Price of oil - The price of oil is below $50/ barrel.

Beginning around 2000, there's a huge increase this is

because increasing consumption from emerging markets such as Chine and India. These are the two
market that starts demanding a lot of oil. Now that we have a financial crisis, there's a big impact on the
price of oil. Civil conflic in Libya and Iraq affect the supply of oil and price is very high. There's been a
decline starting in 2015. One reason is because some contry such as US and Canada saw taht the price
will be very high for a long time and thought that they develop new technique to extract oil. For
example, In US its very hard to extract oil. This affects supply (increase supply). US goes from importer of
oil to exporter, decreasing demand and increasing supply. People also respond to incentive. When oil is
very expensive, this results in innovation. Fuel efficiency, etc. Right now, the economy in Europe is
slowing down and therefore, demand decreases. Supply of oil in lLibya and Iraq has also increases.
Supply is higher than demand.

There's been an increase of 4 million barrel per day in the U.S. Somethign else that has happened is that
at the end of November, the OPEC decided not to cut production. To kill competition is to keep prices
very low. Therefore, all new projects will go bankrupt. The new businesses that have large fixed cost due
to infrastructure (profitable when price is very high, not very profitable when price is low)

Breakeven Price -- at which price are they making a profit. To make a profit, Iran needs to have $120,
etc. Some of these countries are suffering a lot. Venezuela needs at least $100/barrel to break even.

There are some currency that follow the price of the crude oil: this include CDN oil, rubble, and
australian dollar. These are countries that exports a lot of natural resources. Demand for these
currencies will go down .As a result, the price will go down. There will be a depreciation with respect to
the USD dollar. A big chunk of revenue for Russia comes from oil. This big chunk of revenue is erased.
There will be a deficit. One way to finance it is to borrow internationally to the foreign market. However,
Russia has financial sanction imposed by US, etc.This makes it difficult for Russa to borrow
internationally. Russia can increase taxes or printing money. Inflation. Therefore, rubble is suffering
even more than Canada because of its expected inflation. Mos of Russia's debt are not in USD. They are
in Rubbles. This is a good thing.

National savings
S=Q-C-G
Can divide national savings between private or government saving.

S^P = Q - T - C
S^G = T - G

S = C + I + G + CA - C - G
= I + CA
CA = S - I
This is our second definition of current account.
Develop market borrow and reduces saving. We don't like this. HOLDING EVERYTHIING ELSE AS EQUAL.
In emerging market, they borrow and increases investment. We like this.

CA = Private Saving + Government Saving - I

Twin deficit and this means that you borrow internationally to increase your government expenditure. A
negative S^G means that there's government deficit. There's also a deficit in current account. This is
called twin deficit. However, there's a difference. CA deficit is a deficit for the country as a whole.
However, sometimes, deficit can happen due to decrease in prive or increase in investment.

Last thursday, switzerland. The swiss franc impose a floor on their exchange rate. The let their currency
to be above a certain amount above euro. But if its below, the central bank is comitted not to let the
exchange rate drop more. They didn't want the swiss franc appreciate more than 1.05/ euro. There's
lots of pressure for appreciation but completely unexpected, this floor at 1.2 no longer exist. The price
of exchange rate whent from 1.2 to 0.86 then it stabilizes to around 0.974. This is a 20% change. During
the european crisis, lots of people are afraid of the breakup in europe. A lot of people are afraid of euro
and a lot of investors go to the safer currency such as swiss franc or u.s. This cause the price of swiss
franc to increase. The exchange rate is going down. If you're a central bank and you care about your
economy, for swiss, exporting firm is very important. What happens when swiss franc appreciates? The
economy is losing competitive edge. The central bank let the exchange rate flutuate around central
level. You have to be willing to give them swiss franc at 1.2. You have to print money. It's easy for bank
to defend lower bound compared to upper bound since you just print more money.

Peer inflation - possible quantitative easing by the central bank of euro. Swiss is very close to germany in
terms of monetary policy. They don't like inflation and printing money. However, the country is right
now facing slight deflation so this explanation might not be correct.

Capital - printing money and get eurobonds in return. If euro depreciates, they are losing value. They are
worried about capital losses. Why should central bank care about capital losses? The central bank of
switzerland has sholders. Part of it is owned by shareholders and these guys are getting dividends every
certain period. Shareholder care about capital losses. Therefore, there are pressure by them about
getting rid of these ceiling.

There's a huge appreciation. This is a big exchange rate movement. What happen to the asset under the
switzerland? They depreciated. Euro depreciated with respect to swiss franc. They suffer huge capital
losses. They may not be expecting massive appreciation. A huge amount of swiss shares are losing value.
This firm become less competitive in the international market. Value of the firm goes down.

This also affect the credibility of the central bank. When interest rate is very low, credibility is important
for people in term of perception to get out of liquidity trap. Swiss national bank also reduce their rate on
bonds. They put -0.75 interset rate. How could interest rate be negative? There might be cost to putting
money in your pocket.

Bank of canada set overnight lending rate as 0.25 as they are afraid that bank will not lend to each other
if the itnerest rate is 0.