...methods that can be identified for effective and productive investment banking processes. Choosing an investment bank or firm can depend on the investor themselves. Some processes and guidelines can vary from firm to firm, this would all depend on the investor and the financial experts and their preferences. Portfolio construction is an important task which involved expertise from a financial expert. Investment Banking and IPO Process Investment banking contains enables several functions for be executed, such as: lending and investing assets, providing advice about investments and acquisitions, research and development about securities, capital markets, and bonds. For example, Morgan Stanley provides global currency, precious metals, insurance, and structured investments that are tailored to market trends and specific risk allocated decision making regarding the individuals portfolio. Investment banking also incorporates other important roles such as analysis of financial performance and operations. Financial transactions can be done as well in investment banks from individuals or corporations. Initial Public Offering Process IPO’s begin with a preliminary valuation that is based on the company's financials; the underwriters will prepare a preliminary valuation of the company. All the underwriters will also factor in the assumed growth rate of the company and industry, as well as the multiples (or price/earnings ratio) assigned to...
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...IFRS 7: Financial Instruments: Disclosures This IAS contains amendments resulting from the adoption of Commission Regulations (EC) No. 2238/2004 of 29 December 2004 , Nr. 2237/2004 of 29 December 2004, No. 2236/2004 of 29 December 2004 and No. 108/2006 of 11 January 2006. Objective 1. The objective of this IFRS is to require entities to provide disclosures in their financial statements that enable users to evaluate: (a) the significance of financial instruments for the entity’s financial position and performance; and (b) the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the reporting date, and how the entity manages those risks. 2. The principles in this IFRS complement the principles for recognising, measuring and presenting financial assets and financial liabilities in IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement. Scope 3. This IFRS shall be applied by all entities to all types of financial instruments, except: (a) those interests in subsidiaries, associates and joint ventures that are accounted for in accordance with IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates or IAS 31 Interests in Joint Ventures. However, in some cases, IAS 27, IAS 28 or IAS 31 permits an entity to account for an interest in a subsidiary, associate or joint venture using IAS 39; in...
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...PERSONAL INVESTMENT Personal investment is defined as an individual invest and manage their own financial instrument, such as, stocks, bonds, property and others. This personal investment is in aims of improve the liquidity and efficiency of the equity and capital of the individual. Basically, the individual investors have to develop their own investment plan and framework based on different characteristics of the individual investors. This is because the personal investment is very subjective, whereby it is totally based on the characteristics and the degree of risk tolerance of the individual investors. However, before investing into the financial instruments, the individual investors should develop an investment plan and strategy. This investment plan is included the risk tolerance and personal constraints which can related to the allocation of the financial assets. Inside the investment plan, the individual investors also have to state down what will do, what will not do, how to invest and include the investment guidelines. The investment plan also included the investment framework for making wise the investment choices, and also can help the individual investors’ reason through the decisions which may have the major impacts on the future financial goals. Furthermore, the investment plan also divided into few categories in order to understand more about the personal investment. The first part is risk and return objectives, which meant are depend on the individual investors...
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...Finance Library Standards and Regulations FASB Codification Codification Presentation 230 Statement of Cash Flows 230-10 Overall 230-10-45 Other Presentation Matters Copyright © 2015 by Financial Accounting Foundation, Norwalk, Connecticut 230-10-45 Other Presentation Matters General Note: The Other Presentation Matters Section provides guidance on other presentation matters not addressed in the Recognition, Initial Measurement, Subsequent Measurement, and Derecognition Sections. Other presentation matters may include items such as current or long-term balance sheet classification, cash flow presentation, earnings per share matters, and so forth. The FASB Codification also contains Presentation Topics, which provide guidance for general presentation and display items. See those Topics for general guidance. General > Form and Content 45-1 A statement of cash flows shall report the cash effects during a period of an entity's operations, its investing transactions, and its financing transactions. 45-2 A reconciliation of net income and net cash flow from operating activities, which generally provides information about the net effects of operating transactions and other events that affect net income and operating cash flows in different periods, also shall be provided. 45-3 Financial statements shall not report an amount of cash flow per share. Neither cash flow nor any component of it is an alternative to net income as an indicator of an entity's performance, as reporting...
