Principles Of Financial Management - Question 1

Answer

Following are the principal functions of a modern and efficient stock exchange

Establishment of all markets is in a range of the financial securities. Which include a primary and secondary markets in equity ordinary shares a listed debt securities preference share convertible notes or subordinated debt?

 The securities system of a trading system: The provision of a securities trading system. The most modern and efficient stock exchanges have applied electronic trading systems. The best example of this is ASX platform which used by AXS. They buy and sell orders are placed into AXS by authorized broker. The quality of system is that they match orders and executes the trade.

 The system to clear and settlement: In this Global competitive forces require exchanges to settle stock transactions within T+3 days. May be this line reduced when system become more efficient. But CHESS system is used by AXS. In this system they give us a facilities to record and transfer the ownership and facilitates the financial settlement of transaction and removes all the possibility of settlement risk.

 The rule, regulation and monitoring is important of any exchange’s markets- In this way ASX has its own listing rules. The efficiency and integrity of the market is important. The ASX has its own set of listing rules. The exchange monitors the behavior of listed companies and authorized brokers, the exchange are liable is to apply penalties.

In provision of a well-informed market the price of a share is essential information about stock Information of changes current price will be in response to new information coming into the market that impact on the future performance of the listed entity.

Principles Of Financial Management - Question 2

Answer

Two main types of stockbrokers:

  • Traditional Brokers
  • Discount Brokers

 Traditional Brokers:

 Traditional stock brokers offer a number of services or products, like how to purchase investment products on credits, their retirement planning , advise on tax, and regular portfolio updates, financial and retirement planning, investing and tax advice, regular portfolio updates, and margins to purchase investment products on credit which will be subjected to necessary terms and conditions. The traditional brokers also give their personalized investment or give recommendations on trading.

 Discount Brokers

 Discount stock brokers or online stock brokers they allow their client to trade themselves will little like no interaction. Usually allow clients to trade on their own with little or no interaction with a live broker. The investor who is fee conscious and prefer to do it all by herself is prefer a discount brokers. Discount brokers could be a better choice for the fee-conscious investors who prefer to do it all by themselves. The discount brokers usually not give an investment advice like a tradition broker how to invest. They offer research and education tools to help to make better decision on an investment.

Principles Of Financial Management - Question 3

(Note this question is from the Week 7 Tutorial)

Assume that you have $10,000 to invest in a term deposit. In this situation, explain which of the three (3) deposits listed below (a. – c.) you would select if the selection strategy is totally depend on the higher percentage per annum (per year).

  1. a) a 90-day deposit that has a maturity value of $10,250.
  2. b) a 130-day deposit that has a maturity value of $10,390.
  3. c) a 145-day deposit that has a maturity value of $10,420.

Solution

Option –A

Present value= 10,000

Future value=10,225

Time period=90/360

10,1000=10225/(1.x)^90/360

X=90.5 % which means the amount has increase by 90.5 % if taken annually.

Option-B

Present value= 10,000

Future value=10,390

Time period=130/360

10000=10225*(1.x)^130/360

X=89.9 %

Option-C

Present value= 10,000

Future value=10,420

Time period=145/360

10000=10420*(1.x)^145/360

X=90.3 %

SO, THE BEST OPTION GIVEN THE maximum yield, in cooperating time value of money is option “A”

Principles Of Financial Management - Question 4

Answer

Credit facility is provided by most rms to their clients. For that, the rms formulate a credit policy, which prescribes how to evaluate credit, how to x credit limits, credit period, cash discount, collection policy, etc. If there is a cash discount for early payment, the cost of not taking the discount is to be ascertained and the discount should be foregone, only if, the cost of borrowings [to pay witching the cash discount period] is more than the cost of not taking the discount.

