Find And Read Each Concept Listed Below In The Textbook ✓ Solved
Find And Read Each Concepts Listed Below In The Text Book And Post You
Find and read each concepts listed below in the textbook and post your understandings, thoughts, related news (news from Canada, US or China), and/or applications about the concepts 11 in total; minimum HALF-Page, Single Space per concept. APA style. Turn-it-in report needed. Functions of money; Floating exchange rate; Time value of money; Foreign bond; Yield to maturity; Futures; Options; Hedge in Finance; Capital budgeting; Net present value; CAPM (capital asset pricing model).
Sample Paper For Above instruction
Introduction
The study of foundational financial concepts is essential for understanding global markets and financial decision-making. This paper explores eleven fundamental concepts in finance, including their definitions, applications, and relevance in contemporary economic contexts, particularly considering recent developments in Canada, the United States, and China. By analyzing these concepts, the paper aims to provide a comprehensive overview beneficial to students, professionals, and researchers alike.
Functions of Money
Money serves as a medium of exchange, a store of value, a unit of account, and a standard of deferred payment ( Mishkin, 2015). Its primary function is facilitating transactions without the need for barter, thus promoting efficiency in economic activity. Money's role as a store of value is crucial in enabling savings and investments, while its function as a unit of account allows for the consistent valuation of goods and services.
In recent news, Canada has adopted digital currencies and electronic payment systems, emphasizing the evolving functions of money in a digital age (Bank of Canada, 2022). The widespread use of cryptocurrencies globally underscores the importance of understanding traditional functions alongside emerging financial tools.
Floating Exchange Rate
A floating exchange rate is determined by the market forces of supply and demand without government intervention (Krugman & Obstfeld, 2019). It fluctuates continuously based on economic indicators, interest rates, and geopolitical events. The US dollar's exchange rate relative to other currencies often exhibits floating behavior, influenced by monetary policy and global trade dynamics.
Recent developments include China's gradual shift toward more flexible exchange rate policies to manage economic stability amid trade tensions with the US (People's Bank of China, 2023). The floating exchange rate system allows countries to adjust their currency value naturally, but it also introduces volatility, which can impact international trade and investment decisions.
Time Value of Money
The time value of money (TVM) concept asserts that a dollar today is worth more than the same dollar in the future due to its earning potential (Brigham & Ehrhardt, 2016). This principle underpins investment decisions, lending, and borrowing processes. Discounting future cash flows and compounding present values are core techniques associated with TVM.
In practical applications, US and Canadian governments use TVM principles extensively in bond valuation and pension fund management. China's rapid economic growth has also been driven by investments that leverage TVM to evaluate long-term projects and infrastructure developments (World Bank, 2023).
Foreign Bond
Foreign bonds are debt securities issued by a borrower in a country different from the bondholder's home country (Eiteman et al., 2016). They enable investors to diversify portfolios and access foreign markets. American investors purchasing bonds issued in Japan or Europe exemplify foreign bond investments.
Recent trends show increased issuance of foreign bonds by Chinese corporations seeking foreign capital and by US companies expanding abroad (Securities Industry and Financial Markets Association, 2022). Currency risk and political stability are key considerations influencing foreign bond investments.
Yield to Maturity (YTM)
YTM is the total return an investor can expect if the bond is held until maturity, accounting for all coupon payments and the difference between purchase price and face value (Mishkin, 2015). It is a vital metric in evaluating bond attractiveness and comparing fixed-income securities.
In recent financial markets, fluctuations in interest rates affect YTM calculations, impacting bond prices and investor strategies in North America and China. For instance, the Federal Reserve's interest rate decisions influence US bond yields (Federal Reserve, 2023).
Futures
Futures are standardized contracts traded on exchanges that obligate the buyer to purchase, and the seller to sell, an asset at a predetermined price at a specified future date (Hull, 2017). They are essential for hedging risk and speculating on price movements in commodities, currencies, and financial instruments.
