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In a simpler terminology it measures the movement in value of any security with the movement in price of the market as a whole. This factor can be important in establishing a portfolio.
There are many types of companies, some operate very closely with the financial institutions and markets while others have different operations e.g. manufacturing. All types of companies make investments. These investments play a huge role in assessing the cost of capital(Intermediate Financial Management). The cost of capital is basically the interest they pay on debt and dividends on stocks. This cost basically depends as explained above on the amount of risk associated. If the risk is low, that is beta for a company is low, its cost of capital will automatically be low. Investors will be willing to invest in it for lower returns and banks will lend on a lower rate.
(Similar example can be found in intermediate financial management)We can better comprehend this with an example. Let us assume that Company X makes investments in Gold mines. Each Gold mine has equal probability of giving no gold at all and gold worth ten times its extraction cost. The extraction expenditure for a gold mine; irrespective that it results in gold or not, is $100 for small size mine and $1000 for a large size mine. In the first scenario Company X who is short of money and has just $ 1000 to invest, invests in a large gold mine. Now risk of a loss of the $1000 investment is 50%, which is very high. This will associate a high risk with the company’s future cash flows and investors will require a high return; thus driving its cost of capital up. In the second scenario however Company X decides to invest in ten small gold mines. Although the return is the same but the risk has gone down considerably, because most of the risk has been diversified away. (Intermediate Financial
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Japan has also incurred high public debt for which its credit rating has been downgraded by Standard and Poor’s (S&P) in January 2011. In August of the same year, S&P downgraded long-term U.S. sovereign debt from the highest possible rating, AAA, to AA+.
It becomes a complex task to compare the risk of one specific kind of bond with the other. Under these situations, the duration is the technique which provides a parameter to compare the risk of fixed-income securities having different maturities. According to the concept of duration, the longer the maturity of a fixed-income security, the greater will be the amount of volatility present in that security in case of a given change in the yield of that security.
However, over the times it has been found that this key function has been compromised as the secondary trading now accounts for a high proportion of its trading activities. Basically, stock exchange is a platform or market place that provides services for traders and stock brokers.
They channel the funds from firms, households and the governments which they have surplus funds to those who have shortage of funds as they spend more than their level of income. Primarily governments, corporations, households, foreigners have excess funds with them and hence they lend them.
International Financial Market trends have been on a growth rate since the last three decades. This study is to highlight the growth trend that has been achieved in the international financial market showing the curve over the past three decade. The paper starts with the basics of the global financial markets and moves to explaining the components viz., the foreign exchange, international capital and the international stock markets.
ression representative economists of these two nations, Harry Dexter White and John Maynard Keynes, respectively led the gathering of economists at the Mount Washington Hotel in Bretton Woods, New Hampshire to formulate a system that will prevent the recurrence of this traumatic
Long-term debt may be raised through several ways, but the most common is through the sale or flotation of bonds. Equity capital, on the other hand, is in the form of stocks, of which there are at least
Union, such as the Czech Republic, currently provides considerable incentives for companies that wish to offer foreign direct investment or simply establish a new base of operations and production. As one example, Hyundai Auto was given incentives that equaled 18 percent of its
The role of the capital market is to facilitate an exchange of funds among all member participants. By doing so, members present themselves with having surplus funds or a deficit of the same. As a result, trading is
Euro zone is at risk because all the members of the European Monetary Union (EMU) were guarantees of each other when they were applying for the loan. Because of this, all the member state of Europe including those
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