The document discusses the role of financial globalization and its effects on business for developing countries. It notes that globalization can positively impact developing countries by increasing foreign investment, access to new markets, and standards of living. However, it also notes potential negative effects such as increased competition and vulnerability to financial crises. The document also examines the costs of capital and how globalization affects risk, corporate governance, and systematic risk.
2001 12 india indira gandhi institute_ keynote address_13_dec2001William White
This document provides an overview of the evolving global financial system and its implications for emerging markets. It discusses several key themes:
1) Forces driving change in the global financial system include advances in technology, deregulation, demographic shifts, and increased competition. These forces have manifested in securitization, globalization, and consolidation in the financial industry.
2) International capital flows into and out of emerging markets can create volatility. Recommendations to address this include improving transparency, strengthening domestic frameworks, and using macroprudential tools like capital controls.
3) International standards and their applicability to emerging markets are an important consideration, as countries evaluate how to balance financial openness and stability.
Evaluation of the Development and Performance of Selected GCC and Non-GCC St...Mace Abdullah
This paper compares and contrasts the stock markets for countries of comparable size and development as and between the GCC and non-GCC countries. The paper implicitly observes what may be considered strengths and weakness as and between markets dominated by Islamic Finance principles and those that are more or less conventionally oriented.
SME development, constraints, credit risk & islamic banking solutionsMace Abdullah
This analytic paper examines the status of small and medium sized enterprises (SME) worldwide, provides theoretical information and explores issues regarding their development, constraints and credit risk. SME have been heralded worldwide as being the economic “engine” of economic development. Certainly, from an Islamic finance perspective, the development of SME represents a propitious opportunity, a vital step towards an epistemological response to criticism of Islamic finance and should play an indispensible role in forging a more robust Islamic capital market. Yet, SME face persistent identifiable obstacles to growth and development. This paper focuses on SME development, particularly as it relates to the so-called “credit gap” and the concomitant credit risk. The SME “credit gap” is pervasive worldwide; particularly so in emerging economies. Accordingly, this paper analyzes: the determinants and drivers of SME development; constraints on SME development; the SME “credit gap” and concomitant credit risk; and the role Islamic banking can play in meeting the challenge of SME development.
The document discusses how the global credit crisis has impacted companies expanding into emerging markets through international trade. Some key points:
1) Access to capital for expansion has become more difficult as banks and capital markets have tightened lending in response to the crisis. Companies must now pursue multiple options to secure financing like tapping local markets, using corporate banking relationships, or pursuing joint ventures.
2) While emerging markets have been impacted by the downturn, places like Asia entered the crisis in a stronger position than the developed world and some countries have even eased credit availability again. The long term growth potential of emerging markets remains intact.
3) Currency volatility poses challenges but also opportunities for companies doing international business. Proper hed
This document provides an overview and syllabus for a course on global competitiveness and strategic alliances. The course covers various topics related to competitiveness including frameworks for assessing competitiveness, developing competitiveness through quality, productivity, policy, technology and innovation. It also covers the global competitiveness of the Indian industry, strategic alliances and internationalization of Indian businesses. The first unit defines competitiveness in terms of productivity and discusses macroeconomic and business strategy perspectives as well as approaches to assessing competitiveness at international and national levels.
1. BENEFITS THAT MNCS BRING TO HOST NATIONS
a. Improvement in the standard of living
b. Employment and economic growth in overseas countries
2. POTENTIAL NEGATIVE IMPACT
a. Influence on foreign governments to gain concession
b. Exploitation of labour in developing countries
i. Implementation of working practices which would be unacceptable in their home country
ii. Sale of unsafe products to consumers
c. Use of unsustainable resources and the degradation of the local environment
d. Cultural Imperialism
e. Footloose Capitalism
3. CONTROLLING MNCs
a. Pressure groups and public opinion
b. Internet
c. Self-Regulation
d. Political Constraints
e. Legal or constraints
f. Competition policy
Dr. Michael Hasenstab provides an analysis of factors that will differentiate the recoveries of various countries from the global economic crisis. He believes emerging markets will recover more quickly than developed markets due to emerging markets' stronger domestic economies and less reliance on exports, more effective policy responses, and avoidance of issues like high public debt and private sector leverage plaguing developed nations. Recent economic trends support this view, with emerging markets showing stronger growth, job creation, and capital inflows. Hasenstab also discusses opportunities in foreign exchange and bond markets stemming from divergence in recoveries.
2001 12 india indira gandhi institute_ keynote address_13_dec2001William White
This document provides an overview of the evolving global financial system and its implications for emerging markets. It discusses several key themes:
1) Forces driving change in the global financial system include advances in technology, deregulation, demographic shifts, and increased competition. These forces have manifested in securitization, globalization, and consolidation in the financial industry.
2) International capital flows into and out of emerging markets can create volatility. Recommendations to address this include improving transparency, strengthening domestic frameworks, and using macroprudential tools like capital controls.
3) International standards and their applicability to emerging markets are an important consideration, as countries evaluate how to balance financial openness and stability.
Evaluation of the Development and Performance of Selected GCC and Non-GCC St...Mace Abdullah
This paper compares and contrasts the stock markets for countries of comparable size and development as and between the GCC and non-GCC countries. The paper implicitly observes what may be considered strengths and weakness as and between markets dominated by Islamic Finance principles and those that are more or less conventionally oriented.
SME development, constraints, credit risk & islamic banking solutionsMace Abdullah
This analytic paper examines the status of small and medium sized enterprises (SME) worldwide, provides theoretical information and explores issues regarding their development, constraints and credit risk. SME have been heralded worldwide as being the economic “engine” of economic development. Certainly, from an Islamic finance perspective, the development of SME represents a propitious opportunity, a vital step towards an epistemological response to criticism of Islamic finance and should play an indispensible role in forging a more robust Islamic capital market. Yet, SME face persistent identifiable obstacles to growth and development. This paper focuses on SME development, particularly as it relates to the so-called “credit gap” and the concomitant credit risk. The SME “credit gap” is pervasive worldwide; particularly so in emerging economies. Accordingly, this paper analyzes: the determinants and drivers of SME development; constraints on SME development; the SME “credit gap” and concomitant credit risk; and the role Islamic banking can play in meeting the challenge of SME development.
The document discusses how the global credit crisis has impacted companies expanding into emerging markets through international trade. Some key points:
1) Access to capital for expansion has become more difficult as banks and capital markets have tightened lending in response to the crisis. Companies must now pursue multiple options to secure financing like tapping local markets, using corporate banking relationships, or pursuing joint ventures.
2) While emerging markets have been impacted by the downturn, places like Asia entered the crisis in a stronger position than the developed world and some countries have even eased credit availability again. The long term growth potential of emerging markets remains intact.
3) Currency volatility poses challenges but also opportunities for companies doing international business. Proper hed
This document provides an overview and syllabus for a course on global competitiveness and strategic alliances. The course covers various topics related to competitiveness including frameworks for assessing competitiveness, developing competitiveness through quality, productivity, policy, technology and innovation. It also covers the global competitiveness of the Indian industry, strategic alliances and internationalization of Indian businesses. The first unit defines competitiveness in terms of productivity and discusses macroeconomic and business strategy perspectives as well as approaches to assessing competitiveness at international and national levels.
1. BENEFITS THAT MNCS BRING TO HOST NATIONS
a. Improvement in the standard of living
b. Employment and economic growth in overseas countries
2. POTENTIAL NEGATIVE IMPACT
a. Influence on foreign governments to gain concession
b. Exploitation of labour in developing countries
i. Implementation of working practices which would be unacceptable in their home country
ii. Sale of unsafe products to consumers
c. Use of unsustainable resources and the degradation of the local environment
d. Cultural Imperialism
e. Footloose Capitalism
3. CONTROLLING MNCs
a. Pressure groups and public opinion
b. Internet
c. Self-Regulation
d. Political Constraints
e. Legal or constraints
f. Competition policy
Dr. Michael Hasenstab provides an analysis of factors that will differentiate the recoveries of various countries from the global economic crisis. He believes emerging markets will recover more quickly than developed markets due to emerging markets' stronger domestic economies and less reliance on exports, more effective policy responses, and avoidance of issues like high public debt and private sector leverage plaguing developed nations. Recent economic trends support this view, with emerging markets showing stronger growth, job creation, and capital inflows. Hasenstab also discusses opportunities in foreign exchange and bond markets stemming from divergence in recoveries.
This document summarizes an article titled "Increasing Returns and Long-Run Growth" by Paul M. Romer. It proposes an alternative model of long-run economic growth where knowledge, rather than physical capital, is the main driver of growth. Knowledge exhibits increasing marginal returns in production but decreasing returns in research and development. This allows for perpetual economic growth without limits in a competitive market equilibrium framework. The model overturns conventional assumptions that growth rates decrease and countries converge over time by introducing externalities from new knowledge and increasing rather than diminishing returns to knowledge accumulation.
The document discusses international business basics including importing, exporting, balance of trade, balance of payments, and currency exchange rates. It also covers the global marketplace, factors that influence international business environment, and examples of formal trade barriers and ways to encourage trade. Finally, it discusses multinational companies, common entry modes, and roles of international organizations like the WTO, IMF, and World Bank.
Finance estonia development proposals for capital markets Terje Pällo
This document proposes measures to rejuvenate Estonia's capital markets. It finds that Estonia's stock market capitalization and volume have significantly decreased in recent years, making its capital markets very small compared to other countries. It recommends both supply-side and demand-side measures to improve the market. These include increasing investment product offerings, altering regulations to enable new asset classes, and making the state a more active issuer. The goal is to enact several impactful and coordinated measures simultaneously to significantly boost capital market activity in Estonia.
