An Analysis Of Financial Structure And Transaction Cost Finance Essay - Free Essay Example

Sample details Pages: 6 Words: 1876 Downloads: 4 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? In an economy, the financial structure is designed promote economic efficiency. One of the main requirements for a healthy economy is an efficient financial system that channel funds from savers to investors. The financial structure of a country includes a complex structure of financial system including many different financial institutions: banks, insurance companies, mutual funds, stock and bonds markets, etc. which channel the money from the people who save to people with investment opportunities. (Mishkin 169) Basic Facts about Financial Structure According to Mishkin, There are eight basic puzzles that we need to solve in order to understand how the financial system works.(Mishkin 169-172) Stocks are not the most important source of external financing for businesses. Issuing marketable debt and equity securities is not the primary way in which businesses finance their operations. Indirect finance, which involves the activities of financial intermediaries, is any times more important than direct finance, in which businesses raise funds directly from lenders in financial markets. Financial intermediaries, particularly banks, are the most important source of external funds used to finance businesses. The financial system is among the most heavily regulated sectors of the economy. Only large, well-established corporations have easy access to securities market to finance their activities. Collateral is a prevalent feature of debt contracts for both households and businesses. Debt contracts typically ar e extremely complicated legal documents that place substantial restrictions on the behavior of the borrower. Financial structure depends on two factors: transactions costs, and information costs. Don’t waste time! Our writers will create an original "An Analysis Of Financial Structure And Transaction Cost Finance Essay" essay for you Create order Transaction Cost Transactions costs influence financial structure. They are major problems in financial markets and are too high for ordinary people. Financial intermediaries-help in reducing transaction costs and allow small savers and borrowers to benefit from the existence of financial markets. One solution to the problem of high transaction costs is to package the funds of many investors together so that they can take advantage of economies of scale. (Economies of scale exist because the total cost of carrying out a transaction in financial markets increases only as little as the size of the transaction grows.) They also develop expertise to lower transactions costs and provide investors with liquidity services. Fig.1. A Comparison of transaction cost between various countries Source: The Financial Express. Indian Securities Market Has Lowest Transaction Cost; Malaysian Highest. Business News, Finance News, Stock Market, World Business, Financial Markets News Online. N.p., n.d. Web. 21 July 2010. In the chart above we can see that the securities market in India has emerged as the lowest cost market among all these countries. According to a study by market regulator Securities Exchange Board of India (Sebi), transaction cost in this market is 40 bps . The second lowest cost market is Hong Kong, which has a transaction cost of 43.03 bps, while the Malaysian market with transaction cost at 97.50 bps is the highest. Among the other markets where cost of transaction is comparatively higher with respect to Indian markets is Thailand (60 bps), USA (64.60 bps), Singapore (75.50 bps) and Australia (81 bps). These transaction cost includes various components like brokerage, regulators fee, custody charges, clearing charges and levies like stamp duty. Asymmetric Information: Adverse Selection and Moral Hazard Asymmetric information is a situation that arises when one partys insufficient knowledge about the other party involved in a transaction makes it impossible to make accurate decisions when conducting the transaction. The presence of asymmetric information leads to adverse selection and moral hazard problems. Adverse Selection Adverse selection is an asymmetric information problem that occurs before the transaction. Potential bad credit risks are the ones who most actively seek out loans. Because adverse selection increases the chances that a loan might be made to a bad credit risk, lenders might decide not to make any loans, even though there are good credit risks in the marketplace. Moral Hazard Moral hazard arises after the transaction occurs. The lender runs the risk that the borrower will engage in activities that are undesirable from the lenders point of view because they make it less likely that the loan will be paid back. Because moral hazard lowers the chance that the loan will be paid back, lenders