...Introduction: The primary purpose of financial and accounting management is to organize, plan, control and direct the financial and accounting activities, but to ensure that every stakeholder is adequately served. The effectiveness of financial and accounting management, therefore purely depends on the policies, regulations and frameworks that are designed and being evolved from time to time. According to Gray, Owen and Adams (1996) financial management is the core business discipline which is meant to ensure that financial resources are deployed in the most effective manner, within the best interest of every group of stakeholder. Moreover, the importance the financial management also increases in current business context because of the fact that economic and financial contexts have become uncertain and unpredictable in every region across the world. At the other end, financial management also supports the business activities and operations which include investment decision making, pricing, financial reporting as well as to meet the legal and regulatory obligations. This report also focuses on the different aspects of financial analysis and management to reflect its validity, reliability and usability in practice. The purpose of this report is to understand and examine the different aspects of financial management, which will be helpful to understand the effectiveness of financial management and its different aspects. In order to achieve the report’s objectives, below paper...
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...determine how to improve the organization's financial standing. He or she helps set financial goals for a business, analyze problems, and initiate new policies in different divisions. The primary responsibility of a commercial analyst is to scrutinize sales figures for different product lines. An analyst reviews records from previous years and quarters and compares them to current figures. Financial Statements represent a formal record of the financial activities of an entity. These are written reports that quantify the financial strength, performance and liquidity of a company. Financial Statements reflect the financial effects of business transactions and events on the entity. Balance sheet, income statement, statement of cash flows, retained earnings is four main types of financial statements. An analyst looking at granting a loan request would be most interested in the company’s balance sheet, which she could use to compute liquidity ratios (current and quick ratios) and debt ratios. Debt ratios measure the ability of a company to meet its financial obligations when they fall due. Financial leverage ratios (debt ratios) indicate the ability of a company to repay principal amount of its debts, pay interest on its borrowings, and to meet its other financial obligations. They also give insights into the mix of equity and debt a company is using. A credit analyst would also want an income statement with EBIT and interest with which to compute times interest earned. Times...
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...Running Head: Bond Valuation: Liquidity Risk in the Pricing of Corporate Bonds Term Paper: Bond Valuation: Liquidity Risk in the Pricing of Corporate Bonds Group #5: Christina Adams Dorcas Adewunmi Nakia Hillsman Princess Mitchell Marquita Wilson Presented to: Dr. Felix Ayadi ABSTRACT Liquidity risk in the pricing of corporate bonds and the importance of investors knowing liquidity risk in the pricing of corporate bonds and how it affects returns on investments is an important factor in the performance of financial institutions. This paper summarizes the research of several different researchers and their take on the importance and significance of liquidity risks. Furthermore, it addresses the assumptions, a review of different studies as well as a contrast of different methodologies on how liquidity of risk in the pricing of bonds has an affect on investments. PURPOSE OF THE STUDY The purpose of this study is to demonstrate how to conduct an analysis and predict future situations of the liquidity risk in the pricing of corporate bonds. We will also study different companies and previous studies to see how they handled liquidated risk. Corporate bonds are good for businesses with a high credit value. It is easy for them to be able to issue higher bond amounts with a low interest rate. Many people believe that corporate bonds put you at a higher risk because of its taxable terms, ability to collect...
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...Pricing of Liquidity Risk in Emerging Markets: Evidence from Greater China Kuntonrat Davivongs1 and Pantisa Pavabutr2 This paper used the liquidity adjusted capital asset pricing model of Acharya and Pedersen (2005) to examine the liquidity risk of stocks in two retail-based equity markets, China and Taiwan during the period of 1996-2008. We found that the proportion of liquidity risk overwhelms market risk, unlike the findings in US markets. As a pricing factor, the evidence indicated that systematic liquidity risk was more important than market risk in Taiwan. In China, crosssectional differences in individual firm liquidity explained differences in returns. JEL codes: G12, G15 Key Words: Asset Pricing, Liquidity Risk, Emerging Markets 1. Introduction The diversity of liquidity features and their importance in asset pricing have been an active area of research. The main conclusions drawn from existing works are that there exists commonality in liquidity (Chordia et al., 2000, Huberman and Halka, 2001, Hasbrouck and Seppi, 2001) and that investors demand premium from illiquidity (Amihud and Mendelson, 1986, Brennan and Subrahmanyam, 1996, Datar et al., 1998, Amihud, 2002). What is less understood is the relative importance of market risk to liquidity risk. In an attempt to shed light on this issue, Acharya and Pedersen (2005) used an equilibrium model as a framework to measure possible channels of liquidity risk. Although the authors found their ―Liquidity Adjusted Asset...
