Asset 90
What are (were) the CAP, APB, and FASB? What documents that constitute generally accepted accounting principles have been issued by each of these organizations?
Accounting principles can be defined as the rules followed by all organizations to report the financial data. For instance, in the United States, the accounting principles are formulated and issued by the Financial Accounting Standard Board.
The CAP preceded the Accounting Principles Board, whose mandate was to oversee the performance of companies financially. Accounting Principles Board (APB) was founded in 1973, and it provided the standard accounting principles known as Generally Accepted Accounting Principles (GAAP). Companies use these principles to give transparent financial reports. FASB is a non-profit organization that was established to provide new and standard accounting practices in the US. This board oversees International Relation Standards (IRS), and GAAP ensures conceptual, financial principles are followed in the US. The IRS principles are applicable in both US and European Union countries.
Asset 97
- List the factors that affect currency call option premiums and briefly explain the relationship that exists for each. 2. Do you think an at-the-money call option in euros has a higher or lower premium than an at-the-money call option in Mexican pesos (assuming the expiration date and the total dollar value represented by each option are the same for both options)?
On many occasions, the price of an option is the term used to refer to the option premium. In the option premium, the buyer has the mandate to buy and sell the currency whenever the need arises. Moreover, the dollar is the currency used to express the premium.
1(a) every scenario where the change in the currency is high, the option call value will be high and other thighs are at equal measures.
(b) if the expiration time is long the option call will be high since other entities are equal
(c) if the spot rate change is high in relation to price, the call option will be high.
- any occasion where the strike price is the same as spot rate. An at-the-money option has no fundamental value due to the time factor. In this case, if the euro has a high premium, the Mexican pesos will have a high call option.
Asset 98
- Would a steel company or a retail food chain be expected to have greater business risk? Discuss this expectation in terms of the components of business risk. b. When examining a firm’s financial structure, would the firm’s business risk be the primary concern? Why or why not?
Business risks are the factors in both the internal and the external environment, which expose the organization to either lowering its profits or total failure. These risks do not expressly emanate from one entity but rather from all aspects of the environment.
- a) a business can be considered high risk if it operates in a competitive environment or if the probability of financial constraints is high. In this case, the steel company is riskier. The operational risks are high since especially if the company has been involved in business malpractices. Strategic risks are an essential component since it provides a less competitive environment where the business can thrive.
- b) risk is not the primary concern in assessing the financial edifice of an organization. The obligations and equity ratios are the leading entities in appraising the financial spot of any firm.
Asset 116
Once we recognize that product differentiation is the basis for much international trade, there are likely to be more winners and fewer losers in a country when the country shifts from no trade to free trade. There may be several reasons why this statement is true. What are the reasons? Explain each briefly.
Product differentiations is a marketing strategy used by different producers to make similar products appear different from their competitors. Product differentiation may be in the form of branding, packaging, or even ingredients. The strategy makes the products appear as unique in the eyes of the customers around the globe.
Based on international trade, there is likely wood of many winners compared to losers since product differentiation is a method of marketing that differentiate products in the market. When differentiating a product, we focus on contrasting qualities in other rival products. When a country shifts to free trade, it will encourage more product varieties in the market, and it gives consumers more buying choices. Due to high demand and supply, almost every individual who participates in this market will win.
Asset 117
Some financial theorists consider the variance of the distribution of expected rates of return to be a good measure of uncertainty. Explain the reasoning behind this measure of risk and its purpose.
Uncertainties in business simply mean the lack of sureness in the occurrence of an event. Since enterprises are speculative risks, they can be faced by difficulties at different times. Hence, refrain from deciding in those tough times as they can result in substantial losses when the time changes.
The dispersion of data points and the average value of the data is referred to as variance. Its main objective is to measure the volatility in the market price, and that’s why it is a good source of measure to the investors. The distribution variance helps determine both the upside and downside risks. Additionally, the use of semi-variance can be useful though it does not consider the upside risks, which makes variance more appropriate tools to measure uncertainty. The future assessment of risks associated with the business is vital to the investor’s decision making.
Asset 118
Discuss some ways a large insurance company such as Allstate, Progressive, or State Farm might use Web 2.0 tools such as blogs, wikis, or social networking. Are these tools more applicable to a service company than to a manufacturing organization? Discuss
Insurance companies are the organization offering insurance covers to people or organizations to cover unforeseen risks, and they pay premiums. The insurance company collects all the premiums to a pool then addresses the affected parties.
An insurance company can be classified as a service organization since it is more of a marketing their policies. These companies are favored by web tools and social networking more than manufacturing firms. Most of the time, Allstate Company will use a social network such as Twitter and Facebook to alert potential customers when they want to launch new programs. Blogs are tools of marketing, and therefore, for such a large, there is a need to reach every citizen; hence they will need a channel that will reach as many people as possible within a short period.
Asset 119
Find External Factor Evaluation (Opportunities and Threats) for Facebook Company in 2016-2017. Also, find the Weight and the Rating.
External factor evaluation is analytical, too, used by various organizations to assess the external environment by revealing the weaknesses and the strength of an organization. The external environment constitutes the factors in which an organization does not have control over them.