may decide that they would rather not make loans. The Lemons Problem: How Adverse Selection Influences Financial Structure The Lemons Problem arises when investors cant distinguish between good and bad securities, and are willing to pay only average of good and bad securities value. The result is that good securities are undervalued and firms wont issue them; whereas bad securities overvalued so too many are issued. So, Investors wont want to buy bad securities, so market wont function well. According George Akerlof, ÂÂ  Information asymmetry occurs when the seller knows more about a product than the buyer. ( Akerlof 3) Tools to Help Solve Adverse Selection (Lemons) Problems Methods of elimination of asymmetric information Private Production and Sale of Information Furnishing the people who supply funds (lenders) with full details about the individuals or firms seeking to finance their investment activities (borrowers). Private companies who collect information from the firms balance sheets and investment activities publish the data and sell them to subscribers. For example: SP or Moodys Free-rider problem interferes with this solution The free-rider problem occurs when people who do not pay for information take advantage of the information that other people have paid for. Government Regulation to Increase Information The government regulates the securities market in a way that encourages firms to reveal honest information about themselves so that the investors can determine how good or bad the firms are. For example, annual audits of public corporations. Financial Intermediation A financial intermediary becomes an expert in producing information about firms, so that it can sort out good credit risk form bad ones. Banks can also avoid free-rider problem. It is making private loans Banks are more important in the financial systems of developing countries When the quality of information is better, asymmetric information problems will be less severe. Also the larger and more established a corporation is, the more likely it will be to issue securities to raise funds. Collateral and Net Worth Collateral reduces the consequences of adverse selection because it reduces the lenders losses in the event of a default. Lenders are more willing to make loans secured by collateral, and borrowers are willing to supply collateral in order to get the loan and at better rate. Net worth (equity capital), the difference between a firms assets and its liabilities, can perform a similar role to collateral. How Moral Hazard Affects the Choice between Debt Equity Contracts Moral hazard is the asymmetric information problem that occurs after financial transaction takes place, when the seller of a security may have incentives to hide information and engage in activities that are undesirable for the purchaser of the security. It has important consequences for whether a firm finds it easier to raise funds with debt than with equity contracts. Moral Hazard in Equity Contracts: The Principal-Agent Problem The Principal-Agent Problem is the result of separation of ownership by stockholders (principals) from control by managers (agents). Managers act in own rather than stockholders interest because the managers have less incentive to maximize profits than stockholders-owners do. The agent is hired to act on behalf of (and in the best interests of) the principal (Silver). C:UsersChrish_naDesktopPrincipal_agent.png Source: (WGA update: the not-so-basic economics of industrial action) In the figure above it can be seen how the Principal-agent Problem treats the difficulties that arise under conditions of incomplete andÂÂ  asymmetric informationÂÂ  when aÂÂ  principalÂÂ  hires anÂÂ  agent, such as the problem of potentialÂÂ  moral hazardÂÂ  andÂÂ  conflict of interest, in as much as the principal is most probably hiring the agent to pursue its, the principals, interests. Various mechanisms may be used to try to align the interests of the agent in cohesion with those of the principal, such as piece rates/commissions,ÂÂ  profit sharing,ÂÂ  efficiency wages,ÂÂ  performance measurementÂÂ  (includingÂÂ  financial statements), the agent posting a bond, or fear of firing. The principal-agent problem is found in most employer/employee relationships, for example, whenÂÂ  stakeholdersÂÂ  hire top executives ofÂÂ  corporations. Tools to Help Solve the Principal-Agent Problem Production of Information: Monitoring One way for stockholder to reduce this moral hazard problem is to monitor the firms activities through different monitoring process such as auditing and checking what the management is doing. Government Regulation to increase information Governments have laws to force firms to adhere to standard accounting principles that make profit verification easier. They also impose stiff criminal penalties on people who commit the fraud of hiding and stealing profits. However, these laws