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Financial Markets and Institutions
Financial Markets and Institutions
Name
Institution
Financial Markets and Institutions
Introduction
The financial system consists of all instruments, institutions and financial markets. Financial structure is specifically of significance in relocating funds hence offering a foundation for continuous reorganizing of economy that is required to support development. Countries that have well advanced financial system do observe greater portion of investment allocated in fast developing sectors.
Roles
The basic role for many financial institutions is to offer liquidity to economy and allow for higher rank of economic task than it would be. These may be achieved through the following ways managing markets, offering credits and pooling of risk between customers (Madura, 2011). On the other hand, financial markets play a crucial role in capital accumulation and processing of products and services. The value of credit and gains on investment give signals to consumers and producers. The signals assist to direct funds to businesses, governments, consumers and investors who would need to borrow cash through linking those who rate funds highly too willing lenders. The existence of a developed financial institutions and markets facilitates global flow of funds among countries (Madura, 2011). In addition, effective and efficient financial institutions and markets tend reduce transactions and search costs in an economy. By offering an extensive collection of financial products through varying risk and mode of pricing structures as well as maturity, when the financial market system is well developed it provides products to market participants which offer lenders and borrowers equivalent for their requirements. Governments, individuals and businesses in need of capital may easily determine which financial markets or institutions can offer funding and the cost borrower will incur. This permits investors to be able to compare cost of funding to expected gain on investment, thus creating investment alternative that suits their requirements.
An example is in the integrated European Union (EU) financial markets. The EU through its single currency and banking market Euro has developed a Europe base financial institutions and markets. These markets utilizes Euro to promote saving, borrowing, lending and investment. Euro dominates bond, stock and all derivative markets that serve EU countries using Euro (Madura, 2011). In addition, Euro increases the attraction of Euro centered financial instruments and market to entire world. Euro has eliminated cross border risks of exchange rate, which are portion of transactions among countries having different currencies.
Different between primary capital and secondary capital
The different between primary market and secondary market is in primary market company issues securities to investors who purchase them directly; whilst in secondary market securities are traded between investors themselves, the corporation with securities being traded cannot participate in transaction. When a firm publicly trades new bonds and stocks for its first time in the market then it operates on primary capital market (Graffins, 2016). In most cases, it normally takes shape of IPO (initial public offering). If investors buy securities on primary capital market, firm providing securities has already appointed an underwriting company to review providing and developed a prospectus-summarizing price and other information of securities to be issued.
Secondary market can be termed as a place of purchasing securities after the firm sells its bonds and stocks provided on primary market. Secondary markets range from Nasdag, London stock exchange or New York stock exchange (Graffins, 2016). Secondary market provides a platform for small investors to sell or buy securities, as they do not exclude IPOs because of small capital representation. Secondary market offers a chance to any person who wants to purchase securities as long as they show willingness in price payment for security being purchased. In most instances, an investor needs a broker in trading securities on investor’s behalf. Security price fluctuates with market and investor cost involves broker commission paid. Security volumes sold varies daily as security demands fluctuate (Graffins, 2016). The investor’s price payment is not directly linked to security price initial as concerned by first issuance; also, the firm issuing security should not be in partnership to any purchase between two investors. The firm has a privilege to be involved in secondary market of stock buyback.
Differences between money and capital markets
Money market can be termed as short-term utilization mainly assets taking one year. In contrast, capital markets can be utilized for long period basis incorporating any assets that have maturity over one year (Bagehot, 2013). Capital market consist the stock (equity) market and bond (debt) market (Graffins, 2016). Capital and money market contain a large part of financial market applied in management of risks and liquidity for individuals, governments and companies.
Capital Markets
These are viewed as worldwide followed markets. Both bond and stock markets are closely tracked and daily trends analyzed as proxies to be used for general economic circumstance of global markets (Graffins, 2016). Due to operating institutions for capital markets commercial banks, stock exchanges and all corporation types involving nonbank institutions like mortgage banks and insurance firms are analyzed.
