True; hedge funds have large minimum investments and are marketed to institutions and individuals with high net worths. Hedge funds take on risks that are considerably higher than that of an average individual stock or mutual fund. False; hedge funds are largely unregulated because hedge funds target sophisticated investors. True; the NYSE is a physical location exchange with a tangible physical location that conducts auction markets in designated securities.
False; a larger bid-ask spread means the dealer will realize a higher profit. Your first assignment is to explain the nature of the U. Varga is a highly ranked tennis player who expects to invest substantial amounts of money through Smyth Barry.
She is very bright; therefore, she would like to understand in general terms what will happen to her money. Your boss has developed the following questions that you must use to explain the U. What are the three primary ways in which capital is transferred between savers and borrowers? Describe each one. In a direct transfer, a business sells its stocks or bonds directly to investors savers , without going through any type of institution.
The business borrower receives dollars from the savers, and the savers receive securities bonds or stock in return. If the transfer is made through an investment banking house, the investment bank serves as a middleman. The business sells its securities to the investment bank, which in turn sells them to the. Although the securities are sold twice, the two sales constitute one complete transaction in the primary market.
If the transfer is made through a financial intermediary, savers invest funds with the intermediary, which then issues its own securities in exchange. Banks are one type of intermediary, receiving dollars from many small savers and then lending these dollars to borrowers to purchase homes, automobiles, vacations, and so on, and also to businesses and government units.
The savers receive a certificate of deposit or some other instrument in exchange for the funds deposited with the bank. Mutual funds, insurance companies, and pension funds are other types of intermediaries.
What is a market? Differentiate between the following types of markets: physical asset markets versus financial asset markets, spot markets versus futures markets, money markets versus capital markets, primary markets versus secondary markets, and public markets versus private markets. There are many different types of financial markets, each one dealing with a different type of financial asset, serving a different set of customers, or operating in a different part of the country.
Financial markets differ from physical asset markets in that real, or tangible, assets such as machinery, real estate, and agricultural products are traded in the physical asset markets, but financial securities representing claims on assets are traded in the financial markets. Money markets are the markets in which debt securities with maturities of less than one year are traded.
New York, London, and Tokyo are major money market centers. Longer-term securities, including stocks and bonds, are traded in the capital markets. The New York Stock Exchange is an example of a capital market, while the New York commercial paper and Treasury bill markets are money markets. Primary markets are markets in which corporations raise capital by issuing new securities, while secondary markets are markets in which securities and other financial assets are traded among investors after they have been issued by corporations.
Private markets, where transactions are worked out directly between two parties, are differentiated from public markets, where standardized contracts are traded on organized exchanges. A healthy economy is dependent on efficient funds transfers from people who are net savers to firms and individuals who need capital.
Without efficient transfers, the economy simply could not function. Obviously, the level of employment and productivity, hence our standard of living, would be much lower.
Therefore, it is absolutely. What are derivatives? How can derivatives be used to reduce risk? Can derivatives be used to increase risk? The company could reduce its risk by purchasing derivatives whose values increase when the dollar declines.
This is a hedging operation, and its purpose is to reduce risk exposure. Speculation, on the other hand, is done in the hope of high returns, but it raises risk exposure. Briefly describe each of the following financial institutions: commercial banks, investment banks, mutual funds, hedge funds, and private equity companies.
Historically, they were the major institutions that handled checking accounts and through which the Federal Reserve System expanded or contracted the money supply. Today, however, several other institutions also provide checking services and significantly influence the money supply. Conversely, commercial banks are providing an ever-widening range of services, including stock brokerage services and insurance. Investment banks are organizations that underwrite and distribute new investment securities and help businesses obtain financing.
Mutual funds are organizations that pool investor funds to purchase financial instruments and thus reduce risks through diversification. Hedge funds are similar to mutual funds because they accept money from savers and use the funds to buy various securities, but there are some important differences. While mutual funds are registered and regulated by the SEC, hedge funds are largely unregulated. Private equity companies are organizations that operate much like hedge funds, but rather than buying some of the stock of a firm, private equity players buy and then manage entire firms.
The physical location exchanges are formal organizations having tangible, physical locations and trading in designated securities. There are exchanges for stocks, bonds, commodities, futures, and options. Includes bibliographical references and index Part I. Introduction To Financial Management -- 1. Fundamental Concepts in Financial Management -- 2.
Financial Markets and Institutions -- 3. Financial Statements, Cash Flow, and Taxes -- 4. Analysis of Financial Statements -- 5. Financial Assets -- 6. Interest Rates -- 7. Bonds and Their Valuation -- 8. Risk and Rates of Return -- 9. The Cost of Capital -- The Basics of Capital Budgeting -- Cash Flow Estimation and Risk Analysis -- Capital Structure and Dividend Policy -- Problem 11Q.
Problem 12Q. Problem 13Q. Problem 14Q. See examples below:. Intrinsic value is estimated by the stock analyst as per available data of the risk and return. The cost efficient market is a market where the goods and services are available at price which is Financial ratio analysis is an effective tool of financial analysis of a firm; it can be used by The opportunity cost is a very important factor in making financial and management decisions.
The differences of the interest rates totally depend upon the demand or supply of the financial From the viewpoint of firm and bondholder both the ways are somewhat advantageous and The portfolio is a combination or a set of investments in form of bonds, assets and cash The ownership of the firm is decided on the basis of shares held by different investors.
Since, the classification of project includes differentiation of two projects on the basis of cost The capital budgeting is a process to estimate the cash generated and used from a project or new The meaning of abandonment and how it can change the NPV of the project and even their risk involved As change in sales leads to change in profits, it also increases the operating leverage. Sales and As the uncertainty decreases it results in lowering capital costs and the increase in stock prices Pros: The excess availability of current assets will report an increase in the balance of accounts The payout ratio is a key factor of additional fund needed to know whether the company has enough The seven reasons for risk management can increase the value of a firm are as follows: The risk
0コメント