Secrets To Building Business Credit

Step-by-Step Business Credit Building System

This is a product that has numerous things to help users grow financially. It is one that has been embedded in various weekly training, resources, vendor credit lines, cash credit sources as well as banking contacts. It was created in such a way that it wouldn't be a quick fix for money problems. In other words, the users will need to follow the procedures meticulously before it can work for the users. Yet, the process is so easy that even a little child can fix it up. The guide is such that comes at a cheap price and would help in the reduction of the amount the users might have to pay for learning how to use Building Business Credit. It comes in video and Audio formats but is accompanied by various PDFs. Continue reading...

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Business Growth and Expansion

Business Growth Businesses can grow by reinvesting their profits in themselves, or they can combine with another business. Read to find out what influences growth. Business Growth Through Reinvestment 6. Business Growth In a newspaper or magazine, find an article about a merger. What companies merged What reasons, if any, were given for the merger What statistics were provided Write a one-page paper in which you answer these questions.

Financial Market Instruments

These short-term debt instruments of the U.S. government are issued in 3-, 6-, and 12-month maturities to finance the federal government. They pay a set amount at maturity and have no interest payments, but they effectively pay interest by initially selling at a discount, that is, at a price lower than the set amount paid at maturity. For instance, you might pay 9,000 in May 2004 for a one-year Treasury Bill that can be redeemed in May 2005 for 10,000.

Mortgage Backed Securities

These long-term debt instruments are issued by the U.S. Treasury to finance the deficits of the federal government. Because they are the most widely traded bonds in the United States (the volume of transactions on average exceeds 100 billion daily), they are the most liquid security traded in the capital market. They are held by the Federal Reserve, banks, households, and foreigners. State and Local Government Bonds. State and local bonds, also called municipal bonds, are long-term debt instruments issued by state and local governments to finance expenditures on schools, roads, and other large programs. An important feature of these bonds is that their interest payments are exempt from federal income tax and generally from state taxes in the issuing state. Commercial banks, with their high income tax rate, are the biggest buyers of these securities, owning over half the total amount outstanding. The next biggest group of holders consists of wealthy...

Interest and Interest Rates

When there is news about the interest rate rising or falling, it most commonly refers to the prime interest rate charged by banks for loans, historically to their most creditworthy customers. Such news attracts attention because prime rates are the reference point for interest rates charged on many mortgage, personal, and business loans. Prime rates are generally the same between major banks in each country. Furthermore, they tend to be indexed according to the overnight rate targeted by each country's central bank, which is the approximate rate charged for short-term or overnight loans between banks, needed to fulfill

Inside The Brokerage Business

Finally, prime brokers often provide marketing services for their hedge fund customers. They try to raise capital for their hedge fund customers by introducing them to important clients of the brokerage firm very high net worth individuals, large institutions, and so forth. This function is sometimes called capital introduction since the prime broker is introducing the hedge fund client to potential sources of investment capital. The capital introduction function has become especially important since the late 1990s as the general level of interest in hedge funds has increased, and the prime brokerage business has become increasingly competitive. If a bright young money manager with a good reputation is starting a hedge fund, he will talk to several brokerage firms about their prime brokerage services. There will be lots of conversation about reporting capabilities, lending facilities, and the like. But at some point the hedge fund manager is sure to ask, Can you help me find investors...

The Social Effects of Changes in the Purchasing Power of Gold

Changes in purchasing power affect debt contracts expressed in terms of gold due to the fact that the parties contracting such liabilities do not make allowance for changes in the purchasing power of gold. In general, the world clings to the view that gold is of stable value, naive as that view may be and as incapable as it may be of withstanding any exact analysis. However, even if this view was not prevalent, in the case of long-term commitments it would not be possible to adjust for changes in the purchasing power of gold there is no means of making any sort of estimate about either the direction or the extent of future changes in purchasing power over a considerable future time-period. The case of short-term liabilities is different. If it is anticipated that the prices of commodities will rise in the course of the next few weeks or months, the rate of interest for short-term loans correspondingly rises, and it falls if it is expected that commodity prices will fall. Therefore,...

The Importance of Financial Intermediaries to Securities Markets An International Comparison

Although the dominance of financial intermediaries over securities markets is clear in all countries, the relative importance of bond versus stock markets differs widely across countries. In the United States, the bond market is far more important as a source of corporate finance On average, the amount of new financing raised using bonds is ten times the amount using stocks. By contrast, countries such as France and Italy make use of equities markets more than the bond market to raise capital.

