Thematic Appreciation Test And Rorschach Inkbolt Test

Psychology while being a young science has taken over the various aspects of our lives. Psychology is used very liberally ranging from advertisement to job selection. Psychology has various tests that are used independently in order to diagnose and measure the behaviour of an individual. The psychological tests all have various usage and can measure different behaviours or diagnose mental health issues. There are numerous psychological tests and the focus of the paper is on the thematic appreciation test and Rorschach Inkbolt test. The tests are used on myriads of institutions and the popularity of these keep rising. The tests are used for identifying personality traits, canadites for particular roles, checking IQ levels and many more. Thematic appreciation test and the Rorschach Inkbolt test are both part of psychological tests. Both Thematic appreciation test and the Rorschach Inkbolt test are categorized under the projective psychological test. The popularity of thematic appreciat ion test and Rorschach Inkbolt test are very high. The paper will focus on the comparing and contrasting the Rorschach Inkbolt test and thematic appreciation test along with their usage. The projective tests are from a part of the psychological tests. Rorschach Inkbolt test and thematic appreciation test are popular forms of testing. Rorschach Inkbolt test and thematic appreciation test are mainly used to test for personality tests, when presented with the vague images, words and unclear scenes.

Hip Hop Music East Coast, West Coast, Dirty South, and...

The beauty of hip hop is that it is malleable. It is not defined by strict boundaries but by multiple characteristics. Young artist J. Cole (2013) explains this best by stating in an interview, â€Å"I think there’s no rules [in rap]. You can say what you want. That’s your poetic license: to test people’s boundaries.† (p.1) The results of such malleability and the need to experiment within the unwritten boundaries of hip hop are the birth of different styles and sectors/scenes in America. These sectors are represented by the geographic location of the artists and the distinctive sounds and styles that the artists utilize. For years the genre of hip hop was found primarily in the United States in these particular scenes. In the past few years,†¦show more content†¦The streets of the Eastern America cities would birth the most influential and largest hip hop scene. East Coast rap was started in the 1970 through block parties that were hosted in the streets of the Bronx. Young men, usually African Americans, took turns rapping over the beats laid by the deejays. Early artists who hail from New York, including DJ Kool Herc, Grandmaster Flash, Afrika Bambaataa, the Sugarhill Gang, Kurtis Blow, Jam Master Jay, and Run-D.M.C., pioneered East Coast style. The style of most East Coast rappers was characterized by simplistic rhyme pattern laid over aggressive beats, and featured the use of metaphors and complex word play. These characteristics were especially prevalent in the earlier history of hip hop due to the amount of artists who utilized these characteristics. The topic matter of the artist usually ranged from rapping about one’s reputation (money, clothes, and girls) to lyrics dealing with social movements and the state of society. East Coast rap has impacted rap music by providing the basics and the foundation for modern day rap. The artists of this scene have been some of the most successful rappers to ever grace the g enre (such as Notorious BIG, Nas, Jay-Z) and they represent their respective cities with dignity and a sense of hustling in the mostShow MoreRelatedMonsanto: Better Living Through Genetic Engineering96204 Words   |  385 PagesTasmania C A S E F O U R Succeeding in the Sydney indie music industry C A S E F I V E Nucor in 2005 C A S E S I X News Corp in 2005: Consolidating the DirecTV acquisition C A S E S E V E N Shanghai Volkswagen: Implementing project management in the electrical engineering division C A S E E I G H T Television New Zealand: Balancing between commercial and social objectives C A S E N I N E From greenï ¬ eld to graduates: University of the Sunshine Coast C A S E T E N Whole Foods Market, 2005: Will there beRead MoreMarketing Mistakes and Successes175322 Words   |  702 Pagespondering whether he should do the same. After all, how many hundreds of millions does one man need? But he did not really see himself as an entrepreneur. At his young age, about the same age as Sergey and Larry, he was not ready to retire to some South Sea island and count coconuts. So he stayed, caught up in the challenge of solving tough problems with other smart Googlers.1 Making the brain drain all the more tempting for many of these employees was Google’s hiring of the brightest young peopleRead MoreDeveloping Management Skills404131 Words   |  1617 Pages440 SKILL ASSESSMENT 440 Diagnostic Surveys for Empowering and Delegating Effective Empowerment and Delegation 440 Personal Empowerment Assessment 441 SKILL LEARNING 443 Empowering and Delegating 443 A Management Dilemma Involving Empowerment The Dirty Dozen 444 The Meaning of Empowerment 445 Historical Roots of Empowerment 446 Dimensions of Empowerment 447 Self-Efficacy 447 Self-Determination 448 Personal Consequence 449 Meaning 449 Trust 450 Review of Empowerment Dimensions 451 How to Develop Empowerment

