... The U.S. financial markets definitely play a big role in the economy. Unless people invest in businesses, there is no way that they can get started. This is also how they eventually grow in the future in order to meet county's needs and demands. The amount of stocks bought and sold each day directly impact the economy. Prior to the United State's stock market crash in 1929, there was an economic boom. Many Americans had already invested a tremendous amount of money in France. Once the French economy inflated, so did the economy her in the United States. French economy crashed because Americans took their money out of France and put it in U.S. stocks. If that ordeal was to happen today, where all or most of Americans pull their investments, the same economic decrease would happen. Not only would businesses fail, the U.S. would go into even more debt than they already are. The financial market affects all individuals in many ways that we may not even realize. “Many believe that if you don't invest in the stock market, a stock market crash doesn't affect you. However, any average person loses money and opportunities all based off the stock market”.( How does the Stock Market Affect You?, 2011.). When the stock market begins to fall, employers start cutting back on employee benefits. These benefits can include health insurance and retirement plans. Another area where individuals are affected is n the housing market. A bad economy can make it extremely hard...
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...Fiscal and Monetary Policies essay Frank iula Mod3a 2-22-12 The Monetary and Fiscal Policies, although controlled by two different organizations, are the ways that our economy is kept under control. Both policies have their strengths and weaknesses, some situations favoring use of both policies, but most of the time, only one is necessary. Fiscal Policy can be explained in many ways, for example. Fiscal policy is the use of the government budget to affect an economy. When the government decides on the taxes that it collects, the transfer payments it gives out, or the goods and services that it purchases, it is engaging in fiscal policy. The primary economic impact of any change in the government budget is felt by particular groups make tax cut for families with children, for example, raises the disposable income of such families. Discussions of fiscal policy, however, usually focus on the effect of changes in the government budget on the overall economy on such macroeconomic variables as GNP and unemployment and inflation. Fiscal Policy also can be explained as the economic term which describes the behavior of governments in raising money to fund current spending and investment for collective social purposes and for transfer payments to citizens and residents of the territory for which the government is responsible. The money may be raised by taxation, by borrowing, by user charges on social assets or services,...
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...Mini Case (p. 45) a. Why is corporate finance important to all managers? It is important because successful companies must not only be able to obtain high valued product and satisfy customers; they must be able to generate enough cash to compensate investors who provide the capital. Corporate finance helps to do this by giving managers tools to evaluate any proposal, such as marketing, production, and strategy and be able to implement only the projects that add value for the investors. b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form. Companies can have three organizational forms which are proprietorships, partnerships and corporations. Companies usually start as a proprietorship which is owned by one individual. It is generally easy and inexpensive to startup; it has fewer regulations than other organizational forms; and the income is not subjected to corporate taxation but is taxed as part of the proprietor’s personal income. However, the disadvantages of a proprietorship are that it may be difficult for a sole owner to generate needed capital for growth; personal liabilities are unlimited for the business debt, which can have implications on the owner’s personal assets such as property; and the life of the company is limited to the life of the founder. A general partnership is the same as a sole proprietorship in that it is a business that conducts...
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...decisions like investing in foreign stock exchange markets. It is important for organizations to conduct due diligence of this decision. This decision might mean the generation of substantial profits, especially where a corporation gets enlisted in a stock exchange market of a foreign country. Huge profits are realized when the company invites the members of the public to subscribe its stake through (IPO) initial public offer. On the other hand, a company might accrue massive losses perhaps due to shares volatility (Maskell & Baggaley, 2003). It is of the essence that a Company evaluates the proposed investment decision of getting enlisted in foreign countries stock exchange market they choose to invest. Due diligence will enable the Company access all information relating to the movement of stock and share prices. This information will allow a company to avoid investing in equity markets that are highly volatile (Maskell & Baggaley, 2003. (Maskell & Baggaley, 2003), defines foreign-exchange risk fluctuations in the prices or value of an investment due to changes in foreign exchange rates or exchange rates. This risk is also known as exchange rate risk or merely currency risk; it is simply the loss an investor accrues during a long or a short position due to unfavourable movements in the exchange rates. Currency risk mostly affects international businesses that are more into imports and exports. The Case Study “Does the Devil Really Wear Prada?” In the case...
