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Shift of supply & demand curves of bonds

July 6th, 2010 Comments off

In the bond market, a market equilibrium occurs when the quantity of bonds demanded equals the quantity of bonds supplied. The market-clearing price is obtained at this equilibrium.

Shifts in the demand for bonds

What things that influence people to hold assets? They are 1) investor wealth, 2) the relative expected return, 3) the relative degree of risk associated with the return, and 4) asset liquidity. These factors will influence the quantity demanded of assets. While investor health (during business cycle expansions), expected return and liquidity (how quickly an asset can be converted to cash at low cost) will help to increase the quantity demand, the increasing level of risk will reduce the demand to hold asset.

Shift in the supply of bonds

Three factors that can affect the supply of bonds: 1) expected profitability of investment opportunities, 2) expected inflation, and 3) government activities. During business expansion, the number of possible profitable investment opportunities increase, pursue companies to seek additional capital for investment that will give impact on increasing number of bonds issued.

Whilst, increases in expected inflation will be reducing real interest rates. It will be recognized as cheaper source of funds for corporations. Thus, higher expected inflation causes the supply of bonds to rise (supply curve for bonds to shift to the right). And finally, government activities are often financed through the issuance of government bonds when government expenditures are higher than government revenues. Thus, budget deficits result in an increase in the supply of bonds and shift the curve to the right.

Reference: Strother (2006)

*cyberroom, 18:14pm….those were the best days of my life (Summer of ’69)..sugoi :-D *

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Types of financial markets (2)

Beside of differentiating financial market based on the type of securities traded, another way is based on level of transaction. There are 1) primary market, 2) secondary market.

In the primary market, the corporation or government agency will ultimately use the funds to sell new issues of securities. Secondary market is where the previously issued securities are resold. An example for secondary market is New York Stock Exchange. Other important secondary markets include the over-the-counter market, the American Stock Exchange, and the Chicago Board of Trade. Secondary market provides valuable services to make securities more liquid, by establishing a ready market for the security when the holder wishes to sell. In this manner, brokers & dealers are matching buyers and sellers of the security.

Actually, there is another way to distinguish markets on the basis of the maturity of the securities traded in the market. Securities which have  maturity less than one year are included on the money market, while the one exceeds one year will be included on capital markets.

*cyberroom, 17:16pm*

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Financial intermediaries

July 6th, 2010 Comments off

To a well-functioning economy, financial markets (as briefly described previously) need to be supported by financial intermediaries. Sometimes, direct financial transactions have been occured, but more frequently an intermediary institution brings the two parties together and reduces transaction costs by taking advantage of economic of scale. Thus, indirect financing  is emerged.

By this time being, savers and spenders can often more than when using direct financing. Other advantage is financial intermediaries also help investors to share risk, which is achieved trought 1) asset transformation (the alteration of risk characteristics of assets, from less attractive or more risky assets into acceptable or less risky assets that meet the needs of investors). Second type of risk sharing is 2) diversification (put funds to other places to work where they should provide the greatest return).

Then, who the financial intermediaries are they? They include 1) depository institutions, who make loans and accept deposits from individuals and institutions. They may be commercial banks, saving and loan associations, mutual saving banks & credit union. 2) Contractual saving institutions who acquire funds at periodic intervals on a contractual basis, such as life insurance companies, fire and casuality insurance companies and pension funds. 3) Investment intermediaries who invest funds on behalf of others. This category includes finance companies, mutual funds and money market mutual funds.

Other important role of intermediaries is helping to remove informational asymmetries. Asymmetrics information occurs when the borrower and the lender (in bond market, for instance)  have different information about the transaction. Let say, lenders continue lending to firm because they dont know the shaky fact of the company that managers might know well.

Reference: Strother, T. Shawn (2006) Study guide to accompany financial markets + institution. Fifth Edition. Pearson Addison Wesley. Boston, USA.

*cyberroom, 13:31pm. Gomen ne..too serious, huh? :-D *

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Types of financial markets (1)

Financial market is an artificial market where financial assets (or securities) are exchanged. People or institution with excess funds transfer those funds to people or institution who have a shortage funds. Commonly, there are three financial markets:

Bond markets. More than 1 year maturity of debt are transacted via this market. The eye-catching aspect in bond market is interest rate. Shorter-term rates tend to fluctuate more and be lower than longer-term rates. Important to remind that lower rating bonds tend to be higher than rates on less risky bonds.

Stock markets. This market closely related to the appropriateness of claims on earnings and assets of a corporation. Yes, it is about ownership of company by buying its stock (often transactions are on common stocks). Need to remember that condition in the stock market affect the ability of business to raise funds for expansion and growth.

