Essays on Rate Of Interest

(a)Discuss the conceptual merit(s) of each of the date-of-issue balance sheet presentations shown above for these bonds. (b)Explain why investors would pay $1,085,800 for bonds that have a maturity value of only $1,000,000. The difference between the present value and the maturity value of the bond depends on the interest rate and the coupon rate. If the coupon rate of a bond is greater than the yield to maturity rate, then it will trade at a premium to its face value. Therefore, it is clear that the bonds of Nicholas company are ...

The recent Brexit vote has brought about a number if tensions associated with membership in the European Union and a common European economic area. It has also put into serious question the European Project started in the post-World War II era. Please argue for or against Britain being a member of the European Union. Be sure to cover five broad areas of disagreement economics (Benefits/ Costs), political (Benefits/ Costs), Labor market (who wins? Who lose), social (costs/ benefits), and issue ofan identify? Britain a second-largest economy after Germany is a member of the European Union, has taken up a ...

Most of the services offered by a bank are largely financial in nature. However, the terms Assets and Liabilities have a different meaning when it comes to banks. For instance, assets in banking terminology would indicate fund usage, while liabilities in case of banks would, in fact, be a source of funds for banks. This essay will consider five different services or function that a bank offers and would explain with reasons if the said service is an asset or a liability, while also evaluating the services and providing an overall impression of the same. This essay considers the ...

Business Report

The A2 Milk Company Statement of Academic Honesty This assessment has been written by me and represents my own work. This work has not been previously submitted. All sourced information has been appropriately acknowledged and ARA referenced. I permit this assessment to be copied for academic processes (such as moderation). I have retained a copy of this assessment electronically.

Part 1 – Introduction

1.1 What is the name of the Entities Reporting (Quote the page number from the Annual Report)

Answer:

The name of the entity reporting is company FMC. It is created for the purpose of part 7 of the Financial Markets Conduct ...

Effects of increasing interest rates on Banks

The profitability of the bank will increase with the increase in interest rate because it will directly yield cash, and the profits will be directed to the earnings (Mueller). Since the hike in interest rates occur in environments with strong economic growth and the bond yields are rising, the banking sector will experience a profit increase. Therefore, most consumers will demand loan spikes; hence, increasing the earnings for the banks. For instance, if a client has $ 2 million in his account, he will earn 1% interest, and the bank makes 2% on this money in the short run. Consequently, ...

The dynamics of the economy when the interest rates are at almost zero are a bit complicated, especially because the monetary policies have very little effect on the economy. However, the interplay between the fiscal and monetary policies will bring the economy to stabilization even though with great difficulty. Some of the factors at play bring a tradeoff between the success and failure of the possible policies. For example, the policies that will bring down the level of unemployment will tend to push up inflation. However, factors that will push the GDP upwards will also lower the rate of ...

Article Summary

The financial crisis of 2008 had led the economy to the worse kind of recession ever observed. The Fed had taken up a number of policy programs to stabilize the financial system as the first step and then to provide support to the receding economy. The Fed had to take a number of bailing out programs for the falling financial institutions and industries as well. The decision on the rate of interest was a difficult one. At the initial stages when the bail-out programs were still going on or had just begun, the rate of interest was at 2 ...

The IS LM model or the Hicks –Hansen model is the macroeconomic tool that shows the relationship between the interest rates and the real output of goods and services and the money market. The intersection of the investment - saving curve or the IS curve and liquidity preference curve or the money supply curve is the general equilibrium in both the markets .This model explains the changes in the national income when the price level is fixed in the short run and also shows the reason for the shift in the aggregate demand curve. It was first developed by ...

Abstract / Executive Summary

Summary of Article The minister from the United Arab’s economy reported that it is anticipated that the GDP of UAE will mark Dhs 1.6 trillion in the current year growing over 3.5%. Sultan Saeed Al Mansouri commented in an interview to the WAM (news agency), elevation in the growth rate evidence that the region is capable of maintaining economic competence and has gained sufficient success with the help of diversification. He further clarified that industrial zone of the UAE is continuously advancing and is positioned presently between 10%-14%. Additionally, Sultan Saeed delivered his expectation for the investments ...

International Finance

1 a. Discuss the corporate control of your business. Explain why your business in Mexico is exposed to agency problems. b. How would you attempt to monitor the ongoing operations of the business? c. Explain how you might be able to use a compensation plan that limits the potential agency problems? d. Assume that you have been approached by a competitor in Mexico to engage in a joint venture. The competitor would offer the classroom facilities (so that you would not need to rent classroom facilities), while your employees would provide the teaching. You would split the profits with ...