Foreign Direct Investment in the former Soviet Unionrojeymiller
FDI is expected to increase economic growth in the Former Soviet Union (FSU) through mechanisms like productivity gains and technology transfers. The author constructs a model to test if FDI has a greater effect on GDP growth in FSU countries than elsewhere. Independent variables include FDI, secondary education, inflation, trade openness, and initial GDP. Regression results may help understand how to support transitioning economies and attract beneficial FDI.
This document summarizes a research paper that investigates the role of non-bank financial institutions (OFIs), including credit unions, in economic growth. It analyzes data from 76 countries from 1981 to 2005. The paper finds that measures of OFI assets and credit are positively and significantly related to real GDP growth, even after controlling for bank credit. Measures of credit union loans and assets are also positively linked to economic growth. While bank credit is positively related to growth, the relationship is not statistically significant over the sample period. The findings suggest that OFIs play an important role in promoting economic growth.
This document summarizes a study on the impact of donor policies on small and medium enterprise (SME) assistance projects in post-Soviet Russia. It discusses how Western donor organizations initially promoted "shock therapy" economic reforms that contributed to Russia's difficulties. The study examines an SME development project in Samara, Russia undertaken from 1995-1996 by the author's organization with co-funding from the European Bank for Reconstruction and Development and Swiss government. It aimed to help the city develop start-up SMEs and support the conversion of state enterprises to the private sector. The document provides context on the importance of SMEs to economic development and the challenges of transitioning Russia's economy from Soviet-era central planning to a
Competition a potent tool for economic development and Socio - Economic welfareEkta Grover
This document discusses competition as both an economic development tool and a potential source of socio-economic disruption. It notes that competition can accelerate GDP growth and job creation while also increasing consumer choice and surplus. However, it also argues that cut-throat competition can encourage unfair practices, reduce long-term investment in innovation, and disproportionately benefit competitive sectors over uncompetitive ones. The document uses the examples of agriculture, aviation, manufacturing and real estate to illustrate how competition must be "workable" and balanced to promote inclusive growth across all sectors of the economy. It poses that competition policy should aim for economic, allocative and dynamic efficiency through fostering cooperation, information sharing and supporting transitional sectors.
The theoretical considerations of financial markets integration the case of a...Alexander Decker
This document discusses the theoretical considerations of financial market integration, specifically regarding Arab countries. It begins by defining financial market integration as a situation with no barriers to capital mobility or trading foreign assets, such that identical securities have the same price across markets. Several schools of thought for measuring integration are described, primarily the law of one price. The document then reviews literature on defining and measuring integration. Benefits mentioned include risk diversification and efficient allocation of resources, while risks include volatility and capital flow reversals destabilizing some markets. The conclusion is that while integration can promote growth, very large financial systems may misallocate resources and have negative growth effects.
Development banks play an important role in promoting industrial development in less developed countries by providing long-term financing for capital-intensive industries and infrastructure projects. Private markets often fail to adequately fund such long-term investments due to risk, liquidity, and return expectations. Development banks fill this gap by lending directly for projects and closely monitoring borrowers. They also provide technical support and influence investment decisions. Early examples include the Credit Mobilier in France and universal banks in Germany that helped drive industrialization. Development banking allows countries to accelerate industrialization and economic growth through targeted financing where private markets are insufficient.
This document outlines the key elements of developing an effective global marketing strategy. It discusses defining the global marketing mission and segmentation strategies. It also addresses competitive positioning and customizing the marketing mix for different markets. Major risks like political, financial and exchange rate risks are summarized. The document provides an overview of the strategic challenges of entering foreign markets and considerations for subsequent expansion into a truly integrated global marketing approach.
11.the theoretical considerations of financial markets integration the case o...Alexander Decker
The document discusses the theoretical considerations of financial market integration in Arab countries. It begins by defining financial market integration and reviewing different approaches to measuring integration. It then examines factors that have hindered integration among Arab markets, including their limited economic size and the dominance of oil exports. Efforts by Arab countries toward integration are also reviewed, such as the Arab League and plans for projects like the Arab Gas Pipeline. The results indicate that integration among Arab financial markets remains low due to challenges like differing levels of economic development and a history of agreements not being fully implemented. More work is still needed to achieve real integration.
The document provides a comparison of the venture capital industries in the US, Japan, and Germany. It finds that government regulations in Japan and influences in Germany in the early 20th century led to bank-based financial systems with constraints on institutional investors and stock markets, unlike the US which developed a market-based system involving institutional investors. As a result, the US venture capital industry has greatly outpaced those of Japan and Germany in size and profitability over the last 20 years. However, recent globalization trends have led to some convergence of these previously distinct venture capital markets.
A project report on construction of balanced portfolio comprising of equity a...Babasab Patil
The document discusses constructing a balanced portfolio of equity and debt securities. It begins by providing background on stock markets and volatility in India. It then describes a project to construct a portfolio with a beta of 1 and higher returns than the market. Various sectors and bonds were analyzed. The portfolio construction found higher returns than the market index with a systematic risk of 1. The document also provides theoretical background on fundamental analysis, industry analysis, company analysis, debt valuation techniques, bond pricing, yield to maturity, duration, and other related concepts to provide context around balanced portfolio construction.
1) The document discusses the relationship between stock market development and economic growth. It argues that stock markets promote economic growth through mobilizing savings, allocating capital efficiently, and spreading risk.
2) Several studies cited in the document found a positive correlation between stock market development indicators like market capitalization and liquidity, and long-term economic growth. Well-developed stock markets increase investment and savings.
3) The document also examines the role of stock markets in Pakistan and finds a positive relationship between stock market performance and Pakistan's economic growth.
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The document discusses the role of financial systems and stock markets in economic development. It provides an overview of Pakistan's financial system, including the historical dominance of informal finance. While financial reforms in recent decades improved access to formal institutions, stock markets remain underdeveloped in Pakistan. The document analyzes constraints like low interest rates, weak regulation, and political instability that have limited stock market growth. It recommends further reforms like reducing corporate leverage, encouraging bond markets, and improving disclosure to strengthen Pakistan's financial system.
Ivo pezzuto "Turning Globalization 4.0 Into a Real and Sustainable Success fo...Dr. Ivo Pezzuto
The new era of globalization, propelled by the rapid technological advancements and widespread concern for sustainable development goals, seems to be headed for a bright and promising future, driven by an unprecedented groundbreaking potential. It’s a very exciting moment for dynamic, highly competitive and innovative firms and startups to engage these days in international business, thanks to a vibrant and highly interconnected global business environment, eagerly driven knowledge-sharing communities, and ease of access to smart and seamless enabling technologies. Yet, globalization is currently facing also very serious challenges whose root causes seem to be deep and complex and if they are not fully understood and properly addressed by political leaders and multilateral institutions, they may potentially threaten to derail the existing world order. This article aims to provide a broad overview of the major opportunities and challenges of the new era of globalization and to stimulate reflections, debates, and possible new visions and strategic directions in order to create a more sustainable, socially inclusive, competitive, innovation-driven, and prosperous future for all stakeholders in the global market.
Etude RSM International sur la création d'entreprise 2013Société Tripalio
Cette étude analyse le processus de création d'entreprises dans différents pays industrialisés et en donne une estimation statistique. La France est réputé le pays le plus dynamique en créations d'entreprise
The document discusses the role and functions of stock exchanges. It provides several key points:
1) Stock exchanges allow companies to raise capital by selling shares to investors. They also facilitate various forms of capital raising like venture capital, corporate partnerships, and government bond issuances.
2) Going public through an IPO on a stock exchange is an important way for capital-intensive startups to raise large amounts of funding.
3) Stock exchanges mobilize individual savings for investment purposes and allow small investors access to investing in major companies. They also provide a means for companies to grow through acquisitions.
4) Share prices on stock exchanges can act as an indicator of overall economic trends and stability.
Fiduciary or paper money is issued by the Central Bank on the basis of
computation of estimated demand for cash. Monetary policy guides the Central
Bank’s supply of money in order to achieve the objectives of price stability (or low
inflation rate), full employment, and growth in aggregate income.
This document contains an introduction to a paper series on restoring the primacy of the real economy. It provides summaries of 6 papers that will be presented at the 2nd Summit on the Future of the Corporation in June 2009. The papers address topics such as developing public policies to foster long-termism in financial markets, aligning a new global financial architecture with sustainable development, improving stewardship in corporations, addressing the origins and costs of short-term management, emerging alternatives to the shareholder-centric model of corporations, and rethinking modern portfolio theory and markets in light of social and environmental risks. The introduction expresses hope that summit participants and readers will find the papers informative and provocative in shaping discussions on improving regulation of the financial sector
This document summarizes an article titled "Increasing Returns and Long-Run Growth" by Paul M. Romer. It proposes an alternative model of long-run economic growth where knowledge, rather than physical capital, is the main driver of growth. Knowledge exhibits increasing marginal returns in production but decreasing returns in research and development. This allows for perpetual economic growth without limits in a competitive market equilibrium framework. The model overturns conventional assumptions that growth rates decrease and countries converge over time by introducing externalities from new knowledge and increasing rather than diminishing returns to knowledge accumulation.
The document discusses international business basics including importing, exporting, balance of trade, balance of payments, and currency exchange rates. It also covers the global marketplace, factors that influence international business environment, and examples of formal trade barriers and ways to encourage trade. Finally, it discusses multinational companies, common entry modes, and roles of international organizations like the WTO, IMF, and World Bank.
Finance estonia development proposals for capital markets Terje Pällo
This document proposes measures to rejuvenate Estonia's capital markets. It finds that Estonia's stock market capitalization and volume have significantly decreased in recent years, making its capital markets very small compared to other countries. It recommends both supply-side and demand-side measures to improve the market. These include increasing investment product offerings, altering regulations to enable new asset classes, and making the state a more active issuer. The goal is to enact several impactful and coordinated measures simultaneously to significantly boost capital market activity in Estonia.
