Notes, summaries, assignments, exams, and exercises for Economics for Baccalaureate

Yield Curve Theories

What explains the different forms the yield curve can take? Two main theories attempt to explain this:

1. Theory of Expectations
2. Theory of Market Segmentation

Theory of Expectations

There are three main forms within the theory of expectations:

1. Pure Expectations Theory
2. Liquidity Premium Theory
3. Preferred Habitat Theory

a) Pure Expectations Theory: According to this theory, forward rates exclusively represent the expectation of future rates. In statistical terms, they would be an unbiased estimate of spot rates that will prevail in the future.

b) Liquidity Premium Theory: To tempt an investor to hold long-term bonds, they should be offered at least an interest rate that is higher than the average of future expected rates, plus a premium...

Foundational Economic Concepts

Defining the Economic System

An economic system is the way individuals organize a society to solve their basic economic problems.

The Circular Flow of Income

The circular flow of income is the flow of goods and services and payments among households, businesses, and the public sector.

Balance of Payments (BOP)

The Balance of Payments (BOP) is the systematic recording of financial transactions occurring during a given time between residents of one country and residents of the rest of the world.

Analyzing Unemployment and Its Causes

Types of Unemployment

Cyclical Unemployment

Cyclical Unemployment occurs when workers are idle because the level of aggregate demand in the economy is insufficient to provide employment to all...

Market Exchange Mechanisms: Market and Money

Marketplace: A set of allowed activities for the sale and purchase of a product made to put the reach of a buyer. Money: Allows every person to specialize in specific tasks because a wage will allow them to buy other goods. Demand: Many defendants are willing to buy at a certain price.

Factors Conditioning Demand

• Price: The lower the price, the greater the product demand.
• Prices of related goods:
  • Complementary goods: Goods that are consumed jointly. An increase or decrease in price implies a variation in demand.
  • Substitute goods: Using one means leaving others that fulfill the same need.
• Disposable income or purchasing power: Determines the product quality and quantity that a consumer will demand.
• Types

The economic disruption that national economies suffered after the war prevented a return to normalcy. On the contrary, it produced different phenomena that ultimately influenced the development of the crisis. These were motivated by the following factors:

• Industrial and agricultural overproduction.
• Monetary disorders.
• The U.S. hegemony after the war.
• Differential economic growth of new industries.

Overproduction

The imbalance between production and consumption caused overproduction, a crisis where the former is greater than the latter. Consequently, prices fall, factories close, and unemployment increases. This was a common phenomenon between 1914 and 1929. The cause lies in the increased industrial and agricultural production in countries such...

Purchase Price & Cost of Production

Purchase price: Is the total amount of the purchase, including all expenses related to the acquisition operation (transport, insurance, packaging, etc.).

Cost of production: Is the sum of all costs required to manufacture a product, such as labor, raw materials, or energy consumption.

This company knows, at every moment, the value of what has come to stores. This control is a tool that performs using an existence control tab, which is a document that registers, for each type of existence and valuation, a detailed timeline of entries and exits of the store.

Criteria for Valuation of Stocks

The criteria for the valuation of stocks are different ways how a company can economically evaluate the inventory and control...

Understanding Macroeconomics

Macroeconomics focuses on the study of the economic situation nationally and internationally. This branch of economics is not primarily interested in individual consumer behavior, but rather in how the consumption of the entire population evolves. From the macroeconomic point of view, the production of a single company is not as important as the total set of all goods and services produced within a country. It developed after the crisis of the 1930s, following the work of John Maynard Keynes, who argued that the state should intervene in the economy to address serious problems such as unemployment.

National Product

National Product is the total set of goods and services generated by the companies of a country.

Gross

Perfect Competition: How it Works

In a perfectly competitive market, the market price is determined by supply and demand. The following conditions must be met:

• Freedom of Entry and Exit: There are no barriers limiting the entry and exit of firms.
• Atomization: There are a large number of buyers and sellers.
• Homogeneous Product: The product is uniform, without advertising or branding, and can be real or perceived as such.
• Perfect Information: Complete and free information is available on the product being purchased.

Market Classifications

According to External Market Relations

• Free Market: Subjects involved enjoy autonomy for transactions.
• Regulated Market: An authority has the power to set product prices.

According to the Internal Market Framework

• Transparent

Valuation Fundamentals

Valuation is the process of determining the fair value or present worth of an asset, company, investment, or security. Key methods include Discounted Cash Flow (DCF), Comparable Company Analysis, and Asset-Based Approaches. These are essential for M&A, buying and selling decisions, and investment strategy.

Valuation Models

Models used to estimate the intrinsic value of an asset include:

• Discounted Cash Flow (DCF)
• Price-to-Earnings (P/E) Ratio
• Price-to-Book (P/B) Ratio
• Dividend Discount Model
• Real Estate Valuation Models

Factors Influencing Valuation

• Financial Performance
• Industry Trends
• Market Sentiment
• Interest Rates
• Regulatory Environment
• Macroeconomic Factors
• Company Management

Enterprise Value (EV)

Enterprise Value is the total...

Investing in Mutual Funds

The following patterns of investing can be seen in Mutual Funds:

Regular Plans vs. Direct Plans

As in any retail business, the Asset Management Company (AMC) also appoints distributors who act as intermediaries between the AMC and the retail investors. As an incentive to garner funds for their schemes, AMCs usually pay their mutual fund distributors a commission and reimburse distribution expenses.

Lumpsum vs. SIP vs. STP

If an investor has a consolidated amount—for example, a Diwali bonus or savings accumulated over a period of time—and now wants to invest in mutual funds in one go, such an investment is called a Lumpsum investment.

Over a 9-month period from January to September, an investor may invest a total of Rs....

Business Concept

1. Business Structure: Sole Proprietorship, Partnership, Corporation.
2. Business Size:
   • Microbusinesses: Up to 10 workers.
   • Small and Medium-sized Businesses (PYMES): 11 to 250 employees.
   • Macro businesses: More than 250 employees.
3. Economic Sector: Primary (extraction), Secondary (manufacturing), Tertiary (service).
4. Economic Activity: Industrial, Commercial, Service.
5. Scope of Activity: Local, Regional, Domestic, Multinational, Transnational.
6. Business Model: Retailer, Manufacturer, Fee-for-Service, Subscription, Freemium, Bundling, Marketplace, Affiliate, Razor blade, Franchise, Brokerage.
7. Description of Product or Service:
   • Product or service description
   • Product or service selling volume
   • Product or service selling prices
   • Product or service net sales
   • Net