...sector and the other is by issuing shares to general public. We will be discussing the process of issuing shares to the public which is defined as IPO (Initial Public Offering). This involves opening shares up for purchase by the public through the Stock Exchange Market. Allowing the purchaser of these share the opportunity to become a partial owner of the equity which this business creates. The main intent behind this is that the stockholder would share in the success or failure of the company. It is for this reason that firms must know when and if they should go public. The question then becomes why should they go public and share the profit? The explanation to this question is simple. A firm must make a conscience choice to offer shares publically for the better good of the business. Making these shares available comes at a low cost to the firm, but in an enormous amount. The second part to this answer becomes clear when we examine the financial benefits gained by the firm which include: • Public limited company rates would have a lessening effects when debt is issued. • If market demand for shares increases, a public limited company has the option to issue more stock. • Stocks are sold on the open market giving them liquidity, which appeals to potential investors. Role of the Investment Banker and Underwriter The role of...
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...Gold Price Forecast 2010 Predictions and Estimates from Multiple Analysts Goldman Sachs Gold Price Forecast — 2010 - $1,350 per ounce — 2011 - $1425 per ounce time Gold prices drop. — Stagflation 1 2 1 2 3 The Gold price forecast for the year 2010 has been covered by multiple analysts. Here is their consensus: As of December 3rd 2009, Goldman Sachs predicted these average prices: The reasons given for the estimates are as follows: Canaccord Adams Gold Estimation Bank of Nova Scotia Gold Analysis — Double-dipped recession Prediction of rising inflation — Near term outlook is $1,300 per ounce Natixis Price Per Ounce Prediction December 3rd 2009 brought about these guesses from Canaccord Adams: The reasons they feel the price of Gold will trade at these values are: Global stimulus packages are devaluing currency Gold becoming a popular way to both hedge and invest — Inflation or deflation — Dollar or bond crisis Low interest rates in 2010, expected near zero, will provide support for Gold. The price of Gold has a gamut of forecast ranges for 2010. A compilation of the predictions and estimates are listed below. On November 25th 2009, Natixis revealed their estimate on Gold prices in 2010 to be $950 per ounce. 2009 they released a range from $850 to $1,400 as the possible price per ounce the following year. economical woes. These are some of the caveats they see possibly coming: On one hand they felt that developing nations might prefer to invest in Gold as opposed to currency...
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...Ch.7 Question 2, 4, 7 2.) In order for a derivatives market to function most efficiently, two types of economic agents are needed: hedgers and speculators. Explain. A speculator attempts to profit from a change in futures price. To do this, the speculator will take a long or short position in a futures contract depending upon his expectations of future price movement. A hedger, on the other hand, wants to avoid price variation by locking in a purchase price of the underlying asset through a long position in the futures contract or a sales price through a short position. In effect, the hedger passes off the risk of price variation to the speculator, who is better able, or at least more willing, to bear this risk. 4.) How can FX futures market be used for price discovery? The futures market is useful for price discovery by obtaining the markets forecast of the spot exchange rate at different future times. FX forward prices are an unbiased predictor of future spot exchange rates, the market anticipates if a currency will appreciate or depreciate. Since the futures contracts have an expiration cycle, there are different contracts that expire at different periodic date in the future. Futures contract displays a chronological pattern from settlement prices from past CD future contracts. The pattern provides information about the relative future value of a currency against another because there are steady appreciating and depreciating pattern, although it may be mixed...
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...old Price Forecast 2013 Predictions and Estimates from Multiple Analysts The Gold price forecast for the year 2013 has been covered by multiple analysts. Here is their consensus: While the price of Gold has a gamut of forecast ranges for 2013, most experts remain bullish on the yellow metal for the year, though some have scaled back their estimates slightly over the past few months. A compilation of their predictions are listed below. Bank of America Merrill Lynch In a December 2012 report, Bank of America Merrill Lynch stated that Gold would average $2,000 in 2013, with the metal climbing to $2,400 in 2014. “Large-scale policy easing by the U.S. Federal Reserve and European Central Bank positions Gold as a useful hedge against global macro and inflation risks taking the commodity to $2000/ oz levels”, said the bank. The bank added that, “We have a sixmonth [Gold price] target of $2000 an ounce, but see scope as well for prices to rise to $2400 an ounce by the end of 2014. These targets reflect our view that the Fed will maintain mortgage purchases until the end of 2014 and will move to buy Treasuries following the end of Operation Twist in December 2012.” BNP Paribas BNP Paribas expects Gold to average $1,865 an ounce for the year. “Market sentiment towards Gold has been much more uncertain in 2012 than was the case in previous years. Yet, we expect Gold to achieve a new record high in 2013 due to further monetary easing, less tail risk related to a breakup of the euro...
