Notes, abstracts, papers, exams and problems of Economy

TOPIC 7: INTRODUCTION TO OPTIONS AND FUTURES

1. INTRODUCTION TO DERIVATIVES

Definition: financial instrument whose payoffs and values are derived from / depend on something else. Goals:

• To illustrate the economic function/application of derivatives
• Understand how derivative markets are organized
• Be aware of the main derivative markets

Risk: The chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment.

Types:Market risk: Change in the value of an asset due to changes in exchange rates, interest rates, inflation rates, bond prices, equity prices, or commodity pricesCredit risk: The other party fails to meet the agreed conditions (payments and dates). Example:... Continue reading "Introduction to Derivatives: Types, Risks, and Markets" »

What is a Business Plan?

A Business Plan is a Written Document that details proposed venture: Describes the current status, expected needs and projected results of a new Business /Covers the project’s research and development, manufacturing, management, marketing, critical risks, financing and milestones or timetable

Demonstrates a road map of where the venture is aimed to reach and how the entrepreneur proposes the route it will reach by.

Elements of a Business Plan:

Sec 1: Executive Summary: summary or brief statement of a longer report or proposal about the project for the reader to be acquainted with without reading the full details Sec 2: Business Description: Is the key element of a full business plan (how to make profit), ranges between... Continue reading "Understanding Business Plans, Marketing, and Financing" »

Selling Externally

Just as employees must “sell” ideas internally, entrepreneurs with plans based on new business models must sell them to other parties, such as investors or potential collaborators.

Technique Nº 4: Prototyping

It's a methodology for exploring different possibilities until a truly good one emerged. It's a central part of an inquiry process that helps participants gain a better sense of what is missing in the initial understanding of a situation.

Prototyping is a powerful tool for developing new, innovative business models. Like visual thinking, it makes abstract concepts tangible. In recent years, in business discipline, it has gained traction in areas such as process design, service design and even organization and strategy... Continue reading "Innovative Business Model Techniques: Prototyping and Storytelling" »

1. The CEO of Gulf Italia could probably justify paying a bribe to Italian government officials if he embraced a Utilitarian ethical framework.

2. When a company creates a wholly owned subsidiary in a foreign country, it makes a direct investment to establish a business that it solely owns and controls there.

3. Which of the following is NOT true about Whole Foods? Workers are encouraged to form unions.

4. According to the Friedman Doctrine, 'the business of business is business.'

5. According to management Guru Peter Drucker, the main responsibilities of a manager include all of the following EXCEPT: Disciplining people for bad.

6. European multinational firms commonly use a region-country focused approach because they are operating in multiple... Continue reading "Ethical Frameworks and Global Business Practices" »

Social Networks

are spaces on the internet formed by communities of individuals with interests and activities in common, such as friendship, kinship, work, and that allow contact between them, so they can share content and interact.

No one thought that social networks were going to be a success

Many believed that they were just going to be a fad and would soon disappear. What is even more surprising is that it is now a consolidated universal platform, a highly requested and necessary tool for a brand, company, business, or artist. But it is not only of great help for various sectors, also for any individual who is in them.

Now, networks are already generating employment

but it was never thought that it would ever exist. New jobs were born due to

Balanced Budget

Balanced budget is when current revenues equal current expenditures; however, when a deficit budget occurs causing revenues to fall short of expenditures, it requires the government to borrow money or even tap into reserves to make up the difference. This becomes a requirement that shapes the entire budget process, thus making budget deliberations revenue-driven when revenues determine the level of spending. Balanced budget is elusive when authorities propose a balanced budget but the council approves an unbalanced one or state or local laws allow the deficit at the end of the year to be carried over to the next year. Furthermore, there are no consistent or enforced standards for the balanced budget since it may be manipulated... Continue reading "The Importance of Balanced Budget and Tax Neutrality in Financial Management" »

Product

Product is anything that can be offered to a market for attention, acquisition, use, or consumption, in order to satisfy customer needs.

Consumer Products

are bought by consumers for personal consumption.

Industrial Product

are bought by other companies for further processing or use in conducting a business.

Product Value (Creating and communicating value): 2 ways

• The customer-value hierarchy

Perceived value will differentiate a company from competitors and will make the product more attractive for the market.

• Core benefit
• Basic product
• Expected Product
• Augmented Product
• Potential Product

• Value Proposition

consists of identifying the Benefits, Barriers, and Needs. Describes the benefits customers can expect from your products and services.

• Benefits
• Experience
• Barriers
• Needs
• Features

• The

Characteristics of International Division Structure:

<!--[if !SupportLists]-->•<!--[endif]-->Organized by function, product, or by geography – such as country units within a region.

<!--[if !SupportLists]-->•<!--[endif]-->Reflects a shortage of capabilities: With few employees having knowledge and experience in international operations, it made sense to cluster them together rather than to spread them throughout the organization.

<!--[if !SupportLists]-->•<!--[endif]-->Used mainly by firms with a low ratio of foreign to domestic revenues and low foreign product diversity.

Global Product Structure decision involves:

<!--[if !SupportLists]-->•<!--[endif]-->Locating manufacturing and other value-

Real GDP decreases from 2007 to 2008. We can conclude that /production levels are lower in 2008

The  Can change the quantity of money in the Economy. /Federal Reserve

The Annual budget is decided upon by the /President Of the United States and United State Congress

The Boards of directors of the Federal Reserve (FOMC) is /A seven- member board, each one serving a 14-year term

The capital stock at the end of 2008 is Equal to the capital stock at the beginning of 2008 /plus net investment

The consumption function is C = 200 + 0.9Y. The saving function is /S= -200 + 0.1Y  

The Difference between what the government spends and what it collects in taxes in A year is /The Government budget or surplus

The economy is experiencing widespread Unemployment.

Futures Contracts

Long Hedge:

Involves the purchase of a futures contract to guard against a price increase.

Short Hedge:

Involves the sale of a futures contract to protect against a price decline in commodities or financial securities.

Perfect Hedge:

Occurs when gain/loss on hedge transaction exactly offsets loss/gain on unhedged position.

Speculation: Buying a futures contract (today) is often referred to as 'going long,' or establishing a long position.

Recall: Each futures contract has an expiration date. A new futures price is established every day before expiration. If this new price is higher than the previous day's price, the holder of a long futures contract position profits from this futures price increase. If this new price is lower than... Continue reading "Futures Contracts and Options: A Comprehensive Guide" »