B6005 Financial Management

Answer Key In-class Exercise 3 Bond Valuation

Discounted cash flows                                                                                         Answer: F

.         The market value of any real or financial asset, including stocks, bonds, or art work, may be found by determining future cash flows and then discounting them back to the present.

Call provision                                                                                                                  Answer: F 

.       A call provision... Continue reading "B6005 Financial Management" »

Principles of Economics

Scarcity and Economics

Scarcity refers to the limited nature of society's resources. Economics is the study of how society manages its scarce resources.

How People Make Decisions

1. People Face Tradeoffs

Every decision involves tradeoffs. A significant tradeoff society faces is between:

• Efficiency: When society gets the most from its scarce resources.
• Equality: When prosperity is distributed uniformly among society's members.

Tradeoff Example: To achieve greater equality, income could be redistributed from the wealthy to the poor. However, this can reduce the incentive to work and produce, shrinking the overall economy.

2. The Cost of Something Is What You Give Up to Get It

Decision-making requires comparing the costs and benefits... Continue reading "Principles of Economics: A Comprehensive Guide" »

Business Studies

The NBER has formally affirmed that the US financial system is in a recession.

By putting into action an effective monetary policy, the Federal Reserve and the US government could uphold stable prices, thus sustaining conditions for long-standing economic expansion as well as increased employment opportunities. This study will explain how open market operations, discount rate, and reserve requirements could be utilized in order to stimulate the American economy.

Open Market Operations

Open market operations (OMOs) refer to the buying and selling of securities by a central bank in the open market to execute monetary policy. OMOs could be utilized in adjusting the supply of reserve balances in order to uphold the federal funds rate... Continue reading "Monetary Policy Tools to Revive the US Economy" »

The nature and scope of a business refer to the core characteristics and breadth of activities that define it. Here's how they are generally categorized:

Nature of the Business

1. Type of Business:

   • Goods: Involves the production, manufacturing, or distribution of physical products.
   • Services: Offers intangible products like consulting, healthcare, or banking.
   • Hybrid: Combination of goods and services (e.g., retail stores offering products and after-sales services).

2. Industry:

   • The sector in which the business operates, such as technology, healthcare, education, manufacturing, etc.

3. Ownership Structure:

   • Could be a sole proprietorship, partnership, corporation, or limited liability company (LLC), each with distinct legal and financial implications.

4. Business Objectives:

Economic Planning in Developing Nations

What is the significance of economic planning for a developing country?

Barbara Wooton defines economic planning as "a system in which the market mechanism is deliberately manipulated with the object of producing a pattern other than that which would have resulted from its spontaneous activity."

Resource Use for National Benefit

Economic planning ensures optimal use of economic and human resources for national benefit. It increases output based on national priorities and reduces resource wastage.

Boosting Capital and Development

Capital formation is crucial in economic planning. Planned economies prioritize future growth over immediate needs, fostering rapid economic development.

Reducing Economic Inequality

Economic... Continue reading "Economic Planning: Vital for Developing Nations" »

Functions of a Financial Market

• Connecting Buyers and Sellers: Facilitates the meeting of buyers and sellers of financial assets without needing a physical location.
• Issuance and Exchange of Assets: Supports the creation (primary markets) and subsequent trading (secondary markets) of financial assets.
• Price Determination: Establishes the prices of financial assets through various pricing mechanisms, such as supply and demand or predetermined conditions.
• Public Information: Disseminates information about asset prices, trading mechanisms, and pricing systems.
• Providing Liquidity: Ensures that assets can be easily converted into cash without significant loss of value.
• Reducing Transaction Costs: Lowers the costs related to finding counterparts and determining

Sole Proprietorship

A sole proprietorship is a business structure where an individual owns and operates the business. The owner contributes the capital, manages operations, and is solely responsible for the business's outcomes. They may work alone or employ others. This structure is the easiest to form and simplest to organize. The sole proprietor can borrow funds or utilize others' money for business purposes.

Advantages of Sole Proprietorship

Easy to Start

Forming a sole proprietorship is easier than partnerships or corporations. There are no legal formalities like agreements, memorandums of association, or articles of association.

Easy to Dissolve

Dissolving a sole proprietorship is simple, as the owner doesn't need permission from shareholders... Continue reading "Sole Proprietorship: Advantages, Disadvantages, and Characteristics" »

Study of Socioeconomic Problems and Needs: D: An analysis of socioeconomic needs is conducted to identify the issues that public funds should address.R: It is crucial to ensure that funds are allocated to areas that truly need them, aligning program objectives with the real needs of society.Issuance of Call for Proposals Terms and Conditions:D: Objectives, beneficiaries, eligible concepts, and deadlines of the call are defined.R: This stage ensures transparency and clarity in eligibility criteria and program objectives, facilitating the participation of companies and other interested parties.Publication of the Call:D: The call is made public so that interested parties can submit their applications.R: It is fundamental to ensure that all stakeholders... Continue reading "Public Funding Program Lifecycle: From Needs Analysis to Impact Assessment" »

Hedging with S&P 500 Index Futures

SIF hedging: NF = V_F(antiguo) = F_o x Z. NF (Number of contracts) = V_p (portfolio value) / (V_F x B_p) (Beta). With this hedge, risk is removed. If the index goes up, the profit in the portfolio will be offset by losses in SIFs contracts and vice versa.

Example: S&P 500 falls 5%:

• In the portfolio: R_p = B_p x (-5%) = -10% of a portfolio of $10M, resulting in $9M (Final Value).
• In the SIFS contracts: S_i = 980 (S&P 500 value given) x 0.95 (100% - 5%) = 931. F_i = 931 x (1 + 0.04 x 5/12 (next month timeframe)) = 946.52. V_F = NF x (F_i - F_o) x Z (250).
• Gain on futures: V_F(New) / Equity portfolio value.
• Outcome stock portfolio: 2 x (-5%) = -10%.
• Final Value portfolio: $10M - $1M + V_F(New).

Margin Payments

Margin payments... Continue reading "Hedging and Speculation with Futures and Options" »

Defining "Person"

A "person" can refer to various legal entities:

1. Individual: A natural human being.
2. Hindu Undivided Family (HUF): A family unit with common ancestors, treated as a single entity for tax purposes (India).
3. Company: A corporate entity registered under the Companies Act or similar law.
4. Firm: Partnership firms and limited liability partnerships (LLPs).
5. Association of Persons (AOP) or Body of Individuals (BOI): A group with a common purpose, with or without a formal partnership.
6. Local Authority: Municipal corporations, panchayats, and other local governance bodies.
7. Artificial Juridical Person: Entities like trusts, universities, or temples, recognized by law.

Defining "Assessee"

An "assessee" is a person liable to pay taxes:

1. Ordinary Assessee: