collateral. This prediction seems to be in disparity with the generally accepted wisdom in the banking sector, which associates the use of collateral with clearly risky borrowers. With inclusion of the pre-loan credit measurement, commercial lenders assess the riskiness of the potential borrowers and require the remarkably risky borrowers to pledge big extend of collateral Morsman (1986); Hempel, Coleman, and Simonson (1986). This forecast is also in contrary to the small amount of empirical work addressing the issue of collateralization and its effect on loan quality. Orgler (1970) compiled a database on individual loans from bank examination files and differentiated well from bad loans on the basis of whether the loans were eventually criticized
This means that the Group is exposed to currency risks in that unfavorable changes in exchange rates can have a negative effect on EBIT, shareholders’ equity and cash flow. b) Credit risk Byggmax has very low credit risk in relation to the Group’s customers in that the majority of sales are in cash and since the Group does not invoice external customers. Credit exposure primarily comprises accrued but as yet unpaid bonuses from suppliers. c) Liquidity risk Byggmax policy in respect of liquidity risk is to ensure that the Group has sufficient cash and cash equivalents to finance operations. The Board of Directors manages the liquidity risk exposure through ensuring that Byggmax has sufficient credit facilities in place to satisfy the future needs of the business.
Keeping trial and error, then IRR = 17.43% This method considers the Time Value of Money and takes into consideration the total cash inflows and cash outflows. Payback Period Payback period in capital budgeting refers to the period of time required for the return on an investment to "repay" the sum of the original investment. Payback period intuitively measures how long something takes to "pay for itself. " All else being equal, shorter payback periods are preferable to longer payback periods. The payback period is considered a method of analysis with serious limitations and qualifications for its use, because it does not account for the time value of money, risk, financing, or other important considerations, such as the opportunity cost .
The authors use the ban on short selling in September and October, 2008 as an example of a liquidity shock to the supply of capital from convertible bond arbitrageurs. Because short selling plays an important role in convertible bond arbitrage strategies, the inability to short sell highly reduces arbitrageur’s willingness to supply convertible bond capital to firms. Overall these results can be interpreted as strong evidence that the supply of capital from convertible bond arbitrageurs impacts issuance, and are inconsistent with the view that only demand matters for issuance. Since convertible bond arbitrage funds are also active in stock markets, research on convertible bond arbitrage funds has demonstrated their important contribution to liquidity provision in stock markets. They show that certain hedge funds have an ability to time market liquidity and that this group of funds generates higher risk-adjusted performance risk for investors than other
Introduction: In this essay, the reader will recognize and have the clear knowledge why the simultaneous targeting of the money supply and interest rates is sometimes impossible to achieve; correspondingly, how the central banks intervene in the foreign market exchange will be as well made known. Moreover, the reader will as well comprehend what the Bretton Woods Agreement is all about, and its ability to influence foreign exchange rates to fluctuate freely. Why the simultaneous targeting of the money supply and interest rates is sometimes impossible to achieve? The money supply is tied to interest rates as study showcase. If the Federal Reserve increases interest rates, the demand for loans will plummet, and therefore the increase rate of
As discussed in the first question, banks are a crucial part of the economy and they use largely use derivatives to hedge the risks. During Lehman Brothers meltdown, banks did not fully understand the level of losses that could incurred on derivatives trade with Lehman and others and as a result, it created great panic in the financial markets. Therefore, it is important to have clear rules regulating these risky products 3. Derivatives can be considered one of the ways to share or distribute risks. It is requires financial engineering of different products and there is no fixed contract/combination that will guarantee profits.
However, according to Eugene Fama and Kenneth French, the correlation between market beta and U.S. common stocks. It is insufficient to rely on one single factor to estimate the expected returns of the investment as there will be other factors affecting the price of stock in the real world (F.Fama & French, 1993). 3.2 CAPM is not testable Richard Roll claimed that CAPM is similar to testing the mean variance efficiency of the asset. He claims that CAPM cannot be tested unless the precise composition of the market portfolio is known and all the assets can be marketed which is impossible for the real world. Hence, he added that using proxy for the market portfolio is dangerous as the proxies might be inefficient despite the proxies in the model might present to be efficient (Roll,
This means that without monitoring and controlling by institutional investors, there is an agency problem which can lead to maximizing personal wealth of managers instead of maximizing value of the firm. All together, I have to answer the question “Do institutional investors hinder economic growth” with a no. I have only found that institutional investors and mutual funds can affect investments of firms by their hunger for cash returns, but it has not been proven that investors hinder economic growth. Besides that, I think that institutional investors play a huge role in maximizing firm values, which is good for the economy, by monitoring and controlling managers and managers not letting maximize their personal
Jones (1998) argues that the capital market is not perfectively efficient, and it is not certain perfectly inefficient. It is therefore a question of the degree of efficiency of the market. Perfectly efficiently market will only exists under certain market conditions. To begin with, information relevant to the assessment of the firm’s future earnings,
Introduction A liquidity trap is a situation where conventional monetary policies are ineffectual because nominal interest rates are of insignificant value. In other words, applying monetary base into the economy is useless because the private sector views the base and bonds as perfect alternatives. Hence, a liquidity trap could occur in an economy with a flexible price or full-employment. The problem, however, in a liquidity trap is that markets believe that the central bank aim at price stability when presented with the opportunity and as a result any current monetary expansion is only short-term. This maintains that monetary policy is ineffective in a liquidity trap and that fiscal expansion is the solution.