Foreign Direct Investment in the former Soviet Unionrojeymiller
FDI is expected to increase economic growth in the Former Soviet Union (FSU) through mechanisms like productivity gains and technology transfers. The author constructs a model to test if FDI has a greater effect on GDP growth in FSU countries than elsewhere. Independent variables include FDI, secondary education, inflation, trade openness, and initial GDP. Regression results may help understand how to support transitioning economies and attract beneficial FDI.
This document summarizes a research paper that investigates the role of non-bank financial institutions (OFIs), including credit unions, in economic growth. It analyzes data from 76 countries from 1981 to 2005. The paper finds that measures of OFI assets and credit are positively and significantly related to real GDP growth, even after controlling for bank credit. Measures of credit union loans and assets are also positively linked to economic growth. While bank credit is positively related to growth, the relationship is not statistically significant over the sample period. The findings suggest that OFIs play an important role in promoting economic growth.
This document summarizes a study on the impact of donor policies on small and medium enterprise (SME) assistance projects in post-Soviet Russia. It discusses how Western donor organizations initially promoted "shock therapy" economic reforms that contributed to Russia's difficulties. The study examines an SME development project in Samara, Russia undertaken from 1995-1996 by the author's organization with co-funding from the European Bank for Reconstruction and Development and Swiss government. It aimed to help the city develop start-up SMEs and support the conversion of state enterprises to the private sector. The document provides context on the importance of SMEs to economic development and the challenges of transitioning Russia's economy from Soviet-era central planning to a
Competition a potent tool for economic development and Socio - Economic welfareEkta Grover
This document discusses competition as both an economic development tool and a potential source of socio-economic disruption. It notes that competition can accelerate GDP growth and job creation while also increasing consumer choice and surplus. However, it also argues that cut-throat competition can encourage unfair practices, reduce long-term investment in innovation, and disproportionately benefit competitive sectors over uncompetitive ones. The document uses the examples of agriculture, aviation, manufacturing and real estate to illustrate how competition must be "workable" and balanced to promote inclusive growth across all sectors of the economy. It poses that competition policy should aim for economic, allocative and dynamic efficiency through fostering cooperation, information sharing and supporting transitional sectors.
The theoretical considerations of financial markets integration the case of a...Alexander Decker
This document discusses the theoretical considerations of financial market integration, specifically regarding Arab countries. It begins by defining financial market integration as a situation with no barriers to capital mobility or trading foreign assets, such that identical securities have the same price across markets. Several schools of thought for measuring integration are described, primarily the law of one price. The document then reviews literature on defining and measuring integration. Benefits mentioned include risk diversification and efficient allocation of resources, while risks include volatility and capital flow reversals destabilizing some markets. The conclusion is that while integration can promote growth, very large financial systems may misallocate resources and have negative growth effects.
Development banks play an important role in promoting industrial development in less developed countries by providing long-term financing for capital-intensive industries and infrastructure projects. Private markets often fail to adequately fund such long-term investments due to risk, liquidity, and return expectations. Development banks fill this gap by lending directly for projects and closely monitoring borrowers. They also provide technical support and influence investment decisions. Early examples include the Credit Mobilier in France and universal banks in Germany that helped drive industrialization. Development banking allows countries to accelerate industrialization and economic growth through targeted financing where private markets are insufficient.
This document outlines the key elements of developing an effective global marketing strategy. It discusses defining the global marketing mission and segmentation strategies. It also addresses competitive positioning and customizing the marketing mix for different markets. Major risks like political, financial and exchange rate risks are summarized. The document provides an overview of the strategic challenges of entering foreign markets and considerations for subsequent expansion into a truly integrated global marketing approach.
11.the theoretical considerations of financial markets integration the case o...Alexander Decker
The document discusses the theoretical considerations of financial market integration in Arab countries. It begins by defining financial market integration and reviewing different approaches to measuring integration. It then examines factors that have hindered integration among Arab markets, including their limited economic size and the dominance of oil exports. Efforts by Arab countries toward integration are also reviewed, such as the Arab League and plans for projects like the Arab Gas Pipeline. The results indicate that integration among Arab financial markets remains low due to challenges like differing levels of economic development and a history of agreements not being fully implemented. More work is still needed to achieve real integration.
The document provides a comparison of the venture capital industries in the US, Japan, and Germany. It finds that government regulations in Japan and influences in Germany in the early 20th century led to bank-based financial systems with constraints on institutional investors and stock markets, unlike the US which developed a market-based system involving institutional investors. As a result, the US venture capital industry has greatly outpaced those of Japan and Germany in size and profitability over the last 20 years. However, recent globalization trends have led to some convergence of these previously distinct venture capital markets.
A project report on construction of balanced portfolio comprising of equity a...Babasab Patil
The document discusses constructing a balanced portfolio of equity and debt securities. It begins by providing background on stock markets and volatility in India. It then describes a project to construct a portfolio with a beta of 1 and higher returns than the market. Various sectors and bonds were analyzed. The portfolio construction found higher returns than the market index with a systematic risk of 1. The document also provides theoretical background on fundamental analysis, industry analysis, company analysis, debt valuation techniques, bond pricing, yield to maturity, duration, and other related concepts to provide context around balanced portfolio construction.
1) The document discusses the relationship between stock market development and economic growth. It argues that stock markets promote economic growth through mobilizing savings, allocating capital efficiently, and spreading risk.
2) Several studies cited in the document found a positive correlation between stock market development indicators like market capitalization and liquidity, and long-term economic growth. Well-developed stock markets increase investment and savings.
3) The document also examines the role of stock markets in Pakistan and finds a positive relationship between stock market performance and Pakistan's economic growth.
Whatís an Emerging Market Economy? Essay
business economics Essay
The Role of Business in the Economy
Inflation and the Economy Essay
Germany and its Economy Essays
The Global Economy Essay
Economy Essays
Macroeconomic Outlook of U.S. Economy Essay
Economic Growth Essay
Essay about U.S. Economy
Essay On The Economy
Free Market Economy Essay
Economic Systems Essay
State of Economy Essay
Impact Of Globalization On The Economy Essay
U.K. Economy Essay
Macroeconomics Essay
What is Economics? Essay
The document discusses the role of financial systems and stock markets in economic development. It provides an overview of Pakistan's financial system, including the historical dominance of informal finance. While financial reforms in recent decades improved access to formal institutions, stock markets remain underdeveloped in Pakistan. The document analyzes constraints like low interest rates, weak regulation, and political instability that have limited stock market growth. It recommends further reforms like reducing corporate leverage, encouraging bond markets, and improving disclosure to strengthen Pakistan's financial system.
Ivo pezzuto "Turning Globalization 4.0 Into a Real and Sustainable Success fo...Dr. Ivo Pezzuto
The new era of globalization, propelled by the rapid technological advancements and widespread concern for sustainable development goals, seems to be headed for a bright and promising future, driven by an unprecedented groundbreaking potential. It’s a very exciting moment for dynamic, highly competitive and innovative firms and startups to engage these days in international business, thanks to a vibrant and highly interconnected global business environment, eagerly driven knowledge-sharing communities, and ease of access to smart and seamless enabling technologies. Yet, globalization is currently facing also very serious challenges whose root causes seem to be deep and complex and if they are not fully understood and properly addressed by political leaders and multilateral institutions, they may potentially threaten to derail the existing world order. This article aims to provide a broad overview of the major opportunities and challenges of the new era of globalization and to stimulate reflections, debates, and possible new visions and strategic directions in order to create a more sustainable, socially inclusive, competitive, innovation-driven, and prosperous future for all stakeholders in the global market.
Etude RSM International sur la création d'entreprise 2013Société Tripalio
Cette étude analyse le processus de création d'entreprises dans différents pays industrialisés et en donne une estimation statistique. La France est réputé le pays le plus dynamique en créations d'entreprise
The document discusses the role and functions of stock exchanges. It provides several key points:
1) Stock exchanges allow companies to raise capital by selling shares to investors. They also facilitate various forms of capital raising like venture capital, corporate partnerships, and government bond issuances.
2) Going public through an IPO on a stock exchange is an important way for capital-intensive startups to raise large amounts of funding.
3) Stock exchanges mobilize individual savings for investment purposes and allow small investors access to investing in major companies. They also provide a means for companies to grow through acquisitions.
4) Share prices on stock exchanges can act as an indicator of overall economic trends and stability.
Fiduciary or paper money is issued by the Central Bank on the basis of
computation of estimated demand for cash. Monetary policy guides the Central
Bank’s supply of money in order to achieve the objectives of price stability (or low
inflation rate), full employment, and growth in aggregate income.
This document contains an introduction to a paper series on restoring the primacy of the real economy. It provides summaries of 6 papers that will be presented at the 2nd Summit on the Future of the Corporation in June 2009. The papers address topics such as developing public policies to foster long-termism in financial markets, aligning a new global financial architecture with sustainable development, improving stewardship in corporations, addressing the origins and costs of short-term management, emerging alternatives to the shareholder-centric model of corporations, and rethinking modern portfolio theory and markets in light of social and environmental risks. The introduction expresses hope that summit participants and readers will find the papers informative and provocative in shaping discussions on improving regulation of the financial sector
Writing a 15 pages final paper, will be discussed in our 1st meeti.docxambersalomon88660
Writing a 15 pages final paper, will be discussed in our 1st meeting.
The final Paper and PowerPoint Presentation: Topic Analysis– 15 to 20 pages in APA format
Choose a topic in IT Project Management for your topic analysis. Email to your instructor a proposal of the topic area you intend to use for your topic analysis. Prepare a summary that identifies the major research threads in your topic. A reference list should be included in the summary. The topic should be relevant to your course material.