Principals of Financial Market Analysis

Question: Discuss about the Principals of Financial Market Analysis. Answer: Introduction It is essential for the investors to understand the market or company in which he is going to make investment, therefore, the investor must have a good knowledge about the industry trends or a good broker that might help him (Bentes and Navas, 2013). The investor can make use of different analysing techniques when selecting a stock. The two most used techniques used by investors in technical analysis and fundamental analysis. The fundamental analysis is a technique that helps in analysing the most fundamental factors that affects the health of the company. The macro fundamental analysis is the top down approach that comprises of the macro environment where as the micro fundamental analysis entails the micro environment and is known as bottom up approach. When the fundamental analysis is used by any investor he uses two approaches namely macro and micro fundamental approaches (Suresh, 2013). In addition to this, while analysing the micro and macro environment three analyses are examined namely economic analysis, industry analysis and company analysis. All the three analyses are helpful in making beneficial investment related decisions and also provide a good understanding of the economy and industry to the investor (Grimm, 2012). The economic factors that are studied in the fundamental analysis include inflation rate, Growth rate, Domestic Product (GDP), interest rate, unemployment rate and retail sales. The industry analysis includes factors such as growth rate and market size while company analysis includes factors such as balance sheet, cash flow, management and debt statement along with income statement. Bottom up analysis is one of the important fundamental analyses that starts with the reviewing the financial performance of the companies in the particular industry and ends with drawing the opinion of financial performance of industry as a whole. In this report financial performance of Billabong and Globe International has been reviewed and opinion has been on fashion retail sector as a whole. Top-Down Approach Top down approach of Fundamental analysis is also known as macro fundamental analysis that helps in stock selection and investment purpose. The top down approach is the strategy used by investor and starts with analysing the big picture and ends with analysing an individual stock (Lee, Lee and Lee, 2010). The benefit of using top down investment approach is that it focuses on strong sectors for investment. Economic Condition of Australia The economy of Australia has reduced its growth forecast due to fall in the commodity value of commodity (Smyth, 2015). However, later in the year 2015, the economic growth was better than the forecasts. It is analysed by the economists that in the year 2015, the GDP rate in Australia was expected to increase to 1.6 trillion Australian dollars that is, by 2.7% (Reuters, 2015). Moreover, Reserve Bank of Australia forecasted that the economic growth will be 2.50% in 2016 and 3.50% in 2017 (Innes, 2016). In addition to this, according to the data collected from Focus Economic (2016), in 2015, the GDP rate estimated was 1633 billion Australian dollars which might rise by 2.8% in the year 2016. Furthermore, the GDP recorded in 2014 was 1.918 billion Australian Dollars which fell to 1.629 Australian Dollar (Statista, 2015). However, the GDP rate of Australia is expected to flourish in the future and reach 1.95 million Australian Dollar by 2020 (Statista, 2015). From the past few years, it is identified that the value of Australian Dollar is deteriorating and the exchange rate of Australian Dollar is determined as 74.70 cents in 2016. The Reserve Bank of Australia estimated that the interest rate in 2015 will be 2% which is expected to decline at the end of next year to 1.50% (Reserve Bank of Australia, 2015). In addition to this, it is also identified that the interest rate will increase to 3.50% in the future (Trading Economics, 2016). Economists also estimated that in 2015, the inflation rate