...To Hedge or Not To Hedge - Raw material price management and added value from treasury by Wolfgang Frontzek, Director of Group Treasury/Corporate Finance, Wilo I For years, treasurers have been tackling the problems of interest and exchange rates in an analytical and structured manner. n recent years, commodities buyers have had to cope with extreme price increases and price fluctuations. Where it was not possible to cushion or pass on the effects of the price rises, they often had a negative impact on company profits. Rising raw material prices are not the only problem that buyers have, as the buyer is responsible not only for a fixed calculation or price basis but also for ensuring continuity of the production process, certainly over the medium term and thus over a planning period of 12-24 months. Price volatility presents the same problem, as it makes commodity prices genuinely unpredictable. An active financial risk management process is necessary, to answer the following questions: How high is the exposure? What percentage of the production costs do raw material costs account for? What effect does the price fluctuation of raw materials have on total profits? Can price fluctuations be passed on? What is the competition doing? Based on this peak, the company is exposed to a price movement risk of USD 1.700 per tonne or a total of USD 5.1m. Accordingly, the price opportunity on the basis of the record low in 1997 of USD 1.000 is relatively small at USD 150 around...
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...exchange rate determination “Having endeavored to forecast exchange rates for more than half a century, I have understandably developed significant humility about my ability in this area…”[1] - Alan Greenspan Figure 1: Exchange Rate Determination [pic] Source: Exchange Rate Determination I. Short-Run Forecasting Tools Short-term changes in exchange rates are the most difficult to predict and are often determined based on bandwagon effects, overreaction to news, speculation, and technical analysis.[2] Trend-Following Behavior is the tendency for the market to follow a trend. In other words an increase in the exchange rate is more likely to be followed by another increase. Investor Sentiment is based on the consensus of the market. For example if the market is bullish on the dollar, then the dollar is likely to strengthen versus other currencies. The FX market is quite different from the world equity markets in one important aspect: transparency. In equity markets, rules ensure that volume and price data are readily available to all parties… this is NOT the case in FX markets. In fact large FX dealers are able to observe factors such as: shifts in risk appetite, liquidity needs, hedging demands, and institutional rebalancing.[3] Order Flow - there is evidence of a positive correlation between spot exchange rate movements and order flows in the inter-dealer market[4] and with movements in customer order flows.[5] Three explanations for the cause...
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...The Labour Market The labour force is the sum of those either working or looking for work. Those who are neither in the labour force nor looking for a job are known to be out of the labour force. The participation rate is defined as the ratio of the labour force to the population in working age. The unemployment rate is calculated by dividing the unemployed with the labour force (unemployed and employed). The average unemployment rate also hides large differences among different groups of workers within the same country. The most notable one is the higher incidence of unemployment among young workers. To get a sense of what a given unemployment rate implies for individual workers, consider the following analogy. Take an airport full of passengers. It may be crowded because many planes are coming and going, and many passengers are quickly moving in and out of the airport. Or it may be crowded because of bad weather delaying the flights and passengers are stuck, waiting for the weather to improve. The number of passengers in the airport will be high in both cases, but their plights are quite different. Passengers in the second scenario are likely to be much less happy. In the same way, a given unemployment rate may reflect two very different realities. It may reflect an active labour market, with many separations and many hires, and so with many workers entering and exiting unemployment; or it may reflect a sclerotic labour market, with few separations, few hires and a stagnant...
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...Olivia Thomas Economics 7/1/2016 Wage Determination in Professional Sports We work day in and day out for the same dollar every day. Shouldn’t the wages change when the economy changes? The question maybe what is wage determination? The answer is the listing of wage rates and fringe benefit rates for each classification of laborers and mechanics which the Administrator of the Wage and Hour Division of the U.S. Department of Labor had determined to be prevailing in a given area for a particular type of construction. To further understand how wage determination works we have to know how it’s rated. A classical economists argue that wages—the price of labor—are determined (like all prices) by supply and demand. They call this the market theory of wage determination. When workers sell their labor, the price they can charge is influenced by several factors on the supply side and several factors on the demand side. The wages rate shouldn’t be a set price or amount. Whatever the current economic status is should determine how the rate of wages should be. Most wages and rates are based on earnings. Your weekly or bi-weekly earnings set the rate of wages. Earnings are equal to wage rate multiplied by number of hours worked, so an employee learns that the minimum wage of $7.25 and the typical work week of 40 hours will equal to $290 per week and only $15,080 a year. Wages differ from nations, regions, occupations, and individuals. Generally wages will be higher where the demand...