The professor will approve the topic of the project during the time when the class meets. E-mail the professor by week 2 with the topic for your final project. Email the professor a draft reference list by week 5. The Final Project will be a research report relevant to the selected topic. Your report will include an evolution of the chosen topic, the problems resolved or will be resolved, and future trends. The paper should have 5-7 academic references for each of these areas (published articles and/or textbook. The paper should be 15 to 20 pages in length and must be presented in the APA style, and is due during the last week of classes.
CHAPTER 14 Raising Equity and Debt Globally
Do what you will, the capital is at hazard. All that can be required of a trustee to invest, is, that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.
—Prudent Man Rule, Justice Samuel Putnam, 1830.
LEARNING OBJECTIVES
■Design a strategy to source capital equity globally
■Examine the potential differences in the optimal financial structure of the multinational firm compared to that of the domestic firm
■Describe the various financial instruments that can be used to source equity in the global equity markets
■Understand the different forms of foreign listings—depositary receipts—in U.S. markets
■Analyze the unique role private placement enjoys in raising global capital
■Evaluate the different goals and considerations relevant to a firm pursuing foreign equity listing and issuance
■Explore the different structures that can be used to source debt globally
Chapter 13 analyzed why gaining access to global capital markets should lower a firm’s cost of capital, increase its access to capital, and improve the liquidity of its shares by overcoming market segmentation. A firm pursuing this lofty goal, particularly a firm from a segmented or emerging market, must first design a financial strategy that will attract international investors. This involves choosing among alternative paths to access global capital markets.
This chapter focuses on firms that reside in less liquid, segmented, or emerging markets. They are the ones that need to tap liquid and unsegmented markets in order to attain.
Shifting the lens_Bridges IMPACT+_FINALmargochanning
The document discusses ways to de-risk impact investments in order to attract more capital from asset owners and scale the impact investing market. It identifies five main risk factors that deter asset owners: capital risk, liquidity risk, transaction cost risk, impact risk, and unquantifiable risk. The report provides examples of each risk factor and suggests that in order to broaden the market, impact investments need to be clarified and risks mitigated when possible. It recommends examining de-risking features that could address each specific risk factor.
This document provides an overview of financial institutions and markets. It begins with definitions of key terms like financial markets, debt/interest rates, stock markets, and foreign exchange markets. It then discusses causes of financial crises like banking crises, asset bubbles, international crises, and regulatory failures. The document concludes that financial markets have significant impacts on individuals, businesses, and the overall economy, so it is important to understand these systems and how monetary policy works.
This study examines the value effects of hedging foreign currency and interest rate risk with derivatives for firms in Italy, Spain and Portugal from 2006-2008. The authors find an overall hedging premium of 13% for the full sample, but this masks country-level variation. Separate analyses find a 12% premium for Italian firms and 20% premium for Spanish firms, but no significant premium for Portuguese firms. The authors aim to determine if hedging increases firm value, which could influence regulators' proposals to require central clearing of derivatives that may deter corporate hedging activities.
ICMA has prepared a paper for policy makers about why corporate bond markets are so important for economic growth, for investors, for companies, and for governments, around the world; and why it is therefore essential that laws and regulations that affect them avoid any unintended adverse consequences that could inhibit those markets.
This document appears to be a project report submitted by a student named Avinash Rai to their professor Anita Parmar. It includes:
1) A cover page with the student and professor's details and the project topic.
2) A certificate signed by the professor certifying the work as the student's original work.
3) A declaration signed by the student stating it is their original work.
4) An acknowledgements section thanking the professor for their guidance and other individuals who helped with the research.
This document is a student project analyzing the use of solitary confinement. It provides background on the history of solitary confinement dating back to the 1800s. It discusses how solitary confinement is implemented in the US and India, noting that in India the maximum period is 3 months not exceeding 14 days at a time. The document also examines the arguments that solitary confinement is inhumane due to the mental health impacts it can have, but others believe it provides necessary protection. It analyzes several court cases related to challenging solitary confinement as cruel and unusual punishment.
The document is a law student's project on relevant facts under the Indian Evidence Act. It includes typical sections like certificates, declarations, acknowledgements and begins discussing the introduction to evidence law and chapter on relevancy of facts. The project will examine what constitutes relevant evidence and the distinction between legal admissibility and logical relevance.
The document discusses various topics related to share capital including:
- The meaning of share and share capital, and how corporations issue shares to raise capital. Shareholders are owners of the company.
- The different types of share capital a company can have including authorized, issued, subscribed, called up, paid up, and reserve capital.
- Preference shares have priority for dividend payments and repayment of capital over common shares. There are different types of preference shares.
- The rules around reducing a company's share capital, including limiting a member's liability to calls or contributions to the difference between the amount paid and reduced amount as fixed in the reduction scheme.
The document discusses various topics related to share capital including:
- The meaning of share and share capital, and how corporations issue shares to raise capital. Shareholders are owners of the company.
- The different types of share capital a company can have including authorized, issued, subscribed, called up, paid up, and reserve capital.
- Preference shares have priority for dividend payments and repayment of capital over common shares. There are different types of preference shares.
- The rules around reducing a company's share capital, including limiting a member's liability to calls or contributions to the difference between the amount paid and reduced amount.
This document appears to be a student project submitted to a professor. It includes:
1) An acknowledgements section thanking various people for their support and guidance during the project.
2) A certificate page certifying that the student completed the project work.
3) A declaration by the student that the work is their original research.
4) An abstract providing an overview of share capital terms like authorized capital, issued capital, subscribed capital, etc.
5) Several pages discussing topics related to types of share capital, preference shares, calculating shareholders' equity, and rules for altering share capital.
The Reserve Bank of India (RBI) is India's central banking institution and controls monetary policy. It was established in 1935 under the provisions of the RBI Act of 1934. RBI has a 21-member Central Board of Directors that governs it, including the Governor, Deputy Governors, and government and economic representatives. RBI's headquarters are located in Mumbai, Kolkata, Chennai, and New Delhi.
The document appears to be a student project on actionable claims under Indian law. It includes:
1. A definition of actionable claim as "a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in possession either actual or constructive, of the claimant, which the civil courts recognize as affording grounds of relief whether such debt or beneficial interest be existent, accruing or conditional or contingent."
2. A discussion of the conditions of an actionable claim, including that it must be an unsecured money debt or claim to a beneficial interest in movable property not
The document discusses the history and evolution of the Reserve Bank of India from its origins recommended by the Hilton Young Commission in 1926 to its establishment through an act in 1935 as a privately owned bank. It details some key events such as the bank beginning operations in 1935, ceasing operations in Burma in 1942, and being nationalized by the government of India in 1949. The document also provides brief details on the functions and role of the RBI over time in India.
This document discusses India's foreign policy from independence in 1947 to the present day. It focuses on the policy of non-alignment pursued by India's first Prime Minister, Jawaharlal Nehru. Nehru adopted non-alignment for both material reasons, like India's economic needs and security concerns with neighboring countries, as well as spiritual reasons like being against imperialism and believing both capitalism and communism had merits. Non-alignment aimed to keep India out of any military alliances and maximize cooperation with all countries. While subsequent leaders made some adjustments, India has largely kept the basic objectives of Nehru's foreign policy approach.
This document is a project report submitted by Avinash Rai to the Indore Institute of Law on Indian foreign policy towards capitalism. It includes a certificate verifying the completion of the project, an acknowledgment section thanking those who provided assistance, an abstract summarizing the contents of the report, and an introduction outlining the objectives of analyzing India's foreign policy and principles. The report goes on to discuss the key objects and principles of India's foreign policy, including non-alignment, Panchsheel and peaceful co-existence, opposition to imperialism and racism, and the peaceful settlement of international disputes. It provides an overview of India's foreign policy goals and approach since independence.
This document summarizes 7 mediation cases handled by the Allahabad High Court Mediation and Conciliation Centre (AHCMCC). The cases involved matters like domestic violence, dowry demands, divorce, and child custody issues. In most cases, the parties had a high level of mutual distrust and were unwilling to compromise. The mediators encouraged the parties to reconsider their positions and make efforts to mend their relationships for the future well-being of their families. Confidentiality of the mediation process was maintained and no names of the parties or mediators were disclosed.
This document is a project report submitted by Avinash Rai to his professor Taranjeet Kaur at Indore Institute of Law regarding the topic of gender justice rights and development. The report includes an introduction outlining issues of gender injustice in India, a certificate and acknowledgements section, and discusses the meaning and scope of gender injustice. It proposes a principle of gender justice that gendered divisions of labor are unjust if they are influenced by social norms that make some choices cheaper based on gender.
This document discusses India's foreign policy towards capitalism. It outlines how a country's foreign policy is designed to safeguard national interests through interactions with other countries. It then discusses India's bilateral relations with countries like Afghanistan, Bangladesh, China, and Pakistan. It also discusses how non-alignment has been an integral part of India's foreign policy and how India advocated for the five principles of Panchsheel to guide relations with other countries based on mutual respect, non-aggression, non-interference, equality, and peaceful co-existence.
The document discusses the historical origin and interpretation of statutes. It notes that in England, every statute must be made by the king with the assent of Lords and Commons, and a statute or Act of Parliament expresses the will of the legislature. It also discusses that statutory interpretation involves interpreting and applying legislation using various tools like traditional canons, legislative history, and determining legislative purpose. The document provides examples of the literal rule and purposive approach to statutory interpretation.
The document discusses the concept and importance of fair trial. It notes that fair trial is an integral part of Article 21 of the Indian Constitution and an international human rights norm adopted by many countries. Fair trial is based on the idea that the state has a duty to bring offenders before the law. The key elements of fair trial discussed are the right to be heard by a competent, independent, and impartial tribunal, the right to a public hearing, the right to be heard within a reasonable time frame, the right to counsel, and the right to a trial without undue delay.
