(b) Explain the role of the stock exchange and the factors which determine the price of shares.
The Stock Exchange provide a market platform for buying shares.
The Stock Exchange acts on two levels, as a primary market, the Stock Exchange will liaise with investment banks and businesses that are looking to raise capital by selling shares. This process involves the business being 'listed' on the Stock Exchange or 'floating'.
However, much of the Stock Exchange's work is as a secondary market. People buying shares may wish to do so for a variety of reasons - to secure dividends or to see the price of the shares rise, for example.
To facilitate this process the market has two main 'players' - stock brokers and market makers.
Stockbrokers act on behalf of clients, buy and sell shares on their behalf and generally belong to firms who are members of the Stock Exchange.
Market makers simply buy and sell shares on their own account but make their money on the difference between the price they pay for buying shares and what they sell them for. This difference is called the 'spread'.
The London Stock Exchange is one of the oldest exchanges in the world, and also one of the most prestigious, supplying high-quality prices, news and other information to the financial community, not just in the UK but across the world.
Many factors determine the price of shares, for example, news, positive news about a company can increase buying interest in the market while a negative press release can ruin the prospect of a stock.
Demand and supply concept, when more people are buying a certain stock, the price of that stock increases and when more people are selling he stock, the price of that particular stock falls.
Earning Per Share - It is mandatory for every public company to publish the quarterly report that states the earning per share of the company on the last quarter. This is perhaps the most important factor for deciding the health of any company and they influence the buying tendency.
For example, since April 20, BP's share price has fallen over 34% because of the oil spill, including a huge 13% fall early this week.
BP is a major component of the FTSE 100 index - it currently comprise 6.1% of the value of basket of shares that make up the index.
Showing posts with label central government. Show all posts
Showing posts with label central government. Show all posts
Saturday, 19 June 2010
Issues related with central government - Stock Exchange (part one)
You are covering a story concerning a local company about which there have been rumours relating to a possible hostile take-over bid. On a day when the FT 100 Share Index fell 250 points, the value of the company's ordinary shares increased significantly.
There have been reports that the Office of Fair Trading might refer any take-over to the Competition Commission.
(a)Explain what is meant by the terms:
FT 100 Share Index (stating also why it is important): the Financial Times Stock Exchange 100 Share Index (to use its full title) is the most famous of a number of 'indices', or lists, of major companies listed on the London Stock Exchange.
It lists the hundred highest valued companies at any one time, in order of their share value.
Ordinary shares: They are known as equity shares and they are the most common form of share in the UK.
An ordinary share gives the right to its owner to share in the profits of the company (dividends) and to vote at general meetings of the company.
Ordinary shares are the riskiest form of investment in a company since there may be no dividends paid and the market value of shares might fall after they have been bought.
The Ryanair share price fell so dramatically in mid-January 2004 because the company announced that its profits for the current financial year would probably be worse than they had previously expected.
Competition Commission: formerly the 'Monopolies and Mergers Commission' (MMC), this regulatory quango vets prospective company mergers and takeovers to ensure that they are not likely to have the effect of compromising free market competition.
Office of Fair Trading: a national regulatory quango established to ensure that free and fair competition operates in a given market for the benefit of the consumer on a day-to-day basis.
The OFT investigates complaints about restrictive practices, cartels, and other anti-competitive behaviour.
Plc: Plc stands for Public limited company, these companies have at least two shareholders and may offer shares to the public. Their owners will 'float' them and they will be listed on the London Stock Exchange.
They must have issued shares to the value of £50,000 before being allowed to trade. Larger plcs are often referred to as blue chip companies, and include household names such as BP and Marks and Spencer.
Hostile takeover: When a company takes over another company against its will, it is a hostile takeover.
A hostile takeover is an acquisition in which the company being purchased doesn't want to be purchased, or doesn't want to be purchased by the particular buyer that is making a bid. It is just like how can someone buy something that is not for sale?
Hostile takeovers only work with publicly traded companies. That is, they have issued stock that can be bought and sold on public stock markets.
The two primary methods of conducting a hostile takeover are the tender offer and the proxy fight.
A tender offer is a public bid for a large chunk of the target's stock at a fixed price, usually higher than the current market value of the stock.
In a proxy fight, the buyer need to convince the shareholders to vote out current management or the current board of directors in favour of a team that will approve the takeover.