From the annual report, the 2016-2017 Facebook Company had several opportunities to expand the social business. For example, the company was able to diversify the business beyond social media and online advertising. They have introduced virtual reality technology that will boost their service delivery. Consequently, the company has experienced some threats such as cybercrime and imitation. Some of the companies have introduced similar apps that offer online services, just like Facebook. The company rates and weigh continue to increase as per the report provided.
Asset 120
What are two ways a DI can offset the liquidity effects of a net deposit drain of funds? How do the two methods differ? What are the operational benefits and costs of each method?
A depository institution is a facility used to safeguard valuables. It can be either an institution, a bank, or an organization used to trading securities. There are three primary types of depository institutions and include commercial banks, saving institution, and credit union.
If the depository institution has deposit drain funds, it is supposed to upsurge the debts through credits or decline their assets. One method of reducing the assets is by selling the securities, and the liabilities can be increased through acquiring federal funds. The scope of the company will no change when DI offset the drain funds by growing the debts, and in this case, it will have a negative deposit drain. The primarily operational benefit of this method is to increase the financial stability of the company. There are costs associated with this process since liquidating assets may lead to losses.
Asset 121
Why isn’t tax code rewritten to a flat tax of the same percentage to every person and business, then applied to the national budget or national debt?
A tax code is a document formulated by the federal government, which has the rules used by organizations and the individuals while dispatching their revenues to state government. The document is essential as it gives the rules to avoid any confusion in any involved party.
The percentage changes for equity. If everyone is taxed the same, there will be no equity, and it will be a considerable burden to the least privileged in society. The flat tax is fair since every individual will pay what they can afford without pressure. However, this mode of taxation is disproportionate since, as the name suggests, it’s flat, you pay the same amount despite the amount of income. However, it will impact the national debt, and that’s why it cannot be applied to the national debt.
Asset 122
What do you think of Ocasio-Cortez’ 430 credit score and two evictions? Does that diminish her role on the financial services committee?
The financial service committee is delegated with the mandate to oversee the constituents of the national housing, which include real estate, insurance, banking, among others. These assets are among the sturdy holders of the US economy and play a substantial role in balancing the economy.
Low credit score, especially for a house representative, is alarming since it reflects your financial life. It shows you are borrowing much, and lenders may not be willing to lend you. In the finance committee, the member will have the challenge to convince other members of the board on when it comes to financial matters. It will be difficult to suggest a budgetary allocation due to her financial status. However, this may not be hard to deviate from since she had an obligation as an elected leader. Therefore, her policies will not be taken lightly, and they have to be considered just like other members of the committee.
Asset 123
- Discuss the tradeoff between dividends and growth; elaborate on the use and limitations of the Dividend-Discount model. 2. What is the efficient markets hypothesis, what are its three forms, and what are its implications?
A tradeoff in the business environment refers to the balance attained when two incompatible but desirables features are bundled up together. A good tradeoff example is when an employee has to travel more distance to make extra cash.
1) The distribution channel used by a firm determines its value, and every moment an entity pays dividends, it risks the money that could have been used in other projects hence the tradeoff. The Dividend-discount model sometimes can lead to inaccuracy when planning for future projects. It does not factor in different modes of income apart from dividends.
2) this market hypothesis is a component of economics that suggests the available information on assets determines the prices. Additionally, we have three forms of efficient hypothesis, namely, the weak, strong one, and semi-weak. The efficient hypothesis implicates that investors will not win the market since there is no information to predict the prices.
Asset 124
What criteria might you use to determine whether an organization’s management subscribes most closely to the invisible hand, a hand of government, or hand of management?
The invisible hand is used metaphorically to illustrate the forces that are unseen and move freely in the market. The best interest of society is attained when there is freedom in self-interest, production, and the consumption of the goods made.
The invisible hand can be described as the benefits that have not been planned, and Adam Smith introduced this concept. If the organization is maximizing its operations costs to meet the demand and expand the organization, then it is described on the invisible hand. It uses human behaviour to predict market equilibrium. In the case of hand of the government, there must be a policy that has been set by the federal state to determine the future of the organization. Hand of management involves leadership roles that steer the company based on the decisions of the leadership.
Asset 125
What was the impact of the near failure of Bear Stearns and the failure of Lehman Brothers on Money Markets? What actions did the Federal Reserve and the Treasury Department take? What were the impacts of the decisions, if any?
Money markets can be defined as the market used for a trade where the players can borrow money and debt securities of high quality, which primarily lasts for less than a year. The exchange market enables banks, government, and other institutions to trade short term securities.
The fall of failure of Bear Stearns caused the financial crisis that shook the economy at the global level, and it almost brought nations to the recession. For the case of Lehman Brothers, the stock market crashed, causing a big problem on the S&P index. The federal reserve of the US bailed this bank, which lacked 20 billion funds to hedge, and no one was willing to bail it out. The treasury department helped Bear and Stearns bank by pumping more money into the economy. The then-president of US Bush convinced Congress to fund the Lehman Brothers. Even after the bailout, the two banks still fell, and a lot of money was lost.