The operating institutions in capital markets acquire them for raising capital in long period purposes like acquisition or merger; enter in a new trade or line expansion, or for capital projects. Firms raising funds for the long period purposes originate from more or single capital markets. Firms in bond markets may provide debt in corporate bonds form. Similarly, firms may opt to raise funds by issuing stock market equity. Government firms are generally not held publicly thus they do not normally offer equity. Government entities and companies that provide debt or equity are seen as market sellers.
Securities buyers in capital market seem to use money targeted for an investment of long-term. Capital markets viewed as risky and not mostly used in investment of short-term monies. Many investors take capital markets in saving their education or retirement since investors have long horizons time that mostly shows that they take risks and are young.
Money Market
Money market mostly access in line with capital markets. Investors willing in taking more risk while acquiring patience in investment are advised to venture in capital markets. The money markets mostly are viewed as the best place to invest funds that require shorter period less than a year (Bagehot, 2013). Financial instruments applied in the capital markets range from bonds and stocks, but instruments applied in money markets include exchange bills, acceptances, collateral loans and deposits. Institutions working in the money markets involve acceptance houses, commercial banks and central banks.
Money market offers various functions for government entities, corporate or individual. Liquidity is termed as the major reason for acquiring money markets. During the issuance of short period debt, for operating expenses purpose, government, or firm working capital and not projects for large scale or capital improvements (Bagehot, 2013). Money market acts a vital function in ensuring governments and firms enhance appropriate liquidity level daily without lacking and requesting expensive loan without having excess monies and losing the chance of gaining funds interest.
In conclusion, investors apply money markets in funds investment while capital markets are seen as low risk; investors have a tendency of accessing them by anticipation that the liquidity is present. Elderly people staying on fixed income normally apply money markets due to safety connected to this investment process.
References
Bagehot, W. (2013). Lombard Street: A description of the money market. Kitchener: Batoche.
Graffins, F. (2016). Issue Information. Financial Markets, Institutions & Instruments, 25(3), 167-168. doi:10.1111/fmii.12058
Madura, J. (2011). Financial markets and institutions. Australia: South-Western College Pub.
Feasibility Analysis
Name
Course
Course Instructor
Date
Feasibility Analysis
Feasibility analysis is a technique used to verify the viability of a business idea. It results into enhancement of the probability of success by outlining the actions that may turn a venture into an implementation. Green Addict may be a very good business venture but this cannot be judged before analysing the business idea, product feasibility, market feasibility and financial feasibility. Every aspect of the plan are put into thorough focus including the product, promotion, place, pricing and other strategic requirements. This paper includes critical and impartial look of the Good Addict venture through feasibility analysis study.
Product/ Service Feasibility Analysis
Product/ service feasibility analysis involves an assessment of the general appeal of the product or service that is proposed. It is necessary to ensure that a product offered actually satisfies the customer’s wants and that it serves as what the customers want. Product/ service desirability as well as product/ service demand. Green Addict services make a lot of sense and are very reasonable. Currently there have been a number of diseases and disorders that can be attributed to the food people eat. Most would want to maintain a healthy body and this does not come easily (“Report Linker” Web). Many restaurants do not pay attention to the need for organic food thus limiting options for retailers of choosing green organic food while relaxing in an environmentally friendly place. A number of people would definitely desire to enjoy life longevity and minimize their medical expenses. Green Addict offers exactly what the customers want. Their product and services are unique and appealing to a large number of people who are health conscious. It is apparent that the consumers will get excited when they are served organic food in a cool and environment friendly restaurant (Nusra Web).
Green Addict takes advantage of an environmental trend of global warming and the publicity of environmental issues. Most people are aware of the dangers of genetically modified food and the carbon production. It is apparent that even small children are aware of the going green concern because of media publicity (“University of Minnesota” Web). Green Addict idea of using recycled materials is vital in the eye of the public who are already trying in their own level to reduce carbon emission. Green Addict therefore feels the environmental gap that is currently experienced in the market place. The introduction of services by Green Addict is timely because it comes at a time when almost everyone around the world is worried about global warming.
Green Addict will be offering services that many consumers would want to buy because of the consciousness of saving environment and staying healthy. Everyone asked about the importance of organic food will definitely give a positive response. Offering organic meals and a completely healthy environmentally friendly experience will therefore lead to a competitive edge in the market thus increasing the chances of the business idea to be successful. Customers that are health and environmental conservation conscious will even be willing to pay higher because of their understanding of the quality of services offered (Nusra Web).
