheer speculation.A petrodollar is a U.S. dollar that is received by an oil producer in exchange for selling oil and that is then deposited into Western banks. India pays in USD not only for oil but for most of its imports. This is because USD is used in the international markets for commodities such as gold and petroleum.Credit default swaps are derivatives, which are any kind of financial instrument whose value is based on the value of another financial instrument. Unregulated financial instruments like derivatives can be sold over the counter, and can be purchased outside of the formal exchange markets, like the New York Stock Exchange. Since no regulation exists on the derivatives, they can be traded from one party to another. CDS’s are traded in the currency of the country of origin.Through periods of standstill, high inflation and depression, the U.S. dollar continues to be the world’s reserve currency largely due to the size and strength of the U.S. economy and the supremacy of the U.S. financial markets. Despite large deficit expenses, trillions of dollars in foreign debt and the unrestrained printing of U.S. dollars, U.S. Treasury securities remain the safest stow of money because of the trust and confidence that the world has in the ability of the United States to pay its debts. Because of that, the dollar is still the most redeemable currency for facilitating world commerce.Although many countries, including the UN, China, and Russia, have suggested replacing the U.S. dollar as the world’s reserve currency, a report from the UN Conference on Trade and Development (UNCTAD), is the first time a major multinational institution has proposed such a suggestion.
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