While companies fight tooth and nail to prevent hostile takeovers, it isn't always clear why they're fighting. Because the acquiring company pays for stocks at a premium price, shareholders usually see an immediate benefit when their company is the target of an acquisition.
Some analysts feel that hostile takeovers have an overall harmful effect on the economy, in part because they often fail.
There have been reports that the Office of Fair Trading might refer any take-over to the Competition Commission.
(a)Explain what is meant by the terms:
FT 100 Share Index (stating also why it is important): the Financial Times Stock Exchange 100 Share Index (to use its full title) is the most famous of a number of 'indices', or lists, of major companies listed on the London Stock Exchange.
It lists the hundred highest valued companies at any one time, in order of their share value.
Ordinary shares: They are known as equity shares and they are the most common form of share in the UK.
An ordinary share gives the right to its owner to share in the profits of the company (dividends) and to vote at general meetings of the company.
Ordinary shares are the riskiest form of investment in a company since there may be no dividends paid and the market value of shares might fall after they have been bought.
The Ryanair share price fell so dramatically in mid-January 2004 because the company announced that its profits for the current financial year would probably be worse than they had previously expected.
Competition Commission: formerly the 'Monopolies and Mergers Commission' (MMC), this regulatory quango vets prospective company mergers and takeovers to ensure that they are not likely to have the effect of compromising free market competition.
Office of Fair Trading: a national regulatory quango established to ensure that free and fair competition operates in a given market for the benefit of the consumer on a day-to-day basis.
The OFT investigates complaints about restrictive practices, cartels, and other anti-competitive behaviour.
Plc: Plc stands for Public limited company, these companies have at least two shareholders and may offer shares to the public. Their owners will 'float' them and they will be listed on the London Stock Exchange.
They must have issued shares to the value of £50,000 before being allowed to trade. Larger plcs are often referred to as blue chip companies, and include household names such as BP and Marks and Spencer.
Hostile takeover: When a company takes over another company against its will, it is a hostile takeover.
A hostile takeover is an acquisition in which the company being purchased doesn't want to be purchased, or doesn't want to be purchased by the particular buyer that is making a bid. It is just like how can someone buy something that is not for sale?
Hostile takeovers only work with publicly traded companies. That is, they have issued stock that can be bought and sold on public stock markets.
The two primary methods of conducting a hostile takeover are the tender offer and the proxy fight.
A tender offer is a public bid for a large chunk of the target's stock at a fixed price, usually higher than the current market value of the stock.
In a proxy fight, the buyer need to convince the shareholders to vote out current management or the current board of directors in favour of a team that will approve the takeover.
While companies fight tooth and nail to prevent hostile takeovers, it isn't always clear why they're fighting. Because the acquiring company pays for stocks at a premium price, shareholders usually see an immediate benefit when their company is the target of an acquisition.
Some analysts feel that hostile takeovers have an overall harmful effect on the economy, in part because they often fail.
Issues related with central government - Finance (part five)
(b) Explain direct taxes; indirect taxes; Public Sector Net Cash Requirement (PSNCR);GDP.
Indirect Taxes:often referred to as “hidden” or “stealth” taxes, these are embedded in the cost of items bough by individuals or companies. Value-Added Tax (VAT) and exercise duties on tobacco and alcohol are examples of indirect taxes. Because they are charged at a flat rate on relevant items, they are seen as regressive – i.e. they do not take account of an individual or company’s ability to pay.
Public sector net cash requirement (PSNCR): formerly the “public sector borrowing requirement” (PSBR), this is the sum of money that the British government will need to borrow through commercial loans or from the public in a given financial year to meet its public spending commitments – that is, it is the difference between the total taxation that the Exchequer expects to raise in a year and its actual outgoings.
Direct Taxes: an umbrella term for taxes, such as Income Tax and Corporation Tax, that are taken directly from the individual or company on whom they are levied, normally at a progressive rate determined by their income levels in a given financial year.
Gross Domestic Product(GDP): the total profit from all goods and services generated in Britain in a given financial year, irrespective of which state benefits from team.
Indirect Taxes:often referred to as “hidden” or “stealth” taxes, these are embedded in the cost of items bough by individuals or companies. Value-Added Tax (VAT) and exercise duties on tobacco and alcohol are examples of indirect taxes. Because they are charged at a flat rate on relevant items, they are seen as regressive – i.e. they do not take account of an individual or company’s ability to pay.
