ECON 2720 Study Guide - Final Guide: John Maynard Keynes, Call Option, Put Option

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goldferret374

26 Jun 2016

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Explain the difference between the two in terms of risk taking. Share or stock has perpetual life, and bonds mature after certain time period. Shares do not promise periodic payment, but bonds have to pay periodic payment. Bondholders are paid their amount first during the liquidation of the company, but shareholders are the last to get paid. Shares have rights to vote, but bondholders do not possess any rights. Returns from bonds are low but risk-free, i. e. guaranteed return (coupons), returns from shares although very high, but extremely volatile. *i have it in my notes that the church disliked bonds because they felt it caused economic inequality. I too in my notes have that the church saw a bondholder as immoral and a shareholder as moral. The church took the position that more risk and uncertain profit was okay and a moral way of financing. (2) explain what we mean by a call option on a stock.

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View the video transcript below and share your thoughts on the economic concepts that you believe are applicable.

Question# 1. Provide a rationale on whether or not a firm has to possess market power in order to raise prices.

How to Raise Prices Without Losing Customers

JJ RAMBERG, anchor:

With gas prices soaring and the economy tightening, you may think itâs not possible to charge your customers more. But, it turns out you can successfully raise prices without driving those customers away. Bob Prosen runs the consulting company, Prosen Center for Business. Heâs helped business leaders rapidly increase performance, productivity and profits, and heâs also author of the book, âKiss Theory Goodbye: Five Proven Ways to Get Extraordinary Results in Any Company.â Bob, welcome.

Mr. BOB PROSEN: Thank you.

RAMBERG: So, if youâre going to raise prices on your customers, one of the things you say is donât surprise them. So, how do you give them warning?

Mr. PROSEN: Well, our customers are very important to us, lets not surprise them. Letâs let them know in advance that prices will increase. But, itâs important to explain to them in their language as to why prices are increasing. For instance, if its fuel surcharges, theyâll understand that. But its important we put it in their language so that they, in turn, can pass that along and plan for it in their own business.

RAMBERG: So, a lot of times when people are paying more, they expect to get more. So, you should communicate increased value I assume. But is saying, um--gas prices are going up for me, is that uh--the same as saying, youâre going to get more for your money?

Mr. PROSEN: No, definitely itâs not. In fact, the equation for value is benefits plus price. So, if prices are going to go up we have to have increased benefits for our customers. So, we can do things like under promise and over deliver. Give them a little bit more. Understand their customerâs customer. So that when we provide our services to them, theyâre customized for our customers. They see more value, we understand their business, and therefore theyâll be more appreciative of what we do and less sensitive to price increases.

RAMBERG: That seems to--to follow into your next point, or go right into your next point, which is, track the quality of your products.

Mr. PROSEN: This is absolutely critical, and we can track the quality of our products many ways. Customers call us, complaints, warranty, rework. If weâll deal with that, capture that, and inside of âKiss Theory Goodbyeâ I teach business people how to reduce these problem occurrences and increase the quality of their product. You do it for two reasons: One, customers like us a lot more when things work the way theyâre supposed to; and our cost structure goes down therefore maybe we donât have to increase our prices as much and we can be more competitive.

RAMBERG: And then, also, relationships matter.

Mr. PROSEN: Oh thisâ¦

RAMBERG: So, if you have a good relationship, you can do more within that relationship.

Mr. PROSEN: Oh, definitely. People like to do business with people they like. So, lets make sure we stay in touch with our clients. Customize what we touch them with. You know, for instance, when I travel and I deal with business people, I always carry thank you notes in my briefcase. When Iâm finished, I send them a note. Itâs a rarity these days to even get a thank you note.

RAMBERG: Yeah, it absolutely is. So, about how much can you raise prices by? Can you suddenly figure out that your costs are gone up so much because of energy prices, or food prices, or gas prices, whatever it is, um--and raise it by 50%? Should you do it incrementally? Should you do it all at once? How does it work?

Mr. PROSEN: Yeah, thatâs a great question. It depends on what industry youâre in. It depends on what you customers are doing. It depends on a number of things that determine how much, and when, and the frequency of our ability to raise prices. Therefore, what I always recommend to business leaders is work on your cost structure; make sure youâre efficient and effective. Keep your costs as low as you can. Therefore, you can be more competitive on your pricing. Sometimes, you have to pass along the price. Other times, try to absorb what you can through improved efficiencies.

RAMBERG: Should you be looking at your competitors and how much theyâre charging?