Analysis of Attempts at Stabilization

In general, therefore, it may be said that all proposals which aim at stabilizing the value of money have regard only to one part of the effects of changes in purchasing power. They can only eliminate those effects touching upon the tenor of long-term debt contracts in terms of gold. They can do nothing to remove the other effects of changes in purchasing power, which are no less acute than those of the first category and, perhaps, maybe are even more important.

The Monetary Policy Decision Process

Recent trends in credit growth indicate that households and businesses have continued to find it attractive to borrow at prevailing interest rates. After touching a low point in the September quarter, the growth of household credit has picked up over the two most recent quarters. Business credit growth has continued to trend upwards. A factor that is likely to have contributed to the overall strength of credit growth has been the continuing compression of lending margins by financial intermediaries over recent years, reflecting competition among lenders. As a consequence, although the cash rate has been close to its historical average, interest rates paid by borrowers have remained below average.

The Annual Indicators What Works

Tables 3.3 and 3.4 present evidence on the performance of eight annual indicators that have been prominent in recent discussions of the causes of financial crises. The indicators include the fiscal variables stressed in the Krugman (1979) model of a currency crisis as well as the short-term debt exposure indicators stressed in recent theoretical and empirical explanations of the Asian crisis (Calvo 1998 Calvo and Mendoza 1996 Goldstein 1998b Radelet and Sachs 1998). As before, the indicators are ranked according to their marginal predictive power. The first column provides information on the noise-to-signal ratio, the second column lists the percent of crises accurately called, the third column provides information on the probability of crisis conditional on signaling, while the last column provides information on the marginal predictive power of the variable. Table 3.5 Short-term debt selected countries, June 1997 (percent) Short-term debt total debt Short-term debt reserves While...

Do the Indicators Flash Early Enough

See Calvo and Mendoza (1996) for an early discussion of this issue. We did not use the ratio of short-term debt to reserves as an indicator in our tests because its relevance was highlighted mainly by the Asian crisis and we did not want the out-of-sample tests to be biased by its inclusion. In addition, the data were not available for the early part of our sample.

Assets and Liabilities

Liabilities are the opposite of assets. These are the obligations of one company to another. Accounts payable are liabilities and represent a company's future duty to pay a vendor. So is the loan you took from a bank. A business organizes liabilities into short-term and long-term categories on the balance sheet. Long-term debt (claims due in more than one year) and short-term debt (claims due within a year) are liabilities because they are claims against the business. If you were a bank, a customer's deposits would be a liability for accounting purposes, because they represent future claims against the bank.

Discrimination And Wages

Discrimination occurs when the members of a group of people have different opportunities because of characteristics that have nothing to do with their abilities. Throughout American history, discrimination against women and minorities has been widespread in housing, business loans, consumer services, and jobs. The last arena jobs is our focus here. While tough laws and government incentive programs have lessened overt job discrimination such as the help wanted ads that asked for white males as late as the 1950s less obvious forms of discrimination remain.

How Finance Affects Business Formation

The stylized fact that motivates this idea is that small banks hold a larger fraction of their assets in small-business loans than large banks do. However, this cross-sectional pattern may reflect small banks' inability to lend to large firms, rather than large banks' inability to lend to small firms. A small bank can remain well diversified only if it avoids large loans. Moreover, regulations restrict bank lending to a single borrower to 10 to 15 percent of capital (Spong 2000). So, for instance, regulations prevent a bank with 100 million in assets (a small bank) and 10 million in capital from making any loan greater than 1.5 million.

Contemporary Economics And Envy

Where do the high aspiration social goals come from There are longstanding problems in conceptualizing the goals of a system as distinct from the goals of those who make it up. Walter Weiskopff wrote, in 1965, that 'A Gross National Product growing, if possible, at an increasing rate, has become a dogma of economic reasoning and an object of economic worship. There is an obsessive preoccupation with the growth and rate of growth of the GNP which one could call GNP fetishism' Daly (1973, p. 241) . Is GNP fetishism a collectively expressed outgrowth of individual cravings or is it a 'top-down' phenomenon In the latter case individual impulses responses are a product of the economic system rather than the architects of its design. One way of deriving systemic goals is to locate an organized group which stands to gain from growth. Political parties are the obvious candidates. In an economically static society, policies to improve the lot of any group in society require redistribution. In...