Public sector net cash requirement (PSNCR): formerly the “public sector borrowing requirement” (PSBR), this is the sum of money that the British government will need to borrow through commercial loans or from the public in a given financial year to meet its public spending commitments – that is, it is the difference between the total taxation that the Exchequer expects to raise in a year and its actual outgoings.
Direct Taxes: an umbrella term for taxes, such as Income Tax and Corporation Tax, that are taken directly from the individual or company on whom they are levied, normally at a progressive rate determined by their income levels in a given financial year.
Gross Domestic Product(GDP): the total profit from all goods and services generated in Britain in a given financial year, irrespective of which state benefits from team.
Issues related with central government - Finance (part four)
There is press speculation over what the Chancellor of the Exchequer intends to do in the forthcoming budget to plug a £10bn hole in revenue predicted in the previous budget, due to lower than expected growth and a consequent fall in tax revenue.
The options are: to increase taxation; to increase borrowing; or to announce spending cuts.
You are preparing a feature article to inform your readers of the nature of the problem and its possible solution.
(a) Explain the purpose of the budget and how it is presented and debated in Parliament.
The budget is set out by the Chancellor of the Exchequer in a formal House of Commons Statement.
The purpose of the budget is to set out Government's taxation proposals for the next but one financial year and its spending proposals for the next three years. It also sets out the government's borrowing targets.
Budget proposals have to be approved by Parliament passing the Finance Bill but some tax changes can be implemented immediately (ie within a couple of hours) under delegated legislation.
The Finance Bill undergoes by a committee of the whole House and an ordinary standing committee.
As a money bill, the Finance cannot be delayed by the House of Lords. The fine details of the Budget is set out in the so-called red book, which is pored by accountants and tax advisors looking for loopholes.
The options are: to increase taxation; to increase borrowing; or to announce spending cuts.
You are preparing a feature article to inform your readers of the nature of the problem and its possible solution.
(a) Explain the purpose of the budget and how it is presented and debated in Parliament.
The budget is set out by the Chancellor of the Exchequer in a formal House of Commons Statement.
The purpose of the budget is to set out Government's taxation proposals for the next but one financial year and its spending proposals for the next three years. It also sets out the government's borrowing targets.
Budget proposals have to be approved by Parliament passing the Finance Bill but some tax changes can be implemented immediately (ie within a couple of hours) under delegated legislation.
The Finance Bill undergoes by a committee of the whole House and an ordinary standing committee.
As a money bill, the Finance cannot be delayed by the House of Lords. The fine details of the Budget is set out in the so-called red book, which is pored by accountants and tax advisors looking for loopholes.
Issues related with central government - Finance (part three)
2. Explain the following economic terms:
Recession: a term describing a rapid economic slowdown. Technically speaking, a recession is signaled by a period of two successive economic quarters during which the economy “shrinks” – that is, during which less money is being borrowed and spent by consumers, leading to lower sales and profits for businesses, the scaling back of production, and redundancies.
Public sector net cash requirement (PSNCR): formerly the “public sector borrowing requirement” (PSBR), this is the sum of money that the British government will need to borrow through commercial loans or from the public in a given financial year to meet its public spending commitments – that is, it is the difference between the total taxation that the Exchequer expects to raise in a year and its actual outgoings.
Consumer Prices Index (CPI): a few years ago, the Chancellor announced the Government now favoured a different way of reckoning inflation, the CPI, which does not include the costs of mortgages, and measures so-called “underlying inflation”. The CPI is the “official” measure of inflation.
Mortgages are not such a big factor in continental Europe where home-ownership is so prevalent as in the UK and Ireland, and far more people rent their homes. Purely coincidentally, this change was made just at a time when UK mortgage costs began to rise for the first time in many years.
Balance of Trade: the difference in value between imports to and exports from the UK in a given financial year, excluding financial transfers and debt payments to foreigners.
If Britain is importing consumer goods and services worth more than those it is exporting, it is in a “balance of trade deficit”; if the reverse is true, it is in a “balance of trade surplus”.
The UK is a net importer, that is, we import more goods than we export, which creates a balance of trade deficit. This deficit is, however, covered by the value of invisible exports, the services the UK sells abroad, such as banking and insurance.