and regulations are not fully effective. It is not easy to catch the fraudulent managers because they have incentives to make very hard for government agencies to find or prove fraud. Financial Intermediation Financial intermediation has the ability to avoid the free-rider problem in the face of moral hazard, and this is another reason why indirect finance is so important. Debt Contracts Debt contract is an agreement whereby the borrower pays the lender a fixed amount at periodic intervals. As long as the lender receives the agreed amount, he does not care whether the firm is making profit or suffering a loss. How Moral Hazard Influences Financial Structure in Debt Markets Even with the advantages over equity contact, debt contracts are still subject to moral hazard. Because a debt contract requires the borrower to pay out a fixed amount and lets him keep any profits above this amount, the borrower has an incentive to take on investment projects that are riskier than the lenders would like. Because of the potential moral hazard, lenders may not make the loan to the borrower. Tools to Help Solve Moral Hazard in Debt Contracts Net Worth and Collateral When borrowers have more at stake because their net worth is high or collateral they have pledged to the lender is valuable, the risk of moral hazard will be reduced . Monitoring and Enforcement of Restrictive Covenants Restrictive covenants are directed to reduce moral hazard either by ruling out undesirable behaviour or by encouraging desirable behaviour. Financial Intermediation: Banks and other intermediaries have special advantages in monitoring. Financial intermediaries-particularly banks- have the ability to avoid the free-rider problem as the make primarily private loans. Private loans are not traded, so no free-rider problem exists. Conclusion A healthy and vibrant economy requires a financial system that moves funds from people who save to people who have productive investment opportunities. A proper financial system makes sure that the hard-earned savings of people get channeled to productive investors. There are powerful economic concepts that enable us to explain features of the financial system, such as why financial contracts are written as they are and that the financial intermediaries are more important than securities markets for getting funds to borrowers. The economic analysis of the financial structure also explains about how financial intermediaries are important for small investors to invest their money and help in reducing the transaction costs, these financial intermediaries also enable small investors to diversify their portfolio and minimize losses. It also explains about the risks involved when borrowers borrow money from various markets such as the Debt and Equity markets and also teaches us the tools and techniques to minimize losses due to these risks.

Macbeth and Othello Essay - 2866 Words

Macbeth and Othello â€Å"Upon my head they plac’d a fruitless crown And put a barren sceptre in my gripe, Thence to be wrench’d with an unlineal hand, No son of mine succeeding† (Macbeth, III.i.62) â€Å"Renew I could not like the moon† (Timon of Athens, IV.iii.68) What distinguishes Macbeth and Othello from other tragedies is the fact that their protagonists are neither fathers nor sons, mothers nor daughters. We know nothing of Macbeth or Othello’s parents, and neither of them has children. Lady Macbeth makes a passing reference to having once â€Å"given suck† and to â€Å"how tender ‘tis to love the babe that milks [her]† but never returns to the subject, and in any case, what remains impressed in one’s memory is the line that†¦show more content†¦Similarly, Desdemona is very distinctly no longer her father’s daughter: she has severed ties with him and no longer feels obliged to associate herself with him or define herself in terms of him, to the point where she claims she â€Å"would not [in her father’s house] reside to put [her] father in impatient thoughts by being in his eye† (I.iii.241). She is only â€Å"hitherto [his] daughter† (183). It is also interestin g to note that the only mention of her mother is made in this passage—we have a brief glimpse of her mother â€Å"preferring [Brabantio] before her father† (186) before she vanishes again into obscurity. That said, what is much more striking is Othello’s complete lack of parentage. After all, one might argue that in Desdemona’s case cutting herself off from her father is acknowledging that she has one. In the case of Othello, there is no mention of a father, a mother, not even a glimpse of a past family. We hear of his past conquests and victories, the battles in which he has fought and the seas he has sailed, but there is no personal history or any sense that someone came before Othello, that he is connected to anything less ephemeral than a list of battles. â€Å"The story of [his] life from year to year† is depicted in terms