Arbitrage in labor and capital markets

Our capital flow model abstracts from another aspect of capital mobility that was a feature of the 1990s financial instability. If lenders reassess the attractiveness of providing capital to foreigners, the adjustment in the case of financial flows is not as simple as a leasing company bringing its equipment home. Rather, the desire of lenders to withdraw funds may require borrowers to sell assets that have few alternative uses. Over-reliance on short-term debt to finance long-lived assets results in the borrower becoming particularly vulnerable to unexpected bad news. Determining a firm's appropriate financial strategy to avoid such problems is another important topic in international finance.

Multinational corporations

If the MNC has decided that production abroad is more efficient than exporting, we still must consider the final criterion mentioned above, internalization, to assess why the MNC chooses to operate its own plant rather than license someone else to produce the good. An advantage of licensing is that the firm need not raise capital itself or tie up its own management resources in learning how to produce in a foreign setting. Yet, by licensing technology to others, the innovator takes the risk that this information may leak out to others or be used to compete directly with it. Production abroad also raises the possibility that employees will defect and start their own competing firm, but at least the MNC can control that process better through the incentives and wages it pays its employees. When the pace of technological change is rapid in an industry, the firm may find licensing is the best way to earn an additional return on its innovation before that product is superseded by another....

Box 91 Mergers acquisitions and takeovers hold the phone

When MNCs raise capital locally rather than bring additional funds into countries with limited savings and few links to world capital markets, host countries voice the concern that this competition for funds with local producers simply displaces local producers and reduces the base of local entrepreneurs. This argument is not particularly convincing, if inefficient producers are being replaced by more efficient producers who can produce more output with the same inputs. The argument is more relevant if the domestic industry initially earns monopoly profits in a protected market, and the entry of an MNC transfers those profits from domestic producers to foreign owners.15

Government mobilisation and war finance

Two other ways of financing the budget deficit were long-term debt and floating debt. From the First World War on, capital demand of the central government became an important factor on the capital market (Renooij, 1951 160). During the period 1913-21 several large loans were issued (see table 5.8). The 1917 loan was partly used for a reconversion of the 1914 loan. Between 1914 and 1917 interest rates on loans had dropped half a percentage point from 5 to 4.5 per cent. From then on interest rates on government bonds moved up again, partly due to the great popularity of new industrial equity. In case loans were not fully subscribed, the Minister of Finance was in a position to issue obligatory loans on less favourable conditions. Short-term debt increased very fast during wartime, to a level above 500 million guilders. During the period 1913-21 the total national debt in current prices increased by a factor of 2.5. However, as GDP increased by the same factor, the national debt as a...

Why would a company give you more stock than the amount of the dividend

Of program, and we participated heavily. That experience led us to going to a major U.S. electronics company in 1992 in what proved to be our first private equity funding deal. At the time, this company couldn't raise capital through a stock offering because they'd had a bad quarter and the prevailing attitude was I don't want to buy newly issued stock from that company. That's probably the best time to buy newly issued stock. When do you want to buy it after they've reported record earnings he laughs 1 But that's the way it works, and it was a perfect opportunity for us to step in and say here's the check. We told the company that we would buy 15 million worth of stock from them over a period of time. We stressed that we wanted it to be a very friendly and supportive deal. Therefore, instead of buying stock at a discount, we proposed being compensated by an option to buy more stock in the future. In this way, our incentives were perfectly aligned with the interests of management and...

Mutual Funds and the Internet

That this type of mutual fund invests in short-term debt (money market) instruments of very high quality, such as Treasury bills, commercial paper, and bank certificates of deposit. There is some fluctuation in the market value of these securities, but because their maturity is typically less than six months, the change in the market value is small enough that these funds allow their shares to be redeemed at a fixed value. (Changes in the market value of the securities are figured into the interest paid out by the fund.) Because these shares can be redeemed at a fixed value, the funds allow shareholders to redeem shares by writing checks on the fund's account at a commercial bank. In this way, shares in money market mutual funds effectively function as checkable deposits that earn market interest rates on short-term debt securities.

The Money Market And The Trade Cycle

Our analysis of the nature of working capital, and of the demand for short-term funds, brought us to a number of conclusions. The original purpose of our investigation was to make it easier for us to make up our minds about the controversy business credit versus stock exchange credit. We shall defer the application of our conclusions to this problem until the next chapter. For the present we shall deal with certain by-products of our analysis. These by-products are, in my opinion, relevant to several problems, but especially to the theory of the money market and of the trade cycle.