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...Price Forecast 2013 Predictions and Estimates from Multiple Analysts The Gold price forecast for the year 2013 has been covered by multiple analysts. Here is their consensus: While the price of Gold has a gamut of forecast ranges for 2013, most experts remain bullish on the yellow metal for the year, though some have scaled back their estimates slightly over the past few months. A compilation of their predictions are listed below. Bank of America Merrill Lynch In a December 2012 report, Bank of America Merrill Lynch stated that Gold would average $2,000 in 2013, with the metal climbing to $2,400 in 2014. “Large-scale policy easing by the U.S. Federal Reserve and European Central Bank positions Gold as a useful hedge against global macro and inflation risks taking the commodity to $2000/ oz levels”, said the bank. The bank added that, “We have a sixmonth [Gold price] target of $2000 an ounce, but see scope as well for prices to rise to $2400 an ounce by the end of 2014. These targets reflect our view that the Fed will maintain mortgage purchases until the end of 2014 and will move to buy Treasuries following the end of Operation Twist in December 2012.” BNP Paribas BNP Paribas expects Gold to average $1,865 an ounce for the year. “Market sentiment towards Gold has been much more uncertain in 2012 than was the case in previous years. Yet, we expect Gold to achieve a new record high in 2013 due to further monetary easing, less tail risk related to a breakup of the euro...
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... “FINANCIAL MARKET” IN PARTIAL FULFILLMENT OF THE REQUIREMENTS IN ECON. 101(ECONOMIC W/ TAXATION & LANDREFORM) SUBMITTED TO: MR. ANDASIL J. ABUBAKAR, M (PHIL) “Instructor” SUBMITTED BY: GROUP 1 STUDENTS 1st semester/ A.Y 2012-2013 PART 1- FINANCIAL MARKET INTRODUCTION Throughout his text, Mishkin stresses that the evolution of financial markets, both in the U.S. and throughout the world, has resulted from an intricate interplay of three factors: chance, necessity, and design. In short, history matters, and it matters a lot. In addition, throughout his text Mishkin consistently stresses the importance of information. He argues that it is impossible to understand the special nature of financial markets relative to markets for real goods and services unless one understands the peculiar types of "asymmetric information problems" intrinsically associated with financial assets. He argues that these asymmetric information problems have largely shaped the structure of financial markets in the past, and that the recent surge of innovations in information technology (IT) -- in particular, Internet-related IT -- is leading to a dramatic restucturing of financial markets today. The notes, below, provide basic background information on financial markets as covered in Mishkin in Chapters 2 and 4. For...
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...FINANCIAL DERIVATIVES (A Future of Indian Financial Market) Dr. Ritu Kothiwal, Associate Professor, BIET, Hyderabad Contact No: 09246193330 Email Id: kothiwal55@gmail.com Mr. Ankur Goel, Research Scholar (Management), Mewar University, GZB. Contact No: 9917745990 Email Id: mrankurgoel@gmail.com. ABSTRACT Among all the innovations that have flooded the international financial markets, financial derivatives occupy the driver's seat. These specialized instruments facilitate the shuffling and redistribution of the risks that an investor faces. Thus aids in the process of diversifying ones portfolio. The volatility in the equity markets over the past years has resulted in greater use of equity derivatives. The volume of the exchange traded equity futures and options in most of the mature markets have seen a significant growth. It goes beyond that the local derivative in the emerging markets have witnessed widespread use of the derivative instrument for a variety of reasons. This continuous growth and development by the emerging market participants has resulted in capital inflows as well as helped the investors in risk protection through hedging. INTRODUCTION AND CONCEPT OF DERIVATIVES: Derivatives are financial contracts whose values are derived from the value of an underlying primary financial instrument, commodity or index, such as: interest rates, exchange rates, commodities, and equities. The International Monetary Fund defines derivatives as "financial...