This document is a project report submitted by Avinash Rai to his professor Taranjeet Kaur at Indore Institute of Law regarding the topic of gender justice rights and development. The report includes an introduction outlining issues of gender injustice in India, a certificate and acknowledgements section, and discusses the meaning and scope of gender injustice. It proposes a principle of gender justice that gendered divisions of labor are unjust if they are influenced by social norms that make some choices cheaper based on gender.
This document appears to be a student project on Indian foreign policy towards capitalism. It includes a certificate signed by the student's professor, an acknowledgement section thanking those who helped with the project, an abstract summarizing the contents of the project, and various sections discussing India's foreign policy, the objects of India's foreign policy, and what constitutes foreign policy. The project will analyze India's foreign policy principles and national interests since the 1990s in relation to political, economic, social and security conditions after the end of the Cold War. It will also examine how India has approached interactions with western countries and its role in the international context.
This document appears to be a student project report submitted to Indore Institute of Law. It includes sections typical of a research project such as an acknowledgements section thanking those who provided guidance, a declaration affirming the work as the student's own, and an introduction outlining the topic of a fair trial as protected by the Indian Constitution and international agreements. The body of the document discusses concepts such as the presumption of innocence, rights to counsel, speedy trial, and others that comprise the right to a fair trial under Indian law and international human rights law.
1) The document discusses trademarks, parallel imports, and a court case related to parallel imports.
2) A trademark is a symbol or word that identifies a company or product and distinguishes it from others. Parallel imports are genuine products imported from another country without permission from the intellectual property owner.
3) The document outlines issues with parallel imports for trademark owners and consumers, such as the owner's inability to ensure product quality and consumer preferences are met. Consumers may not be able to use parallel import products as intended.
Sangyun Lee, 'Why Korea's Merger Control Occasionally Fails: A Public Choice ...Sangyun Lee
Presentation slides for a session held on June 4, 2024, at Kyoto University. This presentation is based on the presenter’s recent paper, coauthored with Hwang Lee, Professor, Korea University, with the same title, published in the Journal of Business Administration & Law, Volume 34, No. 2 (April 2024). The paper, written in Korean, is available at <https://shorturl.at/GCWcI>.
Defending Weapons Offence Charges: Role of Mississauga Criminal Defence LawyersHarpreetSaini48
Discover how Mississauga criminal defence lawyers defend clients facing weapon offence charges with expert legal guidance and courtroom representation.
To know more visit: https://www.saini-law.com/
सुप्रीम कोर्ट ने यह भी माना था कि मजिस्ट्रेट का यह कर्तव्य है कि वह सुनिश्चित करे कि अधिकारी पीएमएलए के तहत निर्धारित प्रक्रिया के साथ-साथ संवैधानिक सुरक्षा उपायों का भी उचित रूप से पालन करें।
Lifting the Corporate Veil. Power Point Presentationseri bangash
"Lifting the Corporate Veil" is a legal concept that refers to the judicial act of disregarding the separate legal personality of a corporation or limited liability company (LLC). Normally, a corporation is considered a legal entity separate from its shareholders or members, meaning that the personal assets of shareholders or members are protected from the liabilities of the corporation. However, there are certain situations where courts may decide to "pierce" or "lift" the corporate veil, holding shareholders or members personally liable for the debts or actions of the corporation.
Here are some common scenarios in which courts might lift the corporate veil:
Fraud or Illegality: If shareholders or members use the corporate structure to perpetrate fraud, evade legal obligations, or engage in illegal activities, courts may disregard the corporate entity and hold those individuals personally liable.
Undercapitalization: If a corporation is formed with insufficient capital to conduct its intended business and meet its foreseeable liabilities, and this lack of capitalization results in harm to creditors or other parties, courts may lift the corporate veil to hold shareholders or members liable.
Failure to Observe Corporate Formalities: Corporations and LLCs are required to observe certain formalities, such as holding regular meetings, maintaining separate financial records, and avoiding commingling of personal and corporate assets. If these formalities are not observed and the corporate structure is used as a mere façade, courts may disregard the corporate entity.
Alter Ego: If there is such a unity of interest and ownership between the corporation and its shareholders or members that the separate personalities of the corporation and the individuals no longer exist, courts may treat the corporation as the alter ego of its owners and hold them personally liable.
Group Enterprises: In some cases, where multiple corporations are closely related or form part of a single economic unit, courts may pierce the corporate veil to achieve equity, particularly if one corporation's actions harm creditors or other stakeholders and the corporate structure is being used to shield culpable parties from liability.
Guide on the use of Artificial Intelligence-based tools by lawyers and law fi...Massimo Talia
This guide aims to provide information on how lawyers will be able to use the opportunities provided by AI tools and how such tools could help the business processes of small firms. Its objective is to provide lawyers with some background to understand what they can and cannot realistically expect from these products. This guide aims to give a reference point for small law practices in the EU
against which they can evaluate those classes of AI applications that are probably the most relevant for them.
This document briefly explains the June compliance calendar 2024 with income tax returns, PF, ESI, and important due dates, forms to be filled out, periods, and who should file them?.
Business law for the students of undergraduate level. The presentation contains the summary of all the chapters under the syllabus of State University, Contract Act, Sale of Goods Act, Negotiable Instrument Act, Partnership Act, Limited Liability Act, Consumer Protection Act.
The Future of Criminal Defense Lawyer in India.pdfveteranlegal
https://veteranlegal.in/defense-lawyer-in-india/ | Criminal defense Lawyer in India has always been a vital aspect of the country's legal system. As defenders of justice, criminal Defense Lawyer play a critical role in ensuring that individuals accused of crimes receive a fair trial and that their constitutional rights are protected. As India evolves socially, economically, and technologically, the role and future of criminal Defense Lawyer are also undergoing significant changes. This comprehensive blog explores the current landscape, challenges, technological advancements, and prospects for criminal Defense Lawyer in India.
Genocide in International Criminal Law.pptxMasoudZamani13
Excited to share insights from my recent presentation on genocide! 💡 In light of ongoing debates, it's crucial to delve into the nuances of this grave crime.
From Promise to Practice. Implementing AI in Legal Environments
Finance
1. 1
INDORE INSTITUTE OF LAW
(Affiliated to D.A.V.V. & Bar Council of India)
B.A.LL.B. (HONS)
Project on
(Subject)_______________________________
Topic: 01_______________________________
Submitted to:
Asst. Prof._____________________________
Submitted by:
Name ____________________Signature______
Year _____ Semester ______
Date-:___/___/____
2. 2
Certificate Of Supervisor
This is to certify that the project work entitled “In today’s globalization role
of corporate finance and the coast of capital to develop any
company ”; submitted by Avinash Rai for the partial fulfillment of the B.A.LL.B
Degree (Eight semester) offered by Indore Institute of Law, Indore (affiliated
to D.A.V.V. and BCI) during the academic year 2013-18 is a record of the Student’s
own work carried out by her under my supervision. The matter embodied in this thesis
is original and has not been submitted for the award of any Degree, Diploma or such
other titles.
Date : 1-07-2017
Nameof Supervisor:Assistant Proff. Manpreet kaur Bhatia
Signatureof Supervisor
3. 3
Declaration of Researcher
This is to certify that Thesis/Report entitled “In today’s globalization role of
corporate finance and the coast of capital to develop any
company” which is submitted by me in partial fulfillment of the requirement for the
award of degree B.A.LLB. Degree (Eight Semester) offered by Indore Institute of Law,
Indore comprises only my original work and due acknowledgement has been made in
the text to all other material used.
Date: 1/07/2016 Nameof Student:
Avinash Rai
4. 4
Acknowledgement
I would like to take this opportunity to express my profound gratitude and deep
regard to my (Project Guide Ms.Manpreet kaur Bhatia), for his exemplary
guidance, valuable feedback and constant encouragement throughout the duration of
the project. Her valuable suggestions were of immense help throughout my project
work. Her perceptive criticism kept me working to make this project in a much better
way. Working under her was an extremely knowledgeable experience for me.
I would also like to give my sincere gratitude to all the friends and colleagues who
helped me in this research work, without which this research would be incomplete.
Date: 1/07/2017
Submitted by:AvinashRai
5. 5
ABSTRACT
First, because the risks of equity are shared among more investors with different
portfolio exposures and hence a different “appetite” for bearing certain risks,
equity market risk premiums should fall for all companies in countries with access
to global markets. Although the largest reductions in cost of capital resulting from
globalization will be experienced by companies in liberalizing economies that are
gaining access to the global markets for the first time, risk premiums can also be
expected to fall for firms in long-integrated markets as well.
Second, when firms in countries with less-developed capital markets raise capital
in the public markets of countries (like the U.S.) with highly developed markets,
they get more than lower-cost capital; they also import at least aspects of the
corporate governance systems that prevail in those markets. For companies
accustomed to less-developed markets, raising capital overseas is likely to mean
that more sophisticated investors, armed with more advanced technologies, will
participate in monitoring their performance and management. And, in a virtuous
cycle, more effective monitoring increases investor confidence in the future
performance of those companies and so improves the terms on which they raise
capital.
Besides reducing market risk premiums and improving corporate governance,
globalization also affects the systematic risk, or “beta,” of individual companies. In
global markets, the beta of a firm's equity depends on how the stock contributes to
the volatility not of the home market portfolio, but of the world market portfolio.