of â€Å"battles, sieges, fortunes that [he has] pass’d† rather than parentage (I.iii.128). The same holds true forShow MoreRelatedSimilarities Between Macbeth And Othello1075 Words   |  5 Pagessimilarities. Mainly, Macbeth in Macbeth and Othello in Othello are ultimately the exact same person, despite being different peo ple in different environments. Furthermore, Lady Macbeth and Iago are similar in relation to the two main characters. First off, it is paramount to explore the secondary character’s personalities to emphasize their similarities. Shakespeare depicts Iago as having an insatiable lust for power. He uses Desdemona, oblivious to his plan, to trick Othello to ultimately have whatRead MoreEssay on Comparison: Macbeth and Othello1908 Words   |  8 PagesShakespeare presents the tragedies, Macbeth and Othello as plays filled with plots driven by manipulation. Shakespeare uses the power of language in the characters Iago and Lady Macbeth by using influential rhetoric to sway those around them and also lead to the deadly downfall of Othello and Macbeth. In both of their cases, Shakespeare reveals the power of power because when things do not go according to plan, their own downfall is inevitable as well. In Macbeth, Lady Macbeth’s actions show that womenRead MoreHuman Weakness in Macbeth and Othello2915 Words   |  12 PagesMacbeth is one of the best known plays written by Shakespeare in the 17th century, Jacobean period. It was the period where the belief in supernatural was greatly held and king James I himself, the author of Divine rights of king adhered in witchcraft and openly practiced the idea of kings being God’s representatives on earth, so to even complain about them was a sin. The tragic hero, brave and valiant Macbeth had all the required characteristics of the ideal Scottish soldier; valorous and gallantRead MoreEssay about Comparing Macbeth and Othello1019 Words   |  5 PagesComparing Macbeth and Othello A masterful playwright and poet named William Shakespeare in the Seventeenth century wrote both the tragedies Macbeth and Othello. In William Shakespeare’s Macbeth, the idea of one character becoming both victim and villain is introduced. Macbeth falls prey to others’ deception, and is supplanted with greed and hate when three witches trick him. When told that he is going to be King of Scotland, Macbeth does whatever he can to insure his property. In Macbeth’sRead MoreWilliam Shakespeare s Macbeth And Othello1417 Words   |  6 PagesHello, I’m William Shakespeare, the famous and historically known playwright of plays such as Hamlet, Romeo and Juliet, Othello and Macbeth. Today I will be talking to you all about two of my plays, Othello and Macbeth. I will also be talking to you all about the social, political and historical themes in my plays and my intent for writing them. I wrote Macbeth and Othello during the reign of King James the 1st of England. Events that were occurring during that time period and the feeling of theRead MoreWhat Are The Similarities Between Macbeth And Othello1267 Words   |  6 PagesWilliam Shakespeare is the playwright in which the works of Macbeth and Othello are written . These works are both written in Shakespeares signature style of tragedy where a character experiences a reversal of fortune at the hands of their own actions. A true tragic hero is a character who is admired while being flawed; has both good and evil characteristics; experiences a hamartia, a moral mistake or ignorant error; is given an opportunity for redemption yet continues refusing; experiences theRead MoreWilliam Shakespeare s Macbeth And Othello1984 Words   |  8 PagesExplore the ways in which characters emotions are manipulated in Macbeth and Othello The way that Shakespeare implements manipulation into Othello and Macbeth leads to significant emotional change in the majority of characters in both plays. This leads to protagonists’ eventual downfall in many cases, due to the language and imagery that Shakespeare creates in the tragedies. The schemists tend to exploit weaknesses in the victims, such as ambitions. This can be witnessed by the audience at a veryRead MoreWilliam Shakespeare s Macbeth And Othello 2034 Words   |  9 Pages A clear view of the relationships established in Macbeth and Othello can be seen through the inferior partner s views on the other person in the relationship, and also their balance of power. Lady Macbeth rarely addresses Macbeth with his real name, but instead with titles such as Great Glamis! and Worthy Cawdor - referring to his positions. However Iago refers to Othello with titles such as The Moorship, which is a play on Lordship - including a reference to his race. The useRead More Comparing Macbeth, Hamlet, and Othello Essay2768 Words   |  12 PagesComparing Shakespeare’s Macbeth, Hamlet, and Othello  Ã‚      Shakespeare’s tragedies were extremely popular in Elizabethan times and today. A tragedy is described as â€Å"a sad, serious story or play, usually ending with the death of the hero. A disastrous, fatal or dreadful event.