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... 2. Percentage of sales method 4 3. Valuation 5 i. Growth rate determination for the terminal value period 6 ii. Payout determination for the terminal value period 6 iii. Market risk premium and risk free rate determination 6 iv. Equity beta determination 6 v. Required rate of return determination 7 vi. Flow to Equity 8 vii. Company valuation 8 4. Robustness check 8 5. Reflection 1. Tesla’s business model Tesla Motors Inc. is a company that focuses on designing, developing and manufacturing fully electric cars and advanced electric vehicle powertrain components. The enterprise also provides development services for the powertrain systems and components it produces by selling them afterwards to other automotive manufacturers. Among the products Tesla offers the market are the sedan Model S, the Tesla Roadster sports car, the Model X minivan and other stationary energy storage products the company has developed. Because of environmental consciousness, the impact of rising oil and gasoline prices, the new government regulations and the shifting consumer needs, the electric-based vehicle industry is intense and evolving. Tesla Motors is facing a strong competition nowadays and expects to deal with even a stronger one in the future. The company finds itself to be placed in an unfavourable market position regarding its competitors, who all present significantly greater financial, technical...
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...Learning Team Deliverable: Week 2 Emily Gumataotao, Pamela Hernandez, Mark Sanschargrin, Terra Stefan ECO/561 February 10, 2014 Peter Oburu Cost Concepts – Pure Competition; Demand for Resources; Identify Production Level to Maximize Profits (Chapters 9, 12) Topics comfortable Team member Terra felt comfortable with the purely competitive concepts. She felt they came natural for her because she has been in the retail business for over 20 years. Team member Mark felt comfortable with learning the topic of the Four Basic Market Models consisting of the Pure Competition, Monopolistic Competition, Oligopoly, and Pure Monopoly structures. Team member Pamela felt comfortable with the definition of purely competitive concepts and how they relate to a certain type of industry for example agriculture. Team member Emily felt comfortable with the idea of pure competition and the fact that each market no matter how big or small is purely competitive. Topics struggled Team member Mark struggled with the two methods to determine the level of profit maximization, the Total Revenue Total Cost approach as well as the Marginal Revenue Marginal Cost approach. The MR=MC rule seemed unclear in that the more marginal revenue should overcome the costs in all ranges of production. The topic became a little clearer with the cost and revenue curve simulation. Team member Pamela struggled with the charts and few real life examples to better understand the concepts...
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...ABU DHABI COMMERCIAL BANK LIMITED Name Institution ABU DHABI COMMERCIAL BANK LIMITED Abu Dhabi commercial bank, simply known as ADCB is one of the largest banks in United Arab Emirates in terms of market capitalization and shareholder funds. The bank was established in 1985 through a merger of Emirates commercial bank, the federal commercial bank and the Khaleej commercial bank. The Abu Dhabi government owns sixty-five percent of the shares of the company through its investment arm, the Abu Dhabi Investment Authority (Bllomberg, 2011). The Abu Dhabi commercial bank is a public shareholding company under limited liability. The bank is listed in the Abu Dhabi stock exchange as a public joint stock company. The bank provides the following services; Islamic banking, merchant banking services, stock brokerage, commercial and investment banking, as well as fund management activities (Bloomberg, 2011). ADCB has 49 branches across United Arab Emirates and 2 branches in India. The bank operates through three divisions. They are business banking, personal banking and meetahq Islamic banking. The personal banking segment of the bank offers accounts credit and debit services, loans and wealth management services among other services. The business banking segment of the bank offers the following services, small and medium enterprises banking, corporate banking, investment banking and treasury banking. The meetahq-banking segment offers sharia law compliant banking...