For companies with access to global capital markets whose profitability is tied
more closely to the local than to the global economy, use of the traditional Capital
6. 6
TABLE OF CONTENT
INTRODUCTION
THE ROLE OF FINANCIAL GLOBLISATION
THE EFFECT OF GLOBLISATION ON BUSINESS
RISE IN COMPTITION
RISE IN TECHNOLOGY AND KNOW HOW
RISE IN OPPORTUNITY
RISE IN INVESTMENT LEVELS
POSITIVE EFFECT OF GLOBLISATION FOR DEVELOPING COUNTRY
BUSINESS
NEGATIVE EFFECT OF GLOBLISATION FOR DEVELOPING COUNTRY
BUSINESS
COST OF CAPITAL
MEANING
WHAT IS CAPITAL
WHAT IS THE COST OF CAPITAL
CONCLUSION
7. 7
Introduction
International financial markets are progressively becoming one huge, integrated,
global capital market—a development that is contributing to higher stock prices in
developed as well as developing economies. For companies that are large and
visible enough to attract global investors, having a global shareholder base means
having a lower cost of capital and hence a greater equity value for two main
reasons:
First, because the risks of equity are shared among more investors with different
portfolio exposures and hence a different “appetite” for bearing certain risks,
equity market risk premiums should fall for all companies in countries with access
to global markets. Although the largest reductions in cost of capital resulting from
globalization will be experienced by companies in liberalizing economies that are
gaining access to the global markets for the first time, risk premiums can also be
expected to fall for firms in long-integrated markets as well.
Second, when firms in countries with less-developed capital markets raise capital
in the public markets of countries (like the U.S.) with highly developed markets,
they get more than lower-cost capital; they also import at least aspects of the
corporate governance systems that prevail in those markets. For companies
accustomed to less-developed markets, raising capital overseas is likely to mean
that more sophisticated investors, armed with more advanced technologies, will
participate in monitoring their performance and management. And, in a virtuous
cycle, more effective monitoring increases investor confidence in the future
performance of those companies and so improves the terms on which they raise
capital.
Besides reducing market risk premiums and improving corporate governance,
globalization also affects the systematic risk, or “beta,” of individual companies. In
global markets, the beta of a firm's equity depends on how the stock contributes to
the volatility not of the home market portfolio, but of the world market portfolio.
For companies with access to global capital markets whose profitability is tied
more closely to the local than to the global economy, use of the traditional Capital
Asset Pricing Model (CAPM) will overstate the cost of capital because risks that
are not diversifiable within a national economy can be diversified by holding a
global portfolio. Thus, to reflect the new reality of a globally determined cost of
capital, all companies with access to global markets should consider using a global
CAPM that views a company as part of the global portfolio of stocks. In making
8. 8
this argument, the article reviews the growing body of academic studies that
provide evidence of the predictive power of the global CAPM as well as the
reduction in world risk premiums.
The role of financial globalization
Trade liberalization, and its impact on economic growth, employment and
inequality, has come under considerable scrutiny in recent years, but much less
attention has been paid to the effect of financial market liberalization.1 Now that
the recent financial market turmoil in the United States has turned into the “first
global financial crisis of the twenty first century” (Felton and Reinhart, 2008),
however, the labor market fall-out from such crises deserves renewed interest. The
spillover of US financial market stress to other developed and emerging markets,
in the form of interest rate hikes and the loss of liquidity, has demonstrated yet
again that events in international financial markets can have a substantial impact
on domestic economic and social development, with adverse consequences for
employment growth and income opportunities. Though is chapter presents a review
of the existing evidence, with a particular focus on the impact of financial
liberalization on growth, employment creation and income inequality. In theory,
financial liberalization and the free allocation of global capital flows should
generate substantial macroeconomic benefits for both capital exporters and
recipient countries. Global trend productivity and employment are believed to
grow faster, thereby lifting less developed countries out of poverty and helping to
maintain (or further improve) living standards in the developed world. Low-
income households are expected to benefit in particular, with the result that both
global and within-country inequality are decreased. It has been suggested that
financial globalization can both boost average per capita income
● It can provide low-income countries with access to capital and help to improve
the allocation of funds. It should also make it easier for low-income households to
access the capital market and thereby lower income inequality within countries. By
imposing discipline on governments, it can improve macroeconomic policy-
making and encourage the implementation of pro-growth reforms. The is would
improve income prospects across the board but would be particularly beneficial for
low-income households (“pro-poor growth”).
● By strengthening corporate governance (for instance, through a more
competitive market for corporate control), the argument goes, financial
9. 9
globalization helps to put capital flows to the most efficient and productive use and
ensure that executives are performing at their best. This improves the business
environment in both emerging and developed countries. The experience of the past
two decades has, however, shed signify cant doubt on whether these benefits have
materialized. Trend productivity growth rates have accelerated – but not
necessarily in the countries that opened their capital accounts the widest. Regular
boom-bust cycles have wiped out earlier income gains to a large extent – mainly in
middle-income countries – despite a global trend towards less volatility in
economic activity. Low-income households do not seem to have benefit ted from
improved access to financial markets to insure themselves against shocks. As a
consequence, global inequality has, at best, remained constant, while inequality
within countries seems to be rising, regardless of their level of economic
development (see Chapter 1). Though is chapter reviews the empirical evidence for
the macroeconomic effects of financial globalization and discusses why several of
the expected benefits have failed to materialize, in terms of both long-term
economic growth and the vulnerability of low-income households. The indirect
effects that financial liberalization may have on inequality are discussed in the
light of its impact on domestic policy-making. Lastly, one specific dimension of
financial globalization, namely the spread of modern corporate governance
practices, is considered, and in particular the links between executive pay and
performance.
● By imposing discipline on governments, it can improve macroeconomic policy-
making and encourage the implementation of pro-growth reforms. This would
improve income prospects across the board but would be particularly beneficial for
low-income households (“pro-poor growth”).
● By strengthening corporate governance (for instance, through a more
competitive market for corporate control), the argument goes, financial
globalization helps to put capital flows to the most efficient and productive use and
ensure that executives are performing at their best. This improves the business
environment in both emerging and developed countries. The experience of the past
two decades has, however, shed significant doubt on whether these benefits have
materialized. Trend productivity growth rates have accelerated – but not
necessarily in the countries that opened their capital accounts the widest. Regular
boom-bust cycles have wiped out earlier income gains to a large extent – mainly in
middle income countries – despite a global trend towards less volatility in
economic activity. Low-income households do not seem to have benefited from
10. 10
improved access to financial markets to insure themselves against shocks. As a
consequence, global inequality has, at best, remained constant, while inequality
within countries seems to be rising, regardless of their level of economic
development (see Chapter 1). This chapter reviews the empirical evidence for the
macroeconomic effects of financial globalization and discusses why several of the
expected benefits have failed to materialize, in terms of both long-term economic
growth and the vulnerability of low-income households. The indirect effects that
financial liberalization may have on inequality are discussed in the light of its
impact on domestic policy-making. Lastly, one specific dimension of financial
globalization, namely the spread of modern corporate governance practices, is
considered, and in particular the links between executive pay and performance.
The Effects Of Globalizations On Business
We’ve seen such a growth in globalization and its tentacles will only keep
spreading as time goes on. We have noticed how the enquiries from all over the
world have increased exponentially over the last few years. There’s no doubt about
the benefits this brings us all in business. There is a permanent shift in the domain
of knowledge that enables any individual from any country to access large
databases of resources and information.
Rise in Competition
This is the single biggest benefit of globalization all around the world.
With enhanced competition from foreign brands and companies, industries of
every nation are compelled to improve their standards and quality and customer
satisfaction services.
This benefits the customers and the economy as a whole, and raises the standard of
living of everybody.
This could be viewed as a negative impact by many, but no-one can deny the
impact it has had.
11. 11
Rise in Technology and Know How
The rise in knowledge levels of countries as newer cultures and technologies are
opened to a particular area are clear.
Their knowledge base also grows and expands simultaneously.
As a result, they are better able to handle their primary and secondary industries,
and this ultimately affects their tertiary sectors in a positive manner as well.
Rise in Opportunities
With a larger number of industries and resources available, the opportunities for
people grow exponentially too.
There are many more jobs available to people, and more and more people are
Liaison exposed to the lucrative benefits of moving abroad.
This increases immigration rates as well, thus giving people the chance to grow
economically and socially.
Whatever your viewpoint of immigration, there is no doubt it has opened up
masses of opportunities to millions of people who would otherwise have not seen
any improvements
Rise in Investment Levels
The rise in foreign investment in countries helps industries and native cities grow
at a rapid pace, and this is something that every nation should be open to since it is
a highly beneficial venture for them.
There is so much that they can gain in the process as well. Every country now
imports more than ever before, so that global growth has shared resources and
abilities in a way that we could never have imagined even 50 years ago
Whatever your viewpoints on globalization, you cannot hold it back and it is
offering opportunities that we have never seen before.
12. 12
Only by tapping into the benefits that exist within the global network will nations,
industries, companies and individuals learn to grow and nurture each other to
everyone’s benefit.
Positive and negative effect of globalization for developing country
Positive impact of globalization on developing countries is an increase in standard
of living. One of the aims of globalization of economies is to reduce poverty, and
this aim is being achieved by the increased access to foreign funding from
industrialized nations to developing countries. And the spending of these funds on
improving the education, health, social, and transport infrastructure of the
developing nations aids in improving the standard of living of the people.
Thanks to globalization, developing countries now have access to new markets.
And this has been taken full advantage of by several nations (Bertucci & Alberti
2001). This opening allows the transnational movement of labor, foreign capital,
new technology and management to developing countries from the more
industrialized nations. There is now an increase in the inflow of foreign direct
investment to developing countries as more than a quarter of world foreign direct
investment inflows were received between 1988 and 1989 and this has increased
yearly (World development indicators in Bertucci & Alberti 2001). From US $12
billion in 1980, private capital flows to developing countries increased to US $140
billion by 1997 (Bertucci & Alberti 2001). The only catch to this is that the bulk of
these capital flows so far is strictly limited to a small number of developing
countries, especially the big ones such as Nigeria, Ghana, South Africa, India,
Brazil, China, etc. ‘The report on financing for development prepared for the UN
Secretary-General notes that, during the period 1993 to 1998, 20 countries
accounted for over 70 per cent of all FDI inflows to all developing countries’
(Bertucci & Alberti 2001).