Air threads measure of value can be evaluated by the following methods; discounted cash flow this refers to the existing estimate of Air Thread Company using its future opportunities of investment. Comparable transactions method can also apply in the likelihood of occurrence of an akin transaction that may have occurred in a condition that is similar to an existing one. Multiple methods may also be incorporated to ascertain the value of Air thread in comparison to another firm that may be comparable to it, for example, the American cable communications company itself. The market valuation also applies which refers ...

Introduction

Monetary policy is the process of government control on the economy through monetary instruments. The monetary authority in the economy uses the tools of monetary policy to affect demand and supply of money with the objective of fostering growth and maintaining price stability in the economy along with financial market stability. The instruments of monetary policy include rate of interest and open market operations. In this paper we attempt to show that monetary policy is effective in the short run but not in the long run. We use two different models to establish our argument, the AD/AS model and ...

What are the factors that led to the remarkable little change of the official attitudes towards usury in the late middle ages and the early years of the Renaissance? Although usury was considered as a sin against humanity, it was being exercised during the commercial revolution in Europe since it was acknowledged that interest was essential for the business. Geisst argues, "It was only when money began to be understood as a legitimate method of facilitating a trade that it could be universally accepted and interest understood as a method of facilitating business" (70). In addition, the rising commercialism ...

Austerity Measure

The growth path of an economy does not follow a smooth trajectory. It is composed of a number of short-term and long-term fluctuations. The magnitude and duration of such fluctuations are varied. The government uses its two important tools, the fiscal policy and the monetary policy to smoothen out this jagged path to some extent. During periods of boom, that is, when the economy experiences high rate of growth with low unemployment rate and high income, the government follows a contractionary fiscal and monetary policy. In times of slump when the economy is under a phase of deceleration in growth with low output ...

Introduction

In this report, we will put into the use the bond valuation technique so learnt by us. In addition, for the purpose of valuation, we will use the excel spreadsheet as and when needed. In other part, we will discuss and compare the interest rate risk and re-investment risk followed by measures to manage each of them. We are hopeful that by the end of this report, we will be gaining a handful experience over the concepts of bond valuation and various risk associated with them.

Part A

Answer 1)

1.a) Using the Present Value function in the excel spreadsheet for cash ...

In case, real GDP is lower than potential GPD expansionary policies are implemented in correcting contraction of business cycle. Expansionary Fiscal policy leads to increases in purchases by government, tax rate decrease and transfer payment increase to overcome contracting business cycle. Expansionary fiscal policy closes gap of recession, stimulates economy and decreases rate of unemployment.

Fiscal policy tools to stimulate economy are:

Government Purchases Expenditures done by government sector for services and final goods come under Government purchases. Government purchases are part of GDP bought by the government. Government purchases include heavy cost expenses like highway construction and aircraft clips carriers to smaller expenses like ...

Executive Summary

Banks such as UK bank get the money that they lend from the deposits. The level of lending is usually dependent on the demand of the funds by the public and on the economic level of the state. When the demand for money is high, UK bank will have to check on the level of money that is circulation before it decides on how much to lend out (Sessa, 2011). It is done to reduce chances of having excess money supply into the economy that may result to the inflation. The bank can use various ways to ensure that ...

The formula for calculation of payment per month is PMT = P X (APR/n)/ [1- (1+APR/n)^ (-ny), where p is loan taken, APR is rate of interest is always equivalent to 1

Payment in two different cases, first one normally and then consolidating all the loan

Amounts together and calculating the effective payment required to be done along with Proper comparison between the two kinds. The objective of doing that is to hold a picture About pros and cons of consolidation and why someone should go forward with Consolidation. The situation is: $15,000 with an APR of 8% for 15 years $10,000 with and APR of ...

There are two kinds of bonds including those issued by government and the bonds issued by corporations. Corporate bonds are considered one of the major forms of investment vehicles where people save their money in order to plan for their retirement. Corporations issue bond so that they can raise capital; the investor is paid an interest on the invested amount by the corporation (Asquith & Au et al., 2013). There are many factors that affect the interest rate of a bond: the first factor is the level of risk involved; investor lends the money to the corporation and receives interest based ...

In the real estate, financing has become the most complex element of transactions in both residential and commercial markets. Mortgaging and other financing options drive a multi-billion dollar industry allowing a majority of the home owners to purchase property only a fraction of the price of the property they wish to purchase . Due to the increasing influence of the federal government on the real estate market and the truth that mortgages are a form of investment made the forms required to develop a typical real estate market uniform. Mortgage refers to the art of connoting an instrument signed by the mortgagor and the mortgagee ...