Opportunity cost=%discount/100-%discount *365/day difference between early and late settlemt

The cost of not taking the discount [opportunity cost] is calculated in the table below for all the three options:

A Cost of not taking discount = (1.25/98.75)*(365/20) =23.10%

B Cost of not taking discount = (1.25/98.75)*(365/50) =9.24%

C Cost of not taking discount = (1.5/98.5)*(365/50) =11.12%

Principles Of Financial Management - Question 5

 Solution

(a) Calculation of Monthly Loan Installments:-Loan to be Repaid/Repayment Period

Loan to be Repaid = $100000

Repayment Period = 5 years or 5*12months = 60months

Monthly Loan Installments = $100000/60months

= $1667 per month (approx)

Yearly Loan Installments = $1667*12months =$20000(approx)

(b) Calculation of Monthly Loan Installments: -Loan to be Repaid/Repayment Period

Loan to be Repaid = $100000

Repayment Period = 3years or 3*12months = 36months

Monthly Loan Installments = $100000/36months

= $2777 per month (approx.)

Yearly Loan Installments = $2777*12months =$33333(approx.)

Answer 2

a) Calculation of Monthly Interests Payments: -$100000*7.65% = $7650 p.a.

Interests Payments at end of each Month = $7650/12months = $637.50

(b) Calculation of Monthly Interests Payments:-$100000*5.50% = $5500 p.a.

Interests Payments at end of each Month = $5500/12months = $458.33

Note: - it is assumed that interest is to be paid at simple annual method since no information is given in question

Principles Of Financial Management - Question 6

Solution

Yes, there are four main transmission channels that can be used as monetary policy to target the official rate and these channels are; saving and Investment channel, Exchange rate channel, Assets price channel and cash flow channel.

Transmission of monetary policy basically denes the changes made by the Reserve bank for the rate of cash, so sometimes these changes are made to control ination in the economy or these sometimes Reserve bank has to make changes because of the situation in the money market in the economy. Because monetary policy is a major part of the economy and its changes directly affect the economic activities.

Monetary Policies are made to control the supply of money and it controls the ination and deation in the market. It also manages the supply of money in the market. Thus monetary policy plays a vital role in the money market. As its objectives are as follow:

  1. It stables the prices for sustainable growth.
  2. It promotes saving and investment of an individual or market.
  3. It manages all banks with its policies.
  4. Control export and import and manages the business cycle in the economy.
  5. It helps in the development of infrastructure and provides employment opportunity.

As we can see monetary policy is the macro factor of the economy and changes in the rate of cash or in the policy will affect the economy as whole. Now we will discuss all the channels which can be applied to make changes in the economy saving and investment channel - This channel is basically related to the saving and investment of an individual or a household because changes in the interest changes directly effects the saving

and investment of a person. Under the high interest rate a person will invest less as he/she has to now pay more and they cannot even save more. On the contrary if the interest rate would be less and the lending rate would be less than they can save and invest more.

  1. Exchange rate channel- Under the exchange rate channel, it mainly affects the exporters and importers because when the cash rate or interest rate gets lower then it mean that the value of the money of their country is reducing which will affect the economy. As the rates gets lower them importers can import less than before, and for the exporters it is a Benet so that now they can export in the exchange of more money.
  2. Exchange rate channel- Under the exchange rate channel, it mainly affects the exporters and an importer because when the cash rate or interest rate gets lower then it means that the value of the money of their country is reducing which will affect the economy. As the rates gets lower them importers can import less than before, and for the exporters it is a Benet so that now they can export in the exchange of more money.
  3. Assets price channel- Changes in the interest’s rate directly affects the purchasing power of a person or an individual. If there are low interest rates then a person can spend more on the assets and will invest more. On the other side higher the interest rate will automatically impact the purchasing power and will affect the buying of assets and will reduce the investment.
  4. Cash flow channel- Changes. Cash flow is a general term which is the effect of interest rate directly on the flow of cash for a household or for a person. It is basically an investment and saving thing because cash flow is the inflow and outflow of cash. Now it will only happen when the interest rate will be low and the person can save more and outflow is effect of the investment of a person in the market. Maintaining cash flow is an important factor.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Management Assignment Help

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