Again looking at the effect of globalization on world trade, and indirectly on trade
in developing countries, it is quite obvious that it enhances economic growth. One
of the emphasis of globalization is that member countries should open their
markets to ensure open trading free of limitations. In this regard, liberalization of
trade would lead to the removal of all restrictions, causing unrestricted forces of
demand supply to direct the movement and substitution of the factors of
production, leading to efficient investment by producers (Mubiru 2003). This is
clearly evident in developing countries such as Uganda in which reduced trade
restrictions has lead to a large improvement in the nation’s economy (Lawal 2006).
13. 13
Again, from the positive impact of globalization on trade, there is an ‘emerging
trend towards trade in production components’ (Mubiru 2003). Reduction in trade
restrictions in a lot of developing countries lead to the partial relocation of several
manufacturers from more industrialized nations to new locations in developing
countries. This may have arisen as a result of tax exemptions or reduced tariffs
offered by many developing countries in order to encourage foreign investors, or
increased proximity to cheap labor and occasionally consumers. And the resultant
benefits to the host developing nations are numerous. One is an increase in
employment opportunities for the indigenes as there is creation of more jobs. Also,
influx of foreign manufacturers may also lead to the import of new technology.
And with transfer of new technology from developed countries comes more
opportunities for training for local employees. ‘Quite often manufacturing
subsidiaries have also been linked to establishment of distribution networks that
expand employment even further’ (Mubiru 2003). This, in some cases, has lead to
impaction of entire regions at a time, causing the benefits to go beyond national
boundaries. Taking this further, the slackening of barriers to various other products
and sectors, especially agricultural products, would lead to immense gains to
developing nations.
In addition, globalization leads to global competition, and in the long run, to local
competition, ensuring the improvement of creative abilities and innovative
capabilities. Competition between producers of commodities ensures the quality of
the products and services at reduced prices, leading to specialization and
efficiency.
Other positive impacts of globalization on developing countries include better
access to foreign culture and entertainment through television broadcasts, music,
clothing, movies, etc; increased cooperation between governments and the ability
to work with better focus towards the achievement of common goals; and diffusion
of knowledge and technical know-how among member countries, especially the
less-privileged countries. Much has been said about improvement in technology
but globalization also improves communication as it leads to faster means of
communicating and travel.
But as much as globalization holds a lot of opportunities, it has a lot of negative
effects which several skeptics have used to criticize the concept and its “so-called
benefits”, especially to developing nations. As stated earlier, globalization is
somewhat partial as industrialized nations benefit more from it than developing
14. 14
countries. This uneven impact is well demonstrated by the rise of India and China
‘which reveals highly uneven distribution of the benefits of globalization among
countries’ (Globalization and its impact 2004).
One of the major negative impacts of globalization on developing countries is
poverty. Globalization has been said to increase poverty. A former United nations
Secretary-General, Kofi Annan, stated that at present, only a relatively small
number of countries are enjoying these gains [of globalization]. Many millions of
people are excluded, left behind in squalor (Annan 2000). Although the exact
impact of globalization on poverty is very difficult to assess, research estimates
show that poverty has increased by 82 million, 14 million, and 8 million in sub-
Saharan Africa, Europe and Central Asia, and Latin America and the Caribbean
respectively (Globalization and its impact 2004). Taking a more critical look at
this, globalization itself cannot be held responsible for most of the poverty in
developing countries as other factors such as bad governance, poor economic
policies, weak reforms, etc have also implicated. But globalization is a major
factor. As claimed by Princova (2010), globalization leads to wealth redistribution
global richness and local poverty’. It makes the rich countries, in this case, the
industrialized nations, to become richer, and the poor nations, the developing
countries, to become poorer (Zygmunt Bauman in Beck 1997).
Although several African economies initially benefited from globalization as there
was a transient economic growth, over the years, they have become heavily
dependent on the wealth of well developed nations (Laval 2006). ‘African
economies are increasingly geared to the export of a very limited range of
commodities and the importation of a wide range of consumer goods’ leading to
their being referred to as a largely consuming economy (Adedeji 1981). To make
this worse, agricultural growth is very feeble. And since the 1980s, the terms of
trade and the import capacities have declined sharply resulting in the reduction in
the per capita income of the region (Laval 2006). Compounding the woes of
several developing states is the enormous debt build up. ‘According to the report of
the survey of Economic and Social conditions in Africa, (1977-78), the total
outstanding external debt of African Countries rose from $9.02 billion in 1970 to
$18.88 billion in 1974 and $30.02 billion in 1976, while the total debt services rose
to $0.89 billion in 1970, $2.43 billion in 1974 and $3.03 billion in 1976’ (Laval
2006). These and several other evidences has led to Africa, which houses a major
part of world developing states, to being referred to as the most heavily indebted
region globally.
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Considering globalization from the health and disease angle, it has impacted
seriously on the epidemiology of infectious diseases, as regards the ability to
prevent, control and eradicate these diseases, worldwide and especially in
developing countries. One of the ways by which this has occurred is the
enhancement of technological capacities worldwide, leading to increased emissions
and a resultant global warming. This in turn leads to enhanced breeding of vectors
such as mosquitoes, animal or human behaviors such as bathing in pools which
may have been contaminated with the larvae of such is to some, etc (Saker et al.
2004). Over the years, large increases in international trade have encouraged the
introduction of western diets to the previously natural diets of most developing
countries. This has led to changes in dietary habits as the so-called “ethnic foods”
have been relegated to the background and more and more junk food are being
consumed in the name of western diets (Saker et al. 2004). And in the long run,
western diseases are gradually becoming prevalent in developing nations.
Again, introduction of western lifestyle through globalization to the developing has
led gradually loss of core values leading to increased looseness and promiscuity
among the youth and adults alike. This has caused a surge in the numbers of those
living with HIV/AIDs, and the long-term effects on the economy and society at
large.
Globalization has increased the vulnerability of the rural farmer in the remotest
village to world events. An example is the case of coffee farmers in Uganda. Prior
to the start of liberalization, the country’s Coffee Marketing Board (CMB), on the
behalf of the government, served as the middle-man between the coffee farmers
and foreign buyers. In doing this, the Coffee Marketing Board made sure that the
farmers themselves were guaranteed standard coffee prices based on assured
quotas negotiated by the Coffee Marketing Board on the world coffee market on
the government’s behalf (Mubiru 2003). Although the individual farmer had to pay
the cost of this existing infrastructure, thereby reducing the net income to the
farmer’s pocket, he/she was still assured of a standard price. But since
globalization came in and the Coffee Marketing Board was abolished, the farmers
have been made vulnerable to changes and shocks in the world market. And for
developing countries to have buoyant agricultural sectors, the farmers have to be
sheltered from the full vagaries of the world market, a task made very much
impossible by globalization.
Today, the employment structure in developing nations has been changed, a result
of globalization and capitalism (Bacchus & Foerster 2005). Before the advent of
16. 16
globalization in developing countries, the main source of occupation for the active
members of the population, both men and women, was agriculture. But since the
influx of foreign corporations occurred, there has been a sect oral shift in the labor
force as more hands are being drafted towards assembly production and fewer
hands left in the fields. Empirical evidence shows that there has been a significant
decline in male agricultural work ‘from 62% to14% a similar decline in agriculture
[for women]’ (Schultz 1990 in Bacchus & Forester 2005). Another effect of
globalization in this regard is a relative increase in unemployment. Several
research studies have examined the hypothesis that globalization does not only
affect the income level of the labor force, but in addition exposes the workers to
increased economic vulnerability and uncertainty via less secure employment and
increasingly volatile income (Goldberg & Pavcnik 2007). All these, coupled with
shocks in the global economy and the act of outsourcing have led to the laying off
of thousands of workers who previously worked in the big multinational.
Globalization has succeeded in widening the inequalities in skill premium, wage,
income and consumption in developing countries (Goldberg & Pavcnik 2007).
‘Globalization affects individuals through three main channels: changes in their
labor income; changes in relative prices and hence consumption; and changes in
household production decisions’ (Goldberg & Pavcnik 2007). Prior to the onset of
globalization, there existed a little wage difference between skilled and unskilled
workers in most developing nations. But since globalization came in, there is a
widely accepted fact that increases in the demand of skilled labor drove the drastic
increase in skill premium. Although the exact cause of increase in the need for
skilled labor is still the subject of debate, but evidence from Attanasio and Szekely
(2000); Sanchez-Paramo and Schady (2003) (in Goldberg & Pavcnik 2007) and
others support the increase in demand of educated workers in developing countries.
Similarly, different theories have been proposed for the changes in relative prices
and consumption as caused by globalization. But the most widely accepted
conclusion is that globalization has contributed largely to inequalities in
developingnations.
Better opportunities in more developed countries, coupled with the possibility of
easy travel, have lead to a lot of educated people being lured away from
developing countries. It has been said that more than US $4.1 billion is being spent
annually in the African continent to employ 150,000 expatriates to replace the
intellectual vacuum being created by the ongoing brain drain (Globalization and its
impact 2004).
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In addition, globalization has resulted in the loss of cultural boundaries. In this
wise, it has caused the extinction of several languages in many developing nations.
The way languages are going extinct is very rapid, and this has been predicted to
continue unless something can be done to stop the complex process of
globalization (Cronin 2003). The enhanced interaction of western cultures with
local cultures in the developing world has led to melting of previously existing
cultural barriers so that the individuality of the local cultures begin to fade. The
increase in international travel has also contributed to this as the World Health
Organization estimates that approximately 500,000 people are in airplanes at any
one point in time (The Guardian 28 April 2009, p. 10). Also, the adoption of
multiculturalism coupled with the melting of international barriers and easy spread
of propaganda through the internet has led to youths of developing nations
imbibing extremist ideas, causing their being used by terrorists in suicide attacks,
as is occurring in many developing nations such as Somalia, Sudan, Tunisia,
Egypt, etc.