† By comparing the three plays, Macbeth, Hamlet and Othello it is possible to see how he has used techniques appropriate to tragedy and how he applied them to his plays. The opening of the play is significant because itRead MoreWilliam Shakespeare s Macbeth Vs. Othello1006 Words   |  5 PagesNadia Chilcoat Macbeth vs. Othello Period: â…š 12/12/2014 Macbeth vs. Othello Ancient Greeks believed that a tragic hero must be admirable but flawed, someone the audience can sympathize with, and someone capable of good and evil. The main character must also have a doctrine of free will, in which they are able to redeem themselves, but they continue to fall freely in a downward spiral from a position of superiority. The audience must also be able to

Bias Rhetorical Devices Free Essays

What are some examples of bias, fallacies, and specific rhetorical devices in the speech? The very beginning of the speech begins with a campaigner who is introducing their new candidate for Governor and who expresses negative bias towards the current Governor, Jim Gettys. It begins by describing the current governing as an â€Å"evil domination†. That same campaigner then expresses equal bias but in a positive way, towards Charles Foster Kane, by saying he is the only one who can rid the state of its current politics. We will write a custom essay sample on Bias Rhetorical Devices or any similar topic only for you Order Now The campaigner calls him a fighting liberal and friend of the working man but gives no examples of why he feels that way. The speech is full of rhetorical devices, using analytical definitions to create emotion in the listeners. Charles Foster Kane points out that his only purpose is to â€Å"point out and make public, the dishonesty and downright villainy of Jim Getty’s political machine†. He is using hyperbole in this statement in order to exaggerate his viewpoint. Also you can read Rhetorical Devices in Night Walker by Brent Staples He states that â€Å"this machine is in complete control of the government of the State† causing the people to react since this is the very situation our founding fathers hoped to avoid when creating the United States Constitution. Kane is also aligning himself with those he knows will be more likely to vote within his party lines such as the working man, slum child, underpaid, underprivileged and underfed. He realizes that by exaggerating the power contained by Jim Gettys and his Administration, he will rally the folks not usually interested into voting for him, by telling them they deserve so much more. He uses the argument from outrage to express how diabolical the existing government is in order to persuade the people that definitive change is needed. Various fallacies are prominent throughout the speech. One of the fallacies is the determination that Kane will be voted Governor based on the polls. However, since the election has not even begun, it is impossible for him to draw this conclusion. Also, we see the group think fallacy where Kane describes himself as the friend of the lower classes, making believe he is one of them. Argument by popularity is used when Kane assumes that the polls indicate his obvious triumph in the upcoming election and reflect him as the winner and most popular choice for voters. He is also using scare tactics when stating that the current Government has complete control over the state, and that they are a dictatorship. In all of the above cases, no information is given to support the claims being made. How did the speaker address arguments and counter arguments? The speaker’s arguments are unclear since he did not use common premise and conclusion statements. There are no comparisons between what Kane feels has already been done versus what he intends to do. However, he is making the claim that he will be elected as Governor based on the poll information. He also makes the biased claims against the Administration of Jim Gettys and the control it has over the State Government at that time. His argument leads to the unspoken conclusion that the existing government does not care for the ordinary people and that he intends to change the focus of the government to care for the decent, the underpaid, underfed, underprivileged, working men and slum children. Therefore, Kane would be the better choice as the Governor for the people of that State. I do not see any evidence of counter arguments since at no point does he state another person’s claim and argue against that. Were the speaker’s arguments effective? Explain your answer. The speaker’s arguments were effective in invoking an emotional response from the listeners and persuade them that they should not vote for the existing Governor. His use of political rhetoric and fallacies were effective in creating doubt about the honesty of Gettys and his Administration. Kane wanted to expose the existing government as corrupt, uncaring and in complete control of all of their lives. He succeeded at this by using statements to invoke anger which is usually substituted for reason. There are no conclusive promises made, other than to indict and convict Jim Gettys. Therefore, the people have no idea what policies or promises Kane intends to put into practice. Although the arguments were effective in persuasive techniques, they were not sound. There were no details or facts to support his claims that Kane specifically, would make a better Governor. How to cite Bias Rhetorical Devices, Essay examples