Mr. PROSEN: Yes, you should absolutely be looking at your competitors. We always want to know what theyâre charging. And by the way, we want to differentiate our products and services from our competitors. And, if we can prove a higher value by dealing with us versus our competitor we should be able to articulate that, and we do it based on facts because we know whatâs going on in the industry.

RAMBERG: Alright, Bob I know a lot of people are thinking about raising prices so thanks for giving them some tips on how to actually do it.

Mr. PROSEN: My pleasure.

Please read this article. It discusses foreign currency issues for the Euro. Please elaborate and explain your thoughts on the article below.

The wisdom in the eurozone is that if the European Central Bank would only follow the lead of the Federal Reserve and move to far more aggressive monetary policy, which it is now doing, all will be hunky-dory.
Of course, drenching the single currency area in euros will help, and make it easier for banks to lend again.
It is also a brave act for the ECBâs Italian president, Mario Draghi. His promise to expand the balance sheet of the ECB by â¬1trillion flies in the face of historic German concerns about overexuberant monetary policy and the horrors of the Weimar Republic.
The bigger question, however, is whether the source of the eurozoneâs problems is simply a lack of credit, or is it more deeply rooted?
Many euroland economies simply are loaded down with too much debt. The âtroikaâ solution offered by the IMF, European Commission and ECB to this has been austerity. But still the debt levels rise.
Even the IMFâs own internal monitoring group has questioned the wisdom of the policy. The traditional solution for countries in trouble are the double âDâ approach â devaluation and default. The first is impossible in a single currency area unless nations drop out, as happened in 1993 when the euro predecessor, the European Monetary System, fell-apart.
That leaves the eurozone with default. It sound horrible and irresponsible, but as Harvardâs Benjamin Friedman recently observed, the debt of the 18 countries in the single currency region is more akin to American municipal bonds, rather than national debt. And managed defaults of American state and city debt have long been a feature of the landscape.
Official Greek debt could, for instance, be restructured so that payments could be stretched out over far longer time horizons and the coupons paid slashed. This was how the Latin American debt crisis in the 1980s, and some of the problems in East Asia a decade later, were fixed.
Standing in the way of such radical answers is Germany with its economic absolutes. Sometimes, however, German leaders choose to forget the fiscal history that they want to bury. In the 1930s it essentially defaulted on debts built up in the First World War and as a result of reparations.
At the London Debt Conference in 1953, the amount of debt Germany built up before, during and after the Second World War was halved and payment of principal suspended for five years and drawn out over 30 years to give a recovering and rebuilding economy breathing space.
That is the kind of precedent that Germany should be looking at now instead of insisting on hardship among its neighbours. It could also refrain from winding up friends by discouraging Brussels from presenting the UK with bills for Â£1.7billion in the knowledge that it would be a huge political embarrassment.
It is only by sleight of hand that the invoice has been halved.
Peace talk
The notion that Standard Charteredâs woes stem from the fact it was unfairly targeted by New York regulators is poppycock. The 29 per cent decline in the bankâs share price this year is representative of a much deeper malaise.
So far Standard Chartered has paid Â£400million in fines, in two tranches, to US enforcers, the most recent for failing to fix problems first identified in 2012: not smart.
Badly treated? Not if compared to BNP Paribas that had to stump up Â£5.5billion. As for the idea that foreign banks have been singled out â that also is ill-informed. Fines levied on JP Morgan Chase and Bank of America Merrill Lynch have been in the tens of billions of pounds.
One person who is certainly not taking Standard Charteredâs sliding reputation for granted is chairman Sir John Peace. He admitted to investors in Singapore, home to its largest shareholder Temasek with 17.7 per cent, that it was too complex and âtoo bureaucraticâ and takes too long to make decisions.
One critical action still pending is the removal of chief executive Peter Sands, who sought to brush aside charges of Iranian sanctions-busting and now has presided over a series of profits warnings. Temasek this week expressed its unanimous support for âPeter and Johnâ. Football fans will recognise the significance of that.
Slow coach
No one can question the determination of the Financial Conduct Authority to punish market offenders. But the speed at which it and the British courts deliver financial justice is farcical.
Julian Rifat, of hedge fund Moore Capital, was arrested on insider trading charges in 2010 but it was only yesterday that he was convicted of a Â£250,000 conspiracy as part of the Tabernula investigation involving six others.
Now we have another two month wait for sentencing.
The FCA says the probe was âpainstakingâ but that is no excuse for a lethargic process.

greycoyote871

1. Terms of Payment found in international business contracts include:

a. CFR (cost and freight, foreign port)

b. Consignment

c. Documentary Drafts

d. all of the above

e. (b) and (c) above

2. Joint Ventures have the

a. advantage of utilizing the expertise of a local partner.