The UK always shows a surplus on invisible exports, and it is frequently said that the country has shifted from being a manufacturing nation to relying on the service economy.
Indirect Taxes: often referred to as “hidden” or “stealth” taxes, these are embedded in the cost of items bough by individuals or companies.
Value-Added Tax (VAT) and exercise duties on tobacco and alcohol are examples of indirect taxes. Because they are charged at a flat rate on relevant items, they are seen as regressive – i.e. they do not take account of an individual or company’s ability to pay.
Progressive Taxes: broadly a tax based on the ability to pay, such as income tax. So the richer you are, the more you pay.
Recession: a term describing a rapid economic slowdown. Technically speaking, a recession is signaled by a period of two successive economic quarters during which the economy “shrinks” – that is, during which less money is being borrowed and spent by consumers, leading to lower sales and profits for businesses, the scaling back of production, and redundancies.
Public sector net cash requirement (PSNCR): formerly the “public sector borrowing requirement” (PSBR), this is the sum of money that the British government will need to borrow through commercial loans or from the public in a given financial year to meet its public spending commitments – that is, it is the difference between the total taxation that the Exchequer expects to raise in a year and its actual outgoings.
Consumer Prices Index (CPI): a few years ago, the Chancellor announced the Government now favoured a different way of reckoning inflation, the CPI, which does not include the costs of mortgages, and measures so-called “underlying inflation”. The CPI is the “official” measure of inflation.
Mortgages are not such a big factor in continental Europe where home-ownership is so prevalent as in the UK and Ireland, and far more people rent their homes. Purely coincidentally, this change was made just at a time when UK mortgage costs began to rise for the first time in many years.
Balance of Trade: the difference in value between imports to and exports from the UK in a given financial year, excluding financial transfers and debt payments to foreigners.
If Britain is importing consumer goods and services worth more than those it is exporting, it is in a “balance of trade deficit”; if the reverse is true, it is in a “balance of trade surplus”.
The UK is a net importer, that is, we import more goods than we export, which creates a balance of trade deficit. This deficit is, however, covered by the value of invisible exports, the services the UK sells abroad, such as banking and insurance.
The UK always shows a surplus on invisible exports, and it is frequently said that the country has shifted from being a manufacturing nation to relying on the service economy.
Indirect Taxes: often referred to as “hidden” or “stealth” taxes, these are embedded in the cost of items bough by individuals or companies.
Value-Added Tax (VAT) and exercise duties on tobacco and alcohol are examples of indirect taxes. Because they are charged at a flat rate on relevant items, they are seen as regressive – i.e. they do not take account of an individual or company’s ability to pay.
Progressive Taxes: broadly a tax based on the ability to pay, such as income tax. So the richer you are, the more you pay.
Issues related with central government - Finance (part two)
You have been asked to help write a short feature on the Budget and to compile a glossary of economic terms.
For the purpose of this exercise you are not required to write the article but to prepare the material.
1. Describe the purpose of the Budget and outline what the Chancellor will usually cover in his speech.
The Treasury's big day in each parliamentary session it the budget, in which the Chancellor sets out in a formal House of commons statement.
The purpose of the budget is to set out Government's taxation proposals for the next but one financial year and its spending proposals for the next three years. It also sets out the government's borrowing targets.
The budget speech is in the spring (on Aril 22 this year), but there is a pre-Budget report in the autumn, in effect a progress report on the UK's economic position and the Government's finances.
In the autumn statement, the Chancellor outlines the approach he is likely to take in the Budget.
For the purpose of this exercise you are not required to write the article but to prepare the material.
1. Describe the purpose of the Budget and outline what the Chancellor will usually cover in his speech.
The Treasury's big day in each parliamentary session it the budget, in which the Chancellor sets out in a formal House of commons statement.
The purpose of the budget is to set out Government's taxation proposals for the next but one financial year and its spending proposals for the next three years. It also sets out the government's borrowing targets.
The budget speech is in the spring (on Aril 22 this year), but there is a pre-Budget report in the autumn, in effect a progress report on the UK's economic position and the Government's finances.
In the autumn statement, the Chancellor outlines the approach he is likely to take in the Budget.
Issues related with central government - Finance (part one)
You are helping on a Budget special and have been asked to prepare a brief for the editor explaining key terms for the readers and then to obtain quotes from local contacts to get reactions to the Budget.