was recorded to be 1.53% which is also forecasted to increase in the future by 2.49% (Statista, 2015). Along with this, the rate of unemployment is Australia is declining which is estimated to decrease much more by 2020. Moreover, it is identified that there has been employment growth in past five years and half of the population of Australia is employed in occupations such as software and application programmers (55.2%), clothing trades worker emplo y 57.9% and heath care practitioners employ 56.4% people (Australian Government, 2015). As per Budget (2015), more than 250,000 jobs were created between 2014 and 2015 which shows a rising percentage of job holders. Moreover, it is identified that between 2014 and 2015, the service produced by the economy of Australia was approximately 60% of the total GDP worth $ 970 billion (Australian Government, 2015). These services in 2014 and 2015 employed almost 3.1 million people and the output resulted was $ 465 billion that is 29% of the GDP (Australian Government, 2015). Industry for making Investment in Australia The fashion or apparel industry is considered to be a significant industry all over the world. The fashion retailing is an industry that has been the interest for many investors as the fashion sense of consumers is increasing and they are purchasing more fashionable clothes. As per the data collected from Fashion United (), it is revealed that the total population of Australia is 23.5 million people and the local market value of fashion industry is worth $AUD 28.5 billion. Data also reveal that GDP per capital in Australia is $AUD 75,681 and the fashion and textile industry employ approximately 37,000 people. According to Larner (2016) fashion is one of the biggest industries in Australia and the domestic luxury market of Australia alone is worth 2 billion Australian dollars in terms of revenue. The annual growth of fashion industry is considered to be more than 10 % every year. The fashion retail industry in Australia faces intense competition but the increasing fashion trends results in higher revenue. As per IBIS World (2016) between 2015 and 2016, the fashion industry revenue is expected to rise by 3.3% and the main drivers of expansion of fashion industry are expected to be online channels and brick and mortar retailers. The fashion retailing industry is diverse in nature and it is investigated that only 6.3% of the fashion retailers earn more that 2 million Australian dollars while approximately 44% of the retailers generate total revenue between 200,000 dollars and 2 million dollars per year (IBIS World, 2016). Since 2013, the fashion industry in Australia is continuously seeing growth in many aspects. There were 128 brands in Australia in 2013 which has increased to 219 brands in 2015 (Baptist World Aid Australia, 2015). In terms of the level of engagement it is found that in 2013, 54% of the brands were responsive while the percentage has increased in 2015 and at present 75% brands are responsive to their customers (Baptist World Aid Australia, 2015). According to the data collected from Fashion United (2016), it is identified that out of the total population of Australia consumer expends only 3% of his income on clothing and footwear which is worth 28.5 billion Australian Dollars. Moreover, 6.1 billion Australian Dollars are used in import and export of clothing and textile industry. Major Fashion Retailers in Australia The two fashion retailers that will be studied in this section include Billabong International Limited and Globe International Limited. Both of these companies deal in consumer durables and apparel segment and are listed in ASX. Billabong International Limited is a clothing retailer that was found by Gordon and Rena Merchant in 1973 and the company manufactures clothing and accessories such as board shorts, watches and skateboard (Billabong, 2009). In the year 2015, the total revenue generated by the company from continuing operations was recorded to increase by 2.8% to 1,056,130 Australian Dollar (Billabong International Limited, 2015). It is also reported that in 2015, the company achieved strong growth and the brand sales increased by 13.1% (Billabong International Limited1, 2015). On the other hand, Globe International Limited is another Australian company that is considered as an international producer and distributor of footwear, apparels and hand goods for board sports such as wheels, decks and trucks (Globe International, 2016). The company was founded by three Australian brothers known as Hill brothers in the year 1985 and at present the company sell its products in more than 100 countries across the world. The regional revenue accomplished by the company increased by 33% in 2015 whereas, the group revenue recorded was $137.7 million which increased by 32% from 2014 (Globe Corporate, 2015). Along with this, the net profit after tax in 2015 was $3.7 million which was $3.2 million in 2014 (Globe Corporate, 2015). Bottom up Analysis This approach is linked with the investment approach as it is related with making the fundamental analysis of the individual companies that falls in the same industry. To demonstrate this analysis, two companies, Billabong and Globe International has been selected and both these companies are well known in the fashion retail sector of Australia. Analysis of Financial Performance of Billabong and Globe International using the Accounting Ratios Evaluating the companys financial performance using the financial ratios as an interpreting tool helps in making the comparative analysis of the companies belonging in same industry. Liquidity Analysis Liquidity ratios help in assessing the ability of an organization in meeting its shot-term liabilities and its margin of safety. The liquidity ratios compare the liquid assets of an organization with the current liabilities for assessing its position of covering the short-term debt in the event of an emergency condition (Fabozzi and Markowitz, 2011). The liquidity position of Billabong and Globe International can be analyzed through the following ratios Current Ratio: Current ratio examines the ability of an organization to cover its short-term liabilities with its short-term assets. It is calculated by the following formula: Current ratio=Current assets/Current liabilities With the help above financial data and applying the formula it has been found that current ratio of Billabong was 2.20 times in year 2014 and in year 2015 it remains at 2.19 times. It means that Billabong keeps sufficient amount of current assets as compare to current liabilities. On the other hand current ratio of Globe International was 0.77 and 0.72 times in year 2014 and 2015 respectively. It clearly shows that liquidity position of Billabong was quite strong in both the years as compare to Globe International (Morning Star. 2016: Globe International; Billabong). So it can be said that some companies in fashion retail sector of Australia performs outstanding while other are not achieving the normal standards of performance. Quick Assets: Quick Ratio: Quick ratio measures the ability of an organization to meet its short-term obligations with its most liquid assets. It is calculated as follows: Quick ratio= (Current assets-inventories)/current liabilities The quick ratio of Billabong was 1.32 times in year 2014 and it increase to 1.35 times in year 2015. Talking about the Globe International it can be said that quick ratio was 0.57 times in year 2014 and got reduced to 0.52 in year 2015. It can be said that solvency position of Globe International was quite adverse in year 2014 as well as in year 2015. They are even meeting the normal standards required in the ratio calculation (Morning Star. 2016: Globe International; Billabong). Profitability Ratios Profitability ratios are used for assessing the ability of an organization to generate earnings in comparison to the expenditure. The ratios measure the ability of an organization to generate earnings in relation to sales, assets and equity (Fabozzi and Markowitz, 2011. The profitability position of Billabong and Globe International can be analyzed through the following ratios: Net Profit Ratio: Net profit ratio indicates the remaining profit after meeting all the operational cost involved in production, administration and financing. It demonstrates the relationship between the net profit after tax and net sales. It can be calculated as follows: Net Profit Ratio=Net Profit after tax/Net Sales The profitability position of Billabong showing negative net profit ratio of 20.84 % in year 2014 and it was 0.39 % in year 2015. It reflects very poor performance of Billabong in both the years. The profitability position of Globe International was very sound as net profit ratio in both years was quite high as compare to industry standards. The net profit ratio of Globe International was 12.68 % in year 2014 and 13.29 % in year 2015(Morning Star. 2016: Globe International; Billabong). Return on Equity: Return on equity denotes the net income realized by an organization on shareholders equity. It provides an insight into the efficiency of an organization to generate income from the shareholders funds. It analyses organization profitability by measuring the generation of profit with each dollar of shareholders equity. The ROE ratio is calculated by the following formula: ROE=Net Income/Shareholders equity Globe International earns return of 27 % on the total equity in both the years. Whereas, profitability position of Billabong was adverse in both