Wikipedia:Reference desk/Archives/Miscellaneous/2014 March 2

= March 2 =

Cities in Germany
I recently read the article List of cities in Germany by population, which states that the top five cities in Germany by population are 1. Berlin, 2. Hamburg, 3. Munich, 4. Cologne and 5. Frankfurt am Main. Now I have known for several years that Berlin is the most populous city and Munich is the third most populous city in Germany, but up to now I had always assumed Frankfurt am Main was the second most populous city. I don't know where I could have got this idea. Has Frankfurt ever been the second most populous city in Germany? Is it ranked second, behind only Berlin, by any other criterion? J I P &#124; Talk 00:30, 2 March 2014 (UTC)
 * Frankfurt is the hub of the second largest metropolitan area in Germany, even though by corporate limits as a singular city it is only the fifth largest city. Even then, depending on how "metropolitan area" is defined, it is only the third largest; the Ruhr-Dusseldorf-Cologne region is actually the largest in the country, but only when counted as a single region; apparently some definitions break this region up into three smaller regions, which pushes Frankfurt into second place.  -- Jayron  32  02:06, 2 March 2014 (UTC)
 * In addition to what Jayron wrote: Things like Frankfurt Airport (one of the busiest for decades) or the city's position as finance centre etc. might also have contributed to your perception. Yet Frankfurt has been behind Munich and Hamburg for a long time. It was never on second place in the Bundesrepublik either (i.e. before 1990). ---Sluzzelin talk  08:17, 3 March 2014 (UTC)

Yemen
What are three facts about the social groups in Yemen? — Preceding unsigned comment added by 71.50.204.187 (talk) 01:41, 2 March 2014 (UTC)


 * Sounds like homework to me. We don't do your homework for you.  --   Jack of Oz   [pleasantries]  01:43, 2 March 2014 (UTC)


 * We can however, direct you to articles that might be helpful, such as this one → Al-Akhdam (and of course, Yemen)   ~E: 71.20.250.51 (talk) 02:20, 2 March 2014 (UTC)


 * I'm almost certain that:
 * None of the members of those groups have pet polar bears.
 * Less than 50% of the people involved have names that begin with the letter 'Z'.
 * None of the people involved have ever swam more than 3 miles along the Yarlung Tsangpo River in Tibet.
 * The point being that there are an infinite number of facts available. What you need are useful, pertinent facts...and this homework question isn't so much about you knowing three random facts about these groups - it's actually a means to have you read about them and form some ideas of your own.  That's the real reason why we're not allowed to help you with homework questions unless you've shown us that you've put in some effort of your own and gotten stuck on finding an answer.  If you wish to grow up to be a knowledgeable, well-read, intelligent, well-rounded individual, you need to be widely read - and (most importantly) to gain the habit of enjoying to learn and to seek out more information. SteveBaker (talk) 20:56, 3 March 2014 (UTC)

Convertible bond, premium, new TSLA convertible bonds
Ok, Tesla Motors issued $800M convertible bonds, 0.25% interest rate, 42.5% premium with 5 years expiration. But how it works from the investor point of view and what is the premium? I mean lets say investor John spent $1000. Tesla received $1k. Tesla will pay "coupons", $2.50 yearly to John.

If TSLA plummets from $250 to $10, how much Tesla will pay John at the end of 5 years period? $1000? Or $1425? Probably just a grand, but what is a premium then?

If TSLA raises from $250 to $500 in two years, and John decide to convert at that point, how many shares he will get? He dose not need to pay anything at the time of conversion, correct?

Some explanations I read on the net say that companies limit upside potential of convertible bonds by reserving the right to "call" convertible bond if share price is too high. How dose that limit potential of conv. bond? If for example Tesla call conv. bond early, bond holder get shares, and upside potential would still be unlimited for him. I'm not understanding something, but not sure what I'm not understanding. Here is the link to TSLA SEC filling: http://www.sec.gov/Archives/edgar/data/1318605/000119312514074411/d683441dfwp.htm

50.100.191.18 (talk) 08:21, 2 March 2014 (UTC)
 * This means that the investor will get $2.50 per year for five years and then $1425 at the end of the period. I don't know how the conversion would work, but the other parts of your description suggest that the bond would be convertible to a fixed number of shares.  (If the conversion was based on current value then Tesla would not face any risk that would require "calling in" the bond.)  You are right that the upside potential after the bond is called would still be unlimited, but that's the same unlimited potential any shareholder has -- it doesn't impose any extra cost on the bond issuer. Looie496 (talk) 15:14, 2 March 2014 (UTC)
 * The first part is actually totally incorrect. The investors would only get $1000 (the face value) at the end of the period and not $1425. The conversion premium is just a measure of how much the conversion price exceeds the current price of the share. In a simplified manner, it means that it will be worthwile for the investors to convert the bonds if the share price rises by at least 42.5%.129.178.88.85 (talk) 07:51, 3 March 2014 (UTC)
 * Thank you 129.178.88.85, that makes sense. But why would companies be interested to call convertible bonds early? 50.100.191.18 (talk) 10:06, 3 March 2014 (UTC)
 * One possible scenario is if market interest rates fall or issuer's credit rating improves, and so issuer decides to refinance at a lower interest rate. Not likely in current market conditions, but it's a possible scenario in general. Gandalf61 (talk) 14:05, 3 March 2014 (UTC)
 * Thanx Gandalf61. 50.100.191.18 (talk) 14:25, 3 March 2014 (UTC)

Foreign exchange reserves and current account surpluses
I have limited knowledge of macroecon so this paragraph is hard for me to understand:

"Unlike the deficit-prone emerging economies that are now in trouble -– whose imbalances are strikingly reminiscent of those in the Asian economies that were hit by the late-1990's financial crisis -– China runs a current-account surplus. As a result, there is no risk of portfolio outflows resulting from the Fed's tapering of its monthly asset purchases. And, of course, China's outsize backstop of $3.8 trillion in foreign-exchange reserves provides ample insurance in the event of intensified financial contagion."