Direct Taxes: an umbrella term for taxes, such as Income Tax and Corporation Tax, that are taken directly from the individual or company on whom they are levied, normally at a progressive rate determined by their income levels in a given financial year.
Inflation: This is general increase in the prices of goods and services, or to look at it another way, a fall in the purchasing power of the pound, caused by too much money chasing too few goods and services.
Inflation is calculated using either the Consumer Prices Index (CPI), or Retail Prices Index (RPI), which monitor fluctuations in the values of a notional “basket” of goods containing items regularly bought by a typical British household.
Although the CPI is the “official measure of inflation, the RPI figure is also published.
Recession: a term describing a rapid economic slowdown. Technically speaking, a recession is signaled by a period of two successive economic quarters during which the economy “shrinks” – that is, during which less money is being borrowed and spent by consumers, leading to lower sales and profits for businesses, the scaling back of production, and redundancies.
Gross Domestic Product(GDP): the total profit from all goods and services generated in Britain in a given financial year, irrespective of which state benefits from team.
Balance of Payments: the difference in value between imports to and exports from the UK in a given financial year, including all types of payment.
It encompasses both “visible” items (such as cars and refrigerators) and “invisible” ones (such as legal and financial services), as well as the value of financial transfers and debt payments to foreigners.
If the value of imports exceeds that of exports, Britain is in a “balance of payments deficit”; if the reverse if true, it is in a “balance of payment surplus”.
Public sector net cash requirement(PSNCR): formerly the “public sector borrowing requirement” (PSBR), this is the sum of money that the British government will need to borrow through commercial loans or from the public in a given financial year to meet its public spending commitments – that is, it is the difference between the total taxation that the Exchequer expects to raise in a year and its actual outgoings.
Chancellor of the Exchequer: the secretary of state in charge of the Treasury is known as the Chancellor of the Exchequer, an ancient title.
Interest rates: an instrument of monetary policy used to promote saving and investment, and reduce consumer spending.
Since the 1980s, raising interest rates has been the preferred method of controlling inflation. The Bank of England’s Monetary Policy Committee (MPC) meets monthly to decide whether or not to raise or lower interest rates.
Direct Taxes: an umbrella term for taxes, such as Income Tax and Corporation Tax, that are taken directly from the individual or company on whom they are levied, normally at a progressive rate determined by their income levels in a given financial year.
Inflation: This is general increase in the prices of goods and services, or to look at it another way, a fall in the purchasing power of the pound, caused by too much money chasing too few goods and services.
Inflation is calculated using either the Consumer Prices Index (CPI), or Retail Prices Index (RPI), which monitor fluctuations in the values of a notional “basket” of goods containing items regularly bought by a typical British household.
Although the CPI is the “official measure of inflation, the RPI figure is also published.
Recession: a term describing a rapid economic slowdown. Technically speaking, a recession is signaled by a period of two successive economic quarters during which the economy “shrinks” – that is, during which less money is being borrowed and spent by consumers, leading to lower sales and profits for businesses, the scaling back of production, and redundancies.
Gross Domestic Product(GDP): the total profit from all goods and services generated in Britain in a given financial year, irrespective of which state benefits from team.
Balance of Payments: the difference in value between imports to and exports from the UK in a given financial year, including all types of payment.
It encompasses both “visible” items (such as cars and refrigerators) and “invisible” ones (such as legal and financial services), as well as the value of financial transfers and debt payments to foreigners.
If the value of imports exceeds that of exports, Britain is in a “balance of payments deficit”; if the reverse if true, it is in a “balance of payment surplus”.
Public sector net cash requirement(PSNCR): formerly the “public sector borrowing requirement” (PSBR), this is the sum of money that the British government will need to borrow through commercial loans or from the public in a given financial year to meet its public spending commitments – that is, it is the difference between the total taxation that the Exchequer expects to raise in a year and its actual outgoings.
Chancellor of the Exchequer: the secretary of state in charge of the Treasury is known as the Chancellor of the Exchequer, an ancient title.
Interest rates: an instrument of monetary policy used to promote saving and investment, and reduce consumer spending.
Since the 1980s, raising interest rates has been the preferred method of controlling inflation. The Bank of England’s Monetary Policy Committee (MPC) meets monthly to decide whether or not to raise or lower interest rates.
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