Financial Strategy Essay Example | Topics and Well Written Essays - 1000 words

Financial Strategy - Essay Example Financialisation has influenced corporate ownership and control. Corporate control is basically the mode of its governance and this behaviour is what financial markets has worked to influence and change to align to their own interests. Financialisation has led to a change in corporate control in such a way that managers are disciplined by the prospect of ouster and takeover if they are unable to maximise profits. Because of this, managers are compelled to go for market efficiency improvements such as privately financed equity investments and leveraged buyouts as a way of satisfying stakeholder interests. Basically, managers of corporations are now forced to merge their interests with those of the financial markets. This has eliminated the countervailing force that previously interfered with the ability or willingness of managers to side with excessive financial interests. It has also broke the union-power that used to exist between corporations. This clearly depicts that financialisa tion has led to a drift in the corporate financial behaviour. Financialisation and its new approach to corporate control have fostered the growth of options like the stock pay option. The main reason behind this is that there is an increased need to align the interests of the management with those of the stakeholders and such options help to accomplish this task successfully. The top management of corporations have benefitted from these stock options and new pay practices and this has generated in managers the interest to maximise the short-lived stock prices. Financialisation has also led to excessive adoption of debt finance by corporations. The main motivation for this is tax code is more favourable to interest payments than on profits. In addition, managers of corporations have also adopted this strategy as a way of draining free cash from the firm leaving little for claimants on the income stream of the firm and putting pressure on workers (Bronars and Deere 1991). The overall effect of financialisation on corporate control is that corporate governance is becoming increasingly beholden to and dominated by financial markets. This implies that corporate managers have been pressurized to import behaviors from the current financial markets and these in turn have affected business decision-making and corporate investment. These investments and decisions include resource allocation whereby corporate managers of non-financial corporations have capitalized on stock repurchases as one of the main mode of corporate resource allocation. This has mainly been encouraged by the extent to which executives of corporations can enrich themselves by manipulating the stock prices of the corporation (Lazonick 2011, 11). These corporate control modes may be profitable and attractive and more profitable to firms. It also gives corporations a range of options for investing under various economic climates and profitability levels. For example, when profits achievable in financial markets are higher than those that can be achieved in the normal product market, then it becomes a motivation to corporation management to invest less in real assets and more on financial assets. However, such strategies may not be long-lasting. Palley (1995) and Palley (1997b), state that it is not good for the financial market behaviors of an economy or corporations are governed by short-terminism and herd behavior. Financialisation

MacroF Essay Example | Topics and Well Written Essays - 1500 words

MacroF - Essay Example D – fractional reserve 20. A – 450 21. D – 1/R 22. C (E – 1/m) 23. D – increase GDP with low interest (inc money supply) 24. A – sell sec, reduce rates and inc reserve req 25. B– money supply 100 26. D – increase money supply to 100 27. C – 4 28. D 29. B – prime intt rate 30. D – decrease exports and appreciate $ 31. B - monetarism 32. C –Keynesian economics 33. A – rational expectation 34. C – Philips curve 35. C – Speed of adjustment 36. C –Laffer curve 37. B – below ob 38. D – done all 39. A – 3.6 trillion 40. B – Canada 41. D – all of the above 42. A – excise on imports 43. B – less resources and more needs 44. D – rent, wages, intt, profits 45. A – increase one at another’s expense 46. A – direct, inverse 47. C – price (price changes the demand curve not movement on same demand curve) 4 8. C – increase in demand 49. D – both statements are ok unless it is some sort of trick question! 50. D – high marginal cost of production 51. B – 1 and 200 52. B – 1.60 53. D – 0.50 54. D – corporate profits 55. B – functional 56. A – personal 57. D – top 1/5th get 8 times the lowest 1/5th 58. A – no claim on proprietor personal assets 59. C – GDP 60. B – PI 61. A – all final goods and services in a year 62. C – 25% 63. C – supply shock 64. B – 180 Bn 65. C – 40 at all levels 66. D - $2 for every +$3 in GDP 67. B – 3 Short Answers Question 1 The macroeconomic equation of exchange is the relationship between Money supply that is the total nominal amount of money in circulation (M), Velocity of money meaning the average frequency with which money is spent (V), Price level (P) and index of real expenditures (Q). It is expressed as M x V = P x Q From the equation of exchange, we see that money together with velocity is the source of funding for economic activities. Furthermore, it shows that for a given stock of money, an increase in velocity helps finance a greater value of transactions than money could have done by itself. Thus, the velocity of money describes the amount of economic activity with a given money supply. If all other things remain constant, changes in velocity of money can greatly affect the prices. A very high V at same M and Q would result in an increase in P (price level), that is inflation, and vice versa. If the velocity of money is stable, economists are able to predict the GDP levels and take action accordingly. Money supply can be effectively used to implement the economic policies with the desired result. If, however, V is unstable, it leads to fluctuations in price levels, and the economic policy changes in M can bring negative result. For example, if V decreases suddenly, inflation will also drop. In orde r to control this, the government might decide to increase the money supply. Now, if the V also increases after the increase in money supply, this would lead to sudden high inflation with combined effect of increased M and V. So, the stability of V is very important for governments to be able to decide and implement effective economic policies. Question 2 The structure of Federal reserve system is shown below in figure 1. Figure 1 Structure of Federal reserve system The components of the federal reserve system and their functions are described below: 1. Board of governors: they are appointed by the US president and confirmed by the US senate. The primary responsibility of the Board members is the formulation of monetary policy. The Board sets reserve requirements and shares