The product design and services offered at Green Addict may have a challenge of obtaining raw material as well as other organic supplies because they are very limited and extremely expensive. Offering organic foodstuffs is very costly and the customers may not be willing to pay the higher cost of services. It is also likely that Green Addict may incorporate a few ingredients, which are not organic such as cheaper cooking oil that may contain food additive and chemicals that may turn away the consumers. Maintaining a purely green and organic product may therefore not easy to maintain unless the customers targeted are willing and able to pay for the higher costs associated with the product and services.
Industry/ Target Market Feasibility Analysis
It is crucial to assess the overall appeal of the industry as well as the target market for the Green Addict. Industry/ Target Market feasibility analysis includes industry and target market attractiveness. The new venture Green Addict targets individuals of middle and high income, college educated residents, and family oriented zones because these communities are generally more interested in the benefits of eating natural and organic foods. For consumers who believe that there are not enough places to eat in Miami, Green Addict would satisfy and cater to their recycled, go green and organic lifestyle. The restaurant and food services industry is expected to grow extensively by 2014 and cafes and restaurants represents almost over 50% of the overall industry the organic food demand is going very high because of the increasing global population as well as the general migration from rural to urban that changes the lifestyle trend (“University of Minnesota” Web).
It is undeniable that the eating habits are changing particularly amongst the middle class and the rich families as well as college students because of their healthy living awareness. The increased number of organic food campaigns plays an integral role in the great performance of organic food industry. Most people currently work in the offices and do not have time to prepare and eat organic food as well as inadequate time to relax in their homes. Green Addict operates in an industry with many prospects because the college students as well as the rich and the middle class families will always want to have healthy food and relax in an environmentally friendly organization (Nusra Web).
Change in consumer preference positively affects the organic food industry. Most consumers prefer serving a healthy menu, which includes eating fresh organic, nutritious and low calorie food because of the healthiness, and the environmental friendliness linked with such kind of preference. The organic food restaurant industry is a rapidly growing industry due to the rising health concerns as well as increased obesity awareness as well as other related diseases. Most restaurant menus are filled with organic foods and drinks because of the readily available market. Consumers in the high-income bracket are shifting their preferences to organic food and other related products that are served in an environmental friendly experience and that is exactly what the Green Addict offers (Nusra Web). Although the industry is associated with expensive products, a large number of rich and middle class populations cannot ignore the health benefits associated with the products. The target market, who are the middle class and the rich believe that the health benefits linked with organic foods and related experiences deserve the higher prices.
It is therefore obvious that the organic food restaurant industry is still young and is rapidly growing thus providing numerous opportunities for the Green Addict. Currently, most people are beginning to be health conscious and are therefore willing to buy healthy food while enjoying similar experience. The industry is also early in the lifecycle due to the latest needs and campaigns regarding healthy living. However, the industry is fragmented because only the middle and the rich class are only consumers capable of buying the costly products.
The health conscious and environmentally conservative people believe that organic food products and green experience is a “must have” and therefore should not be avoided as much as possible. This segment of consumers is more concerned with their lives and environment than the price of the product (“University of Minnesota” Web). They think that they are no alternative for healthy living and are ready to give it all just to remain healthy. Presently, the industry is not crowded because of the higher costs and low operating margins involved.
Organizational Feasibility Analysis
The need for sufficient management expertise, business competence and resources are very crucial for the better performance of a business venture. In organizational feasibility analysis, management prowess and resource sufficiency is very important. The Green Addict will offer the necessity of pleasant living including fresh breath and organic food in a green self-sufficient environment thus making it differentiated from many other restaurants in Miami. Green Addict will really differentiate itself from her competitors by providing a completely healthy, environmental friendly experience that is unique in the industry. This will be an important aspect of the organization as far as increasing her market share is concerned because it will appeal to the untapped but willing and able to buy market (“University of Minnesota” Web).