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...1-1 A Modern Financial System—An Overview 1-2 Learning Objectives • Explain the functions of a financial system • The main types of financial institutions • Describe the main classes of financial instruments issued in a financial system • The flow of funds between savers / borrowers • Distinguish between various types of financial markets according to function • Appreciate the importance of globalisation • Understand the effects and consequences of a financial crisis on a financial system and economy 1-3 1 Functions of a Financial System • Money – Acts as medium of exchange – Solves the divisibility problem, i.e. where medium of exchange does not represent equal value for the p q parties to the transaction – Facilitates saving – Represents a store of wealth 1-4 Functions of a Financial System (cont.) • Role of markets – Facilitate exchange of goods and services by bringing opposite parties together establishing rates of exchange, i.e. prices • Financial Markets consist of: • Surplus units – Savers of funds available for lending • Deficit units – Borrowers of funds for capital investment and consumption 1-5 1.1 Functions of a Financial System (cont.) 1-6 2 Functions of a Financial System (cont.) • Financial instrument – Issued by a party raising funds, acknowledging a financial commitment and entitling the holder to specified future cash flows • Double coincidence of wants satisfied – A transaction between two parties that meets their...
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...Financial Institutions, Instruments and Markets—7th edition Instructor’s Resource Manual Christopher Viney and Peter Phillips Chapter 1 A modern financial system Learning objective 1.1: explain the functions of a modern financial system • The introduction of money and the development of local markets to trade goods were the genesis of the financial system of today. • Money is a medium of exchange that facilitates transactions for goods and services. • With wealth being accumulated in the form of money, specialised markets developed to enable the efficient transfer of funds from savers (surplus entities) to users of funds (deficit entities). • A modern financial system comprises financial institutions, instruments and markets that provide a wide range of financial products and services. • A financial system encourages accumulated savings which are then available for investment within an economy. • Financial instruments incorporate attributes of risk, return (yield), liquidity and time–pattern of cash flows. Savers are able to satisfy their own personal preferences by choosing various combinations of these attributes. • By encouraging savings, and allocating savings to the most efficient users, the financial system has an important role to play in the economic development and growth of a country. Learning objective 1.2: categorise the main types of financial institutions, being depository financial institutions, investment banks and merchant banks,...
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...Running head: ASSET CLASSES Asset Classes Theora Mcmillan FIN 402- Investment Fundamentals and Portfolio Management University of Phoenix January 16, 2011 Alger Marable Abstract This paper will serve to determine the asset class for Bank of America, a Dow 30 organization and explain how that classification and the current investment environment affect organizational decisions concerning portfolio composition. Asset Classes An asset class is a group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations (Investopedia, 2011). Financial markets are traditionally segmented into money markets and capital markets. Money market instruments include short-term, marketable, liquid, low-risk debt securities. Money market instruments sometimes are called cash equivalents. Capital markets, in contrast, include longer-term and riskier securities. Securities in the capital market are much more diverse than those found within the money market (Bodie, Kane, Marcus, 2008). Bank of America is an equity fund, more specifically, a common stock. Common stock represent ownership shares in a corporation. Each share of common stock entitles its owners to one vote on any matters of corporate governance put to a vote at the corporation’s annual meeting and to a share in the financial benefits of ownership (Bodie, Kane, Marcus). Factors that affect asset class selection are risk tolerance...
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...Chapter 1 A modern financial system: an overview The introduction of money and the development of local markets to trade goods were the genesis of the financial system of today. Money is a medium of exchange that facilitates transactions for goods and services. With wealth being accumulated in the form of money, specialised markets developed to enable the efficient transfer of funds from savers (surplus entities) to users of funds (deficit entities). A modern financial system comprises financial institutions, instruments and markets that provide a wide range of financial products and services. Importantly, a financial system encourages accumulated savings which are then available for investment within an economy. Financial assets, or financial instruments, incorporate attributes of risk, return (yield), liquidity and time-pattern of cash flows. Savers are able to satisfy their own personal preferences by choosing various combinations of these attributes. By encouraging savings, and allocating savings to the most efficient users, the financial system has an important role to play in the economic development and growth of a country. A range of different financial institutions has evolved to meet the needs of financial market participants and to support economic growth. Chapters 2 and 3 examine the major types of financial institutions. At this stage the institutions are categorised by the nature of their principal activities. Depository institutions, such as commercial banks, building...