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...small. Similarly, when the opportunity cost is large, the cost of not making the best choice is large. Suppose you sell a car for $7,200 without much forethought. You find out the next day that the car could have been sold for $7,300. You have incurred an opportunity cost of at least $100. You might not consider that very significant. But suppose you discovered the next day that the car could have been sold for $9,500. You probably would consider the opportunity cost of $2,300 on an asset worth $9,500 significant. An important application of the Principle of Self-Interested Behavior is called agency theory. Agency theory analyzes conflicts of interest and behavior in a principal–agent relationship. Broadly speaking, a principal–agent relationship is a relationship in which one entity, an agent, makes decisions that affect another entity, a principal. Moral hazard refers to situations in which the agent can take unseen actions for personal benefit even though such actions are costly to the principal. By carefully analyzing individual behavior, agency theory helps us develop more-effective provisions for contracts between a principal and an...
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...however, students are responsible for revising the answer sheets on their own time. This topic relates to the economics of financial markets 1. You have just won £20 million in the national lottery which promises to pay you £1 million (tax free) every year for the next 20 years. a. Have you really won £20 million? Discuss. b. If the interest rate is very high, does that affect how you view this pay-out scheme? 2. Suppose you are 28 years old and plan to retire in 40 years. If you were to invest £500 right now at an annual interest rate of 3.5% a year, how much money will you have when you retire? Use both the exact formula and the rule of 70 as an approximation. 3. Explain why you would be more or less willing to buy BP bonds under the following circumstances: a. For whatever reason, people begin to trade BP bonds more on the secondary market. b. You expect a bear market in stocks (stock prices are expected to decline). c. Brokerage commissions on stocks fall. (The brokerage commission is the fee you typically pay to buy and sell an asset). d. Brokerage commissions on bonds fall. 4. The following figure depicts the annual interest rate on U.S. government bonds over the past several decades. Grey areas indicate a recession. (Image copied from Mishkin “The Economics of Money, Banking and Financial Markets” (2004) chapter 5). a. How do interest rates change over the course of the business cycle? b. Use both the liquidity preferences framework and the supply and demand for bonds...
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...to see. Classifications coupled with the current investment environment can make for a very complicated investment selection process. This paper will go into detail about some of how that process can affect organizational decisions concerning portfolio composition. It will choose a Dow 30 organization and the mutual fund, MYHAX from Mainstay as examples. The kinds of assets a mutual fund will buy are first brought about by a prospectus. This is a document that states all of the things the mutual fund managers can do when they get investors funds. They are bound by this document to invest the way it says they will. For the most part, the assets they are going to buy are somewhat laid out in this document. For a mutual fund like MYHAX, they are buying discounted bonds, or what some might refer to as junk bonds. The manager is MacKay Shields LLC, in fact, they are so good at what they do that same management was hired by First Trust portfolios to manage FSD, an ETF. They pick asset classes as it says on the prospectus. They will buy discounted bonds and sell bonds that are overprices. Basically what that means is they will do the research on bonds that they believe will appreciate in the future, and while they wait for appreciation they will get a better than market rate of interest. For the bonds that are overprices and have very low yields, they will sell them on a leveraged basis. They are 130% long and 30%...
