1.In this report, an attempt is made to discuss the classic and modern function of the capital and money market. In addition to this the global and the domestic operation of the money and capital market is also discussed. The aim of the report is to discuss the impact of global financial crisis on the money and capital markets. The report also discusses the risk management techniques that were incorporated by the banks after general financial crisis.
The financial market brings buyers and sellers together for trading in the financial stocks instruments like stocks, bonds, commodities, derivatives and currencies. The main aim of the financial market is to raise capital and transfer risks. There are many components of the financial market but the two most important components are capital market and money market the figure is provided in Appendix 1. The section of the financial markets that deals with the long term securities is known as the capital market. On the other hand, the section of the financial market that deals with the short term securities is known as the money market (Rey, 2015).
The operations of the capital and money market has evolved. The classical and modern operation of the financial markets are:
The capital and the money market have always domestically performed important operations as has been disused earlier. However, the recent trend shows that the financial market is increasingly getting global operation in its operations (Haas&Lelyveld, 2014). The economic benefits of globalization of the financial markets are:
The discussion above shows the classic and modern, global and domestic operation of the capital and money market. It can be seen that the financial market is more globally connected as a result the global financial crisis have impact on the stability of the financialmarkets. In the next section of the report, the impact of the financial crisis on the financial market and the regulatory response that have been made to stabilize the situation is discussed (Vazquez& Federico, 2015).
Stability and interconnectedness of the market and economy
The global financial crisis is regarded as one of the worst financial crisis after the great depression of 1930. The crisis started in 2007 in the subprime mortgage market and then became a full-blown financial crisis after the collapse of the banking system in USA. The financial crisis has an impact on the financial market around the world as the prominent banks and financial institutions started collapsing.The government of the wealthy nations have to rescue the banks and Financial Institutions by announcing packages. The financial crisis had ripple effects on the economies around the world and the weaknesses that existed in the global financial markets started surfaced (Bekaert et al., 2014). The overall trust in the global financial market started diminishing after the global financial crisis. The financial crisis has various negative impacts on the economy of the developing and developed countries. The crisis has caused a rise in the food price, fuel price, commodity price etc. This has caused worries among various economics that the financial crisiswill lead to theglobal recession. Therefore, it is seen that the interconnectedness of the global financial market and the economy has helped in spreading the financial crisis across the world.The financial crisis have shown major weakness of the global financial market. It is seen that the financial crisis is amplified due to the interconnectedness of the financial market and economy. Therefore, it is necessary that proper safeguards should be put in place so that the negative impact of the crisis could be controlled from spreading (Ahmed&Zlate, 2014).
In this section, the regulatory response that have been initiate across the globe at the aftermath of the financial crisis for stabilizing the financial system is discussed.The regulatory responses that have been implemented for stabilizing the financial system are:
Therefore, it can be said that the regulatory responses implemented above has helped in stabilizing the financial system.
Business continuity risk management
The business continuity management is a framework that enables an organization in identifying the risk exposure by analyzing the external and internal threats. The main aim of the business continuity management is to provide the organization an effective response to the threats (Kidwell et al., 2016). The threats faced by the business includes natural disasters, breach of data and the protection of the interest of the organizations. The business continuity management includes steps for recovery from disaster, recovery of business, management of crisis, incidental management, management of emergency and continuity planning (Piketty & Ganser, 2014). The business continuity risk management is shown in the appendix 2.
The core component of the disaster recovery planning process are:
The componentsthat are essential for proper response to the disaster recovery are:
Conclusion
Based on the above discussion it can be said that financial markets and the economies are interconnected. As a result, the global financial crisis have rippling effect on various economies of the world.
2.In this answer, the bottom up approach and the top down approach of the fundamental analysis are compared. Then after evaluation, the best model that is suitable for the investor is selected.