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...company has risk associated with fluctuations in the value of the yen versus the United States dollar.[1] ------------------------------------------------- Hedge[edit] A hedge is a type of derivative, or a financial instrument, that derives its value from an underlying asset. Hedging is a way for a company to minimize or eliminate foreign exchange risk. Two common hedges are forward contracts and options. A forward contract will lock in an exchange rate today at which the currency transaction will occur at the future date.[2] An option sets an exchange rate at which the company may choose to exchange currencies. If the current exchange rate is more favorable, then the company will not exercise this option.[2] The main difference between the hedge methods is who derives the benefit of a favourable movement in the exchange rate. With a forward contract the other party derives the benefit, while with an option the company retains the benefit by choosing not to exercise the option if the exchange rate moves in its favour. ------------------------------------------------- Accounting for Derivatives[edit] Under IFRS[edit] Guidelines for accounting for financial derivatives are given under IFRS 7. Under this standard, “an entity shall group financial instruments into classes that are appropriate to the nature of the information disclosed and that take...
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...basis but the lack of funds. They go through Financial Intermediaries who provide indirect finance with Deposits of Cash and Cash Loans or through Financial Markets who provide direct finance in which when securities are sold and funds transferred. This allows the transfer of funds from people and enterprise to investors who have such an opportunity. Other then investment opportunities in businesses, borrower-spenders would want to invest the excess of their monthly salary or to even adjust the composition of their net worth. Those who go through indirect financing usually prefer to go though financial intermediaries to watch their money grow while direct financing allow them to purchase securities and bonds directly. Q2. Differentiate between the following types of markets: -Physical asset markets versus financial asset markets Assets are commonly known as anything with a value that represent economic resources or ownership that can be converted into something of value such as cash. The main similarity between both assets is that they both represent an economic resource that can be converted into value. But the difference is that physical asset can be depreciated over their useful life or term, while financial asset can always be revalued at any point of time. Physical asset are disposed off when they have served for their useful economic life but financial asset are redeemed once they mature. Most importantly financial asset do...
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...Investment Environment Multiple Choice Questions 11. The material wealth of a society is equal to the sum of _________. A. all financial assets B. all real assets C. all financial and real assets D. all physical assets E. none of the above Financial assets do not directly contribute the productive capacity of the economy. 13. _______ are financial assets. A. Bonds B. Machines C. Stocks D. A and C E. A, B and C Machines are real assets; stocks and bonds are financial assets. Difficulty: Easy 14. An example of a derivative security is ______. A. a common share of General Motors B. a call option on Mobil stock C. a commodity futures contract D. B and C E. A and B The values of B and C are derived from that of an underlying financial asset; the value of A is based on the value of the firm only. 17. An example of a primitive security is __________. A. a common share of General Motors B. a call option on Mobil stock C. a call option on a stock of a firm based in a Third World country D. a U.S. government bond E. A and D A primitive security's return is based only upon the earning power of the issuing agency, such as stock in General Motors and the U.S. government. Difficulty: Easy 19. _________ financial asset(s). A. Buildings are B. Land is a C. Derivatives are D. U.S. Agency bonds are E. C and D A and B are real assets. Difficulty: Easy 20. The value of a derivative security _______. A. depends on the value of the related primitive security B. can...