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...analysis of Profitability and Liquidity management of Bangladesh Steel Re-Rolling Mills Limited. (The Comparative Ratio analysis of the Financial Statement between 2011 and 2012). Abstract: Liquidity and its management determines to a great extent the growth and profitability of a firm. This is because either inadequate liquidity or excess liquidity may be injurious to the smooth operations of the organization. This seeming controversy has attracted a lot of interest in the subject of liquidity management. The present study aims to reveal the Comparative analysis of liquidity and profitability of Bangladesh Steel Re-Rolling Mills Limited so that the company has to maintain this relationship while in conducting day to day operations. The results show that there is a significant impact of only liquid ratio on ROA while insignificant on ROE and EPS; the results also show that ROE is no significant effected by three ratios current ratio, quick ratio and liquid ratio while EPS is greatly affected by current ratios, quick ratios and liquid ratio. The main results of the study demonstrate that each ratio has a significant effect on the financial positions of enterprise with differing amounts and that along with the liquidity ratios in the first place. Profitability ratios also play an important role in the financial positions of enterprises. Every stakeholder has interest in the liquidity position of a company. Suppliers of goods will check the liquidity of the company before selling...
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...terms of capital instruments will include a clause that allows – at the discretion of the relevant authority – write-off or conversion to common shares if the bank is judged to be non-viable. This principle increases the contribution of the private sector to resolving future banking crises and thereby reduces moral hazard. Capital conservation buffer Comprising common equity of 2.5% of risk-weighted assets, bringing the total common equity standard to 7%. Constraint on a bank’s discretionary distributions will be imposed when banks fall into the buffer range. Countercyclical buffer Imposed within a range of 0-2.5% comprising common equity, when authorities judge credit growth is resulting in an unacceptable build up of systematic risk. Liquidity Pillar 2 Containing leverage Leverage ratio A non-risk-based leverage ratio that includes off-balance sheet exposures will serve as a backstop to the risk-based capital requirement. Also helps contain system wide build up of leverage. Pillar 3 Market discipline Revised Pillar 3 disclosures requirements The requirements introduced relate to securitisation exposures and sponsorship of off-balance sheet vehicles. Enhanced disclosures on the detail of the components of regulatory capital and their reconciliation to the reported accounts will be required, including a comprehensive explanation of how a bank calculates its regulatory capital ratios. Risk coverage Securitisations Strengthens the capital treatment...
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...Liquidity risk & Management-Basic Bank Course Title: Management of Financial Institution Course Code: F-637 Submitted to Tahmina Akter, Assistant Professor department of finance university of Dhaka Submitted by Md Abdullah-Al-Hasan,ID-13007. Md Rukonuzzaman, ID-20026. Ajanta Shukla Tanma,ID-21050 Moin Uddin, Id-20035 AHMED SHARIF, ID-19011. Introductory Part Letter of transmittal 17 August, 2013 Tahmina Akter, Assistant Professor Department of Finance Faculty of Business Studies University of Dhaka Subject: Submission of the Term Paper Dear Madam, We are pleased to present you this term paper titled “Liquidity risk and management-Basic Bank” as partial requirement of the Management of Financial Institution course. Working for this report has been an enlightening & informative experience. Your guideline has been followed in every aspect of preparing this report. With our limited knowledge in this field we have presented what we believed to be relevant and rational information. We have enjoyed working on this report and hope that our work will meet the level of your expectation. We will be always available for any further query. Yours sincerely, Md Abdullah-Al-Hasan,Id-13007. Md Rukonuzzaman, Id-20026. AJANTA SHUKLA TANMA,ID-21050 Moin Uddin, Id-2003 AHMED SHARIF, ID-19011. LETTER OF ACCEPTANCE This report is prepared during the relevant documents...