Tools for Evaluating the Projects

Biz Systems Consultants Ltd is a firm that is set up by experienced persons. Now they are in consideration for the projects that have investment of 17, 00,000$ and three projects are mutually exclusive. In this report we will find out the ways and tools that can help the firm in accessing the feasibility of the project. There are different methods of accessing the feasibility of projects as well as many sources of finance but we will discuss here the three major sources of finance that are best suitable for the company (Bearse, 1993). For the company Biz ...

It is commonly known that the money in hand today is more worth than the money of same amount in future. This idea is based on earning potential. This principle says that the money can earn interest and gradually can grow. Everyone knows the fact that the money deposited in bank account will earn interest. The time value of the money is a priori principle that a fixed amount of the money that is accessible today is more costly than the same amount of near future. This principle can be generalized for the economic resources available by social contract. We can ...

Financial Crisis in U.S.

Summary of the Financial Crisis in U.S

The financial crisis in the United States was one of the historical financial meltdown in the world history. We all know how the ups and down frequently occur in this area, but a downfall like this affected the whole country. It all started in 2007, August. A few events in the past were a trigger to such an event. A noticeable event in 2001 occurred when the U.S faced a brief period of recession in the country, although the effects of it were covered up without much deep loss but a fear of such an uncertainty gained a place in ...

Financial Crisis in U.S.

Summary of the Financial Crisis in U.S

The financial crisis in the United States was one of the historical financial meltdown in the world’s history. We all know how the ups and down frequently occur in this area, but a downfall like this affected the whole country. It all started in 2007, August. A few events in the past were a trigger to such an event. A noticeable event in 2001 occurred when the U.S faced a brief period of recession in the country, although the effects of it were covered up without much deep loss but a fear of such an uncertainty gained a place ...

Chapter 10:

Question1. As government expenditure increases, the income increases. This increase in income leads to a rise in consumption expenditure. A 1 unit rise in income leads to a rise in consumption by the marginal propensity to consume. As consumption expenditure increases, this induces further increase in output in the economy. So income increases. The increase in government expenditure creates a multiplier effect. This multiplier depends on the marginal propensity to consume (MPC). Higher the MPC higher is the multiplier effect.

The money market is at equilibrium when the demand for money equals the supply of money. The demand for money has ...

Answer 6(Spot rate and Forward Rate)

The spot rate is defined as the current exchange rate. On the other hand, a forward rate is the rate that is agreed by both the buyers and the sellers to be applied in the future in forward transactions. Currency movements do not affect the forward rate. The main relationship between the forward rate and the spot rate lies in the calculation of the rate. The forward rate is calculated by either adding or subtracting a premium or discount from the spot rate. The premium or discount arises as a result of the discrepancies between the interest rates of the two prime ...

Financial crisis 2008

The U.S financial institutions provided services to the citizens whereby the mortgage loans were given out without securities and rate of interest. This was extended to the point that the period repayment and its terms were not logical as the borrowers could not meet the terms (Savona, Kirton, & Oldani, 2011). It led to the entire market interest rate to abruptly rise hence interrupting to all the plans that the financial institution had in their plans. The mortgage lenders gave out the money in the form of loans without putting in place the appropriate measures. The financial institution never saw ...

Introduction

The actions taken by the Reserve Bank of Australia to influence the cost and supply of money in the economy are referred to as the monetary policy. The main tools through which the monetary policy influences the market operations is the interest rate that is paid on the loans from the money market. Manipulating the interest rate is the main tool of RBA to influence its monetary policy. RBA is the central bank of Australia; and it is the role of the central bank to ensure price stability by controlling the supply of money. So, a stabilizing role is played ...

Executive Summary

Bank of England acts as a central bank and performs the credit rationing and is also the controller of the monetary policy, so as to ensure that there is no hindrance to the economic stimulus. It cautiously exercise its credit control function. For Instance, at the time of inflation, when the demand for money is high and so is the rate of consumer spending, Bank of England increases the interest rates and also adopt other measures as Open market operations to limit the money supply. This will impact the total availability of funds in the market and will ultimately lead ...

Viability Report on JV

There lies a distinguishing characteristic of Multinational Corporation (MNC) in contrast with a collection of independent national firms dealing at arm’s length is, its ability to move money to its affiliates through internal transfer mechanism. In multinational financial system there is transfer of goods, services, technology and capital. In the interest of facilitating stronger sustainable profitability and growth, decisions on resource allocation in organizations require a systematic, analytical and though approach as well as sound judgement. Project and investment appraisals and capital budgeting which involves assessing the financial feasibility of a report should use Discounted Cash Flow(DCF) analysis as a supporting ...

