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We like to think that when we deposit a dollar at the bank, it goes into a big vault and we can pull out that same dollar at any time. But that¿s not how the U.S. banking system works. Banks take that money and invest it to make money themselves, so cash gets spread around. This, naturally, leads to a big risk: What happens if those investments go sour? Well, you¿d be out of luck. You can¿t get your dollar back.
The Federal Reserve doesn¿t like that scenario, so it prohibits banks from putting all the cash it has on deposit on the line. In fact, the Fed forces banks to keep a portion of their assets at the Federal Reserve itself, to make sure that some of your assets won¿t get squandered if the bank¿s bets go south. These are called ¿reserves,¿ (hence, Federal Reserve. Got it? Good), and usually amount to 10% of the total cash kept in checking accounts.
These reserves are never exactly 10%, and banks like to keep a little extra in reserve ¿ not, as you might think, to make you more comfortable that they¿re in good financial shape, but rather so they can take that excess and lend it to other banks and make money off it. (They¿re banks, they can¿t help themselves.) The rate at which they make these loans is called the Federal Funds rate, which is set by the Federal Reserve¿s Federal Open Market Committee.
When you hear people chattering about how the Fed cut or hiked interest rates, this is what they¿re talking about: the interest rate banks can charge for lending money from their reserves. This begs the question: If these are essentially loans between banks, why is the Fed Funds rate so important for the rest of the economy?
Well, simply put, because loans make the financial world go round. Bank A lends Bank B $10,000 at a Fed Funds rate of 5%. Bank B then lends out $10,000 to a small business at 7%. The small business then takes that money and expands the business and hires new workers. Now someone is employed, Bank B has made interest off the loan, and Bank A is the richer for making it all happen. It¿s perhaps overly simplistic, but you get the idea. When you want the economy to thrive, you make lending cheaper.
Of course, sometimes you don¿t want the economy to thrive. In fact, you might want it to cool down, mostly to avoid money flooding the system and causing inflation. In that case, the Fed raises interest rates, making it difficult to lend or borrow.
Home / Markets / Industries / Industrials
Monday, May 05, 2008
Methanex Announces Agreement With ENAP to Source Natural Gas for Chile Operations
Comtex
VANCOUVER, BRITISH COLUMBIA, May 5, 2008 (Marketwire via COMTEX News Network) ----Methanex Corporation (TSX:MX)(NASDAQ:MEOH)(SANTIAGO:Methanex) announced today that it has signed an agreement with ENAP (the Chilean state-owned oil and gas company) to accelerate gas exploration and development in the Dorado Riquelme exploration block and supply new Chilean-sourced natural gas to Methanex's production facilities in Chile. Under the arrangement, Methanex expects to contribute approximately $100 million in capital over the next three years and will have a 50 percent participation in the block. It is expected that deliveries of gas from the block will commence later this year and that the block has the potential to become a significant new supply source for Methanex's facilities in Chile. The arrangement is subject to approval by the Government of Chile.
Bruce Aitken, President & CEO of Methanex commented, "I am very pleased to announce this agreement with ENAP, which represents an important step in returning our assets in Chile back to full operating rates. With this arrangement, our recently announced agreement with GeoPark, and the new oil and gas activity associated with the bidding round recently conducted by the Government of Chile, we expect to receive increasing quantities of Chilean gas in the next few years."
Methanex's Latin America Senior Vice President, Paul Schiodtz, added, "We are very pleased to have reached this agreement with ENAP, which we have enjoyed a strong relationship with as our primary gas supplier in southern Chile over the last 20 years. The Dorado Riquelme block represents an excellent opportunity. Our involvement will add additional capital and personnel dedicated to accelerate development activity of the block. In addition, the area has existing pipeline and other infrastructure in place to make it possible for gas to be flowing to our plants later this year."
Methanex is a Vancouver-based, publicly traded company and is the world's largest supplier of methanol to major international markets. Methanex shares are listed for trading on the Toronto Stock Exchange in Canada under the trading symbol "MX", on the NASDAQ Global Market in the United States under the trading symbol "MEOH" and on the foreign securities market of the Santiago Stock Exchange in Chile under the trading symbol "Methanex". Methanex can be visited online at www.methanex.com.
ENAP (Empresa Nacional del Petroleo) is the Chilean state-owned oil and gas company which was created in 1950 by the state of Chile. ENAP is involved in the exploration, production and commercialization of hydrocarbons and their derivatives, which it does both in Chile and abroad.
Information in this press release contains forward-looking statements. Certain material factors or assumptions were applied in drawing the conclusions or making the forecasts or projections that are included in these forward-looking statements. Methanex believes that it has a reasonable basis for making such forward-looking statements. However, forward-looking statements, by their nature, involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. The risks and uncertainties include those attendant with producing and marketing methanol and successfully carrying out major capital expenditure projects in various jurisdictions, the ability to successfully carry out corporate initiatives and strategies, conditions in the methanol and other industries including the supply and demand balance for methanol, the success of natural gas exploration and development activities in southern Chile and our ability to obtain any additional gas in that region on commercially acceptable terms, actions of competitors and suppliers, changes in laws or regulations in foreign jurisdictions, world-wide economic conditions and other risks described in our 2007 Management's Discussion & Analysis. In addition, no assurance can be given that the approval from the Government of Chile referred to in this release will be obtained. Undue reliance should not be placed on forward-looking statements. They are not a substitute for the exercise of one's own due diligence and judgment. The outcomes anticipated in forward-looking statements may not occur and we do not undertake to update forward-looking statements.
SOURCE: Methanex Corporation
Jason Chesko Director, Investor Relations Methanex Corporation 604 661 2600 Website: www.methanex.com
Copyright (C) 2008 Marketwire. All rights reserved.
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