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...government to control the flow of money into the economy. When prices are dropping too fast, the government can "print" more money, slightly inflating the currency and steadying prices. However, when prices are rising too rapidly, the government can decrease the flow of money, making the currency slightly more valuable and steadying prices again. In the U.S., the Federal Reserve controls this by regulating banks, adjusting the flow of money into the economy, and lending capital to banks when necessary. To prevent massive financial panics the Fed has three specific tasks -- maximizing employment, stabilizing prices, and moderating long-term interest rates. Pretty much it wants to create a stable economy. 2. Pros and Cons Pros: * Our paper money is a "fiat" currency that can be printed without limit and has no real value – its value is only maintained by the "full faith and credit" of the government. Gold has real value due to its beauty, usefulness, and scarcity. * With a fiat currency the government can essentially manufacture money virtually out of nowhere. Since leaving the gold standard in 1971 US currency in circulation increased from $48.6 billion to over $1 trillion dollars in 2012. Between 1971 and 2003 the entire supply of money in the United States has increased by 1,100%. Under a gold standard, new money could only be printed if a corresponding amount of gold were available to back the currency. * Since leaving the gold standard in 1971, inflation has...
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...Currency Futures Introduction: Globalization and integration of financial markets, coupled with the progressively increasing cross-border flow of funds, have transformed the intensity of market risk, which, in turn, has made the issues relating to hedging of such risk exposures very critical. The economic agents in India currently have a menu of over-the-counter (OTC) products, such as forwards, swaps and options, available to them for hedging their currency risk and the markets for these are quite deep and liquid. However, in the context of growing integration of the Indian economy with the rest of the world, as also the continued development of financial markets, a need has been felt to make available a wider choice of hedging instruments to the market participants to enable them to cope better with their currency risk exposures. India has been experiencing heightened cross-border flows in recent times with globalization and relaxations in the rules governing external transactions. The flows have been strong on both current and capital accounts. There has also been some increase in volatility in exchange rates due to global imbalances and changing dimensions of the capital flows. According to the Bank for International Settlements (BIS) Triennial Central Bank Survey 2007, the share of India with daily turnover at USD 34 billion (daily average) has increased from 0.3 per cent in 2004 to 0.9 per cent in 2007. The depth in the domestic foreign exchange market is validated...
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...Assignment 1: Complexities of the US Financial System Describe how the US financial markets impact the economy, businesses, and individuals. US financial markets play an important role in contributing to the health and efficiency of the economy, businesses, and individuals. (Spiegel, 2002) Because there is a strong relationship between the health of the economy and financial market development and economic growth, even a slight dip in the financial markets can radically effect how the economy, businesses, and individuals respond. (Ask Dr Econ, 2005) Financial markets “facilitate the raising of capital in the capital markets, the transfer of risk in the derivatives market, price discovery, global transactions with integration of financial markets, the transfer of liquidity in the money markets, and international trade in the current markets.” (Financial Markets, 2013) When the financial markets are doing well, “firm-level, industry-level, and cross-country studies all suggest that the level of financial development exerts a large, positive impact on economic growth.” (MIT, 2001) When financial markets are not doing well, interest rates on loans will increase and access to credit decreases. Interest rates are higher because of the risk that banks feel are involved. In times of high risk, interest rates go up. It is a way for banks to limit their losses and make as much money back – just in case a default occurs. So those businesses that are able to get credit are finding...
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...being collapse, defunct and manipulated by the other country or bank. But, it is suitable for gold dinar to replace the current fiat money that already in circulation for more than a decade in the market? Even though the Gold Dinar is not a legal tender, the bimetallic gold and silver system has been used as a medium of currencies since the Byzantium era before it ended in the year 1875 when the fiat money was introduced to replace the gold and silver coins from the monetary system. As we know, gold dinar has been around us for a long decade. History shown that gold dinar is a very effective medium of exchange for a long time. But why all the country nowadays uses paper money? Paper money had such a bad reputation in the economy but still most of the banks use this type of money for their everyday transaction. There must be a reason why paper money holds a very strong influence in the current economy although it was devastating when we use it. But throughout the history, gold dinar also had shown an issue of its own. A gold standard had a breakdown in 1931 and the world witness a era of freely fluctuating exchange rates between national currencies. The International Monetary Fund (IMF) was established in 1946 to make arrangements for fixing exchange rates among national currencies with some measure of flexibility and help them tied over their balance of payments difficulties. The return to gold standard was not considered desirable, for a variety of reasons. After the 1997-98...