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...Systematic Risks (non-diversifiable) Systematic risks are risks that affect the entire market and not each single corporation; it is associated with the overall movement in the general market or economic. Systematic risk are also called as market risk, are non-diversifiable. According to Berk, DeMarzo and Harford (2012,p.337), systematic risks are risks that fluctuate through the market available news. These risks are difficult to be diversified even though the shareholder holds a portfolio since these risks affect the whole market. Systematic risks are included interest rate risk, inflation rate risk, market risk and exchange rate risk, recession, political risk, earthquake. Unsystematic Risks (diversifiable) Unsystematic risks are not affected by the economy but by the specific corporation. The fluctuation of share price of a particular corporation is due to the good or bad news announced by the corporation. It will increase when the corporation that had less earnings growth rate, and low morale or productivity of employees or a poor reputation of the corporation, vice versa. However, unsystematic risk can be diversified by shareholders who hold the portfolio when the stocks are negatively co-related. In fact, it means that when a particular event occurs that affects a specific corporation, the stock of other corporation will be unaffected and thus, the fluctuation of share price between two stocks can be offset. Unsystematic risks are included liquidity risk, operational...
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...Company overview Wal-Mart (WLMT) is the world’s largest retailer and has been at the top of Fortune 500 listing for many years. The company has operations in all 50 United States and Puerto Rico. A broad, Wal-Mart operates in 14 countries with totally owned subsidiaries in Argentine, Brazil, Japan, the U.K, Chile and Mexico with over 9,600 stores under its management worldwide. Founded in 1962 by Sam Walton, Wal-Mart was incorporated in1969 and publically traded on New York stock Exchange in 1972. The headquarters are in Bentonville, Arkansas. Wal-Mart operates retail stores in various formats around the world and is committed to saving consumers money by offering the lowest prices on broad assortment of quality merchandise. “Everyday low prices” is the company philosophy. Like the yellow happy face that bounces through the aisles in its television ads, Wal-Mart is expanding across the world, planting giant supercenters as well as neighborhood scale markets in its continued effort to serve the world over making the company the largest retail company in the world. Sheer size is clearly a factor. “There is no one bigger” says William Cody, managing director of the Jay H. Baker retaining initiative at Wharton. Considering the global recession, we are experiencing today and competition in the retail industry Wal-Mart is doing very well. The simple formula of low-prices and rocket science logistics to back up its operations is the engine for the company success. According to Ira...
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...1929-1939 was one of the worst economic depressions in the world economy. The GDP per capita of the United States fell by a third (Federico 2005). A lot of economic activities went down and so many people suffered. Even though the depression affect the rest of the world, it has been called the great depression of the US because it’s believed that the US suffered more than any other nation and the causes are also attributed to have been started in America. Many things have been attributed to have caused the great depression among them are bank failure, Stock Market Crash of 1929, Reduction in Purchasing Across the Board, American Economic Policy with Europe, Drought Conditions but many people believe that it’s the American economic policies that really caused the depression and entirely blame the government for that. Some of the effects are increase in unemployment, collapse of banks and increase in the cost of living. On the other hand the economic recession of 2008 was longest recession since the world war two hence the term great recession. The recession lasted for 18 months from December 2007 to June 2009. Various things have been attributed to have cause the recession among them are irrational excitement in the housing market and low interest rates while some of the effects are increase in unemployment, increase in oil prices, decrease in consumption and investment. Recessions are declared by the national bureau of economics research (NBER) and according to NBER are defined as...
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...Chapter 1 An Overview of Corporate Finance and The Financial Environment MINI CASE Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle Dellatorre, a professional tennis player who has just come to the United States from Chile. Dellatorre is a highly ranked tennis player who would like to start a company to produce and market apparel that she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. Dellatorre is also very bright, and, therefore, she would like to understand, in general terms, what will happen to her money. Your boss has developed the following set of questions which you must ask and answer to explain the U.S. financial system to Dellatorre. a. Why is corporate finance important to all managers? Answer: Corporate finance provides the skills managers need to: (1) identify and select the corporate strategies and individual projects that add value to their firm; and (2) forecast the funding requirements of their company, and devise strategies for acquiring those funds. b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form. Answer: The three main forms of business organization are (1) sole proprietorships, (2) partnerships, and (3) corporations. In...