Selftest Problems And Solutions

To assess the effect of firm size on the business success of these companies, the table shows the rate of return on stockholders' equity ( ), firm size as measured by the book value of stockholders' equity (in millions), rate of growth in book value ( ), and leverage as captured by the ratio of long-term debt to total capital ( ) for an n 17 sample of paper and forest product companies. The profitability effects of firm size indicate how economies of scale translate into higher profits, or how diseconomies of large-scale production translate into lower profits. Growth can have positive effects on profit rates because rapid growth typically reflects companies with attractive product lines and or cost-efficient operations. Finally, leverage has the potential to contribute to higher profits during periods of robust economic conditions, but can penalize profit rates during recessions or periods of tepid demand.

The Temporary Comparative Advantage Of Estates

Cocoa planters may generally have been high-cost producers, but they had the advantage of speedy reaction to favourable market situations. This derived from the organisation of estates, and their ability to gain the backing of the state. Planters had excellent access to market information, were able to obtain planting material with great speed, and could raise capital relatively easily. They were thus well placed to react quickly to any surge in demand and prices, as long as the state facilitated their access to land and labour. In such conditions, planters could clear massive swathes of forest and plant millions of cocoa trees in a very short period, albeit at a relatively high cost (Companhia da Ilha do Principe 1895ff, for one notable example in the 1890s).

Frequent Repayment Installments

While having several installments is not unusual for consumer loans made by commercial banks, it is atypical for loans made (at least on paper) for investing in businesses. In standard business loans made by traditional commercial banks, the process is just as you would think entrepreneurs borrow, invest and grow their businesses, and then once sufficient profits have been earned repay the loan with interest. Here, it is quite common to expect repayment to start the next month or week

An Outof Sample Application to Southeast Asia

While it too exhibited banking fragilities and while short-term debt easily exceeded available foreign exchange reserves (about 1.7 times the stock of the country's reserves),8 the current account deficit did not deteriorate as fast (reaching only 3.5 percent of GDP in 1996), the slowdown in growth was not yet evident, and the real exchange rate did not appreciate as much as in the other

Government controls and market forces

In a similar vein, Ferguson (2000 412-18) has argued that good financial management by the state over the long term meant that in 1913 public debt was less than 30 percent of GDP, thus leaving ample scope for new borrowing to finance the war. Furthermore, the development of London as the leading financial centre in the world, and the capacity of the capital market to absorb public debt, especially short-term debt, was extremely important. It provided an efficient mechanism for financing the war effort and acted more generally as 'a powerful stabilising agent on the short term behaviour of the British economy' (Balderston, 1989 224).

LOS 24c Describe the economic functions of and differentiate among the v arious depository institutions and explain the

A money market mutual fund is technically an investment company. Monev market is usually used to refer to debt securities with maturities of one year or less. A money market mutual fund manages the pooled funds of many investors, investing it in short-term debt securities to preserve the fund's value and earn returns for the investors. Investors (depositors) have ready access to their funds, but some funds restrict liquidity by imposing minimum check amounts or a maximum number of withdrawals each month. Offering less liquidity keeps expenses down and consequently increases returns (interest earned).

The data and variables

Age captures the general experience of the business owner. It might however be expected - again following Jovanovic's (1982) analysis of entrepreneurial learning - that the length of experience in the business (TIMTR) would have an impact on business growth. A key argument here is that actual participation in business discloses to its owner - in a way which is not possible by other means - whether or not he she has the necessary skills to engage in such activity. The more efficient operators remain in business the less efficient exit. Thus the individual who has already been in business, and who has therefore tested his skills, is more likely to make a success of the current venture than someone who is in business for the first time. However, Storey et al. (1989, p. 29) were unable to detect any impact of previous 'own account' experience on growth.

Elements ot Financial Accounting

The object of financial accounting is to provide information to internal management and interested external parties. Internally, management uses financial accounting information for processes such as budgeting, cash management, and management of long-term debt. External users include actual and potential investors and creditors who wish to make rational decisions about an enterprise. External users also include government agencies concerned with taxes and regulation.

Exploiting University and Government Scientific Research

Also, firms increasingly help to fund university research that relates to their products. Business funding of R&D at universities has grown rapidly. Today, the separation between university scientists and innovators is narrowing scientists and universities increasingly realize that their work may have commercial value and are teaming up with innovators to share in the potential profit. A few firms, of course, find it profitable to conduct basic scientific research on their own. New scientific knowledge can give them a head start in creating an invention or a new product. This is particularly true in the pharmaceutical industry, where it is not uncommon for firms to parlay new scientific knowledge generated in their corporate labs into new, patentable drugs.