The bottom up analysis is a branch of the fundamental analysis. In this system, fundamentals of the company are evaluated from different perspective. This includes analysis of financial statements, products and services, management quality, competitors and others. The bottom up analysis helps to find companies that have the potential of growth. In the bottom up analysis, the financial statements are evaluated using the accounting ratios (Tsamandouras et al., 2015). The accounting ratios is a process of measuring the profitability and efficiency of the company based on the evaluation of the financial statement. The accounting ratiocan also be said to be a relationship between the two aspects of the financial statement.The accounting ratio helps in indicating the strength and weakness of the company. Therefore, it can be said that the financial ratios are important component of the bottom up approach of the fundamental analysis. The bottom up approach analysis is highlighted using the Appendix 3.
Reason for using bottom up analysis for fundamental analysis of share price
The detailed analysis of the fundamental factors affecting the performance of the company is known, as the funda1mental analysis. It is a systematic and logical approach for estimating the future share price and dividend of the company. In conducting, the fundamental analysis it is assumed that share price of the company is dependent on the fundamental factors relating to the industry economy and the company. Therefore, it can be said that the fundamental of the economy, industry and the company should be analysed before making an investment decision. The main objective of conducting fundamental analysis is to evaluate the risk and predict the future price movement of shares (Linkov et al., 2014). The fundamental analysis can be conducted in two ways the top down analysis known as macro fundamental analysis and bottom up analysis known as micro fundamental analysis.In this case, it can be seen that Evans and partners are an investment advisor. They apply the bottom up approach of fundamental analysis for making investment decisions.The main reason using the bottom up analysis is that it helps in comparing the stock price of the company with industry and other competing companies.The ratios calculated under bottom approach provides significant information related to liquidity and efficiency of the company. Hence, it can be seen that the decision of applying the bottom up analysis by Evans and partners for making investment decisions is justified (Moradian et al., 2014).
The calculation of accounting ratios are the fundamental part of the bottom up approach. Multiple accounting ratios can be calculated for conducting the bottom up analysis. The most important accounting ratios that should be included in the bottom up approach model are dividend yield ratio, price to earnings ratio, price to asset ratio, return on equity, return on investment and earning per share.
The dividend yield ratio measures the amount of dividend paid per share to the current market price of the shares. The dividend yield ratio measures the return that the investor has earned by making the investment in the form of dividend. The dividend yield ratio should be analysed depending on the nature of the company. If the company is in growing stage then high dividend yield ratio indicates less savings, therefore it is not a positive sign for the company. Whereas if the company is in matured stage then high dividend yield ratio is a positive sign for the investors of the company (Duffy et al., 2015).The price earnings ratio is a market prospect ratio that measures the market price of these shares as compared to its earnings. This ratio is used for evaluating the market price of the shares and predicting the earning per share of the company.The price to asset ratio compares the market value of shares with the value of the assets. The price to asset ratio indicate whether the current market price of the shares are overvalued are undervalued.The return on equity and return on investment are the ratios that indicates the amount of Return that an investor can expect after making the investment. These are very important ratios as the investment decisions are made based on the result of these ratios. The earnings per share indicates the amount of earning available to the equity shareholders (Petras et al., 2015).
The three Types of performance measures that can be used for evaluation the performance of the employees and companies this are graphic rating scale, management by objective and force ranking. The management by objective measures the performance by identifying the goals of the employees and comparing it with actual results (Krone et al., 2017). The forced ranking is a method of performance measurement that requires supervisors to rank employees in three groups. In graphical rating scales, the performance of the employees is measured by providing rating from 1 to 5.
Comparison
The main difference between the bottom up and top down method of fundamental analysis is the approach. In top down analysis, the focus is on broad factors that influences the stock market and industry. This analysis starts by analysing the overall performance of the economy, then the industry and finally the effect it has on the company. On the other hand, in the bottom up analysis the analysis starts with the company (Dai et al., 2016). In this approach market price movement, the financial statement, return on equity and other important factors related to the company are analysed.
In top down approach, economic analysis is conducted for predicting the performance and share price movement of the company. The business is a part of the economy therefore any significant change in the economy will have an economic impact on the company. The success of a business is dependent on its ability to adopt to the changing situation in the external environment. It has been seen that successful business has always predicted the future economic changes and have made timely changes. Therefore, it become essential to forecast the changes in the economy.
