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Eco 202 exam 3 review
The document reviews topics related to finance including Islamic finance, unemployment, time value of money concepts like future value and present value, risk, and factors that can impact unemployment levels and wages. It provides information on unemployment rates, labor force participation, and types of unemployment. It also discusses unemployment insurance and factors that can influence wages.
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Eco 202 exam 3 review
- 1. Exam 3 Review TheBasic Tools of Finance Islamic Finance Unemployment
- 2.
- 3.
- 4. Future Value What somethingtoday will be worth in the future Compounding
- 5. Present Value What somethingin the future is worth today Discounting
- 6. N (1+r) r = Rate of compounding N = Number of Periods
- 7. Compounding Discounting 1 (1+r) N (1+r) N Future Value Present Value Multiply Present Value Multiply Future Value by factor to get by factor to get Future Value Present Value
- 8. Two ways toget Present Value PV = FV x 1 (1+r) N or PV = FV (1+r) N
- 9. Rewrite FV= PV x Factor FV = PV x Factor Factor Factor PV = FV Factor
- 10. 1. Calculate factor (1+r) N 2. Is the problem FV or PV? 3. If FV then multiply by PV FV = PV x Factor 4. If PV then divide FV by PV = FV ÷ Factor
- 11. Future Value = PresentValue x (1+r) N
- 12. Present Value =500 r = 5% or .05 N= 3 Future Value = ? = PV x (1+.05) 3 = PV x 1.2155 = 500 x 1.2155 = 607.75
- 13. Future Value = PresentValue x (1+r) N
- 14. Future Value =2000 r = 8% or .08 N= 5 Present Value = ? = FV ÷ (1+.08) 5 = FV ÷ 1.4693 = 2000 ÷ 1.4693 = 1361.16
- 15. Questions Always given r and N If given PV, then solve for FV If given FV then solve for PV PV = FV ? r and N FV = PV ?
- 16. Risk Don’tlike Risk Risk Adverse Cannot always avoid Reduce exposure
- 17. Diversification Replace one largerisk with lots of small unrelated risks Small Small Small Risk Risk Large Risk Small Risk Small Risk Small Risk Risk
- 18. Insurance Sharing risk Does not eliminate risk Reduce your exposure
- 19. How to Fundan Insurance Pool Estimate Loss Estimate Probability Premium = Loss x Probability Members = Loss ÷ Premium
- 20. How to Fundan Insurance Pool Loss = 100 Probability 1 in 20 or .05 Premium = 100 x .05 = 5 Members = 100 ÷ 5 = 20
- 21. Adverse Selection Making abad choice due to asymmetric information
- 22. Moral Hazard Changing behaviorafter an agreement Temptation to abuse the other party
- 23. Three Risks Firm Risk Industry Risk Market Risk
- 24. Speculative Bubble Price isgreater than fundamental value Buy because everyone else is buying
- 25. Chapter 28 Islamic Finance
- 26. Islamic Finance Must have an asset involved in the exchange No money for money
- 27. Islamic Profit and losssharing system Non Islamic interest-based system
- 28. Shariah - SacredLaw Riba - Usury -Interest Gharar - Uncertainty Haram - Prohibitied Halal - Permitted Zakat - Religious Tax Hiba - Gift
- 29. Deposits Current Saving -Wadiah Investment - Mudarabah Equity Financing Mudarabah - Risk Musharakah - Share Risk Asset Financing Murabahah - Resell Salem - Crop Loan Ijarah Leasing - Return Sukuk - Bonds Takaful - Insurance
- 30. Future Different views andinterpretations Evolving No uniform consensus Five schools of thought Shafi’i, Maliki, Hanafi, Hanbali, and Shi’a
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- 32. Saudi Labor Force Around Total Population 30 million Non-Saudis 10 million Saudis 20 million Adult Population Age 15+ 11 million Not in Labor Force 6 million In Labor Force 5 million Labor Force Participation Rate 45% Employed 4.4 million Unemployed 600 thousand Unemployment Rate 12% Source: General Statistics Department and Information
- 33. Employed paid employees work in own business unpaid workers in family business full-time and part-time jobs but temporary absence
- 34. Unemployed not employed available tried to find a job in the last four weeks waiting to be recalled from layoff
- 35. Discouraged Workers People who would like to work but have given up looking for a job
- 36. Not in LaborForce not employed or unemployed discouraged workers full-time student homemaker retiree
- 37. Unemployment Rate The percentageof the labor force that is unemployed
- 38. Employment Analysis Saudi U.S China Unemployment Rate 12.2% 7.9% 4.1% Participation Rate 45.0% 63.3% 74.2%
- 39. Natural Rate of Unemployment The normal rate of unemployment around which the unemployment rate fluctuates
- 40. Cyclical Unemployment The deviation of unemployment from its natural rate
- 41. Problems Overstate - Aboveactual Cash workers Understate - Below actual Discouraged workers
- 42. Unemployment Frictional Seasonal Structural
- 43. Frictional Time to finda new job
- 44. Seasonal Demand changes with the season
- 45. Structural Too manyworkers Change in demand for skills
- 46. Structural Creative Destruction 10% a Year
- 47. Unemployment Insurance Government program to provide income when workers become unemployed
- 48. Unemployment Insurance Unintended Consequence Moral Hazard May prolong unemployment
- 49. Why are wagestoo high? Minimum wage laws Unions Efficiency Wages
- 50. Minimum Wage Laws Government sets a minimum wage that can legally be paid
- 51. Wage Minimum Wage Minimum Wage 40 workers 20 workers 4,000 20 jobs get a raise 20 unemployed 10 workers Supply lose job workers 3,000 Minimum 10 new unemployed Wage workers 2,000 Equilibrium Wage 1,000 30 workers 30 jobs no Demand unemployment 0 0 10 20 30 40 50 60 Workers
- 52. Efficiency Wages Higher wagesmake more productive employees
- 53. Efficiency Wages Employee Wage Pizzas Productivity Wage per Pizza Ali 100 5 20.0 Abdullah 200 12 16.7
- 54. Efficiency Wages MoreHealthy Lower Turnover Higher Quality More Effort