Tools to Help Production of Information Monitoring You have seen that the principalagent problem

As with adverse selection, the free-rider problem decreases the amount of information production that would reduce the moral hazard (principal-agent) problem. In this example, the free-rider problem decreases monitoring. If you know that other stockholders are paying to monitor the activities of the company you hold shares in, you can take a free ride on their activities. Then you can use the money you save by not engaging in monitoring to vacation on a Caribbean island. If you can do this, though, so can other stockholders. Perhaps all the stockholders will go to the islands, and no one will spend any resources on monitoring the firm. The moral hazard problem for shares of common stock will then be severe, making it hard for firms to issue them to raise capital (providing an additional explanation for puzzle 1). The advantage of a less frequent need to monitor the firm, and thus a lower cost of state verification, helps explain why debt contracts are used more frequently than equity...

How Are Interest Rates Determined

Corporate Bond Rate Newspapers and government publications report the average annual yields on long-term (typically 20-year) corporate bonds in different risk categories (e.g., high-grade bonds, medium-grade bonds, etc.). These average yields indicate how much corporations are paying for long-term debt However, as we saw in Example 152, the yields on corporate bonds can vary considerably depending on the financial strength of the corporation and the time to maturity for the bond.

State enterprise i3 P3

There are various ways of organizing state enterprises, e.g. the UK method of creating separate public corporations and the italian method of creating holding companies (IRI and ENI). In Germany, the government has major or majority stakes in 900 businesses, including Lufthansa and Volkswagen. As many state enterprises make trading losses, it is unlikely that they would be able to raise capital without government help. since 1978, china has allowed a variety of enterprises, e.g. collective, individual (two helpers can be employed plus five apprentices) and joint ventures between state-owned and individual enterprises with profits distributed as dividends.

State And Local Government Debt

State and local governments as a whole are a large force in the nation's economy and collectively have significant impact. In 1999, state and local government expenditures were about 55 as much as federal government expenditures. Although these units of government do not, as a rule, attempt counter-cyclical fiscal policy, changes in their total expenditures can affect the economy positively or negatively. Most state and local government expenditures are for fire services, roads, and public schools and other public buildings. All of these services require large amounts of capital investment for facilities and other physical infrastructure and are usually financed with long-term debt secured by issuing bonds. Much, but not all, of the unemployment and welfare benefits paid out by state and local governments comes from the federal government. These payments help stabilize the economy in bad times. However, state and local governments cannot incur deficits for their shares of these...

Measuring Debt Burdens And The Capacity For Repayment

Measuring debt burdens for state and local governments addresses the question of an appropriate amount of debt. Measuring and comparing long-term debt burdens has been a centerpiece of municipal credit analysis for decades. Debt burden measures have traditionally been used to assess the debt carrying capacity of a government and the risk associated with further borrowing (Berne and Schramm, 1986). The basic concept of a debt burden is generally accepted and can be given as a simple ratio (Bahl and Duncombe, 1993) Intergovernmental aid may stimulate borrowing by state and local governments. Since many federal aid programs support capital projects such as new roads, bridges, and sewer and water systems, all of which are usually financed by long-term debt, federal money is likely to affect state borrowing and federal and state aid may affect local government borrowing. Clingermayer and Wood (1995) showed that states with higher intergovernmental revenues borrowed more than those states...

The IMF and the International Debt Crisis

The developments in the foreign indebtedness of developing countries during the 1980s forced further modifications to the role of the IMF in the international community. The initial response to the second oil price increase seemed to mirror the first. In the first year, worldwide inflation accelerated, oil import countries' current accounts swung sharply negative, or more negative, and recession set in. But the similarity ended in 1980. Many countries at the time of the first oil price shock had sustainable current account positions and moderate levels of debt, and this was not true at the time of the second. In addition, the industrialized countries adopted anti-inflationary policies, which resulted in a prolonged recession and sharply higher nominal and real interest rates. The increase in interest payments and the reduction in exports resulted in a staggering increase in debt. Long-term debt rose from 359 billion in 1979 to 552 billion in 1982.