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...Chapter 1 ------------------------------------------------- An Overview of Corporate Finance and ------------------------------------------------- The Financial Environment MINI CASE ------------------------------------------------- Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle Dellatorre, a professional tennis player who has just come to the United States from Chile. Dellatorre is a highly ranked tennis player who would like to start a company to produce and market apparel that she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. Dellatorre is also very bright, and, therefore, she would like to understand, in general terms, what will happen to her money. Your boss has developed the following set of questions which you must ask and answer to explain the U.S. financial system to Dellatorre. ------------------------------------------------- a. Why is corporate finance important to all managers? Answer: Corporate finance provides the skills managers need to: (1) identify and select the corporate strategies and individual projects that add value to their firm; and (2) forecast the funding requirements of their company, and devise strategies for acquiring those funds. ------------------------------------------------- ...
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...prefer capital gains. Given the wide and frequent swings in interest rates, investors can find a variety of investment opportunities. In addition to their versatility, certain types of bonds can be used to shelter income from taxes. While municipal bonds are perhaps the best known tax shelters, some Treasury and federal agency bonds also give investors some tax advantages. Bonds are exposed to the following five major types of risk: (1) Interest rate risk: This affects the market as a whole and therefore translates into market risk. When market interest rates rise, bond prices fall, and vice versa. (2) Purchasing power risk: This is the risk caused by inflation. When inflation heats up, bond yields lag behind inflation rates. A bond investor is locked into a fixed-coupon bond even though market yields are rising with inflation. (3) Business/financial risk: This refers to the risk that the issuer will default on interest and/or principal payments. Business risk is related to the quality and integrity of the issuer, whereas financial risk relates to the amount of the issuer’s leverage. Treasury securities are free of this risk, although it is an important consideration for corporate and municipal bonds. (4) Liquidity risk: This is the risk that a bond will be difficult to sell if the investor wishes to do so. The bond market is primarily over-the-counter in nature, and much of the activity occurs in the primary/new issue market. With the exception...
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...Executive Summary With the unpredictable markets that have occurred in the past few months there truly was no need to go to any amusement park because no ride could take you on as many bumps, twist and drops that this economy has taken us investors on. The Stock-Trac Simulation was a great educational tool which gives beginners in the online trading world basic knowledge and tools to help succeed in the “world’s largest casino”. Today’s world is globalized and what makes a smart investor is someone who knows all about the different and diverse markets and companies of the world. For this assignment we had to invest in different companies and exchanges from all around the globe. Since we were new to investing, this project seemed to be a little overwhelming at first glance and we knew we needed some assistance in researching domestic and international markets. By using Yahoo Finance and Google Finance, we got the help and resources needed to create a diversified portfolio investing in bonds, futures, and stocks. Everyday as we would do our research on certain stocks and other investments, we continued to notice frightening downward trends in world exchanges from NYSE to Shanghai Stock Exchange. We knew before we began trading that there was high volatility in today’s market and it seemed to be causing unpredictable changes in price. These trends were causing havoc on the markets and many companies ending up going bankrupt or were on their last life line. Since this was a short...
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...profitable company. - To be the preferred employer. - To be the preferred provider. In order to achieve its goal, the managers of Marriott have developed a financial strategy with 4 main decisions. Manage rather than own hotel assets. The first measure is simply to be more involved in the management of theirs hotel. It means for the company to have more control on how the money is used but also to have more responsibilities concerning the employees and especially the customers. The company is able to monitor and control its resources and expenses. By having more control, Marriott can try to improve its efficiency and its profitability, for example, by searching the best suppliers with long term contracts for what the company really needs and it could decrease useless expenses. There is another benefit if Marriott performs well on increasing its profit; Marriott will be able on the one hand to increase the salary of their employees and on the other hand to improve the quality of services provided to the customers. Invest in projects that increase...
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