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...|CONTENTS | |THEORY COURSE: | |Title sheet [Program, Course Code - Course Name, Credit Structures, Pre-Requisite and Co-Requisite, Instructor’s Web-Link | |Address (Moodle), Name of Instructor, Division, and School] | |Official Time Table of the course | |Approved course syllabus signed by Instructor & Program chair | |Objective and Outcome Mapping | |Lesson Plan | |Assessment Scheme and Schedule | |Model Question Paper (Semester End Examination (SEE)) | |Lectures Slides, Tutorials and other Learning Resource provided (See Annexure 1) | |Assignments / Course Projects ...
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...9/19/2012 A Tour of the World A Tour of The World A Tour of The World Chapter 1: A Tour of the World CHAPTER 1 Prepared by: Fernando Quijano and Yvonn Quijano Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall • Macroeconomics, 5/e • Olivier Blanchard 1-1 The United States Table 1-1 1996–2006 (average) 2006 2007 2008 3.1% 3.4% 3.3% 2.1% 2.5% Output growth rate Unemployment rate 6.2 5.0 4.6 4.6 4.8 Inflation rate The unemployment rate 4.0 2.0 2.9 2.6 2.2 Output growth rate: annual rate of growth of output (GDP). Unemployment rate: average over the year. Inflation rate: annual rate of change of the price level (GDP deflator). 3 of 18 Chapter 1: A Tour of the World The inflation rate The period 1996-2006 was one of the best decades in recent memory: The average rate of growth was 3.4% per year. The average unemployment rate was 5.0%. The average inflation rate was 2.0%. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall • Macroeconomics, 5/e • Olivier Blanchard 1-1 The United States 4 of 18 1-1 The United States Has the United States Entered a New Economy? Should We Worry About the U.S. Trade Deficit? Figure 1 - 2 Figure 1 - 3 Rate of Growth of Output per Hour in the United States Since 1960. The U.S.Trade Deficit Since 1990 The trade deficit increased from about 1% of output in 1990 to about 6% of output...
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...objectives: Demand Supply Market Equilibrium Comparative Statics • Unit objectives: Recognize and evaluate the various theories of the organisation Understand and analyze firm pricing strategies 2 Market Demand Demand is the quantity of a good or service that customers are willing and able to purchase during a specified period under a given set of economic conditions. Determinants of Demand Demand is determined by prices of other goods, income, expectations of price changes, consumer tastes and preferences , advertising expenditures and so on. 3 Basis for Demand • Direct Demand – Demand for personal consumption products. – The demand for products that directly satisfy consumer desires. – The value or worth of a g&s, its utility, is the prime determinant. 4 Basis for Demand • Derived Demand – Demand for all inputs is derived demand input demand. – Determined by the profitability of using various inputs to produce output. 5 Basis for Demand • Industry Demand Versus Firm Demand – Industry demand is subject to general economic conditions. – Firm demand is determined by economic conditions and competition. 6 Market Demand function 7 Demand Curve Demand Curve Determination –Demand curve shows price and quantity relation holding everything else constant. Change in Quantity Demanded –Quantity demanded falls if price rises. –Quantity demanded rises if price falls. Role of Non-Price Variables –Change in non-price variables will define a...
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...Introduction The term market has been interpreted in Economics as the place where both the buyers as well as the sellers meet and they buy and or sell goods. The foreign exchange market is a place where the transactions in foreign exchange are conducted. In practical world the external transaction requires the use of foreign purchasing power i.e. foreign currency. The foreign exchange market facilitates such transactions by performing number of functions. Definitions of Foreign Exchange Market According to Paul Einzig, "The foreign exchange market is the system in which the conversion of one national currency in to another takes place with transferring money from one country to another." According to Kindleberger, "It is place where foreign moneys are bought and sold." In simple words, the foreign exchange market is a market in which national currencies are bought and sold against one another. There are large numbers of foreign transactions such as buying goods abroad, visiting foreign country for any purpose. Corresponding nation in whose currency the transaction is to be fulfilled. The foreign exchange market provides the foreign currency against any national currency. However, it is to be understood that unlike other markets, this market is not restricted to any particular country or any geographic area. There are large numbers of dealers' instruments such as exchange bills, bank drafts, telegraphic transfers (TT), etc. There are certain other dealers such as brokers...