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...equivalence of the county’s currency in exchange for gold. For example, in 1933, the United States price of gold was $20.67. Domestically The Gold Standard regulated the quantity and growth rate of a country’s money supply, and internationally it determined exchange rates for participating countries as well. Because these exchange rates were fixed, this cause the price levels around the world to move together through an automatic balance-of-payments adjustment process. If one country was able to increase its production rate, this would cause a drop in prices, which would lead to more exports and the transfer of money from one country to another. The Gold Standard assured long-term price stability, but it also caused prices to be very unstable in the short-term. This is because of gold discoveries occurring around the world at unpredictable times. Many counties also did not follow the “Rules of the Game”, which caused the Gold...
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...Component parts of a financial system: -financial institutions—example: banks, insurance offices, superannuation funds -financial instruments—example: shares, term deposits, loans -financial markets—money and capital markets, stock market, foreign exchange market Discussion: -financial system supports economic transactions -encourages savings which provides funds for investment -provides a range of investment opportunities -provides a range of borrowing alternatives -efficient allocation of resources for economic growth -regulatory regimes provide strength and stability to a financial system 2. (a) Discuss the role of money in a financial system. -money is a financial asset that facilitates financial and economic transactions -a medium of exchange—swapped for goods and services -a store of value—wealth is held or measured in money terms -a standard of deferred payment—used to record indebtedness -a unit of account—transactions are priced in money terms -currency is generally divisible, portable and durable (b) Does money have to be currency? If not, what are some alternatives? -money is anything that is universally acceptable as a medium of exchange -further, money generally has the characteristics of being divisible and a store of value -examples: currency, EFTPOS, digital money 3. Having recently inherited some money from a rich uncle, you are considering investing the funds in financial assets. You are aware that financial assets exhibit...
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...the formation, discovery and extraction of crude oil. • Offer a balanced commentary on the cost of oil/gas discoveries and subsequent extraction Energy companies are racing to export natural gas from the U.S. as they search for more-profitable markets amid a continent-wide gas glut that has depressed prices to the lowest levels in a decade. A consortium including Exxon Mobil Corp., ConocoPhillips Co. and BP PLC said it is moving forward with plans to export natural gas from Alaska's North Slope in a project that could cost as much as $65 billion. The Shale Gas Boom: How Scared is the Kremlin? Gazprom should be scared. The US has overtaken Russia as the largest producer of natural gas courtesy of the fracking revolution, the EU suddenly feels bold enough to rebel, and Moscow could very soon lose its grip on its European gas markets. In mathematical terms, the EU has rather belatedly decided that things aren’t adding up. While Russia is selling its gas for about $10 a unit, the US is selling the same for about $3. And as we now know: The US has become self-sufficient in natural gas and this has led other countries to shift exports of LNG destined for the US market to the European market. Be aware of the bigger picture, it is very important if you hope to understand and contribute to a giant like the Petroleum Industry. Brent Crude Oil is still above $100 mark, but why? What recent factors have caused a stagnation of oil prices over the year...
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...available for trading. They are – * Individual stock futures. * Stock index futures. * Commodity futures. * Currency futures. * Interest rate futures. INDIVIDUAL STOCK FUTURES Individual stock futures are the simplest of all derivative instruments. Stock futures were officially introduced in India on 9th November 2001. Before that, the local version of stock futures called ‘badla’ were traded which was eventually banned by the Securities Exchange Board of India in July 2001. The Badla system: the ‘badla system’ was almost similar to the futures contracts we discussed. In simple terms- A badla trader can delay the settlement of a trade by one week for payment of a small fee. So if you bought a particular share for Rs 100 and if you are bullish on that stock, you can delay the settlement by one week if you pay a fee. This carry over can be done for any number of times. Later on, unlimited carry over facility was restricted to 90 days at a time. Badla system had its downsides – lack of transparency, data regarding volume, rates of badla charges, open positions etc were not available. There was no margin requirement and badla charges varied from seller to seller. So, chances of manipulation were more. Badla was pure Indian version of futures but did not provide the advantages of price discovery or risk management that organized futures market provide. STOCK INDEX FUTURES. Understanding stock index futures is quite simple if you have understood individual stock...
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