H’s

Welcome to the SwiftEconomics.com Glossary! Each word will come to life using witty jokes, satire, and colorful examples. The glossary is meant to amuse and educate; not to be traditional or academic. The SwiftEconomics.com team wants to hammer home a few vital ideas throughout the vocabulary lesson. For example, keep an eye on asymmetric information’s effect on health insurance. Please share the SwiftEconomics.com Glossary with colleagues, friends, and family!

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Hard Currency

Reformed currency from the inner-city which is now quite trustworthy and pleasant to boot. Actually, hard currency is dependable and investors expect it to hold its value compared to soft currency. It becomes the currency of choice for international transactions. OPEC transactions, for example, are denominated in U.S. dollars as barrels of oil get delivered worldwide. The USD is getting softer by the minute.


Hawala

Before computers, private jets, and modern banking, there was hawala. For about 300 years in China’s Tang Dynasty, money was moved by trust. Transactions were accounted for by a code number or torn bank-note. As transactions built-up between parties over time, balances were canceled out. What was left was a financial system built upon honor, respect, and efficiency free from lobbyists and bureaucracy. What would happen if the world financial system adopted hawala today?


Hedge

Why some football fans purchase NFL Sunday Ticket. If you’re watching five games at once, you limit your risk exposure to missing some spectacular event. This could include an electrifying run from scrimmage or a streaker.

Consider the options market; a place to buy and sell contracts that specify buying and selling securities in the future. Options are a way for an investor to hedge their bets. If an investor wishes to “short” an underlying asset such as stock, they’ll pay an option premium (fee) for a “put” contract. This means the investor has purchased the right to sell some stock, at a specified price. An investor who is “short” on an asset, is bearish on that asset, or believe its price will go down. The buyer of the put option contract doesn’t have to sell the stock, if it reaches the lower strike price. But the seller of the put option contract is obligated to buy, if the buyer chooses to exercise the option.

If the buyer holds a great deal of the stock in question, but believes it will go down in value, they might hedge their bet by purchasing the put option.

Another classic example is the purchase of gold, a hedge against an expected decline of the U.S. dollar.


Hot Money

George Soros had (maybe still has) a lot of this. Rest assured, hot money stays far from Paris Hilton. These are funds set aside to be transferred into another currency fast. The new currency provides higher returns and the original currency’s value tanks. George used huge pools of hot money.


Human Capital

Whatever makes a person healthy and smart. With these attributes people can earn money. Funny that what makes a person healthy and smart often costs money! Money trees are still in the development and testing stage along with other technology like robots that do house chores. Until the government releases things of this ilk, human capital is very necessary. Human capital can be increased through activities like education, exercise, and housing.


Hyperbolic Discounting

Human tendency to prefer an immediate smaller payoff to a larger, future payoff; a contribution of behavioural economics. “Payoffs” are measured in utility, economic happiness derived from individual preferences which include but are not limited to money, indie rock music, getting high, surfing, and fish tanks. The “hyper” implies that humans discount a payoff more and more the longer they wait to receive it.

Procrastinators, gamblers, drug addicts, credit enthusiasts, and those with low savings rates are all hyperbolic discounters. A person who discounts larger, future payoffs at a higher rate will derive more utility from immediate payoffs; even if the payoffs are a gamble.

Drug addicts discount the consequences of drug abuse at a hyperbolic rate. Huge spenders discount the benefits of saving at a hyperbolic rate.

Self-control issues are a common thread for hyperbolic discounters.


Hyperinflation

Inflation with A.D.D.; a prelude to a currency’s collapse. Caused by new money creation, hyperinflation is an extreme hike in an economy’s prices. For you historians out there this is shades of Germany’s 1923 Weimar Republic where citizens used wheel-barrows of cash to buy a loaf of bread. Why would a government print new money so irresponsibly? To pay for government spending, past debt payments, and the like.

During hyperinflation, money is like a hot potato: its value constantly plummets and holding it is unwise. This brings mass hysteria as people rush to exchange it for hard currency or physical assets like gold.

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