Breaking the Bamboo Ceiling free essay sample

Asian culture is becoming more and more seen in the western world, with Asian restaurants and settlements such as china town becoming regular parts of most urban areas and the prominence of Asian employees and managers in western businesses will continue to grow along with that. Asian culture is having a growing impact in western society and this should carry over into a larger role for Asians within western companies. The bamboo ceiling, for the large part, does not exist due to intentional racism or discrimination, but instead exists due to a variety of underlying factors that most business managers would not even think twice about. The lack of intentional racism or discrimination as factors is shown in the statistic that over 88% of Asians feel happy and good about their workplace and that 85% feel that there are no disrespectful or offensive actions (Reid amp; Berry, 2010). These factors must be exposed so that western society can focus on correcting this flaw in the corporate world and improving the upper managerial job prospects for Asians. We will write a custom essay sample on Breaking the Bamboo Ceiling or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page It is wrong of our society to discriminate against other cultures, even if it is an nintentional discrimination, we must be diligent in determining why this is happening and from these factors determine how we can right the situation and help break through the bamboo ceiling. Evidence of the Bamboo Ceiling: The bamboo ceiling can be seen to exist due to the small number of Asians in management positions when compared with the large number of Asians that exist within the western business world. While Asians make up around 5% of the American population, they only represent 2% of CEO’s and upper management of the Fortune 500 companies. Varki despite his clearly excellent qualifications. Eventually he made his way into the academic industry and slowly climbed the corporate ladder, becoming the very first foreign president of the American Society for Clinical Investigation and the first foreign editor of the Journal of Clinical Investigation (Ruttimann, 2009). This was a milestone for many Asian immigrants looking to break the bamboo ceiling. This step was one of the first of many positive examples of Asian immigrants succeeding in western corporate society, yet there is still a long way to go. A more negative example can be seen through the case of Alice Huang who was in the final round of interviews for a position as university president. Throughout the interview she was continually asked what she would be willing to give up if she got the job, and eventually came out and told them she did not think she would get the job due to how she looked and what her race was. In response to this she only received silence from her interviewers which confirmed her suspicions, and shows that the bamboo ceiling is indeed real and that it can have detrimental impacts on the life of Asian immigrants and their careers (Ruttimann, 2009). Conclusion: Companies can greatly benefit from diversifying their management staff as the business world becomes more and more global every year. If you expect to compete on the world stage then you must have a diverse staff with a large knowledge base of overseas areas, such as Asian countries. Having Asians in high level management roles would offer that company valuable information on how to break into markets overseas, as well as how to market products to all Asians, including the growing number of those residing in western society (Reid amp; Berry, 2010). This information could prove to be the difference between a company succeeding and failing in a foreign market, or with the Asian demographic in western society. To receive the benefits that comes with this diversity, western corporations must be very careful to avoid stereotyping and should be more sensitive to others cultures. Understanding that the western way doesn’t apply to everyone and it isn’t necessarily the best practice will help many corporations to get over these stereotypes, be more sensitive to Asian culture and to increase the chance of seeing Asians in top management.