Additionally, Green Addict will operate as a chain of restaurants thus leading to wider market coverage. It will operate in different geographical places hence creating place utility to various potential consumers in different positions. Moreover, Green Addict will focus on satisfying the customer’s wants such as offering a more intimate environment as well as simplifying the act of healthy eating thus satisfying the immediate needs of the consumers (“Report Linker” Web). The chain of restaurants will not let their consumers to take home foodstuffs as their competitors such as Whole Foods and Fresh Market does, instead they will make their own organic food that will be eaten right from the environmental friendly experience in the restaurant. Ambience remains integral to the Green Addict unlike some of her fast food competitors such as Evos and Jamba that do not pay attention to healthy eating and the environment like experience.
Management of Green Addict will serve her purpose appropriately because the team carries what it takes to do its intended business venture. The chain of restaurants’ management comprises of the cofounders who have vast experience in various special fields. The cofounders include Amy Femandez who is a yoga, Pilates and eating healthy addict who greatly understands the target market and therefore will enhance marketing and promotions. The other cofounder is Nathalie Baez who is expected to induce the experiences he gained from working in a restaurant for two conservative summer as well as mayen Vergara who has served in a non-profit organization that provided crucial management techniques and skills. Finally, there is Daniela Buttaci who is a nutritionist from University of Miami hence providing a great knowledge in providing the best organic nutrition (“Report Linker” Web).
Green Addict will operate in an environmental friendly place that conforms to its nature of business. However, there will be few suppliers of organic food to the organization because most suppliers supply food for home consumption and at a higher price, which may not earn much profit for the business. The industry is still growing and the fast food industry seems to enjoy a higher percentage of suppliers compared to the organic food industry. It may therefore force the Green Addict to have their own garden and plant some organic food such as vegetables and fruit. Nevertheless, this may take place after long run (“University of Minnesota” Web).
Financial Feasibility Analysis
Restaurant business has really been thriving in Miami with some businesses getting annual revenue of $2,000,000. By analysing the purchase and a set of Restaurant start up and Feasibility spread sheets for various restaurants serving dinner and lunch, the total weekly sales may be $14, 380 and maintain a steady rise in percentage of 5%. When weekly sales are multiplied by 52 weeks, the likely annual revenue will be around $1, 000, 000 during the peak sales in the first 5-7 years. This forecast incorporates both the peak and low season. Green Addict is planning to maintain her customers through their distinctive quality services and products. The loyal customers will then help in marketing the restaurant hence resulting into recurring and increasing source of revenue (Lee Web). The revenues generated will be sufficient to cater for expenses and finance other internal projects that contribute in growth sustainment.
When the Good Addict venture utilizes he four Ps strategically, then it is definite that it will be successful. Good Addict’s products and services are unique and are highly demanded. Good Addict should also utilize the social media and print media as well as leaflets promotions to boost their revenues. Social media is currently the most popular media especially Facebook and therefore its utilization may be very useful in targeting the college students who forms a bigger percentage of Facebook users. Moreover, the restaurant will provide services and products at their various locations due to the environmental friendly environment that are associated with it.
Generally, the Green Addict is a viable venture because of the current trend of growth and expansion of the organic food restaurant industry. The market is really growing and many consumers are ready to pay higher price in exchange of healthy eating. The management prowess is superb and is capable of enhancing the efficiency and productivity of Green Addict. The restaurant will adopt a competitive positioning by charging higher price due to the quality, exclusivity as well as superior experience (Lee Web). The customers will most likely accept to pay a price premium because of the value they have for the organic food and the environment friendly experience. The venture should therefore be undertaken because it is not likely to fail and will continuously grow due to its uniqueness.
Works Cited
“Report Linker.” Restaurant and Food Services Industry: Market Research Reports, Statistics and Analysis. 2013. Web. 2 Dec. 2013.< http://www.reportlinker.com/ci02054/Restaurant-and-Food-Services.html>.
“University of Minnesota.” The Business of Local Food Production. 2013. Web. 2 Dec. 2013. <http://www1.extension.umn.edu/rsdp/community-and-local-food/introduction/business-of-local-food-production/>.
