Our capital markets seesaw in response to financial news coming out of countries we think have no interdependence.The Fed tapering of its stimulus program was one such event which kept all emerging markets on the edge. We have made an attempt to explain the term ‘Fed Tapering’ by way of an interesting story. Do share it if you like it. You can give us your valuable feedback at professor@tataamc.com

1. FED TAPERING

2. FED TAPERING
Let me tell you an
interesting story…
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3. FED TAPERING
Fabian owns a small bakery shop
in Goa. His wife Suzi is a home
maker and takes care of their two
kids Jonny and Julie who study in
college.
http://simplysimple.in/

4. FED TAPERING
Fabian with great difficulty sets aside Rs. 15,000 a month for
household expenses.
This amount is sufficient to run the house but not enough to fulfill
Jonny and Julie’s growing needs of entertainment and extracurricular activities.
http://simplysimple.in/

5. CURRENT FED TAPERING
ACCOUNT DEFICIT
Let us see the formula of the Current Account Balance (CAB)
CAB = X - M + NI + NCT
X = Exports of goods and services
M = Imports of goods and services
NI = Net income abroad
[Salaries paid or received,
credit / debit of income from
FII & FDI etc. ]
NCT = Net current transfers
[Workers' Remittances
Jonny and Julie remain dejected and
(unilateral),
Donations, Aids &
left out from their peers as they don’t
Grants,
Official, Assistance and have enough pocket money to spend.
Pensions etc]
http://simplysimple.in/

6. FED TAPERING
Fabian couldn’t withstand his kids’ sadness and decides to increase
the monthly household expenses.
He sets aside an additional Rs. 5,000 a month as pocket money as
long as the kids behave well, study diligently and score good marks
in exams.
He wanted to fulfill all their wishes and hobbies even though he had
to put an extra effort to earn that incremental Rs. 5,000 every month.
http://simplysimple.in/

7. FED TAPERING
This made Jonny and Julie happy as
they could now do everything that their
friends could do or afford. This positive
energy reflected into their studies and
they scored well in their college exams.
http://simplysimple.in/

8. FED TAPERING
Fabian and Suzi knew that their kids are now ready to take on the challenge
to earn their own livelihood and become financially independent.
So, they decide to gradually reduce Jonny and Julie’s pocket money by 5%
every month till the time they find a part-time job for themselves of their
choice.
http://simplysimple.in/

9. CURRENT FED TAPERING
ACCOUNT DEFICIT
Let us see the formula of the Current Account Balance (CAB)
CAB = X - M + NI + NCT
X = Exports of goods and services
M = Imports of goods and services
NI = Net income abroad
[Salaries paid or received,
credit / debit of income from
FII & FDI etc. ]
This process of Remittances
NCT = Net current transfers
[Workers' gradual roll back of
pocket money is similar to tapering
(unilateral),
Donations, Aids &
under way by the U.S. Federal
Grants,
Official, Assistance and Reserve (popularly known as Fed).
Pensions etc]
http://simplysimple.in/

10. FED TAPERING
What is tapering?
http://simplysimple.in/

11. FED TAPERING
Tapering refers to the reduction in the quantum of the bond buying
programme by the Fed.
The bond buying, also known as the Quantitative Easing (QE)
program was launched to kick-start hiring and growth in the US
economy. The Fed's first QE program was launched in the midst of
the 2008 financial crisis. (To learn about QE, click here)
http://simplysimple.in/

12. But why is Fed
tapering now?

13. FED TAPERING
The Fed's decision to taper its
massive bond buying is due the
recovery in the US job market and the
confidence that the economy will
continue to grow inspite of the
tapering.
http://simplysimple.in/

14. CURRENT FED TAPERING
ACCOUNT DEFICIT
Let us see the formula of the Current Account Balance (CAB)
CAB = X - M + NI + NCT
X = Exports of goods and services
M = Imports of goods and services
NI = Net income abroad
[Salaries paid or received,
credit / debit of income from
FII & FDI etc. ]
NCT = Net current transfers
[Workers' Remittances
(unilateral),
Hope this story succeeded in
Donations, Aids &
clarifying the concept of Fed Grants,
tapering.
Official, Assistance and
Pensions etc]
http://simplysimple.in/

15. Please give us
your feedback at
professor@tataamc.com

16. DISCLAIMER
The views expressed in this lesson are for information purposes only and do not construe
to be any investment, legal or taxation advice. The lesson is a conceptual representation
and may not include several nuances that are associated and vital. The purpose of this
lesson is to clarify the basics of the concept so that readers at large can relate and thereby
take more interest in the product / concept. In a nutshell, Professor Simply Simple lessons
should be seen from the perspective of it being a primer on financial concepts. The
contents are topical in nature and held true at the time of creation of the lesson. This is not
indicative of future market trends, nor is Tata Asset Management Ltd. attempting to predict
the same. Reprinting any part of this material will be at your own risk. Tata Asset
Management Ltd. will not be liable for the consequences of such action.
Mutual Fund investments are subject to market risks, read
all scheme related documents carefully.