The encouragement of free trade zones in developing countries in a bid to woo
foreign investors has resulted in negative effects. A documentary released in 2003,
The Hidden Face of Globalization, revealed how female factory workers in free
trade zones are being physically and verbally abused so as to keep up with the
production demands from the firms (Bacchus & Forester 2005). In a bid to
maximize profit, most of these multinational companies prefer to refrain from
creating healthier and safer working environments for their workers. According to
Fuentes and Ehrenreich 1998 (in Bacchus & Forester 2005), 12 women died in
Taiwan from the inhalation of toxic fumes at a Philco-Ford assembly plant. And
coupled with the inability of the workers to unionize as a result of the free trade
policy, the workers have to suffer in silence.
Other negative impacts of globalization in developing countries include the
alteration of the environment and reduction in environmental sustainability,
increase in human trafficking, exploitation of cheap labor by foreign industrialists.
This paper has been able to show globalization as a complex process with wide
reaching impacts on developing countries. Globalization on its own has a lot of
gains and benefits, but due to the influence of some other factors and especially the
nature and structure of most developing nations, it impacts negatively despite its
advantages. These impacts hold serious challenges for developing countries in the
face of needed economic growth and development for these countries. To this end,
18. 18
the leadership of the various nations in the developed world must understand that
their major responsibilities lie in the needs of their immediate societies. It is
therefore imperative that these countries formulate rational policies and reforms
that would guide liberalization of trade and the complexities of globalization as a
whole to conform to their own domestic economic agenda. Globalization itself
should not be hindered. But the extent and pace of its progress should be made to
reflect the nation’s situation and presenting economic dispensation so that in the
long run, the developing country itself would be able to strongly compete in the
wider confluence of globalization.
Negative effects of globalization for developing country business
Critics of global economic integration warn that (Watkins, 2002, Yusuf, 2001):
The growth of international trade is exacerbating income inequalities, both
between and within industrialized and less industrialized nations
Global commerce is increasingly dominated by
transnational corporations which seek to maximize profits without regard for
the development needs of individual countries or the local populations
Protectionist policies in industrialized countries prevent many producers in
the Third World from accessing export markets;
The volume and volatility of capital flows increases the risks of banking
and currency crises, especially in countries with weak financial institutions
Competition among developing countries to attract
foreign investment leads to a "race to the bottom" in which countries
dangerously lower environmental standards
Cultural uniqueness is lost in favor of homogenization and a
"universal culture" that draws heavily from American culture
Critics of economic integration often point to Latin America as an example where
increased openness to international trade had a negative economic effect. Many
governments in Latin America (e.g. Peru) liberalized imports far more rapidly than
in other regions. In much of Latin America, import liberalization has been credited
with increasing the number of people living below the USD $1 a day poverty line
and has perpetuated already existing inequalities (Watkins, 2002).
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Positive effects of globalization for developing country business
Conversely, globalization can create new opportunities, new ideas, and open new
markets that an entrepreneur may have not had in their home country. As a result,
there are a number of positives associated with globalization:
It creates greater opportunities for firms in less industrialized countries to tap
into more and larger markets around the world
This can lead to more access to capital flows, technology, human capital,
cheaper imports and larger export markets
It allows businesses in less industrialized countries to become part of
international production networks and supply chains that are the main
conduits of trade
For example, the experience of the East Asian economies demonstrates the positive
effect of globalization on economic growth and shows that at least under some
circumstances globalization decreases poverty. The spectacular growth in East
Asia, which increased GDP per capita by eightfold and raised millions of people
out of poverty, was based largely on globalization—export-led growth
and closing the technology gap with industrialized countries (Stiglitz, 2003).
Generally, economies that globalize have higher growth rates than non-globalizes
(Bhagwati and Srinivasan, 2002).
Also, the role of developing country firms in the value chain is becoming
increasingly sophisticated as these firms expand beyond manufacturing
into services. For example, it is now commonplace for businesses in industrialized
countries to outsource functions such as data processing, customer service and
reading x-rays to India and other less industrialized countries (Bhagwati et al,
2004). Advanced telecommunications and the Internet are facilitating the transfer
of these service jobs from industrialized to less industrialized and making it easier
and cheaper for less industrialized country firms to enter global markets. In
addition to bringing in capital, outsourcing helps prevent "brain drain" because
skilled workers may choose to remain in their home country rather than having to
migrate to an industrialized country to find work.
Further, some of the allegations made by critics of globalization are very much in
dispute—for example, that globalization necessarily leads to growing income
inequality or harm to the environment. While there are some countries in which
economic integration has led to increased inequality—China, for instance—there is
20. 20
no worldwide trend (Dollar, 2003). With regard to the environment, international
trade and foreign direct investment can provide less industrialized countries with
the incentive to adopt, and the access to, new technologies that may be more
ecologically sound (World Bank Briefing Paper, 2001). Transnational corporations
may also help the environment by exporting higher standards and best practices to
less industrialized countries.
21. 21
Cost of Capital
Meaning of Cost of Capital:
An investor provides long-term funds (i.e., Equity shares, Preference Shares,
Retained earnings, Debentures etc.) to a company and quite naturally he expects a
good return on his investment.
In order to satisfy the investor’s expectations the company should be able to earn
enough revenue.
Thus, to the company, the cost of capital is the minimum rate of return that the
company must earn on its investments to fulfill the expectations of the investors.
Capital for a small business is simply money. It is the financing for the small
business or the money used to operate and buy assets. Cost of capital is the cost of
obtaining that money or financing for the small business. The cost of capital is also
called the hurdle rate.
Should very small businesses even worry about their cost of capital? The answer to
that is absolutely yes! Even very small businesses need money to operate and that
money is going to cost something.
Companies want that cost to be as low as possible.
What is Capital?
Capital is the money businesses use for financing their operations. The cost of
capital is simply the rent, or interest rate, it costs the business to obtain financing.
In order to understand cost of capital, you must first understand the concept of
capital. Capital for very small businesses may just be the supplier credit they rely
on. For larger businesses, capital may be the supplier credit and longer term debt or
liabilities, which are the firm's liabilities.
If a company is public or takes on investors, then capital will also include equity
capital or common stock. Other equity accounts will be retained earnings, paid-in
capital, perhaps preferred stock.
Why is Capital Important?
In order to build new plants, buy new equipment, develop new products, and
upgrade information technology, businesses have to have money or capital.
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For every decision like this, a business owner or Chief Financial Officer (CFO) has
to decide if the return on the investment is greater than the cost of capital or the
cost of the money it takes to invest in the project.
Business owners do not usually invest in new projects unless the return on the
capital they invest in these projects is greater than or at least equal to the cost of the
capital they have to use to finance these projects.
Cost of capital is the key to all business decisions.
What is the Cost of Capital?
A company's cost of capital is simply the cost of money the company uses for
financing. If a company only uses current liabilities and long-term debt to finance
its operations, then it uses debt and the cost of capital is usually the interest rate on
that debt.
If a company is public and has investors, then cost of capital gets more
complicated. If the company only uses funds provided by investors, then the cost
of capital is the cost of equity. Usually, this type of company has debt but it also
finances with equity financing or money that investors supply. In this case, the cost
of capital is the cost of debt and the cost of equity.
The combination of debt and equity financing for a company is the
company's capital structure
What is Return on Capital?
Return on capital is the amount of profit you earn out of a business or project as
compared to the amount of capital you invested. The key to cost of capital for a
company is that a company's return on capital must always equal or exceed the cost
of capital for any project in which the firm wants to invest. In other words, the
company's investment rate of return (return on capital) must equal or exceed their
financing rate of return (cost of capital) in order for the firm to be profitable.
What Composes the Cost of Capital
One component of the cost of capital is the cost of debt financing. For larger
businesses, debt usually means large loans or bonds. For very small companies, the
debt can mean trade credit. For either, the cost of debt is the interest rate the
company pays on debt.
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Another component of the cost of capital is the cost of equity financing if your
company is a public company; in other words, if you have investors in your
company who provide money in exchange for an ownership stake in the company.
There are several components of the cost of equity capital. First, there is the cost of
retained earnings or the money that the company invests back into the company,
instead of paying out dividends. Next, there is the cost of new common stock or
stock that the company issues to raise money.
Last, the company may even issue preferred stock to raise money.
For very small firms, the cost of capital may be much simpler. There are
advantages and disadvantages to both debt and equity financing, including cost,
that any business owner must consider before adding them to the capital
structure of the company. Very small firms may just use short term debt, in which
case we have to establish a cost for this capital component.
The Company's Weighted Average Cost of Capital
Once the business owner understands the concepts of capital and cost of capital,
the next step is to understand weighted average cost of capital. Each capital
component is a certain percentage of the company's capital structure. In order to
arrive at the true cost of capital for a business firm, the owner must multiply the
percentage of the company's capital structure for each component by the cost of
that component and sum them.
Before a company can engage in buying assets or obtaining financing for its
operations, it must make some determination of its cost of capital -- what it really
costs the firm for the money it has to have to for all its financing. That cost of
financing must never exceed its return on capital.
24. 24
CONCLUSION
Before a company can engage in buying assets or obtaining financing for its
operations, it must make some determination of its cost of capital -- what it really
costs the firm for the money it has to have to for all its financing. That cost of
financing must never exceed its return on capital. There are several components of
the cost of equity capital. First, there is the cost of retained earnings or the money
that the company invests back into the company, instead of paying out dividends.
Next, there is the cost of new common stock or stock that the company issues to
raise money Once the business owner understands the concepts of capital and cost
of capital, the next step is to understand weighted average cost of capital. Each
capital component is a certain percentage of the company's capital structure. In
order to arrive at the true cost of capital for a business firm, the owner must
multiply the percentage of the company's capital structure for each component by
the cost of that component and sum them.