Lee, Denise. The Price is Complicated. QSR Magazine November 2010. Web. 2 Dec. 2013. <http://www.qsrmagazine.com/denise-lee-yohn/price-complicated>.
Nusra. Restaurants go organic. Restaurant India 28 Nov. 2013. Web. 2 Nov. 2013. <http://www.restaurantindia.in/article/f-and-b-format/menu-trends/Restaurants-go-organic-87/>.
Financial Management IP1
Financial Management IP1
Name
Institution
Financial Management IP1
Horizontal analysis
Horizontal analysis plays an important function in financial policy and business strategy. Horizontal analysis is used to enhance investigations into a firm’s performance data thus facilitating managers to study the origin and development of specific information. Emphasis is mainly laid on how information on performance fluctuates from time to time (Needles et al, 2011). The analysis of horizontal data facilitates the examination of operating procedures impacts once they are developed and implemented by the personnel.
Vertical analysis
Vertical analysis is used mostly by accountants to make a comparison of specific performance indicators with numerical standards. For instance, the accountants may compare sales against the net income. In the formulation of a financial policy and business strategy, managers depend on this analysis to determine the financial value of different resources in an organization’s operation (Kozami, 2005). For instance, they can determine value of a production machine on the operations of the organization. The knowledge generated by this evaluation facilitates planning for long-term acquisition of assets and setting appropriate financial policies to ensure a successful posterity.
Raito analysis
Ratio analysis is the study of financial data using metrics (Moyer et al, 2012). Planners and strategists can isolate areas that need improvement in a business using a comparison of cooperate performance statistics to peers’ results. The same process can be used to pinpoint segments of the business that consume enormous amount of company finances. Ration analysis uses financial ration such as current ration and net profit margin.
Profitability ratios
Profitability ratios measure the effectiveness of the management in making profits from the company’s assets and the investments by the owners. The most frequently used ratios are net profit margin ratio, gross profit margin ratio, return on equity ratio, and return on fatal asset ratio (Moyer et al, 2012). Ratio help determined the productivity of the company and can be benchmarked again the industry to find out the general performance of the company and areas that need improvement.
Liquidity ratio
Liquidity ration us used to determine the liquidity level of a company. Liquidity is the ability of a company to meet its current obligation and levels of cash. Some financial ratios can provide critical information about a company’s liquidity ratios (Needles et al, 2011). Liquidity rations facilitates determination of the bill of payment, availability of financial resources for future investments, the company’s ability to pay dividends, determination of the cash balance which is the level of cash at the moment and the ideal level.
Asset utilization ratio
Asset utilization is used to determine the efficiency of a business in using its assets to make money. A firms incoming turnover, which is realized through division of credit sales by the amount receivable from clients, show the ability of a business to convert goods and services it sales onto finances or many that can server other purposes (Kazmi, 2008). Inventory turnover is also an asset utilization ration. It is a product of the division of cost of the products sold in a specific period by the mean value of the firm’s product inventory under the same period. Asset utilization is used by strategists to determine whether a business if being managed properly and how it is likely to perform in future by assessing its ability to sell its products make money on these sales.
Debt utilization ratio
This is the comparison between a firm’s total available debts with the total debit balances. It determines the companies credit score (Kazmi, 2008). Strategies used debt utilization ratio to determine the amount of debt a business is carrying the volume of available credit that is being utilized this ration can be used to determine long term viability for loans from fancier and ability to used the loans appropriately.
Benchmarking
Benchmarking is useful in improving performance and can be used to compare the performances of similar organizations (Kozami, 2005). It entails pinpointing areas the need improvement, setting benchmark indicators for quantitative evaluation of the achievements and assembling information for comparison to inform performance improvement. Strategist can use this process to find and strengthen weak points of a farm by comparing the firm to competing firms.
References
Kazmi, A. (2008). Strategic Management and Business Policy. New Delhi : Tata McGraw Hill Education.
Kozami, A. (2005). Business policy and strategic management. New-Delhi : McGraw-Hill Published
Moyer, R et al. (2012). Contemporary Financial Management. Mason, OH: South-Western, Cengage Learning.
Needles, B. E et al. (2011). Financial and Managerial Accounting. Mason, OH: South-Western Cengage Learning.