The Money Supply And Credit Expansion To Business

In contrast to the Chicago School, the Austrian economist cannot rest content with arriving at the proper concept of the supply of money. For while the supply of money (Ma) is the vitally important supply side of the money relation (the supply of and demand for money) that determines the array of prices, and is therefore the relevant concept for analyzing price inflation, different parts of the money supply play very different roles in affecting the business cycle. For the Austrian theory of the trade cycle reveals that only the inflationary bank credit expansion that enters the market through new business loans (or through purchase of business bonds) generates the overinvestment in higher-order capital goods that leads to the boom-bust cycle. Inflationary bank credit that enters the market through financing government deficits does not generate the business cycle for, instead of causing overinvestment in higher-order capital goods, it simply reallocates resources from the private to...

Nature and components

Strictly speaking the capital involved represents all the firm's liabilities, including short-term debt and other aspects of working capital. In practice, however, the main sources of funds that are relevant for most firms when considering investment projects are long-term debt (mainly bonds) and common equity.

The World Economic Environment

Sufficiently developed financial markets are necessary conditions for handling large, volatile international capital flows, something that the Asian crisis highlighted. The IMF is now emphasizing capital market developments as part of its supply-side-orientated policy recommendations. Rather belatedly, it is recognizing that the sequencing of reforms matters. It also now appears to favour Chilean-style controls to deter short-term capital inflows, and advises governments not to rush into removing outflow controls.3 Ironically, more recently Chile has relaxed capital inflow controls. The effectiveness of capital controls is still debatable. Monteil and Reinhart (1999) find no statistically significant effect on the volume of capital flows. However, they do note that capital controls appear to change the composition of such flows so as to promote longer-term FDI flows at the expense of short-term portfolio flows. Calvo and Reinhart (1999) question the true effectiveness of capital...

Portfolio Investment Flows and Macroeconomic Leverage

As these spreads narrowed, equity prices fell in Mexico and other emerging markets, eroding their value as collateral for bank loans. Meanwhile, an appreciating peso lowered the cost of imported consumer goods and hammered Mexico's export sector, pushing the country's current account deficit to a whopping 8 per cent of GDP by the final quarter of 1994. As new foreign investment in private securities diminished, the Zedillo government attempted to finance the deficit by issuing dollar-indexed, short-term debt - so-called tesobonos which promised to protect their holders against the possibility of currency devaluation.

Two decades of developing country debt crises

Throughout history such searches for high yields have resulted in investors taking excessive risk, and history repeated itself. Many managers of hedge funds used borrowed money to buy 30-year bonds with higher yields, meaning that if interest rates went up, they would take large losses on the bonds. Other investment managers were attracted by Mexican short-term debt that paid 12 percent or more. As Mexico's foreign exchange reserves fell to a small fraction of the country's outstanding short-term debt, investors started to flee, and a depreciation of the peso became necessary. Now the New York investment managers want to be paid. Mexico does not have the money, so they will have to wait. But no, the US taxpayer will come to the rescue with 40 billion in loan guarantees. We now have a wonderful recipe for prosperity on Wall Street When risky assets pay, keep the money and complain about high taxes. When such high-risk assets approach default, get the US Treasury to cover the losses.

Characteristics of Share Issue Privatization Offerings

In all likelihood, you do not now consider common stock offerings to be important instruments of public policy. This section will try to convince you otherwise. In fact, we will see that governments around the world have learned to use share issue privatizations both as a mechanism for raising money and as a tool of political expression. To understand this point, ask yourself what choices the private owner of a company seeking to raise capital by selling stock to public investors for the first time would make regarding the size, structure, and pricing of this IPO of shares. The typical entrepreneur's principal objective in an IPO is to raise as much new capital as possible, at the maximum attainable price per share, while selling a small enough fraction of the company that personal voting control of the firm is not immediately threatened. Expressed in practical terms, this implies that most private-sector share offerings will be primary, capital-raising issues and that entrepreneurs...

Regulating Privatized Telecoms

Naturally, the capital investment policies of state-owned telecoms were also set by the government, and the aggregate amounts available for maintenance of existing assets and purchase of new equipment were almost always inadequate, for four reasons. First, as wholly state-owned enterprises the telecoms were by definition excluded from raising capital in public equity markets. Second, the amount the firms were allowed to raise in debt markets was usually constrained by the overall public-sector borrowing requirement (PSBR), and the government's own funding needs were always met first. Third, governments had every incentive to mandate low prices for telecom services, which meant that these services were often provided (to favored groups) below cost, thus reducing the telecom companies' profitability and minimizing the amount of cash flow available for reinvestment in the firm. Finally, state-owned telecoms were almost always starved of cash by their nature as de facto government...

