Financial Policy Definition

Amartuul Turbat Professor Fillenwarth fiscal policy 11 March 2011 The Definitions question 1-2 (1-1. a. b. ) proprietorship is the entity owned by an individual who is plainly fo under and manager of the federation. even so though it does not pay tax for laid states, proprietorships profits or loses reports on its owners annual tax reports. notwithstanding the fact that proprietorship is easy to orchestrate and has seldom government regulations, its term of operating theatre is postulately depending on its founder keep sentence time (Ehrhardt and Brigham 5).In addition on proprietorship, a confederacy is more whippy role which is a line of business birth mingled with several individuals who argon standardized desires to obtain the profits from the partnerships operation. Typic all(prenominal)y, partnership classified global and extra base on its contract regulation. in malignity of the fact that in habitual partnership-general members amenable to pay union s injury by their own assets, in contain partnership members- express members earth-closet lose the fol minor of m hotshoty which they invested in the partnership.Furthermore, likewise limited members responsible for limited part of the partnership, they pay limited right to insert or control the companys counsel. point though at least one soul should be a general member of the partnership, all members push aside be partner whose potential losses atomic number 18 limited by their amount of investing. This event of company is called Limited Liability telephoner (Ehrhardt and Brigham 6). Finally, company organized as a corporation when business enlarged and it is unmanageable to manage it by structure of partnership or proprietorship.Corporation works under the located state law and operates respectively from managers. Due to this separation, corporation has unlimited life of existence, easy transferability of ownership interest, and limited liability losses (Ehrhar dt and Brigham 24). motion 1-1 (C) armoury toter Wealth Maximization is the main intent of the corporation since it is the best way of triple-crown operation in long-term business. Derivatives is the limited type of securities because its quantify and right are depending on prices of an early(a)(prenominal) assets or operation. D E) Corporations kindle sell its carry in the private food food grocery storeplaces or the public commercializes. impertinent the private market in which craftiness wind is made in between both sides, in the public market, numerous stack participate in the handicrafts. In direct to be an owner of the corporations, investors kitty barter for the companys storehouse from the uncreated markets in which companies sell their initial offering (Initial cosmos oblation) or from the secondary market in which initial offering owners sell their stocks for otherwise investors.Also, on that point are some other monetary markets exist such a s coin markets and uppercase markets. Main difference between those two markets is liquifiedation of the securities (Ehrhardt and Brigham 23). For example, in spite the fact that short-term highly liquid debts trade in the gold market and long-term stocks and debt maturing trade in the capital markets. (F) Investment Bank is a pecuniary institution which encourages the company to create stocks into the markets, and it is the participator of the companies when they merging with each other (Ehrhardt and Brigham 23). pecuniary Service Corporations are the organizations which involved with money management such as banks, book of facts card companies, and insurance companies (Ehrhardt and Brigham 24). Financial Intermediaries are the unions which involved finding the surplus money from one side and then allocating it to famine sides (Ehrhardt and Brigham 30). (G) Mutual Funds are the organizations that necessitate money from numerous investors and then prescribe it to barter f or financial instruments such as stocks, bonds, short and long-term money instruments. coin Market Fund is the one type of mutual fund which invests in securities with short-term, low risk, and more safety consideratenesss (Ehrhardt and Brigham 29). (H) Physical fix exchanges is a physical financial market in which brokers and dealer participate in trade of stock, bonds, notes and mortgages. Computer/ Telephone net Invertors can participate in trades by computer/ telephone network without requiring members to be in the identical building. (I) Open telephone call Auction is a trade butt against of selling and buying stocks by passporting bids and then sell it higher prices.In other words it is the mechanism of the trades. principal markets is different from the auction since in which brokers acting a main role of the commerce process, and they ask and quote the prices in methodicalness to match the seller or emptor with their prices (Ehrhardt and Brigham 30). Electronic communication network is the instinctive system which helps for members to match their bid to another buyer or seller. It provides people in any every counties opportunity to participate in trading by employ internet (Ehrhardt and Brigham 30). J) Production opportunities is the possibility to transfer a capital into profits. Because production opportunities demand the returned earnings of the enthronisation, financiers consider it when they determining the price of money (Ehrhardt and Brigham 21). Time references for consumption is the inclination of the use of money in show and future. In spite the fact that in China people tend to unbosom their money for future, Mongolian people elect to use their money presents (Ehrhardt and Brigham 20). (K) Foreign trade deficit is the one of the scotch condition which affects the cost of money.For example, if American foreign trade getting slows, its reserve of the money receive decreasing, so it can be ferment cost of the investme nt. It means American buy more than they sell (Ehrhardt and Brigham 19). movement 1-3 essential value is the true value of the organizations which found on real position of market share, companys assets, and perception of the future. This value can be same as market value if factors are same in the estimation process. On the other hand, intrinsic value whitethorn be different from market value depending on information used in evaluation.For example, if management hides negative information, market value force be higher than intrinsic value (Ehrhardt and Brigham 9). Question 1-4 Edmund Enterprises recently made a large investment to upgrade its technology. Even though this investment cannot improve the income in short-term, it can reduce the production cost. Therefore, in short-term investment cost volition increase in the Income Statement because of the recent investment as a forget profits pull up stakes decrease and companys earnings per share will decrease.However, in the financial markets, this news affects positively on stocks market price. Also, this investment can raise the companys intrinsic value since it can reduce the production costs (Ehrhardt and Brigham 30). Question 1-5 Capital can be transferred by the direct and indirect ways. In direct ways only two sides participate. Savers can learn investment direct into business, and business sells their securities to savers without other parties. On the other hand, investment bank or financial intermediaries can participate effectively in transfers of capital.For example, person who has surplus money invest in business by using investment bank or financial intermediaries, and companies can get investment by collaborating with those trine parties (Ehrhardt and Brigham 14). Question 1-6 Financial intermediaries such as commercial banks, financial service companies escape a crucial role of the economic system. Banks allocate efficiently financial fund, and they offer financial services that can m ake easy to obtaining information for both savers and borrowers (Levine 690).Question 1-7 An initial public offering (IPO) is aprimary market transaction. Typically, the company sells the IPO to otherinstitutional investors, so the general public has no access to the IPO initially. After certain institutions get the stocks, they may sell them into the secondary market where all investors can buy them (Ehrhardt and Brigham 28). Question 1-8 persuade market is a securities market where bond, stock and other securities trading in manoeuver by the professional stockbrokers.On the other hand, in dealer markets, transactions makes based on person who acting as dealers for his own accounts rather than brokers acting as dealer for his buying and selling processes (Buiter). Question 1-9 Two leading stock markets are New York Stock Exchange (NYSE) and Nasdaq Stock Exchange (NASDAQ). NYSE is considered largest stock market in the world and companies market capitalisation which are listed at NYSE are US$13. 39 trillion in end of 2010. Also, NASDAQ is the largest electronic screen trading in the United States, and second largest stock market by market capitalization of listed companies (Buiter para. ). Works Cited Brigham, Eugene F. , and Michael C. Ehrhardt. Financial Management theory and Practice. Mason, Ohio South-Western Cengage Learning, 2010. Print. Buiter, Willem H. Time Preference and International bestow and Borrowing in an Overlapping-Generations Model. The Journal of governmental Economy89. 4 (1989) 769+. Google Scholars. Web. 2 Mar. 2011. Levine, Ross. Financial Development and economic Growth. Journal of Economic Literature(1999) 688-729. Web. 02 Mar. 2011.