Académique Documents
Professionnel Documents
Culture Documents
SUBMMITTED TO: -
SHAHEEN SHAH ALAM
GROUP MEMBERS:
July 5, 2010
2ECONOMIC ANALYSIS
CREDIT INITIATION:
Following analyses are conducted in the credit initiation process:
1- Economic Analysis
2- Industry Analysis
3- Market Analysis
4- Borrower’s Analysis
This report is all about “Economic Analysis”. Economic Analysis is just the overview of the current
economic condition. The economic indicators that can be used by any Credit Risk Analyst to analyze the
economy with respect to the borrower’s business are discussed below:
ECONOMIC POLICY:
First of all, a credit analyst should study the current economic policies that have been implemented by the
government. Economic policy refers to the actions that governments take in the economic field. It covers
the systems for setting interest rates and government budget as well as the labor market, National
ownership, and many other areas of government interventions into the economy.
Such policies are often influenced by international institutions like the International Monetary
Fund or World Bank as well as political beliefs and the consequent policies of parties.
July 5, 2010
3ECONOMIC ANALYSIS
Industrial policy
INTEREST RATE:
While analyzing the overall economy, a credit analyst should also take the current market interest rate in
his consideration. An interest rate is the rate at which interest is paid by a borrower for the use
of money that they borrow from a lender. For example, a small company borrows capital from a bank to
buy new assets for their business, and in return the lender receives interest at a predetermined interest rate
for deferring the use of funds and instead lending it to the borrower. Interest rates are fundamental to
a capitalist society. Interest rates are normally expressed as a percentage rate over the period of one year.
Interest rates targets are also a vital tool of monetary policy and are taken into account when dealing with
variables like investment, inflation, and unemployment.
July 5, 2010
4ECONOMIC ANALYSIS
EXCHANGE RATE:
In finance, the exchange rates (also known as the foreign-exchange rate, forex rate or FX rate)
between two currencies specify how much one currency is worth in terms of the other. It is the value of a
foreign nation’s currency in terms of the home nation’s currency. If the borrower’s business concerns
with either import of raw material or finished goods, or export of raw material or finished goods, the
exchange rate would play a vital role in keep his business up and running. A credit analyst may also
forecast the exchange rate by viewing the past and current trend.
July 5, 2010