In the previous discussion of time value of money (present value and future value), we derived the formula for a single payment that would be discounted or compounded respectively over a period of time (n) at an interest rate r. What if we have a series of payments of a fixed amount for a specified number of periods? Then we need to use a present or future value of an annuity formula.
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It is said that as dollar today is worth more than a dollar to be received tomorrow or at a later date. This is due to the uncertainty that it would actually be received tomorrow and some other variables such as inflation, interest rate and so on. It is only natural to prefer certainty over uncertainty that is why most people prefer to receive money now than to be promised the same at a later date in the future.
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The process by which ideas are generated, evaluated, directed and turned into products is called the “new product development process.” A new product follows certain phases or stages before it is launched. Some of these phases or stages include:
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Product life cycle is the concept that is based on the idea that any product or service undergoes certain stages before disappearance. It enables a marketing manager examine the marketing mix of a particular product or basket of product in terms of its position in the life cycle.
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Today we look at some activities that are considered illegal or an abuse to the integrity of financial markets. Such activities include insider dealing or trading, improper disclosure, misuse of information, dissemination, manipulating transactions and so on. In the United States of America, financial markets are strictly monitored by regulatory bodies such as the securities and exchange commissions (SEC), Financial Industry Regulatory Authority (FINRA), Federal Deposit Insurance Corporation (FDIC), Consumer Financial Protection Bureau (CFPB), Commodity Futures Trading Commission (CFTC), Federal Reserve System (“Fed”), Office of the Comptroller of the Currency (OCC), and National Credit Union Administration (NCUA). Activities such as those listed above are considered illegal and punishable by law based on the Jurisdiction of the various financial regulated bodies listed above.
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Hedging is a means of reducing risk. Hedging involves coming to an agreement with another party who is prepared to take on the risk that you would otherwise bear. The other party may be willing to take on that risk because he would otherwise bear an opposing risk which may be “matched” with your risk; alternatively, the other party may be a spectator who is willing to bear the risk in return for the prospect of making profit. In the case of interest rates, a company with variable rate loans clearly faces the risk that the interest rate would increase in the future as a result of changing market conditions which cannot be predicted.
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In a currency swap, the parties agree to swap equivalent amounts of currency for a period. This effectively involves the exchange of debt from one currency to another.
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There are basically two ways in which exposure to risk may be reduced. They are:
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International trade extends the principle of the division of labor and specialization to countries. It originated on the basis of nations exchanging their products for others which they could not produce for themselves. International trade arises for a number of reasons which include:
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It is defined as an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at fixed or determinable future, a sum certain in money or to the order of a specified person or to a bearer.
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