Conclusion
From the above discussion, it can be concluded that there are two ways of conducting fundamental analysis. The main difference between the top down and the bottom up analysis isin the approach. In top down analysis, firstly the economy is analysed whereas in the bottom up analysis financial ratios of the companies is firstly calculated. It can be said that both theapproach of fundamental analysis will enable the investor in making better investment decisions.
3.In the report, an attempt is made to discuss the requirements and conditions related to listing of a company. The discussion is made based on a new listed company freelancer Limited.
The freelancer Limited is an Australian company that is primarily engaged in providing marketplace for outsourcing.There are two segment that the company operates this are the online marketplace and payment services of online.The freelancer ltd provides market place for the employers for hiring freelancers to perform work in many areas (Al-Qenae et al., 2015).
The corporation law provides that a public listed company is a separate legal entity that is listed in the formal stock exchange. In this case, freelancer Limited is a listed company so it has to comply with the relevant listing rules and regulation of the Australian Stock Exchange. The rights of the shareholder includes the right of voting for conducting affairs of the company. The responsibility of the shareholder include selection of the board of directors of the company. The shareholders are owner of the company so they do not have the right to participate directly in the day-to-day operation of the company (Tricker & Tricker, 2015). It is the responsibility of the board of directors determines the policy and objective of the business. The responsibility of the directors includes ensuing that the companies operate in a manner that promotes the best interest of the shareholders. The board of directors are responsible for appoints the executive management. It is the responsibility of executive management to ensure that objectives and policies of the company is achieved by performing day-to-day operation in an effective manner. The responsibility of the executive management is towards the board of directors and the board of directors are responsible and accountable to the shareholders.
The Australian Stock Exchange provides listing rules that highlights requirements that a company has to follow in order to be listed in the stock exchange. The main aim of these requirements is to ensure that the quality of the market operatedis maintained. The requirement of listing provides that minimum 300 investors that are not affiliated is the minimum number of shareholders. The listing requirement provides two types of tests these are assets test and profit test (Mzembe & Meaton, 2014). The profit test provides that the company should make $1 million aggregated profit from 3 years of continuing operation. In addition to this, the company should make a consolidated profit of $500000 from the last 12 months of operation. The regulation provides that in order to satisfy the assets test the company should have net tangible Assets of $4 million or market capitalization of$15 million.
The listing rules helps in efficient management of the stock exchange and support the listed companies in various methods. The main benefit that can be derived from listing in the stock exchange is discussed below:
From the above discussion, it can be said that the rules have helped the listed entity by giving access to the required funds. The rights of the investors are also protected because it has provided liquidity to the shareholders. The value of the business can be readily determined from the price of the listed securities (Ioannou & Serafeim, 2016). Therefore, it can be said that the rules and regulation have positive impact on the liquidity of the company. It is because the business can easily arrange the required funds from the market as the confidence of the investor has increased. The effective management of liquidity ensures that the business have sufficient funds available to the business. The excess fund will help the business in generating revenue. Therefore, it can be said that proper management of liquidity will increase the value of the business (Pan & Brooker, 2014).
The regulation states that if an entity is aware of any information related to the company that is expected to have material effect on the price and value of the security. Then in such case, the entity is required to inform the Australian Stock Exchange immediately (Madhani, 2016).The regulation states that if an entity is aware of any information related to the company that is expected to have material effect on the price and value of the security. Then in such case, the entity is required to inform the Australian Stock Exchange immediately (KR et al., 2014). The corporation Act provides that information is considered to be material if the information is expected to influence the decision of the investor. Therefore, it can be said that the main purpose of the continuous reporting is to ensure that all the information are quickly and accurately distributed among all the participant of the market.
Conclusion
Based on the above discussion it can be concluded that the Australian stock exchange plays an important role in ensuring the rights of the investors are protected. The discussion have shown that the role of the shareholders, directors and executive management are separate. They all serves an important purpose to ensure that operation of the company is managed effectively. It is seen that the listing requirements have ensured protection of investors and proper management of liquidity of the company. Therefore, it can be said that Australian Stock Exchange and its listing regulations plays a central role in the capital market.
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