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...profits. It is important to know the threats surrounding a company in terms of investment. For that reason, the organisation of choice has a risk profile indicating its positioning when thinking of investing in a new strategy. Apparently, the company has the willingness to take head-on the risks that would come along with any investment form. There are several financial instruments for investing in a new plan. The company has hatched mitigation measures for risks that may affect the incorporation of the strategy. The company’s decision to invest using the new financial instruments can realise increased costs, or losses in terms of trading in the finances, but these are some of the risks the organisation is willing to take head-on. In addition, with the current instability found in the financial sector after the infamous global financial crisis, companies run the risk of being caught up again in the recession. However, the company has engaged with the insurance companies and also with the necessary financial institutions so that in the event of unfortunate occurrence, the company remains safe. One example of financial instrument for investment is the Exchange Traded Fund (ETF), just like any other source of investment; it does not come along without its risks. In other words, there is no investment that is free from risk; they are all likely in one way or the other to land an organisation in trouble. For instance, the ETF regulations are susceptible to different diversification essentials...
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...assignment concerns about the discussion of fair value measurement under both the International Accounting Standard Board (IASB) and US national standard-setter, the Financial Accounting Standards Accounting (FASB). So far, IASB and FASB have created a uniform framework for how to measure fair value for entities around the world. By publishing IFRS 13 Fair Value Measurement, the IASB established a single source of guidance under IFRS for all fair value measurements. After searching relevant sources from financial books and economic websites, some of the issues about fair value accounting have been clarified and analysed. This assignment provides a better understanding of the joint work between IASB and FASB, the definition of fair value under both standards, the relevant issue about IFRS 13 and why accounting differences exist. A. Explain the purpose of the Memorandum of Understanding between the IASB and the US national standard-setter, the Financial Accounting Standards Board (FASB). Theoretically, A Memorandum of Understanding is a document that involved a bilateral or multilateral agreement between parties (Wikipedia 2011). In this particular research essay, the Memorandum of Understanding is a convergence process that both the International Accounting Standard Board (IASB) and US national standard-setter, the Financial Accounting Standards Accounting (FASB) would take steps to balanced the reciprocal structural changes (Aicpa 2006). The purpose of this Memorandum of Understanding...
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...which specifies the amount and timing of periodic payments in the form of interest as well as term to maturity of the principal. The debt holder stands as a creditor and in case of default, he has a prior claim on firm assets over the equity-holder. The equity holder has a residual claim to assets and income. He can receive funds only after other claimants are satisfied. Income is in terms of dividends, the amount and timing of which are not certain. 3) What is the basic principle in determining the price of a financial asset? The basic principle is that the price of any financial asset is equal to the present value of its expected cash flow, even if the cash flow is not knows with certainty. The price of any financial asset is the present value of the expected cash flows or a stream of payments over time. Thus, the basic variables in determining the price are: expected cash flows, discount rate and the timing of these cash flows. 8) explain the difference between each of the follow a. The money market is a financial market of short-term instruments having a maturity of one year or less. The capital markets contain debt and equity instruments with more than one year to maturity; b. The primary market deals with newly issued financial claims, whereas the secondary market deals with the trading of season issues (ones previously issued in the primary market); c. The domestic market is the national market wherein domestic firms issue securities...
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...Financial reporting developments A comprehensive guide Transfers and servicing of financial assets Revised May 2014 To our clients and other friends We are pleased to provide you with the latest edition of our Financial Reporting Developments publication on accounting for transfers and servicing of financial assets. This publication has been updated for further clarification and enhancements to our interpretative guidance. Applying ASC 860 in practice continues to be challenging. ASC 860’s scope is wide and applies to more than just securitizations. Moreover, ASC 860 relies in part on legal interpretations to determine the accounting for the transfer. Additionally, a transferor’s continuing involvement — which can vary significantly from transaction to transaction — will also affect the accounting analysis, requiring a complete understanding of both the business purpose and the form of the transaction. The authoritative literature on accounting for transfers of financial assets continues to change. The FASB is currently finalizing a project that would amend the accounting for repurchase-to-maturity transactions and repurchase financings and require new disclosures for certain transfers accounted for as sales and secured borrowings. In addition, the AICPA is updating its guidance on the use of legal interpretations as evidential matter to support management’s assertion that a transfer of financial assets has met the isolation criterion in ASC 860. This publication includes...
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