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

1. Raw Materials and Services Defined

   • Raw materials are basic products.
   • Services refer to technical support.

2. Understanding Industrial Products

   An industrial product is defined as the combination of tangible and intangible aspects.

3. Industrial Product Development Process

   The process to develop new industrial products includes:

   1. Idea Generation
   2. Idea Screening
   3. Concept Development and Testing
   4. Business Analysis
   5. Product Development
   6. Market Testing
   7. Commercialization

4. Distribution Channel Decisions

   A distribution channel decision consists of determining the type and number of middlemen.

   • In the cardboard case, it was suggested to combine all distribution channels.
   • Distribution channels in industrial markets should be responsible for selling and promoting the products.

5. Total

Market Sentiment

• Bullish: Share prices are rising, and confidence is high.
• Bearish: Share prices are dropping, and confidence is low.

Financial Metrics and Accounting

• COGS vs. Operating Expenses: COGS (Cost of Goods Sold) is the carrying value of goods sold during a period. Operating expenses are ongoing costs for running a product or service.
• EBIT vs. Net Income: EBIT measures profit including all income and expenses except interest and taxes. Net income is a company's total income minus the cost of goods sold.
• Retained Earnings: The accumulated net income of a company retained at a specific point in time.
• Shareholder's Equity: Represents the net value of a company (Total Assets minus Total Liabilities). It is a key metric for determining financial

Financial Intermediation

1. In direct financing, the lender… Trades money for the financial claim of the borrower
2. Which of the following is an example of indirect financing? … An SSU purchasing a financial claim from a commercial bank
3. Denomination intermediation is best exemplified by… issuing five $3,000 CDs and making one $15,000 loan
4. Maturity intermediation is best associated with… receiving funds in six-month CDs and offering thirty-year mortgage loans
5. All of the following are benefits provided by financial intermediaries, except: elimination of default risk

The Federal Reserve

6. Which of the following is not one of the original goals of the Federal Reserve? Maintaining the value of the U.S. dollar relative to gold
7. Which of the following are

Limitations of Business Portfolio Models

Business portfolio models are useful for allocating resources among Strategic Business Units (SBUs), but they also have limitations:

• No empirical validation.
• Classification of SBUs is rather subjective.
• Simplification that can be dangerous (based on theoretical assumptions).
• It makes sense for large companies only.
• Analysis is based on cash flows only; there is a need to take into consideration other factors, such as sales margins or ROI.
• They do not consider interrelations among SBUs.

Identification and Selection of New Business Areas

Companies have different possibilities to grow, categorized into two main classifications:

Internal vs. External Growth Strategies

• Internal growth: Based on the company's resources.

Understanding Core Economic Concepts

Functions of Money

The three essential functions of money are:

• Medium of Exchange: Money facilitates transactions, allowing depositors to make withdrawals from bank accounts, often by writing checks or using electronic transfers.
• Unit of Account: Money serves as a common measure for prices and value, simplifying economic calculations.
• Store of Value: Money provides a means of holding wealth over time, though its value can be affected by inflation.

How Banks Function and Generate Profit

Banks operate by accepting deposits and then issuing loans from these pooled funds. To remain profitable and continue operations, the interest rate banks charge on loans must be higher than the interest rate they pay on deposits.... Continue reading "Core Economic Principles: Money, Banking, and Monetary Policy Explained" »

Carol's E-commerce Decision: Scaling the Business

Carol, an emerging talent in fashion design, faces a critical decision regarding sales channels. Her choice to utilize e-commerce is driven by the necessity to reach a larger, global audience with a relatively low initial investment. As she cannot afford the high fixed costs associated with expensive physical retail spaces, e-commerce, with its significantly lower overhead, appears to be the only viable alternative for selling her dresses to a worldwide market.

The Strategic Advantages of Selling Online

E-commerce penetration is increasing globally, and consumers are increasingly likely to purchase goods and services online. Carol, who already employs a Business-to-Consumer (B2C) approach, is perfectly... Continue reading "E-commerce for Emerging Designers: Carol's Path to Global Sales" »

English Finance Vocabulary

Mastering financial terminology is essential for professional communication. Below is a comprehensive list of terms used in accounting and finance.

Core Accounting and Finance Terms

• Assets (Activos/Bienes): Anything owned by a company, such as cash, buildings (edificios), and machines (máquinas).
• Expenditure (Gasto): The money that a company spends.
• Cost Accounting (Contabilidad de costos): Determining the unit cost of a manufactured product, including indirect costs.
• Liabilities (Pasivo): Money that a company will have to pay to someone else.
• Income (Ingresos): The money that a company receives from supplying goods or services.
• Bookkeeping (Libro de contabilidad): Recording transactions (purchases and sales) in ledgers.

Does the Purchase of Government Debt by Monetary Authorities Enhance Macroeconomic Policy?

Yes, this is actually what happened in the aftermath of the financial crisis that led central banks (CBs) to buy large amounts of public debt. The explanation is as follows:

Impact of Central Bank Debt Purchases on Liquidity

When the CB buys a large amount of government debt, it implies a higher volume of liquidity injected into the economy. Once the volume of liquidity is such that the interest rate market hits the lower bound of the corridor (deposit rate), further injection of liquidity (quantity) allows them to also control the interest rate (price). The internal market will not fall further as the CB dominates all other aspects of the economy, and the... Continue reading "Central Bank Debt Purchases: Impact on Monetary Policy" »