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...INTERNATIONAL MARKETING MIX From the various literature reviews, international marketing mix can be defined as a mixture of marketing techniques such as pricing, packaging and advertising used to promote the sale of a product or services. It is developed based on a company’s knowledge of its customers. Eugene McCarthy propounded the theory of the 4Ps which entails Product, Price, Place and Promotion. Product planning:- This entails determination of products to be sold with reference to quality, design, quantity etc and to whom, where and when to sell the products. It also entails the determination of how new products will be introduced and a marketing research for the products. Pricing:- This has to do with the determination of the right prices as regards to whether or not prices should be differentiated and the level of prices to be fixed. Price affects the value customers place on the products they buy. Therefore, they perceive more value from products which have slightly lower prices than those of other competitors. Place:- This entails arrangements for the display of the product with reference to determination of importance and devising of the products. It’s a consideration of products and the locations where they are best needed. Some products will sell more in certain locations, both physical and geographical, than others. Also, certain factors such as culture will definitely affect the place of the product. And lastly, promotion concern about marketing is to decide...
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...___________. a. all assets will have the same degree of systematic risk b. each firm’s reward to risk ratio will be based on a different risk free rate of return c. systematic risk can be diversified away d. assets in a well organized, active market, will have the same reward to risk ratio e. all assets will have the same risk premium 2. Unsystematic risk is also known as ___________. a. total risk b. systematic risk c. diversifiable or firm specific risk d. non-diversifiable risk e. specific risk 3. Which of the following is true regarding the beta coefficient? a. It is a measure of unsystematic risk b. A beta greater than one represents lower systematic risk than the market c. Generally speaking, the higher the beta the higher the expected return d. A beta of one indicates an asset is totally risk free e. The risk premium of an asset will increase if the beta of that asset decreases 4. Which of the following describe(s) a portfolio that plots below the security market line? a. The security is undervalued b. The security is providing a return that is higher than expected c. The security is overvalued d. The security’s beta is too low e. The security provides a return that exceeds the average return on the market 5. What is the expected return for the following stock? State Probability E(Ri) Average .55 .20 Recession .20 .10 Depression .25 -.20 a. .055 b. .080 c. .095 d. .105 e. .110 6. What is the risk premium if the risk-free...
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...perform three annual ASC 350, Intangibles-Goodwill and Other, impairment analyses. In 2009, no goodwill impairment was found by Big Time. In 2010, Galaxy did not use Big Time or any external evaluation firm for the goodwill impairment analyses. The management determined that the prior year step 1 analysis of Big Time could be used based on the fact that assets and liabilities had not significantly changed, the most recent fair value determination had exceeded the carrying value amount by substantial margins, and that no events or circumstances would cause the fair value to go below the book value. The issues at hand are whether or not an interim impairment analysis should have been performed as opposed to carrying forward the prior year step 1 analysis. Management decided not to perform an interim test in 2010. An example to support this decision comes from Vulcan Materials which cited “write down can trigger a violation of bank covenants (as debt to equity rises after the equity is reduced). Further, it can hurt valuation ratios such as price to book value”. Further, a similar affect to the bank obligations would be management not wanting to...
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...Discuss also the subject matter of Microeconomics in detail. Answer: MICROECONOMICS "Micro Economics is the study of particular firm, particular household, individual prices, wages, incomes, individual industries and particular commodities." ( K. E. Boulding) In micro economics, we study the small segments of an economy or, in other words, we take up the individual decision – making units of an economy in microeconomics e.g., we analyze the demand of a product or often individual and the equilibrium price of a product rather than discussing the aggregate demand of the economy and the general price level in a country. Similarly in microeconomics, we study the determination of price/reward of a factor of production, analysis of an individual firm or industry, the consumption pattern of a person, choice of technique and different market situations etc. Microeconomics is generally called the “Price Theory”. • Production. In this part of microeconomics we study the meaning of the production of wealth, the cost of production and how it is minimized factor of production and their relative importance in the production process, the production function, the analysis of supply etc. • Exchange. This part covers the market mechanism or the exchange of wealth through the forces of demand and supply, perfect and imperfect market at the behavior of the competitors etc. • Distribution. This part starts with the theory of distribution of rewards to the four factors of production. It explicit...
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