b. disadvantage of not being able to make all the decisions because control is shared.

c. advantage of being able to share the profits.

d. all of the above

e. (a) and (b) above

4. Businesses are using global or regional brands for the following reason(s):

a. private brands do not offer any meaningful competition.

b. economies of scale usually result in reduced costs.

c. satellite and cable TV are widely available.

d. all of the above

e. (b) and (c) above

6. E-Commerce Potential is

a) is higher for Jamaica than for Argentina.

b) is an index based on mobile phones, internet hosts, and number of PCs.

c) is a composite ranking of three indices.

d) (a) and (b) above

e) (a) and (c) above

7. Generally, industrial products require __________ adaptation than consumer products to meet the demands of the world market.

a) greater

b) less

c) the same amount of

d) only slightly less

e) only slightly more

13. Although global sourcing can be beneficial it may have some disadvantages such as

a. added costs

b. exchange rate fluctuations affecting prices

c. quality control

d. all of the above

e. (b) and (c) above

14. In staffing

a. an ethnocentric policy is always the most effective if qualified personnel are available.

b. a polycentric policy is always the least effective even when qualified personnel are available.

c. using third country personnel would be considered most frequently with regiocentric or geocentric policies.

d. all of the above

e. (a) and (c) above

16. In the most recent 40 years, union membership around the world has been in decline, in part because:

a) There are more women in the workforce.

b) The unions have been successful and priced themselves out of the market.

c) Employers have made efforts to keep business union-free.

d) (a) and (c) above only

e) All of the above.

17. When a firm has less than a majority interest in a subsidiary it can still have control by having

a) a management contract

b) the right to control the technology

c) the right to vote its shares

d) all of the above

e) (a) and (b) above only

18. The Female Wage Gap

a. is the percent of Male Wages earned by Female Employees.

b. younger females have less of a gap in all countries.

c. is the smallest for older females in Korea.

d. all of the above

e. (a) and (c) above

19. Income earned abroad by U.S. citizens:

a) incurs a tax liability in the US with some adjustments.

b) incurs tax liability only on the portions earned in the U.S.

c) incurs no tax liability.

d) incurs a tax liability in the US on all income earned with no adjustments for

taxes paid in other countries.

e) none of the above

20. The international structural stages model suggests that a typical evolutional path for an international company's structure would be:

a) from international division to geographical area division to worldwide product division.

b) from international division to worldwide product division to geographical area division.

c) from geographical area division to worldwide product division to global matrix.

d) from functional division to horizontal company to virtual corporation.

e) from international division to worldwide product division to global matrix.

21. Competitive advantage is acquired by developing competencies that

a. are common to all competitors so the firm can compete.

b. create value for customers even if the price is higher than customers want to pay.

c. are difficult to imitate.

d. all of the above

e. (a) and (c) above only

22. In their measurement and disclosure for accounting systems, less developed countries tend toward:

A.	transparency and conservatism.

B.	transparency and optimism.

C.	secrecy and optimism.

D.	secrecy and conservatism.

23. Export Marketing plans should be specific about:

A. The markets to be developed

B. The marketing strategy for servicing them.

C. the tactics required to make the strategy operational

D.	cash flow projections.
E.	A, B, and C.

24. Factors that are involved in the operation of a manufacturing system include:

A. Plant location

B. Plant layout

C. Material handling

D. Human asset

E. all of the above

26. A middle ground between an ad campaign that is standardized worldwide and an entirely local ad campaign is called a:

A.	hybrid advertising campaign.
B.	programmed-management approach.
C.	computerized-management approach.
D.	shared-management approach.
	E. none of the above.

27. In selecting a foreign market, a screening process is used by a firm. In regard to this process, answer the following:

a) The importance of the priority order of the steps in the screening process.

b) The reasons for participating in either a trade show or in a trade mission.(Select one)

c) The reasons for using cluster analysis in assessing global markets.

d) The importance of regional or ethnic subcultures in evaluating competitive forces.

28. Select any four of the following, explain each of them, and discuss the role each of them plays in international business activities:

a) Summarize any one of the videos from week six or eight (either one of them not both) and discuss the role the information in this video plays in international business activities.

b) Foreign (Free) Trade Zones

c) Countertrade

d) Explain why a manager with a global assignment needs a mentor in the host country and a mentor in the home country.

e) Quality and quantity of the labor force in a country

f) Labor Mobility and Guest Workers

ECON 2720 Study Guide - Final Guide: John Maynard Keynes, Call Option, Put Option

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