FINANCIAL ANALYSIS

Q1

Financial decision is a critical aspect of any organization. Financial report indicates the stability of an organization. In order to make the right financial decision, the financial decision makers first take into consideration factors such as inflation and exchange rate as they have a significant impact on any decision made. Exchange rate expresses the quotation of the national currency in respect to the foreign currency. For this reason, the exchange rate can be considered to be a conversion factor, a ratio or a multiplier (Oxelheim & Wihlborg, 2008). The difference in the exchange rate is the price that the decision makers are concerned with. The exchange rate may have a significant impact on the price due to its free movement that may turn into a fast moving price in the economy that can be associated with foreign goods.

Inflation rate can be considered to be a determinant of the exchange rate. A high inflation results to the depreciation of the currency. A low rate of inflation results to the appreciation of currency which means that companies can enjoy great profits from the price index of the company. A high inflation rate results in a weak version of price dynamics which forces the company to adjust to the price of products in order to maintain a desirable profit margin against the cost of producing the goods (Oxelheim & Wihlborg, 2008). It is necessary to equalize the price dynamics more than the exchange. The overall price levels of the company relate directly to the economy in which the exchange rate is an exactly a counter balance for inflation dynamics. The financial decision makers have to consider the two factors in order to have a pricing model that will be favorable to the clients and be profitable to the company. For example, high inflation devalues the local currency makes exports cheaper resulting in great profits for exporting companies (Oxelheim & Wihlborg, 2008). However, importing companies pay a high cost due to high differential exchange rates resulting in huge losses. Low inflation rates make exports costly reducing the competitiveness of exporting firms. An appreciation of currency makes raw materials cheaper such as oil.

Q2

Liquidity is important in depository institutions management in different ways. Liquidity management is an important aspect of a successful business. One it is important because it saves time. This attributes to the ease of conducting business especially automated liquidity (Banks & Palgrave Connect, 2014). This means that money can move from one account to another within the shortest time span when certain criteria are met. Processing of loans because much easier and the time spent is usually minimal. It increases interest paying on accounts. Excess cash can be used to generate some regular income. Liquidity plays a significant role in the money markets. This ensures that money invested in the market account earns interest. It also creates an investing opportunity for the institutions (Banks & Palgrave Connect, 2014).

Management is able to secure liquidity through corporate cash management. These include corporate deposit accounts that manage the cash flow, trust funds and foreign currency deposits. This ensures a steady liquidity for the depository institutions. It is also secured through web-based platforms, straight file transfer that speeds up transactions that (Banks & Palgrave Connect, 2014). They are also keeping tabs with the market trends especially on exchange rates that them to make the right decision on the viable market in investing option that further generate more cash flow for the institutions.

Reference

Banks, E., & Palgrave Connect. (2014). Liquidity risk: Managing funding and asset risk.

Oxelheim, L., & Wihlborg, C. (2008). Corporate decision-making with macroeconomic uncertainty: Performance and risk management. New York, NY: Oxford University Press.

Part 1:
Which type of inventory system would you use in the following situations?
Supplying your kitchen with fresh food.
Obtaining a daily newspaper.
Buying gas for your car.

 In the following system I would consider fixed quantity inventory system since it has been uses fairly for a long time in keeping levels stable. As a result on the systems the method ensures that there are no stocks out unless there are greater levels of fluctuations in demand. The inventory system ensures that orders are placed especially when they are economic practicable, because they have to be set following the establishment of economic orders thereby, there is less wastage in terms of ordering supplies. Fixed inventory system has various feature  in various situations such as; when orders are periodically place and in our case is obtaining daily newspaper, the order quantity is different every like the supply of kitchen fresh food. Fixed inventory system is the best since it has got high possibilities of taking advantages of quantity discounts from the suppliers (Branch, 2012).
Part 2:
With so much productive capacity and room for expansion in the United States, why would a company based in the United States choose to purchase items from a foreign firm? Discuss the pros and cons.  

