We mainly discuss about three parts here. First of all is price stability. Price stability would mean that an economy would not experience inflation or deflation. It is not common for an economy to have price stability. But when the price of an industry or product is changing so much, it is not a good signal for the economy.
To maintain the exchange rate fixed, the government takes any measures to prevent from fluctuating, such as buying or selling their currency. These events disrupt balance of payment and balance of trade. The government could interplay the demand and supply in the foreign exchange market presume that equilibrium of exchange rate is not favorable. This diagram shows the how a country interplay with demand and supply of foreign exchange market. There are country A and B.
David Hume pointed out the inconsistency in the mercantilist doctrine as for example if England had a balance-of- trade surplus with France. The resulting inflow of gold and silver would swell the domestic money and supply and generate Inflation in England. However, France outflow of gold and silver would have the opposite effect. 3.) What is the flaw in one of the assumptions of mercantilism?
IMPORTANCE OF COST OF CAPITAL The determination of the firm's cost of capital is important from the point of view of both capital budgeting as well as capital structure planning decisions: (i) Capital budgeting decisions In capital budgeting decisions, the cost of capital is often used as a discountrate on the basis of which the firm's future cash flowsare discounted to find out their present values. Thus, thecost of capital is the very basis for financial appraisal of new capital expenditure proposals. The decision of thefinance manger will be irrational and wrong I case of cost of capital is not correctly determined. This is because the business must earn at least at a rate whichequals to its cost of capital in order to make at least a break-even. (ii) Capital structure decisions The cost of capital isalso an important consideration in capital structuredecisions.
Buffett’s method is to estimate ‘discounted cash flows’ (Carbonara, 1999). This is similar to the NVP, of a business cash flow, discounted to today’s value to obtain an estimated intrinsic value. Though it is an estimate, this does not bother Buffett as he stated that “it is better to be approximately right than precisely wrong” (Bruner et al., 2009). What are the alternatives to intrinsic value? An alternative to intrinsic value is book value or accounting profit.
1. Describe the characteristics of money Money is an instrument used to make a payment. Money has its own characteristics that cause it to be a vital instrument in the economy. First and foremost, money is limited in supply. This characteristic is important to maintain the value of money.
Incorrect answers will be marked as zero. Marks will not be awarded for explanations. Note: 2 marks each a. Economic consequences of new accounting standards are said to be consistent with efficient markets for which of the following reasons? 1) 2) 3) 4) Because of the existence of securities markets anomalies Because there could be indirect cash flow effects of accounting standard changes Because accounting policy changes affect the amount of income tax payable Because accounting changes reflect a move from historical cost to fair value b.
But for investors who own the callable bonds, costs of repo and short selling don’t exist. Conclusion: The existence of costs for taxation and transaction can only partially explain why arbitrage opportunity exists for a long time. It might be that the number of arbitrageurs is relatively small and they have inadequate capital, their ability to drive market prices to fundamental values is
According to Hubbard, Garnett, Lewis and O’Brien (2010, p.135), market failure is the situation when the market fails to produce, “economically efficient level of output”, where marginal benefit of consumption does not equal marginal cost of production in a given arrangement of trade. In short, the poor or non-existent allocation of resources does
Among all other participants, the role of financial intermediaries is played by the depository and non depository institutions. While the depository institutions borrow money for the surplus possessing individuals and businesses to lend money to others in need, non depository institutions don’t take direct borrowings but use other methods to gather funds and lend them to borrowers. The function of both kinds of the institution is the same- the mobilize funds and offer liquidity to financial markets. Need for Financial Intermediation: The function of financial intermediaries is excessively critical for the economy, as well as for financial market. Financial intermediation is essential for the productive use of surplus funds.