Introduction

There are two kinds of tools available to the economic policy-makers through which they tend to influence the economy of the country; these two tools are fiscal and monetary. The former policy related to the spending of the government and the collection of revenue like altering the disposable income of the people by lowering taxes or increasing the spending so that demand is stimulated. The latter which is the monetary policy is associated with the supply of money and is influenced by such factors like the rate of interest and the reserve requirements for the banks. Usually these policies ...

The economic growth of a country is affected by many factors that determine the demand and supply of goods and services. The first factor is the rate of interest that banks charge for lending out money. The second factor is the rate at which businesses create opportunities of employment. Businesses should also retain those employees for there to be sustained economic growth. The last factor is the rate of exchange of money in business activities that are commonly referred to as liquidity. For there to be good economic growth, money should be exchanged at a high rate for it to earn a ...

A bond is a long-term debt instrument used by firms as well as governments to raise additional capital to finance their projects. A bond has a face value which must be repaid to the bondholder at the maturity of the bond. It also involves periodic payments of interest to the holder at a stated coupon rate. Interest on a bond is an annuity paid until the bond matures while the face value is a single payment at the maturity of the bond (Scott and Brigham 241). The value of a bond is therefore given by the following formula:

Where

B0 = current value of the bond (at ...

Introduction

Business cycle and monetary theory are great aspects studied in macroeconomics. Economists were concerned with the changing nature of macroeconomics and most of them tried to elucidate specifically what goes on and the reasons for the existence of economic cycles. Due to this, several schools of thought and theories were developed. However, each economist was trying to outdo each other and criticizing one another’s work was quite common. The classical school which perceived economics to be a science of wealth was highly criticized by John Keynes. This paper shall critically evaluate the Keynes’ criticism on the classical school of ...

Article Review: Japan’s Growth Strategy is All Wrong

Abstract The article Japan’s growth strategy is all wrong is about the policies implemented by the Japan government led by Prime Minister Shinzo Abe that is viewed to jeopardise the country’s low interest rate environment that is conducive for spending and investment. The purpose of the student in writing this paper is to present the economic problem faced by Japan as an implication of the policies executed by the government, applying the concepts and principles that I have learned in my Economics. The article entitled Japan’s growth strategy is all wrong is about the ...

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A Retirement Savings Plan (also called A Registered Retirement Savings Plan – RRSP) is a very common type of account for investment assets and for holding savings. The main purpose of using this plan is to provide a decent pension accumulation over a long period of person’s life. The plan selection is based on several parameters that impact most on the result of RRSP. These parameters are investment rate of return (in percent, annually), inflation rate (in percent, annually), the amount of ...

Wealth, Status, and Opportunity in America

The article by Lewis helps the fortunate and unfortunate people to live through the most recent financial crisis and gain and understanding of occurrences that transpired. From the article, Lewin provides an in depth analysis of the factors and conditions, which led to the financial crisis. The most recent financial crisis is considered as the worst financial crises that ever affected the globe. This is because it was characterised by the collapse of leading companies, banks and other financial institutions. This financial crisis also brought about the collapse of the mortgage market mainly in the United States and also ...

Introduction to Exchange Rate Determination

Determination of the exchange rate in economics has been one of the major practices in economics that has attracted diverse views. Various theories have been developed to explain the determination of the exchange rate in various schools of thought. The monetary model has been one of the earliest models used in the of the exchange rate determination. However, it provides a good benchmark of comparing other models of interest determination. In addition, the model plays an imperative role in developing insights of capturing long trends. In the monetary model exchange rate are determined through the forces of demand and supply. ...

Importance of capital budgeting process

The capital budgeting process facilitates the financial management duty of allocation of finances and decision making on investment choices. With limited amounts of capital, financial managers are required to advise on the most appropriate business investment opportunity to pursue. The capital budgeting process suffices for the identification of the best alternative for investment. Through the capital budgeting process, financial managers are able to compute the expected cash flows in various investment options. Through the discounting methods, they are able to accurately estimate the expected cash flows and settle on the most profitable in consideration of the market dynamics such ...

Modern option pricing models are usually regarded as some of the most complex mathematical models in applied finance. However, these models have enabled financial analysts and savvy investors to calculate the value of stock options with alarming accuracy. Most of the modern option pricing models employed in determining the value of stock options are rooted in the Black and Scholes model which was developed by Myron Scholes and Fisher Black. The Black and Scholes model was first published in 1973 in the Journal of Political Economy in a paper titled “The Pricing of Options and Corporate Liabilities”. Although the Black ...