the years as return of equity shows negative figures in each case (Morning Star. 2016: Globe International; Billabong). Capital Efficiency Ratio Capital efficiency ratios depict the relationship between the expenditure of an organization on the funds used for manufacturing of goods or service (Fabozzi and Markowitz, 2011. The capital efficiency of Billabong and Globe International can be analyzed through calculating the following ratios: Debt equity ratio: Debt equity ratio is indicative of the debts used by an organization to finance its assets in comparison to the use of shareholders equity. It measures the financial leverage of an organization and demonstrates the proportion of debt and equity in its capital structure. It is calculated as follows: Debt equity ratio: Total Liabilities/ Stockholders equity On calculation it has been found that debt equity ratio of Billabong was 0.79 in year 2014 and it increase to 0.92 in year 2015. In case of Globe International the debt equity was 1.08 in both years 2014 and 2015. It can be said that both companies are highly leveraged as depend more on debt capital as compare to equity capital (Morning Star. 2016: Globe International; Billabong). Equity Ratio: Equity ratio measures the proportion of total assets that are financed by an organization with owners funds. It is a solvency ratio that measures the leverage used by a company by comparing the assets that are financed with shareholder funds as opposed to creditors. The equity ratio is calculated as follows: Equity ratio=total liabilities/total shareholders equity Equity ratio of Billabong was 35.91 % in year 2014 and there was no change in this ratio in year 2015. While in case of Globe International the equity ratio was 30.38 % and 30.35 % in year 2014 and 2015 respectively. It clearly shows that both the companies use debt capital as the major source of finance (Morning Star. 2016: Globe International; Billabong). Market Efficiency Ratio The efficiency ratio is used for analyzing the effectiveness of an organization to use its assets and liabilities internally (Fabozzi and Markowitz, 2011. The efficiency ratio is used for measuring the turnover obtained from companys receivables and general use of inventory and machinery. The market efficiency of Billabong and Globe International can be analyzed as follows: Earnings per Share (EPS): Earning per share of a company indicates the profitability position by measuring its profit with each outstanding share of common stock. It indicates the monetary value of companys earnings and thus is an indicator of its profitability position. The EPS can be calculated as follows: EPS=Net Income-Preferred Dividends/Weighted Average Common Shares Outstanding Earning per share of Billabong was negative 1.43 dollar in year 2014 and it increased to 0.02 in year 2015. In case of Globe International it was 98.41 pound per share in year 2014 and 119.92 pound per share in year 2015. It shows higher market efficiency of Globe International as compare to Billabong (Morning Star. 2016: Globe International; Billabong). Conclusion Fundamental analysis is a valuable approach that helps the investor to make an appropriate choice of stock which helps them in making profit. From the overall discussion, it is revealed that the GDP rate in Australia saw a downfall in 2015 but it is expected to rise in future and presents a scope of investment for the investors. Moreover, the inflation rate and interest rates are also in favour of the investors as they represent that the economy of Australia will continue to emerge and have immense growth prospects. The fashion industry is considered as the most significant industry for stock purchase and investment as the fashion sense of the people is increasing. It is identified that fashion industry is a diverse industry and provides wide range of opportunities for investors. Two major fashion companies that are examined in this report are Billabong and Global Internationals which shows that investing in these companies can be beneficial. It is recommended that the fashion industry should integrate the ecommerce medium which can boost the sales and help the companies and retailers in making huge profits (Bowen and Ozuem, 2014). Other than this, the companies are also recommended that they should use social media channel to promote their products and services as it helps in reaching a wide range of customers and make global presence. Along with this, it is identified that implementing more than one channel helps to reach mass consumers and if any one channel is inefficient than the other social media platform will surely gain the attention from the consumers (Tuten and Solomon, 2014). The most used social media sites that should be used by the fashion retailers include Facebook, Twitter, MySpace, LinkedIn, and YouTube. Using quality pictures can enhance the quality of the message and writing short messages are effective to way to influence consumers. Thus, implementing these suggestions can definitely help the fashion retailers to increase their profitability and sustainability. It is highly suggested to Billabong to decrease their cost of good sold expenses in order to increase the net profit and it is also suggested to finance the asset through use of equity as a major source of finance. References Australian Government. 