Notes, summaries, assignments, exams, and problems for Economy

Financial Market Fundamentals

Core Concepts

• Objectives: Facilitate capital flow between lenders and borrowers.
• Key Elements:
  • Risk: Inherent uncertainty in financial transactions.
  • Governmental Intervention: Policies to ensure system health and stability.
  • Liberalization: Deregulation and changes in government rules.

Bonds Explained

• Characteristics: Nominal value, amortization schedule, associated risk, fixed interest rates.

Market Types

• By Term: Short-term or long-term.
• By Issuance: Primary (new issues) or secondary (trading existing securities).
• By Geography: Domestic or international.

Global Financial Regulation & History

Post-Recession Regulation

• International Regulation: Efforts to stabilize the global financial system after the Great Recession.
• United

What is not strictly foreign currency?

b) Bills of exchange, promissory notes, and bank notes in foreign currency.

How can a foreign currency market maker orient quotes?

a) Orient USD/EUR quotes towards selling EUR, buying them and selling them cheaper than competitors.

In the formula i F = (T F - T 0 / T 0 ) * (360 / t):

b) T 0 = cash exchange rate, T F = forward exchange rate, t = time in days.

What does Interest Rate Parity Theory establish?

c) Equality between the appreciation or depreciation of a currency's future exchange rate relative to a reference currency, and the interest rate differences between those currencies.

Currency SWAP operations:

b) Principal amounts are exchanged at the beginning and end, or only at the end of the swap.

Differences

In my particular case, I found it interesting to understand How in certain areas of the production of society, appears a phenomenon (due to The increasing returns on a scale) where the demand does not admit more than One company in the market without it being resent social welfare for the Increase in costs. Therefore a situation of natural monopoly is given.

On the scenario of our project, we see that we are an Electric company, (Company Victor SA), the structure of increasing returns to Scale allows us, to produce more, and be more productive, in addition, we will Attract more public, and the cost unit of the product will be less. Instead, in This scenario we will have to make a great initial investment, such as Infrastructure, this will be... Continue reading "Natural Monopoly and Pricing Strategies in the Spanish Electricity Market" »

How should the fixed income portfolio manager go about explaining the relationship between coupon rates and bond prices? Why do the coupon rates for the various bonds vary so much?

Before explaining the relationship between coupon rates and bond prices, we should understand what these concepts mean. A bond is a security or debt investment through a borrowing arrangement by which an investor loans money to an entity, which borrows the funds for a defined period of time at an interest rate. This interest rate, the regular return the investor who buys the bonds gets, is also called the coupon rate. Depending on the nature of these coupon rates, the expected return can vary because coupon rates are susceptible to fluctuations in interest rates.

The... Continue reading "Understanding the Relationship Between Coupon Rates and Bond Prices" »

Monopolistic Short Run:

Profit: If firms are making profits in the short run, new firms will be attracted to enter the market. Since there are no barriers to entry, they can do it easily. As they enter, they will take business away from existing firms, whose demand curve will start shifting to the left.

Losses: If firms are making losses, some firms in the industry will leave the market. The firms that remain will find that their demand curve starts shifting to the right as they pick up trade from the leaving firms.

Long Run: Firms will end up with normal profit. Each firm is exactly covering its costs, including opportunity costs, and so there is no incentive for firms to leave the industry. Firms outside the industry will not enter since they... Continue reading "Understanding Monopolistic and Oligopolistic Market Structures" »

Understanding Minimum Efficient Scale (MES)

The Minimum Efficient Scale (MES) represents the level of production where economies of scale are fully realized, and unit costs are at their lowest possible point. For production levels lower than q*, unit costs are not at their minimum. If production increases, businesses can still benefit from economies of scale.

MES and Economies of Scale

Gains from an integrated market, which are closely related to MES, depend on:

• The difference between production before integration (q) and MES (assuming q > q*). The larger this difference, the greater the potential gain.
• The fall in unit cost as production moves towards MES.

Optimal Firms and Product Differentiation

The optimal number of firms in an integrated market... Continue reading "Minimum Efficient Scale, Exchange Rates, and Purchasing Power Parity Explained" »

The Law of Variable Proportions

The law of variable proportions states that as the quantity of one factor is increased, keeping the other factors fixed, the marginal product of that factor will eventually decline. This means that up to the use of a certain amount of variable factor, the marginal product of the factor may increase and after a certain stage, it starts diminishing. When the variable factor becomes relatively abundant, the marginal product may become negative.

Perfect Competition

Perfect competition is a market structure where a large number of buyers and sellers are present, and all are engaged in the buying and selling of homogeneous products at a single price prevailing in the market.

In other words, perfect competition, also referred... Continue reading "Economics Basics: Markets, Revenue, and Costs" »

Explain the differences and concerns with performance measures

Different types of Performance Measures. 2 types of measures:

• Objective Measures: quantitative and based on counts of behaviors or outcomes. Ex: number of students in a class, multiple choice exam.
• Subjective Measures: qualitative and based on judgments from raters.

Explain the value of using multiple sources for performance appraisal ratings

Common Problems with Performance Measures (1/2) Rater Errors. Rating errors occur when:

1. Raters provide assessments that follow an undesirable pattern.
2. The rater does not properly account for factors that might influence assessments.

A common error is central tendency error, which is the pattern of placing almost everyone in the middle of the scale.... Continue reading "Performance Measures, Appraisals, and Compensation Practices" »

CPK Financial Strategies

Shareholder Compensation Methods

CPK has several methods to compensate shareholders:

1. Dividend Payout: CPK must decide to pay a dividend as another method to compensate shareholders.
2. Share Repurchase: It could carry out a share repurchase, which is a transaction where a company buys back its own shares from the marketplace. A company might buy back its shares because management considers them undervalued. CPK’s share price has declined 10% in the recent period, so by repurchasing shares it would create a positive signal to the stock market, resulting in an increase of stock price, and it would generate incremental economic value.
3. Dividend Policy: It could also carry out a dividend policy, which is the policy a company uses

The initial talks on reconstructing a postwar international monetary system started between the United States and United Kingdom as early as 1941. The lead negotiators were Harry Dexter White for the USA and John Maynard Keynes for the British. Given the US economic and political dominance at the end of the war, it is not surprising that the eventual system reflected more the US proposals. The system that emerged was ratified at an international monetary conference held at Bretton Woods, New Hampshire, attended by some 44 countries although some commentators dubbed the conference as a meeting of 1.5 nations (the USA and the UK!).

The Bretton Woods Agreement created three institutions. The World Bank dealt with structural and long-term development