Report on Understanding Your Credit Score

Understanding various issues pertaining credit score is very crucial. Certainly, the workshop focused mainly on understanding individual credit score. The main speaker during the workshop was Mr. Quinton Harris, who came from the Bank of England. Additionally, individual who had worked for different no of years, implying their personal experience in the field, gave the presentation. The first individual has been working for ten years, the second as also worked for approximately ten years, and the third person worked only for a year. Therefore, their presentations were focused on answering various questions, which included the meaning of credit score, bureaus ...

Introduction

A discount rate is the interest rate that is used in cash flow discounting so as to determine future cash flows’ present value. This discount rate caters for the time value of money and uncertainty or risks of expected cash flows in future, which could be less or more than expected. Time value of money is an idea that the value of money currently is worth much more than that amount in future since it may be earning interests. A discount rate could also be defined as a rate of interest which an eligible depository organ or institution is charged ...

Aggregate Demand and Supply Models

Interest rate is one of the economic factors affecting the aggregate demand and supply in the U.S .economy. It is defined as the price charged or paid for the use of a financial asset. Interest rates affect aggregate demand by influencing factors that determine the total goods and services produced in an economy at a particular price level (Colander, 2010). The largest component of Aggregate Demand that is affected most by changes in the rates of interest in the U .S. is consumption. When the rates of interest are high, it is extremely expensive to borrow money and spend it; this ...

Abstract:

The article investigates how human capital investment affects distribution of wealth in short as well as well long term in various economies. The article reflect current credit market pattern and individual investment in gaining competencies and knowledge to perform labor which impact wealth distribution. The article further investigates per capita output differences in various countries and also examines differences in various countries economic to adjust variation in earnings distribution and wealth.

Introduction:

The Article “Income Distribution and Microeconomics” by Oded Galor and Joseph Zeira provides a detailed explanation on how distribution of wealth influence economic activities in short term and long ...

Essay: Global Financing Strategy

1 If Germany imposes interest rate ceilings on German bank deposits, what is the likely effect of this regulation on the euro interest rate?

While Germany does not have any statutory laws governing the ceilings on interest rates, the morality of a credit contract is required to be analyzed by a court, as per the Federal Court of Justice. The contract is said to be excessive when the interest being charged amounts to twice the average market interest rate for a specified duration .

Germany uses subjective controls to limit extortionate credit practices. However, should it choose to impose an interest ceiling on ...

Question 1

What is the potential damage of government derivative rules on derivatives users?

Derivative markets are normally subject to derivative regulations by federal governments. The Commodity Future Trading Commission (CFTC) formulates rules that govern futures and options contracts while the Security Exchange Commission formulates rules to control options exchanges. These derivative rules are meant to enhance trustworthiness of the market and improve performance of the market.

However, government derivative rules usually have potential damages on derivative users.

First, complying with derivative rules set by the government involve costs on the side of derivative users. Executing transactions on an organized exchange ...

Task

Compare the corporate form of organization with the sole proprietorship and the partnership.

Describe the principles dealing with ways of creating value and economic efficiency

The major principles include comparative advantage and absolute advantage. Comparative advantage is the ability of a country to produce a particular commodity in a more efficient way than other countries. Countries that have modern machinery are likely to produce machine intensive products than other countries. Absolute advantage is the ability of a county to be able to produce a particular commodity that other countries do not produce. For instance, a country that is endowed with a unique mineral that is not produced by other countries can be said to have absolute advantage ...

The following are some of the rules and regulation that applies to Kuwait application of debentures to the investors; the first requirement is that it must be licensed by the Kuwait Ministry of Commerce and Industry. The Ministries has a responsibility to supervise the issuing of the debenture by the Central bank of Kuwait. The Commercials Companies Law requires that company capital subscribed be paid in full and does not allow issuing of debentures that more than the capital paid up. The holder must pass the resolution authorized by the Kuwait issuers. Once the debenture holders are issued with the ...

Arguably, no country is ready to stand the effects of inflation, recession and rising rate of unemployment. Monetary policy is a method used by monetary authority of a country to regulate the supply of money in the economy. In most cases they use rate of interest in order to promote stability, growth, stabilization of prices and regulating the level of unemployment. Fiscal policy on the hand entails use of taxation and government spending to control the economy.

According to my colleagues, they recommend the president to lower rate of interest. In this case the president doesn’t have any power to ...