Foreign exchange markets, which establish the rate at which money in one country can be traded for money in another country. Let say, the amount of Rupiah that I can get in Japan for one unit of domestic currency (Yen) is referred as the foreign (Rupiah) exchange rate. A change of Rupiah as foreign exchange rate has a direct impact on my level of consumption during my time living in Japan. A strong Yen leads to make my living cost more expensive, then Indonesian goods seems to be cheaper for Japanese. Vice versa.

But, in this case, on the strong or weak Yen, I must finish this study as soon as possible :-D *rodo mekso.com*

*cyberroom, 12:42pm*

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Market timer Vs Buy & Holder

Basically, investors behavior in market can be distinguished by two philosophy. First one is buy and hold. If someone buy a large basket of good stocks and hold them over long periods, ignoring the intervening price swings, he might be believe in buy and hold philosophy. He thinks that predicting price movements is either too difficult or too costly. Price of stocks is naturally increasing through all the bull and bear markets, so holding a set of stocks will emerge him them.

Second philosophy is market timing. By this, someone will try to catch the upswings and sell just before the major downswings. Investors who practice market timing think that it can be done in an advantageous and profitable way. Naturally, investors will buy stocks for profits aim and avoid loss by sell it when the market likely being disadvantageous.

McDonald claimed that even investors who have invested for a long time are market timers. There is always a day when they buy stocks and a day when they sell them. If someone bought stocks in 1995 when PER were 15, then sell them in 2005 when PER got to be 35, he seems to be considered as market timer. Then, the question arises: ‘How long do you have to hold an investment before it crosses the line from market timing to buy and hold?’ There is no certain answer, unfortunately.

Reference: McDonald, M (2002) Predict market swings with technical analysis. John Wiley & Sons, Inc., NY.

*APH2 M303, 3:18pm*

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Learn & learn

Have you become a good supervisor for your students? This writing is aimed to reassure me, and remind you that a lecture is about learning every time, a continuous attempt to improve our ability as a teacher. My experience as student recently pursue me to encourage and ask to my self to do as good as supervising matters of Professor ‘X’ when I supervise someone else some time, and do not imitate and repeat Professor ‘Y’ ‘s faults.

Of course, I do believe that supervise and teach are peculiar (or unique, for more suitable) manner for each person. I mean it depends on the ability and characters of them. About ability, everybody can learn about the content matters. But, refer to character and personality, wow…it is not as easy as turning the hand. And everyone agree about it. But, again, I still believe that if someone learns, behave and think on open minded ways, everything is gonna be better :-)

From a link, I found this. Henry Fayol mentioned a teacher as an active student who can play very much attractive and fascinate role upon overall performances in the class. As an active adviser, teacher need:

  • Control: To draw up and issue instruction, and stay with the students, closely supervising its action.
  • Guide to clarify what is required, hand over ownership to students and offer to give advice when they call you.
  • Consult: To give a broad outline, ask students to discuss ideas and agree actions, using us as a separate expert reference point.
  • Facilitate to give overall direction, co-ordinate the group’s discussion and expect it to produce a progress report.

Then, let us think, learn and act. Nobody would not being worst person. But, as humankind, would you call me up if some day I fall? ;-)

*..tomorrow is just another day.. ‘Mandy’ by Barry Manilow’
common room, 11:58am

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Materi Manajemen Keuangan Bisnis II

June 17th, 2010 Comments off

Bahan materi Manajemen Keuangan Bisnis II yang dapat diunduh di sini meliputi:

  1. Capital Structure here
  2. Bond Refunding Bond Refunding
  3. Cost of capital Cost of Capital (New! as of March 7, 2016)
  4. Leasing Leasing
  5. Dividend policy Dividend policy (New, 26 May 2016)
  6. Merger Mergers & Acquisition (New! as of May 23, 2016)
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Materi Manajemen Keuangan Bisnis I

June 16th, 2010 Comments off

Berikut adalah materi perkuliahan yang dapat diunduh:

  1. Financial Business – An introduction Chapter 1_Keuangan Bisnis Pendahuluan
  2. Financial Ratios Chapter 2_Analisa Rasio
  3. Analisa Break Even Point Ch 2 Analisis BEP
  4. Analisa Leverage Ch 3 Analisa Leverage
  5. Working Capital Management Ch 4 Working Capital Management
  6. Cash Budget Analysis Ch 5 Cash budget
  7. Account Receivable management Ch 6 Account Receivable Management
  8. Inventory management Ch 7 Inventory Management
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