2015. Australian Industry Report 2015. Office of the Chief Economist. Baptist World Aid Australia. 2015. The Australian Fashion Report 2015: The Truth Behinf Barcode. ABC News. Bentes, S.R. and Navas, R. 2013. The Fundamental Analysis: An Overview. Int. J Latest Trends Fin. Eco. Sc. 3(1), pp. 389-393. Billabong International Limited. 2015. Financial report ended 30 June 2015. [Online]. Available at: file:///C:/Users/Dell/Downloads/Preliminary%20Final%20Report%20%20Full%20Year%20Statutory%20Accounts.pdf [Accessed on: 19 September 2016]. Billabong International Limited1. 2015. ASX ANNOUNCEMENT BILLABONG INTERNATIONAL LIMITED RESULTS FOR THE FULL YEAR TO 30 JUNE 2015. [Online]. Available at: file:///C:/Users/Dell/Downloads/Billabong%20International%20Limited%20FY15%20Media%20Release.pdf [Accessed on: 19 September 2016]. Billabong. 2009. History. [Online]. Available at: https://us.billabong.com/blog/post/history [Accessed on: 16 September 2016]. Bowen, G. and Ozuem, W. 2014. Computer-Mediated Marketing Strategies: Social Media and Online Brand Communities: Social Media and Online Brand Communities. IGI Global. Budget. 2015. Economic Outlook. Australian Government. Fabozzi, F.J. and Markowitz, H.M. 2011. The Theory and Practice of Investment Management: Asset Allocation, Valuation, Portfolio Construction, and Strategies. John Wiley Sons. Fashion United. 2016. Fashion industry statistics Australia. [Online]. Available at: https://au.fashionunited.com/fashion-industry-statistics-australia [Accessed on: 19 September 2016]. Focus Economics. 2016. Australia Economic Outlook. [Online]. Available at: https://www.focus-economics.com/countries/australia [Accessed on: 16 September 2016]. Globe Corporate. 2015. Annual Report 2015. [Online]. Available at: https://www.globecorporate.com/pdfs/2015ar.pdf [Accessed on: 19 September 2016]. Globe International. 2016. About. [Online]. Available at: https://www.globecorporate.com/index.html [Accessed on: 19 September 2016]. Grimm, R.C. 2012. Fundamental Analysis as a Traditional Austrian Approach to Common Stock Selection. The Quarterly Journal of Austrian Economics 15(2), pp. 221-236. IBIS World. 2016. Clothing Retailing in Australia: Market Research Report. [Online]. Available at: https://www.ibisworld.com.au/industry/default.aspx?indid=407 [Accessed on: 19 September 2016]. Innes, C.M. 2016. GDP growth slows in Q2. Focus Economics. Larner, D.P. 2016. Fashion is a big business in Australia but you wouldn't know it from the news. The Guardian. Lee, C.F., Lee, A.C. and Lee, J. 2010. Handbook of Quantitative Finance and Risk Management. Springer Science Business Media. Morning Star. 2016: Billabong. [Online]. Available at: https://financials.morningstar.com/ratios/r.html?t=BLLAF [Accessed on: 24 September,2016]. Morning Star. 2016: Globe International. [Online]. Available at: https://financials.morningstar.com/ratios/r.html?t=BLLAF [Accessed on: 24 September,2016]. Reserve Bank of Australia. 2015. Statement by Glenn Stevens, Governor: Monetary Policy Decision. [Online]. Available at: https://www.rba.gov.au/media-releases/2015/mr-15-23.html [Accessed on: 16 September 2016]. Reuters. 2015. Australia's GDP expected to increase by 2.7 per cent in 2015: Survey. The Economic Times. Smyth, J. 2015. Australia downgrades economic forecasts. The Financial Times. Statista. 2015. Australia: Gross domestic product (GDP) in current prices from 2010 to 2020 (in billion U.S. dollars). [Online]. Available at: https://www.statista.com/statistics/263573/gross-domestic-product-gdp-of-australia/ [Accessed on: 16 September 2016]. Statista. 2015. Australia: Inflation rate from 2010 to 2020 (compared to the previous year). [Online]. Available at: https://www.statista.com/statistics/271845/inflation-rate-in-australia/ [Accessed on: 16 September 2016]. Suresh, A.S. 2013. A study on fundamental and technical analysis. International Journal of Marketing, Financial Services Management Research 2(5), pp. 44-59. Trading Economics. 2016. Australia Interest Rate. [Online]. Available at: https://www.tradingeconomics.com/australia/interest-rate/forecast [Accessed on: 16 September 2016]. Tuten, T.L. and Solomon, M.R. 2014. Social Media Marketing. SAGE.

