Futures markets have been described as continuous auction markets and as clearing houses for the latest information about supply and demand. They are the meeting places of buyers and sellers of an ever-expanding list of commodities that today includes agricultural products, metals, petroleum, financial instruments, foreign currencies and stock indexes. Trading has also being imitated in future contracts , enabling option buyers to participate in future market with known risks. In other words Futures markets have been described as continuous auction market and as a clearing house for the latest information about supply and demand. Participants in Future Market The following are the participant in future market which are as follows: Hedgers: Hedgers are individuals and firms that makes purchases and sales in the future market solely for the purpose of establishing a known price level —weeks or month in advance -for something Continue reading
Financial Concepts
Why Shareholder Wealth Maximization is Important in Business?
In modern finance, it is proven that shareholder wealth maximization is the superior goal of a firm and shareholders are the residual claimants; therefore maximizing shareholder returns usually implies that firms must also satisfy stakeholders such as customers, employees, suppliers, local communities, and the environment first. Also, a firm’s value can not be maximized if the management board or shareholders ignores the interest of its stakeholders. Thus, the main goal of a firm is to maximize shareholder wealth but it does not mean that management should disregard stakeholders. To begin with, it is necessary to understand what is shareholder wealth and why maximizing shareholder wealth is a superior objective? Maximizing shareholder wealth is defined as maximizing purchasing power as well as the flow of dividends to shareholders through time and it is a long-term perspective. In addition, a very important point to explain why shareholder wealth maximization is superior objective Continue reading
Forex Market or Foreign Exchange Market – History, Definition, Characteristics and Parties Involved
Foreign exchange refers to money denominated in the currency of another nation or group of nations. Foreign exchange can be cash, bank deposits or other short-term claims. But in the foreign exchange market as the network of major foreign exchange dealers engaged in high-volume trading, foreign exchange almost always take the form of an exchange of bank deposits of different national currency denominations. A Foreign exchange market or Forex market is a market in which currencies are bought and sold. It is to be distinguished from a financial market where currencies are borrowed and lent. Short History of the Foreign Exchange Market Foreign exchange markets mainly established to make easy cross border trade in which there is involvement of different currencies by governments, companies and individual investors. More ever these markets generally existed to supply for the international movement of capital and money, even the initial markets had speculators. Today, Continue reading
Cost Accounting – Definition, Objectives, Scope and Limitations
DEFINITION OF COST ACCOUNTING An accounting system is to make available necessary and accurate information for all those who are interested in the welfare of the organization. The requirements of majority of them are satisfied by means of financial accounting. However, the management requires far more detailed information than what the conventional financial accounting can offer. The focus of the management lies not in the past but on the future. For a businessman who manufactures goods or renders services, cost accounting is a useful tool. It was developed on account of limitations of financial accounting and is the extension of financial accounting. The advent of factory system gave an impetus to the development of cost accounting. Cost Accounting is a method of accounting for cost. The process of recording and accounting for all the elements of cost is called cost accounting. The Institute of Cost and Works Accountants, London defines Continue reading
Calculation of Exchange Rates for Forward Contracts
When computing exchange rates for merchant transactions, the cover or the base rate at which the cover transaction can be undertaken in the Forex market is first computed, thereafter the profit margin as allowed by the Foreign Exchange Dealer’s Association of India (FEDAI) is taken and the rate rounded off as per FEDAI Rule. In case of forward contracts, the procedure is similar except that while computing the base rate, the forward margin has to be appropriately taken. The forward margin is the extent to which the forward rate for a currency differs from its spot rate against a second currency. The forward margin when it tends to make a currency cheaper is called a ‘Discount’ while if it makes it costlier it is called a ‘Premium.’ Obviously if one currency is getting cheaper in the forward against another, the second should be getting costlier against the first. Thus while Continue reading
Management Accounting – Definition, Objectives, Scope and Limitations
DEFINITION OF MANAGEMENT ACCOUNTING Management accounting is not a specific system of accounting. It could be any form of accounting which enables a business to be conducted more effectively and efficiently. It is largely concerned with providing economic information to mangers for achieving organizational goals. It is an extension of the horizon of cost accounting towards newer areas of management. Much management accounting information is financial in nature but has been organized in a manner relating directly to the decision on hand. Management Accounting is comprised of two words ‘Management’ and ‘Accounting’. It means the study of managerial aspect of accounting. The emphasis of management accounting is to redesign accounting in such a way that it is helpful to the management in formation of policy, control of execution and appreciation of effectiveness. Management accounting is of recent origin. This was first used in 1950 by a team of accountants visiting Continue reading