Limitations of the EMH

If accounting standards are to improve, it is probably the International Accounting Standards Board (IASB), originally established in 1973, which will lead the way. America does not yet recognise its rules companies that wish to raise capital in American markets must still reconcile their accounts with GAAP. But the IASB gained a lot of influence in 2000 when the European Commission decided that all companies in the European Union must report according to its standards by 2005.

Internet Initial Public Offerings

Companies offer IPOs to raise capital for their business projects. Traditionally, an underwriter, such as an investment bank, determines share prices, handles the printing and distribution of prospectuses, and arranges the sale of stocks to large institutional investors and brokerage firms. They, in turn, sell the stocks


Likewise when the government borrows money, it competes with companies looking to raise capital. In some areas like health care and education, public and private services are competing with each other. But at the same time, the government also serves as useful complement to every business activity by providing basic infrastructure and civil order. Every business depends on the government for things like protection of life and property, a transportation network, civil courts, a stable currency, and so on. Without these things, people couldn't do business. Finally whether an activity is carried out in the public sector or the private sector is itself endogenous.

Private Property

Poor peasants, meanwhile, who may have farmed communal lands for ages may have no recognised assets, no means to raise capital, no pathway to increasing incomes. Quite the opposite, they risk eviction if they have no formal title to the lands they work on and they may lose any crops or livestock they may possess if they cannot physically defend them.


Business loans equals commercial and industrial loans plus commercial real estate loans. The Herfindahl-Hirschmann Index is the sum of squared market shares based on deposits for all MSAs in the state. For states with more than one MSA, we average this across MSAs weighted by depositors. The post-branching indicator equals 1 during the years after a state permits branching by merger and acquisition the post-interstate banking indicator equals 1 during the years after a state permits interstate banking. Annual business loan growth Growth in business loans business loans (OLS) and an instrumental variables (IV) procedure. Since an increase in entrepreneurs' desire to start businesses will likely increase the demand for bank loans (and other kinds of credit), the simple OLS relationship between lending and new incorporations may not reveal the extent to which an increase in bank credit supply can help spur business formation. That is, the OLS approach does not allow...

The rich

As an example, the corporate income tax probably does not actually bring in a significant amount of money which we could not get by ordinary income tax if the former were repealed. Indeed, it probably reduces total tax collections. Economists in general object to the corporate income tax for several technical reasons. The tax motivates the corporation to put as much as possible of its effort to raise capital into selling bonds rather than common stock because the tax falls on the dividends but not on the interest paid on the bonds. Increasing the percentage of capital represented by bonds makes the corporation more risky because a fall in earnings may force the company into bankruptcy. Thus the economy as a whole is less stable with a corporate income tax.

National debt H6

The total indebtedness of the central and local governments of a country at a particular time to its own public and foreign creditors taking the form of short-term bills and long-term bonds. In most cases, such debt has accumulated because the country's public expenditure is more than its tax revenue. The burden of a national debt is usually measured by the ratio of national debt to gross national product. Long-term debt can be regarded as a burden to subsequent generations.

Commercial Banking

In low-income countries in particular, only a small fraction of the population holds bank accounts. If people in such countries want to raise capital they typically go to informal moneylenders or pawnbrokers. The rates of interest on loans that such agents charge can be punitive - 50 per cent or more. In this way, creditors can sometimes claim what few resources poor peasants possess a large share of the output of whatever is produced, for example. Excluded from the formal banking sector, the poorest stay poor. How can these problems be avoided Financing development is so essential, yet how can poor communities ever raise capital and fund economic growth if banks will not serve their needs

The Income Statement

The balance sheet gets its name from the idea that the total assets are equal in value to or balanced by the sum of the total liabilities and the owners' equity7. A simple way of thinking about it is that the capital used to buy each asset has to come from debt (liabilities) and or equity (owners' equity). At a company's start-up, the original shareholders may provide capital in the form of equity7, and there will also likely be debt capital. The general term used to describe the markets in which short or long-term debt and equitv are exchanged is the financial market. The capital provided through a financial market finances the assets and working capital for production. As the company undertakes its business activities, it will make or lose money. As it does so, assets will rise or fall, and equity and or debt will rise or fall correspondingly. For example, if the company makes a profit, the profits will either pay off debts, be invested in new assets, or be paid as dividends to...

