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Final

ECON 2720 Final: Exam Review 1 - ECON
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Department
Economics
Course
ECON 2720
Professor
B Ferguson
Semester
Winter

Description
Exam Review Tuesday, April 18, 2017 12:55 PM 1. What do we mean by the medieval Italian Commenda form of business organization? ○ Traders that needed funds for long voyages created partnerships with financial partners with limited liability to allow for international trade a. How does it fit into the spectrum between the General Partnership and the Corporation? ○ The Italian Commenda is a partnership because if one of the members dies, the partnership ends. It is similar to a corporation as there is large -scale investment and capital involved b. What circumstances prompted its emergence? ○ Traders that needed funds were unable to get them as it was far too risky as the partners would be completely out of contact for a long period of time c. What modern type of business organization is it related to? ○ It is an early form of the modern limited liability partnership d. Discuss the issue of liability among Commenda members ○ As international trade was a risky business due to weather and shipwrecks, limited liability partnerships allow for the investor to only lose up to the amount that they invested if an event were to occur 2. What do we mean when we say that Commenda were organized on a single venture basis? ○ This means that the partnership is abolished after each venture and investors get pay -outs based on the amount of money that they invested a. Given this, how would you wind up with commenda arrangements involving the same investors through many years? ○ If one voyager happened to be very successful and the investor made money from the venture, they would aim to invest in the same voyager the following season a. Given this, how would you wind up with commenda arrangements involving the same investors through many years? ○ If one voyager happened to be very successful and the investor made money from the venture, they would aim to invest in the same voyager the following season 3. Why do we say that the Commenda form contributed to the democratization of investing? ○ Since the partnerships were limited liability, people who didn’t have lots of money could become financial partners. There is less risk of losing all of one's money. Therefore, it's appealing to small investors. Now the trading partner can get money from multiple financial partners 4. What were the medieval super companies? Were they corporations or partnerships? ○ They were large businesses that were partnerships in the medieval era that had offices across Europe with capital intensive production a. How did they handle the death of a member or the desire to restructure the business arrangements? ○ Before the partnership dissolved, they would write up new contracts so a new partnership would be created as soon as possible to continue production 5. Explain what we mean when we say that the supercompanies organized their accounting on a venture basis. Discuss their physical capital requirements. How did they attend to their capital requirements? How did this relate to their accounting? ○ By leasing out the ship and warehouse every venture, even if the same venturing goes on for 50 years, leasing the capital made the accounting more straightforward as the exact costs of each venture would be known. 6. How did the supercompanies handle the incentive compatibility problem when regional office managers were employees? When they were partners? ○ Within smaller offices, employees would be paid on a seniority basis and on starts of performance. If they were unable to fulfill the standards, they would lose their job ○ Family Members were considered partners so they were more difficult to fire if they were not following the business's best interests. In order to get them to follow the best interest of the business, they would lose the family. 7. What do we mean when we say that supercompanies started as standards, they would lose their job ○ Family Members were considered partners so they were more difficult to fire if they were not following the business's best interests. In order to get them to follow the best interest of the business, they would lose the family. 7. What do we mean when we say that supercompanies started as trading companies and became merchant bankers? Why did they get into the business of handling finance for others such as the Vatican? How did they handle the transfer of Vatican funds from England to Rome during the period when the export of coin from England was forbidden? ○ The supercompanies would transport funds through their trade of cotton which they have been trading for some time. ○ They got into the businesses of transferring money because there was a need for the Vatican to do this and export of coin was forbidden between England and Rome. ○ Furthermore, shipping coin was dangerous because there were no more region legions to keep law and order. ○ As well, letters of credit was considered a sin as it is considered a loan and the Catholic church considers loans a sin ○ When a monasteries needed to transfer money to the Vatican they would buy the wool with the money that needed to be transferred, transfer the wool to Rome, sell it, keep some revenue and then give the Vatican the money that they transferred. ○ The supercompanies Berardi and Bertuzzi acted as banker agents for the Vatican. 8. Discuss the mills of Toulouise in medieval France. Why do we say that they were organized as corporations? What characteristics of corporations did they possess? Was the type of business activity in which they were engaged appropriate for the corporate form? I
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