The United State engage in foreign direct investm3ent despite it wide room for expansion due to various advantages despite the disadvantages that comes along. Firstly foreign investment motivates a country’s target on the economic sector since it generates a favorable surrounding and benefits for the local industry Another advantage is on the economic boost and employment, where new and several jobs are created as investors build new companies thus generation of new opportunities.  Despite the various benefits which come along with foreign investment there are still the disadvantages which includes;   higher cost since it is by fact that investing in another country is more expensive than exporting goods. The other major disadvantage is negative impact on the country’s investment especially on the exchange rates which might have a negative impact on the nation (Gerber, 2010).

References

Gerber . K, (2010). Economic Enviroment. Cape Town: Pearson Education South Africa.

Branch A. E, (2012). International purchasing and management. London: Thomson Learning.

Piaohao and Qianzhuang banking systems in China

Based in north central china, Piaohao banks were created by Shanxi province locals. They were the major banks in operation in cities between the 1800’s and the 1900’s, servicing cities located in the inland trade routes in the west and north countries. Their main clients were merchants who travelled occasionally and therefore needed help clearing accounts as they conducted business transactions in different parts of China (Wilson & Yang 434).  Other than settling accounts and transferring funds through drafts, Piaohao banks offered services such as currency exchange, loans and deposit accounts to their clients. Their popularity was facilitated by various transactions such as the one engaged with the government after the Opium war. The government used the Piaohao bank to pay an indemnity to the British which was completed successfully through drafts (Wilson & Yang 438). The banks were either owned by a single family or a small group of families that were wealthy enough to invest capital into banking.

            Based in China’s south central east coast, Qianzhuang banks commonly served Shanghai city. Between the 1800’s and 1900’s, they financed the American and European foreign trade via the port cities in southern China. Their main clients were merchants from shanghai who engaged in foreign trade and also traded foreign goods locally (Wilson & Yang 434). Qianzhuang banks offered services such as deposits, accounts settling, issuing short term loans and exchanging currency for their clients. The bank’s success was greatly promoted by the growth in foreign trade in china which prompted stakeholders to invest in the bank (Wilson & Yang 439). The banks were owned by groups of families where the owners either hired professionals or managed the banks themselves.

Work cited

Wilson C and Yang F, “Shanxi Piaohao and Shanghai Qianzhuang: A comparison of the two       main banking systems of the nineteenth century china” Business History, 2016

US banking system compared to Germany banking system.

There are various similarities and differences that can be drawn through a comparison between the United States and German Banking systems. Each of these systems has strengths or weaknesses whose significance can vary at different points in the countries’ economic cycle. To begin with, Germany and United States have the biggest banking systems in terms of assets and banks among the economies that are characterized by free-markets. Both banking systems have different categories of banks like the saving and commercial banks (Kunt, 2004). They have realized a considerable growth in assets, even though the number of banking institutions has decreased mostly due to increased mergers and acquisition for the purpose of achieving economies of scale. In line with countries’ regulations and policies, the baking systems normally have plans for comprehensive insurance that are paid premiums so as t safeguard customer’s principal amount in deposits. Moreover, just like insurance and security powers have been permitted in Germany and in other European Union nations, they are also permitted in United States after the Gramm-Leach-Billey Act was passed in 1999 (Kunt, 2004)

The banking system in America largely includes the saving banks and commercial banks. However, there has been a decline in saving banks due to a quick loss in market share, with the biggest ones converting to commercial institutions. Majority of the deposits is held by the biggest banks even though most are the small banks. The system is under the regulation of agencies sponsored by the federal government. There is a unique aspect in the system, in the form of credit unions which are separate lending and depository institutions.  The Germany system is normally based on banks groups which include cooperatives, public and private sector banks. These systems serve distinct markets which have limited level of competition unlike in United States where competition dictates the market. Unlike in U.S regulatory agencies, Germany has a unified regulatory approach which seems quite superior Brunner, (Brunner, Decressin, Hardy & Kudela, 2004).

References

Brunner, A., Decressin, J., Hardy, D. C. L., & Kudela, B. (2004). Germany's three-pillar banking system: Cross-country perspectives in Europe. Washington, DC: International Monetary Fund.

Kunt, A. (2004).Financial Structure and Economic Growth: A Cross-country Comparison of Banks, Markets, and Development. MIT Press 81