BAM101: Business News Research Assignment

Fall 2015

Student Name: Omar Alazzawi

Student Number:

Professors Name: David King

Course Code/Section: BAM101

Date: November 12th, 2015

Page 1

Topic #1:
Title of Article:
Commodities keep falling as major mining projects come into production

Summary of Article:
The article discusses the different factors involved in the changes in commodity prices
that took place in the past 5 years. The article highlights that prices of most
commodities have halved since they peaked between 2009 and 2011. The writer
attributes this price change to both demand and supply side factors. The article uses
iron ore as an example to portray supply side changes as mega projects in Australia
and Brazil are about to open their doors for output. Those mega mining projects were
encouraged and master planned during cycle periods when prices of iron were
skyrocketing, which attracted industry stars like Gina Rinehart, of Australia, and Vale, of
Brazil, to invest to expand production. The recent price changes are only a digestion of
the massive expansion in output (McGugan, 2015).

On the demand side, the writer believes that demand for commodities have faded due
to slowing growth in China, the worlds largest consumer of commodities, and globally,
in general. Fading demand is also accompanied by a down pressure from rising USD
value.

Business Topic Analysis:

Chapter I: Economics: Evolving Systems: How Demand and Supply Interact to
Determine Prices, Page 24-27
Page 2

On the supply side, expansion in production boosted by new projects in Australia and
Brazil will put a downward pressure on the price of Iron in the form of a supply curve
shift to the right; that is, at the same price level, more iron is being supplied.

On the demand side, a shift in the demand curve for commodities to the left would pin
prices lower. The article discussed two factors that would cause such a shift and are
slowing demand from resources-hungry countries and a rising US Dollar value. The
slowing demand is a result of quickly-slowing growth in economic activity in China and
resources-thirsty countries. On the other hand, a rising value of the USD means that it
costs more for countries other than the US to purchase resources, because their local
currency now buys less quantity of the same commodity.

The overall effect is that commodity prices fell sharply due to a combination of slow
global demand, a rising USD and high output levels from miners.

Business Term:
Supply: The quantity of a good or a service that businesses will make available at
various prices. (The Future of Business, 2014)
Demand: The quantity of a good or a service that people are willing to buy at various
prices. (The Future of Business, 2014)
Supply Curve: a graph showing the quantity of a good or a service that a business will
make available at various prices. (The Future of Business, 2014)
Demand Curve: a graph showing the quantity of a good or a service that people are
willing to buy at various prices. (The Future of Business, 2014)

Page 3

Topic #2:
Title of Article:
Bank of Canada cuts key rate to 0.75% as oil plunge takes toll on economy

Summary of Article:
The article informs the reader about the Bank of Canadas move to cut the target rate by
a quarter percent to 0.75%, after staying at 1% since 2010. The article states that the
reason for this rate cut is the plunge in crude oil prices and its adverse effect on
inflation, consumer and business spending, and corporate profitability. The article also
mentions how this rate cut instantly influenced the stock market, the Canadian dollars
exchange rate against other currencies and the yield on the governments bonds.

In addition, the forecasted growth for the Canadian economy was cut from 2.4% to
1.5%, and the forecasted inflation rate fell below the Bank of Canadas 1-3% target. The
article mentions that this is primarily due to the central banks faulty assumption of crude
oil prices of 85$ per barrel, and even faultier readjustment to 60$ per barrel.

It is also outlined that corporate spending in the oil industry will drop by 30% and that a
multitude of projects will become unprofitable if the plunge in oil prices will persist. On a
brighter side, the central bank believes that growth for the second part of the year will
be stronger than usual due to a global stimulation caused by oil prices and a lower
exchange rate that will boost non-oil companies profit that benefit from exporting to the
US.

Business Topic Analysis:

Page 4

Chapter II: Understanding Money and the Canadian Financial System: Pages 4852
It is key to understand the significance of the oil industry to the Canadian economy. The
oil industry employs thousands of people in Western Canada, and adds billions of
dollars to the national spending. The plunge in oil prices applied a deflationary pressure
on the Canadian economy due to lower spending and lower profits (or more losses)
from oil businesses, lost income from job layoffs, and lower government revenues. This
leads to a move on the business cycle towards a trough or a recession.

The Bank of Canada has many tools to stimulate the economy and chose to use
monetary. Although the move to cut interest rate signals a loss of momentum in the
Canadian economy, it is meant to make borrowing for corporations cheaper, increase
the money supply, and stimulate consumer spending. The overall effect is a stimulation
for the economy and a guard against deflation and its adverse effects.

As for the slide in exchange rate of the Canadian Dollar against major currencies, the
increased money supply dilutes the value of the loonie by making it less scarce of a
resource. This slide can be useful for non-oil export-based businesses as it will increase
profitability by simple math.

Business Term:
Monetary Policy: The measures taken by the Bank of Canada to regulate the amount
of money in circulation in order to influence the economy (The Future of Business,
2014).

Page 5

Target for the overnight rate: The signal to the major participants in the money market
as to what the bank of Canada is aiming for when participants borrow and lend one-day
funds to each other (The Future of Business, 2014).

Page 6

Personal Impact

I choose the two topics or concepts that dominated the two articles because I
liked their relevance to the Canadian economy and my personal financial status
as a Canadian consumer. I also enjoyed researching and exploring economic
principles, like demand and supply, that are linked to the behavior of humans on
a mass level.

I have learned that all economic concepts are interrelated and interact with each
other on a long term basis. An example that ties the first and the second article
together, for instance, would be examining the effect of raising interest rates in
the US on Iron prices; higher interest rates slows money circulation, adds
deflationary pressure which lowers demand for commodities, increases the
USDs value which makes iron more expensive for other countries and therefore
lowers the price of iron in general.

Page 7

Works Cited

McGugan, I. (2015, November 11). Commodities keep falling as major mining

projects come into production. Toronto, Ontario, Canada. Retrieved from
http://www.theglobeandmail.com/report-on-business/industry-news/energyand-resources/commodities-keep-falling-as-big-mining-projects-come-intoproduction/article27218760/
Quinn, G. (2015, January 21). Bank of Canada cuts key rate to 0.75% as oil plunge
takes toll on economy. Toronto, Ontario, Canada. Retrieved from
http://business.financialpost.com/news/economy/bank-of-canada-cutsinterest-rate-as-oil-plunge-takes-toll-on-economy
The Future of Business. (2014). Toronto, Ontario, Canada: Nelson Education Ltd.

Page 8

Page 9

Page 10

Page 11

Page 12

Page 13

Page 14

Page 15