1. Why are the large foreign exchange reserves of China a backstop? 2. Why would there need to be a backstop if the current account surplus were depleted?

Gullabile (talk) 14:54, 2 March 2014 (UTC)


 * It's hard to be sure without seeing more of the context, but I think probably what the passage is trying to say is that if for some reason China gets into economic difficulties and their stocks and currency start to lose value, they will be able to use their foreign currency reserves to shore up their economy. It's basically the same as the reason why a person with millions in the bank is less worried about an economic downturn than a person who is living from day to day. Looie496 (talk) 15:07, 2 March 2014 (UTC)
 * The article is basically right, and Looie496's last sentence is a good summary. China now is very different from the countries who suffered the 1997 Asian financial crisis. China's and other Asian states policy are now guided by a desire to not repeat that crisis and is a kind of mercantilism, keeping currency values low, exports high and accumulating piles of dollars. Back then, Hot money often seeking higher yields by the Carry trade, and foolish policies and speculation in countries like Thailand etc made them owe a lot of dollars, often by trying to support dollar currency pegs by issuing high yielding dollar denominated debt. They eventually wound up short of dollars, and couldn't get enough immediately. So the international loan-sharking institutions (Jonathan Kwitny's accurate description) seized the opportunity to arrange for Western "investors" to procure valuable properties at fire-sale prices. Chinese foreign reserves can be used to pay foreign debts denominated in dollars, particularly to buy imports and to maintain the foreign exchange value of the renminbi. So it is a backstop against this kind of crisis, and against a fall in the renminbi - which China rather tends to keep down, not up. So the article is correct when it says that China has nothing to fear from the Fed raising interest rates, thereby making the higher Chinese rates, e.g. a carry trade, less attractive, because China will have no trouble keeping its currency pegged at its current value. It doesn't have too much to do with China's domestic economy, which they can keep moving ahead if it falters by repeating the 2008-2009 Chinese economic stimulus program - except that the size of the foreign reserves allow them to ignore any (unlikely, theoretical and probably minor) negative effect of such stimulus on exchange rates. John Z (talk) 07:23, 3 March 2014 (UTC)

Thanks John for a very clear explanation. But it raises some new questions for me. If there were another large loan stimulus and the loans could not be repaid creating a banking crisis, the negative effect on the economy would not be at all reflected on the currency? And couldn't the foreign exchange reserves also be used to provide banks in crisis with support? Gullabile (talk) 06:56, 4 March 2014 (UTC)

.

China runs a merchandise trade surplus sufficient to cover its services and net transfers deficits (i.e., a current-account surplus). Portfolio flows and foreign direct investment are part of the capital account. The reason there is no risk of capital flight ‘due to Fed tapering’ is that China has US$3.8 trillion in foreign exchange reserves, equal to about 90 months worth of imports (the benchmark for getting worried is 3-6 months). The reserves, the largest in the world, provide assurance that if investors want to exchange renminbi for dollars, there will be enough dollars to go around, even after considerations such as paying for imports, repaying debt and interest and other international financial obligations (dividends and royalties, for example).

If the country were running a current-account deficit, it would also be running a capital account surplus, or drawing down on its reserves. If an economy is dependent on short-term investment (portfolio inflows) to off-set a current-account deficit, it is vulnerable to risks such as contagion. If such flows stop, the country would have to reduce its imports quickly (increasing exports isn’t quick) to avoid defaulting on payments. Holding sufficient foreign exchange reserves – which should never be confused with 'the government’s money' – provides a cushion such that quick changes in capital flows need not be addressed under pressure. (Since these reserves are not the government’s money, there is no means by which they might be used to deal with a banking crisis.)

While money may leave China for many reasons, including attractive opportunities elsewhere, a falling Rmb:US$ exchange rate or political developments, the problem encountered by several Asian economies in 1997-98 was a rapid depletion of foreign exchange reserves brought about (for the most part) by artificially strong currencies permitting lower-than-realistic interest rates in an environment of minimal capital controls. See Impossible trinity.

The notion of the US having such a massive crisis that it could not repay its debts is a fallacy. The debt is in US dollars, and the government has the right to produce as many dollars as it needs. While investors may not like it, or may even refuse to take the dollar, they have no recourse to receiving payment in some other currency as the debt is denominated in US dollars. The possible impact on China would be multi-faceted, including a collapse of exports to its largest customer and perhaps an uncomfortable surge in the value of the renminbi.DOR (HK) (talk) 07:54, 5 March 2014 (UTC)