The model

The supply of capital curve in Figure 15.2(b) shows the relationship between the profit rate and growth in supply capacity. It is a function of the ability of the firm to raise capital to finance growth and varies with the level of profits earned. Thus, the higher the rate of profit the more easily will it be for the firm to raise capital, whereas the lower the rate of profit the more difficult will it be. If the firm is dependent on retained earnings, then the supply of capital curve is a function of the retention ratio shown in Figure 15.2(a). The supply of capital curve is represented as a linear function of growth and shows the maximum growth rate achievable by the firm to be Gn (given the supply constraints) that is, where the demand and supply growth curves intersect at D.

What is a mortgage

Few people, including loans officers in banks, appreciate what a mortgage is or how it is created. Prior to the 20th century, having a mortgage was equivalent to being gripped not only for your own life but for multiple generations by the price paid for borrowed money to purchase your home (principal plus interest payments on the principal). A mortgage is a form of a loan that banks create through a simple bookkeeping entry. When the bank creates money by providing you with a 100,000 mortgage loan, it creates only the principal when it credits your account. With a 20-year mortgage, the bank expects you to pay back a total of 200,000 in repayment and interest over the next 20 years. If you don't, you will lose your home. It is important to realize that your bank is not creating the second 100,000. Your bank does not create the interest it sends you out into the world to compete with others to bring back the second 100,000. Because all the other banks do exactly the same thing, the...

Data sources

There are of course difficulties associated with this approach. However we feel that some confidence may be placed in our results for the following reasons. First, it was stressed at the outset of the interview, that we had no interest whatsoever in obtaining any particular result. By this means the possibilities for interview bias were reduced. Second, most trainees had a fairly clear view of the without profile and of the future with profile. Profiles were sketched out in the interview itself and discussed at some length with the interviewee against the background of any pre-NEP experience of business and in the light of his or her answers to questions on the impact of the NEP itself. Third, in follow-up contact a year after the initial interviews, interviewees were asked again about the hypothetical profiles without any prompting on what their views had been. No significant changes were suggested. Finally, we have been encouraged by our experience in an exercise with an identical...

Tracking stock G1

A stock issued by a public company which tracks the value of one part of the company. This permits different valuations of divisions of a firm. The stock can be issued to the market or to existing shareholders. if the new stock has a high price-earnings ratio, the cost of raising capital is reduced.


In the previous chapter we encountered the conundrums surrounding the relationship between Islam, which maintains a nominal prohibition of usury, and the state of economic development. One direction of explanation is that, at low levels of development, such curbs may be efficient. In a society with low levels of economic development, greed threatens the community. Stocks of food, etc. may be a buffer against risk of natural disasters, attack by enemies, seasonal failures and so on. The greedy person may exhaust their buffer stocks and thus be pushed towards expending resources contesting transfers from the stocks of other individuals. The deadweight loss of these efforts further reduces output. Where there is an expansion of the frontier of technological knowledge and the opening up of new trade opportunities, greed may be a useful feature if it drives entrepreneurs into taking the necessary risks in these inherently uncertain ventures. Some kind of balancing act is required as the...

Macroeconomic policy

The war involved a massive budgetary effort. Public spending increased suddenly from 10 to 50 per cent of GDP (table 6.8), most of it in the form of military spending soldiers' pay, army provisioning (food, armaments, and ammunitions, etc). Government consumption rose from 2-3 per cent before the war to a maximum of 22 per cent in 1916, when government investment decreased. In the short term, the conviction that the war would be short-lived led to an increase in short-term borrowing through Bons du Tresor (relabelled Bons de la Defense Nationale), and Banque de France credit (avances). When the war lasted longer than expected, long-term loans were issued each year from 1915 to 1918 to raise funds and consolidate the short-term debt, which nevertheless continued to rise.8 Short-term debt (includes TB) Long-term debt

Bond Hedging

Suppose that long-term interest rates are 6 percent, money can be invested short term at 3 percent, and money can be borrowed short term at 3.5 percent. If you buy long-term debt at a yield of 6 percent, and finance the purchase at a cost of 3.5 percent, then you are earning a positive spread of 2.5 percent. This is a positive carry trade The yield on the long position is greater than the cost of financing the position. If you lever the trade 2 1, then the net yield (the yield on the full long position less the cost of financing) is 8.5 percent. If you lever the trade 5 1, then the yield goes up to 16 percent. Every unit of leverage adds 2.5 percent to the yield of the total position.

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