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

Financial Performance & Capital Cost Analysis (2007-2008)

Fundamental Concepts in Capital Cost

This section clarifies common misconceptions regarding financial concepts.

The Cost of Capital

FALSE. The cost of capital is not always the same. It represents the return investors require on a company's securities (shares and bonds) to be willing to invest. It therefore includes the cost of equity and the cost of debt.

Book Value of Shares

FALSE. The book value of shares, as recorded in the balance sheet (nominal value + premiums + reserves), does not necessarily coincide with the market price of the shares.

The Beta Coefficient

FALSE. Beta is a measure of overall market risk (economic and financial) that is non-diversifiable. It also depends on the...

The Eurosystem employs two primary types of auction procedures for its liquidity operations: fixed-rate auctions and variable-rate auctions.

Fixed-Rate Auctions (TF)

In a fixed-rate tender (TF), the European Central Bank (ECB) predetermines the interest rate. Counterparties then submit requests for the funds they wish to obtain at this rate. The interest rate is unique, fixed, and uniform for all participants.

Once the ECB decides on the total amount of liquidity to inject in a fixed-rate auction, the award is made pro rata among the bids from various entities. This allocation is based on the relationship between the quantity allotted and the total amount bid. The amount allotted to each entity is the result of applying the award percentage to...

Monetary Policy in the EMU

Both a two-level strategy and direct monitoring play important roles. Monetary aggregates serve as intermediate variables in the first approach and as qualified indicators in the second.

Monetary aggregates indicate the liquidity within the economic system. While cash (notes and coins) is the most obvious representation of liquidity, modern economies feature other financial instruments with a high degree of liquidity that act as money substitutes.

Monetary aggregates are defined as the sum of cash in circulation and balances of certain instruments with a high degree of liquidity.

Central banks set monetary aggregates as variables because their purpose is crucial to monetary policy. Numerous economic studies confirm that...

Chapter 2: Time Value of Money and Amortization

To reach $50,000 in 4 years with a nominal interest rate of 6% compounded monthly, how much must be set aside every month? ($924.21).

,

• An amortized loan is a loan that is repaid in equal payments over its life (T). (True)
• Midway through the life of an amortized loan, the percentage of the payment that represents the repayment of principal must be greater than or equal to the percentage that represents the payment of interest. (False)
• Common types of amortized loans include business loans and retirement plans. (True)
• The periodic rate is the rate of interest charged per period. (True)
• To compare investments with different compounding intervals, you must look at their nominal rates. (False)
• An annuity

Unit 1. Q 1: Difference between speculation, investment, and gambling. Describe the process of investment management. Also tell about difference between financial investments versus real investments. Also, first of all meanings of investments.

Introduction

Investment plays a crucial role in the economic development of a country as well as in the personal financial growth of individuals. Every person or business aims to utilize their funds efficiently to earn future returns. In simple terms, investment refers to the allocation of funds in assets or instruments that are expected to generate income or appreciate in value over time. It is a planned activity, done after analyzing risk, return, time period, and market conditions. Investment differs...

Operations: Key Questions for Value Creation

• What processes create value? Example: Amazon with its automated logistics.
• What activities support these processes? Example: Google heavily invests in R&D and qualified HR.
• What external factors influence operations? These include globalization, offshoring, and digitalization. Example: Nike manufactures in Asia to cut costs.
• What are the key considerations for internationalization in operations? Culture, costs, laws, and partners are crucial. Example: IKEA adapts its products to the Chinese market.
• What common mistakes should be avoided in operations? A local mindset, lack of market study, and unclear contracts can lead to failure. Example: Walmart failed in Germany due to cultural mismatch.

Global

What are the Three Fundamental Reasons for the Welfare State's Existence?

The three fundamental reasons for the existence of the welfare state are:

• To assist the economically disadvantaged.
• To address market failures, such as inefficiencies in private insurance and pension systems.
• To support economic growth.

What is the Difference Between Risk and Uncertainty, and How Does the Welfare State Address Both?

Risk refers to situations where the probabilities of possible outcomes are known, while uncertainty is when these probabilities are unknown. The welfare state copes with both scenarios by collectively spreading the risk across a large number of people and adjusting contributions as necessary. This differentiates it from private insurance, which...

Core Microeconomics and Market Equilibrium

The optimal point is reached when MRT = MRS (Marginal Rate of Transformation equals Marginal Rate of Substitution), determining the hours to work. Market Equilibrium is the point where supply equals demand.

Game Theory and Strategy

A Dominant Strategy is the strategy that earns a higher payoff than any other strategy, regardless of the strategies chosen by other players. In game theory, the best-response function illustrates the strategy that yields the highest payoff for a player, given the strategies chosen by other players.

Production Functions and Labor Effects

The Production Function is defined as q = f(L, K), where:

• Q: Quantity of output produced.
• L: Labor input.
• K: Capital input.

The Substitution Effect...

Topic 1: Key Drivers of Change

Industry vs. Market

Michael Porter's Five Forces

TMS – Required Readings

Chapter 1

A. Werner, Schuler & Jackson (WSJ)

Companies performance has an influence on financial outcome

• New technology is just helpful if human resource are implementing it successfully
• Create happy employees
  • Increase in profitability
  • Productivity
  • Market value

Everyone is in charge of talent management

• Ensuring that organisation is applying knowledge and legal requirements
  • HR
  • Line managers
  • Employees themselves

External environment

• Constrains and opportunities how human resources are managed

Stakeholder and organisation are influencing each other

• Stakeholder benefit from success and are harmed by failures
  • Organisation wants to please stakeholders

Effective HR practices and policies in order to achieve the goal which is visible in

• Customer