Podcast Summary
Explaining Currencies to a Child: The value of money varies between countries due to exchange rates, affecting purchasing power.
Currencies are like different types of money used in different countries. For example, in the United States, we use US dollars, while Iceland uses the krona. The value of one currency compared to another is called the exchange rate. In this episode of The Indicator from Planet Money, the hosts answered a listener's question about explaining currency exchange and purchasing power to a 9-year-old. They used the example of the US dollar and the Icelandic krona, explaining that today, $1 is worth about 132 krona. They also discussed how the cost of goods and services can vary between countries, even when using the same amount of currency. It's important to remember that the purchasing power of money can change depending on where you are in the world.
Currency exchange and price differences: The value of a currency doesn't necessarily determine the price of goods or services in a foreign country. Bond prices and interest rates have an inverse relationship, meaning when interest rates rise, bond prices decrease, and vice versa.
While currency exchange should allow for buying similar things for the same amount of money, the specifics of the goods or services being purchased can result in price differences. For instance, a dollar may be equivalent to 132 Icelandic krona, but the cost of a pizza in Iceland might be more due to the need for imported ingredients. On the other hand, the relationship between bond prices and interest rates is inverse. When interest rates rise, bond prices typically decrease, and vice versa. This occurs because as interest rates increase, the opportunity cost of holding a bond with a fixed interest rate also rises. As a result, investors demand a lower price for the bond to make it an attractive investment compared to newly issued bonds with higher yields. Conversely, when interest rates decline, the opportunity cost of holding a bond falls, making the bond more attractive, and its price increases.
Interest rate hikes cause older bonds to become less attractive: When interest rates rise, the price of older bonds with lower interest rates decreases to make them more competitive in the market
When the Federal Reserve raises interest rates, the cost of borrowing money for the US government increases, causing them to offer higher interest rates on newly issued Treasury bonds. This makes newly issued Treasury bonds more attractive to investors compared to older bonds with lower interest rates, leading to a decrease in the price of older bonds. In simpler terms, when interest rates rise, the price of older bonds with lower interest rates drops to make them more competitive in the market. This concept is crucial for understanding how changes in interest rates affect the bond market.
Decrease in racial diversity after end of affirmative action in California universities: The end of affirmative action in California's universities led to a decrease in racial diversity, particularly for black and Hispanic students, and efforts to increase enrollment through other policies have not fully offset this decline.
The end of affirmative action in California's universities has led to a decrease in racial diversity relative to the state's high schools. Despite efforts to increase enrollment through policies like guaranteed admission for top students and holistic application reviews, the University of California system has not recovered to the levels of black and Hispanic enrollment seen prior to the affirmative action ban. Additionally, while there has been an increase in the number of low-income students, this has not disproportionately benefited black and Hispanic students. These findings come from an interview with Assistant Professor of Economics at Princeton, Zach Blumer, who noted that the number of Hispanic students coming out of California high schools has grown at a faster rate than those enrolling in the University of California. Overall, the aftermath of California's affirmative action ban has resulted in a decrease in racial diversity and opportunity for students in the University of California system.
UC's racial diversity statistics: UC has more white and Asian lower income students than expected, hindering efforts to increase racial diversity without considering race.
The University of California has seen a disproportionate number of lower income students who are white or Asian, despite these groups being underrepresented in terms of class and racially underrepresented in the broader student body. This means that if other universities are looking to California for answers on increasing racial diversity without considering race, they may be disappointed. The discussion also touched on listeners' economics questions, production credits, and sponsor messages. Mint Mobile offers unlimited wireless plans for $15 a month, while Fundrise invites investors to consider their flagship fund's expansion plans.