Recent commodity futures markets, especially in energy and metals, have seen heightened activity due to geopolitical tensions affecting prices in North America and Asia. Futures markets help producers and consumers manage price volatility.
Options
Options are financial derivatives granting the holder the right, but not the obligation, to buy or sell an asset at a specified price before or at expiration (Cox et al., 1979). They are widely used for hedging, income generation, and speculation.
In the context of the US and Chinese markets, options trading has expanded significantly, with financial institutions innovating products to hedge against currency fluctuations, interest rate changes, or commodity prices (Cboe Global Markets, 2023).
Hedge in Finance
Hedging involves using financial instruments to offset potential losses from adverse price movements (Kolb & Overdahl, 2007). Common tools include futures, options, and swaps. Hedging reduces risk but may also limit upside potential.
In recent years, North American energy companies have hedged oil prices to stabilize revenue streams amidst volatility. Similarly, Chinese exporters hedge currency risk due to Yuan fluctuations, influenced by government policies (People's Bank of China, 2023).
Capital Budgeting
Capital budgeting is the process of evaluating and selecting long-term investments that are in line with strategic goals (Brealey et al., 2019). Techniques include net present value (NPV), internal rate of return (IRR), and payback period analysis.
US infrastructure projects and Canadian resource developments extensively utilize capital budgeting to assess feasibility and profitability. China's rapid infrastructure expansion exemplifies strategic capital investment planning.
Net Present Value (NPV)
NPV is the difference between the present value of cash inflows and outflows, serving as a key criterion for investment decisions (Ross et al., 2016). A positive NPV indicates value-adding projects.
Recent applications include evaluating renewable energy projects in Canada and China, where investment decisions rely heavily on NPV analyses to promote sustainable development and economic growth (International Renewable Energy Agency, 2022).
CAPM (Capital Asset Pricing Model)
CAPM models the relationship between expected return and systematic risk, indicating that investors should be compensated for the risk they bear (Sharpe, 1964). It is fundamental in portfolio management and asset pricing.
In recent financial markets, CAPM helps institutional investors in North America and China construct optimized portfolios aligned with risk appetite and market conditions. It also informs the pricing of derivative instruments and risk management strategies.
Conclusion
Understanding these fundamental financial concepts provides a comprehensive foundation for analyzing global economic activities and investment strategies. As markets evolve, so does the application of these principles, influenced by technological advancements, geopolitical shifts, and regulatory changes. Recognizing the interconnectedness of these concepts enhances decision-making capabilities in an increasingly complex financial landscape.
References
- Brealey, R. A., Myers, S. C., & Allen, F. (2019). Principles of Corporate Finance. McGraw-Hill Education.
- Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
- Cboe Global Markets. (2023). Options Trading and Strategies. Retrieved from https://www.cboe.com
- Cox, J. C., Ross, S. A., & Rubinstein, M. (1979). Option pricing: A simplified approach. Journal of Financial Economics, 7(3), 229-263.
- Eiteman, D., Stonehill, A., & Moffett, M. H. (2016). Multinational Business Finance. Pearson.
- Federal Reserve. (2023). Monetary Policy Reports. Retrieved from https://www.federalreserve.gov
- Hull, J. C. (2017). Options, Futures, and Other Derivatives. Pearson.
- International Renewable Energy Agency. (2022). Renewable Energy Market Analysis. IRENA Reports.
- Krugman, P. R., & Obstfeld, M. (2019). International Economics: Theory and Policy. Pearson.
- Kolb, R. W., & Overdahl, J. A. (2007). Financial Calculations: Using Excel. Wiley.
- Mishkin, F. S. (2015). The Economics of Money, Banking, and Financial Markets. Pearson.
- People's Bank of China. (2023). Monetary Policy and Exchange Rate Reform. Official Report.
- Ross, S. A., Westerfield, R. W., & Jaffe, J. (2016). Corporate Finance. McGraw-Hill Education.
- Securities Industry and Financial Markets Association. (2022). Foreign Bond Market Trends. SIFMA Reports.
- World Bank. (2023). China's Economic Outlook. World Bank Reports.
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