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...The importance of cash budget may be summarised as follow:-(1) Helpful in Planning. Cash budget helps planning for the most efficient use of cash. It points out cash surplus, or deficiency at selected point of time and enables the management to arrange for the deficiency before time or to plan for investing the surplus money as profitable as possible without any threat to the liquidity. (2) Forecasting the Future needs. Cash budget forecasts the future needs of funds, its time and the amount well in advance. It, thus, helps planning for raising the funds through the most profitable sources at reasonable terms and costs. (3) Maintenance of Ample cash Balance. Cash is the basis of liquidity of the enterprise. Cash budget helps in maintaining the liquidity. It suggests adequate cash balance for expected requirements and a fair margin for the contingencies. (4) Controlling Cash Expenditure. Cash budget acts as a controlling device. The expenses of various departments in the firm can best be controlled so as not to exceed the budgeted limit. (5) Evaluation of Performance. Cash budget acts as a standard for evaluating the financial performance. (6) Testing the Influence of proposed Expansion Programme. Cash budget forecasts the inflows from a proposed expansion or investment programme and testify its impact on cash position.(7) Sound Dividend Policy. Cash budget plans for cash dividend to shareholders, consistent with the liquid position of the firm. It helps in following a sound consistent...
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...1. In a competitive marketplace, if managers deviate too far from making decisions that are consistent with stockholder wealth maximization, they risk being disciplined by the market. Part of this discipline involves the threat of being taken over by groups who are more aligned with stockholder interests. True 2. If a bond is callable, and if interest rates in the economy decline, then the company can sell a new issue of low-interest-rate bonds and use the proceeds to "call" the old bonds in and have effectively refinanced at a lower rate. True 3. Risk really should not be a significant factor when making financial decision because all business decisions involve predictions about the future, which is unknown. As a result, all decisions automatically include some consideration of risk. False 4. All else equal, a dollar received sooner is worth more than a dollar received at some later date, because the sooner the dollar is received the more quickly it can be invested to earn a positive return. True 5. Current cash flow from existing assets is highly relevant to the investor. However, the value of the firm depends primarily upon its growth opportunities. As a result, profit projections from those opportunities are the only relevant future flows with which investors are concerned. False 6. Determining whether a firm's financial position is improving or deteriorating requires analysis of more than one set of financial statements. Trend analysis is one method...
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...employee profit sharing. Non profit making organisation: A non profit organization exists to provide a particular service to the community. The word "non profit" refers to a type of business one which is organized under rules that forbid the distribution of profits to owners. "Profit" in this context is a relatively technical accounting term, related to but not identical with the notion of a surplus of revenues over expenditures. The main aim of these organisations is helping the community and is concerned with money only as much as necessary to keep the organisation operating. TREASURY MANAGEMENT. Treasury management (or treasury operations) includes management of an enterprise's holdings, with the ultimate goal of maximizing the firm's liquidity and mitigating its operational, financial and reputational risk. Treasury Management includes a firm's collections, disbursements, concentration, investment and funding activities. In larger firms,...
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...Financial Analysis & Management Assignments 1. Discuss the extent to which the legal and professional regulatory framework of accounting ensures that corporate reports provide reliable, relevant, objective, and comparable information to users. 2. Critically evaluate the importance of discounted cash flow techniques in investment decisions. Illustrate your answer with your examples. 3. Discuss the relative importance profitability and liquidity for the survival of a business and explain how the working capital can be managed to minimise the risk of liquidity problems. Shahrzad Parhizgar Student Number: B0229JTJT1112 February 2013 Lecturer:PalanAmbikai Word Count: 2980 Financial Analysis & Management Assignments February 1, 2013 Table of Content LEGAL & PROFESSIONAL REGULATORY FRAMEWORKS ENSURING RELIABLE, RELEVANT, OBJECTIVE, AND COMPARABLE DATA ........................................................................................................................................ 3 INTRODUCTION ....................................................................................................................................................... 3 FINANCIAL INFORMATION USERS ................................................................................................................................ 3 LEGAL AND PROFESSIONAL REGULATORY FRAMEWORKS ................................................................................................. 4 FINANCIAL REPORTS...
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...INTRODUCTION The history has seen changes, rises and falls of an international reserve currency, emerging with an increased role of sterling in the 19th century and replaced by U.S. dollar in the 20th century (Eichengreen, 2006; Flandreau and Jobst, 2006). The emergence of euro has influenced a lot the whole world in many aspects and it is not a doubt that its introduction improved the functioning of euro financial markets, especially if we look from the perspective of transaction costs and country specific economic risks (Freix, 2004). It is the fact that euro is rapidly approaching U.S. dollar in terms of liquidity and breadth of euro financial markets. But at this level U.S. dollar is still maintaining its leading role on the international financial markets, maybe because of its greater financial market size or the inertia in the use of financial resources. The objective of this paper is to analyze different aspects of challenges U.S. dollar faces today. What are the chances for euro to surpass U.S. dollar and to become the leading currency. The first section of the paper gives a brief history about an international currency development, the second and the basic part gives some theoretical aspects and reviews the ideas of different economists about the challenges dollar face. All these discussion leads to the final part - conclusion. HISTORY Before the few decades of World War I, international gold standard emerged. It was gold bullion and not a gold coin standard, which...
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...Current and Noncurrent Assets Student ACC/440 September 16, 2013 Instructor The accounting department within any organization is a vital component in the maintenance of revenue budgets and calculated gains or losses. Understanding assets and their importance to the accounting process is vital for any organization. Assets are resources owned by a company, which is expected to expand the value of the organization or benefit the operations. Assets can be divided into two categories current, and noncurrent. This classification of assets is helpful because it helps establish if the company has enough assets to pay its debts when they come due (Kimmel, Weygandt & Kieso, 2007). The following paragraphs will discuss current and noncurrent assets, and the differences between the two assets. Also, it will address the order of liquidity and how the order of liquidity applies to the balance sheet. Current Assets Current assets, also known as short-term, “are cash and other resources that are reasonably expected to be realized in cash or sold or consumed within one year of the balance sheet date or the company's operating cycle, whichever is longer”. Current assets are also a balance sheet that will equal the total of cash equivalents and cash, prepaid expenses, marketable securities, accounts receivable, inventory, and additional assets that can be changed into cash within the operating cycle. Creditor’s interest will always be in the financial health of a...
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...Why Bonds With Different Maturities Have Different Interest Rates In this paper, I will discuss why bonds with different maturities can have different interest rates. I will do so by explaining the importance of understanding the term structure, as well as the three theories that support the term structure; the expectations theory, the segmented markets theory, and the liquidity premium theory. Term Structure According to Hubbard and O’Brien, the term structure “is the relationship among the interest rates on bonds that are otherwise similar but have different maturities.” Term structure is most commonly analyzed by looking at the Treasury yield curve, which is the relationship of interest rates on Treasury bonds with different maturities on a particular day. Yields generally tend to move in line with maturity, producing an upward sloping yield curve or a “normal yield curve.” Rarely, however, the yields on the long-term treasuries fall below the yields of short-term treasuries. This creates an inverted yield curve. According to a class lecture, six times when the yield curve became inverted, there was an economic recession. Wheelock and Wohar believe that term structure plays an important role in an economy because it “has been found useful for forecasting such variables as output growth, inflation, industrial production, consumption, and recessions.” The Expectations Theory According to Hubbard and O’Brien, the expectations theory “holds that the interest rate on a...
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...To define accounting, is the process to identify measure and communicate economic information for the users of the information to come up with an informed judgement. (Association, n.d.). Standing the test of time, this definition defined the very purpose of accounting, which is to provide information to decision makers. As stated by this definition, accounting itself, is a process by which, financial reports are to be provided for the use of decision makers. Actually, Accounting is an information system wherein the key product of which is a set of financial reports. – The document that reports financial information about an entity to decision makers. Personal Planning, education, expenses, loans and payments, income taxes all use this information system that is accounting, (Conrado T. Valix, 2007) Having been defined as such, it is governed by rules and regulations, ensuring that it will provide a quality financial report enabling its decision makers to create intelligent decisions, these rules and regulations are defined Conceptual Framework – the professional and regulatory framework accounting that are concepts used in the preparation and presentation of financial reports. It covers the Concepts of Capital and Capital Maintenance, the Objective of Financial Statements, the Qualitative Characteristics of the Financial reports , (focusing on the manner of the report’s presentation and content) – or the qualities or attributes that make the reports useful to the users, and...
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