Role of Financial Markets in a Modern Economy Essay Example

Role of Financial Markets in a Modern Economy Paper Discuss the role of financial markets in a modern market economy. Explain the role and function of the share market and its effect on the economy. The financial market is the most influential sector in a modern market economy. The financial markets provide products to consumers and financial intermediaries allow for the mobilization of money between savers and borrowers. The share market is the financial market in which investors buy and sells shares. The share market’s main function in the economy is to allow consumers to attain part-ownership of a company and further their wealth and in effect provide funds for businesses for expansion. The main effects the share market has on the economy is its ability to reallocate resources and mirror overall economic growth. The financial services industry is one of the largest industries in Australia and its actions influence all other sectors due to its vital role in the economy. Financial markets are so significant as they create products for consumers also serve to provide a return for the producers. In essence, this allows for those who have excess funds to make these funds available to those who need additional money. Furthermore, the most influential institution in the financial sector are financial intermediaries who are those organizations that allow for the mobilization of money. These firms create a bridge between borrowers and savers in that they receive accumulated funds from individuals or firms and then allow for other firms and individuals to borrow and make use of that money. Financial markets are also the factor markets for capital in the market economy because capital must be acquired by businesses to produce goods and services. We will write a custom essay sample on Role of Financial Markets in a Modern Economy specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Role of Financial Markets in a Modern Economy specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Role of Financial Markets in a Modern Economy specifically for you FOR ONLY $16.38 $13.9/page Hire Writer The economy’s productive capacity heavily impacts the ability of the economy to grow in the long term and thus capital investment is vital for the modern market economy. Financial markets provide an efficient process by which income that is not used for consumption can still contribute to aggregate demand. Savings from consumers, businesses and governments can be used for future consumption but also capital investment, which consequently increases the productive capacity of the economy. The share market is the financial market in which investors buy and sells shares, which are financial assets that give a person part-ownership of a company. The share market plays an important role in the Australian economy because businesses can sell shares in their companies to raise funds needed for growth and to provide individuals with dividends, which contributes to their disposable income. The role and functioning of the share market in the larger modern market can be seen from the perspective of the shareholders and the companies. For investors, the share market provides the opportunity for consumers to become part-owners of a business and thus are entitled to returns due to the risk they assume by investing in the business, these profits are known as dividends. As the company grows the value of the company increases and thus its share price will consequently increase. In such a situation, shareholders may decide to sell their shares to make a profit which is known as capital gains as they are selling assets at a price above the level originally paid for. However, the risks of being a shareholder are high as the company may lose money and thus dividends are reduced and the investor will not be able to make capital gains. There is an extremely high level of share ownership by the Australian public which increases the share markets role in the market economy. Currently, many people rely on the profits made from shares as their income and more significantly for their retirement. On the other hand, for a company the share market provides the opportunity for the business to increase its funds to keep as retained profit or allow for the expansion of the business. When a company first lists its business on the ASX it is called a float. Once the company has been listed it can access further equity funds at any time by issuing an approved prospectus for the release of new shares. However, issuing new shares reduces the control existing shareholders have over the company as they own a smaller proportion. The sale of new share is a primary financial market transaction whilst an existing shareholder selling their shares is a secondary financial market transaction. By allowing both types of share trades the ASX is in effect both a primary and secondary financial market. Changes in the share market have large impact on the operations of a company. A company’s share price is determined by the price mechanism and thus if demand is low the company’s value will decrease however if demand is high, the company’s value will increase and thus provide benefits to the company itself and its shareholders. When individual businesses prosper it provides greater ability for the Australian economy to grow as it is heavily reliant on the growth of individual businesses to facilitate overall economic growth. The share market has extensive effects on the economy and it is an indicator of a country’s economic conditions. Rising share prices suggest that the economy is experiencing favourable economic conditions as market prices rise in accordance to better economic prospects for companies. The relationship between general economic conditions and share values can be seen in the following graph which shows that fluctuations in the share market mirror changes in economic growth A downturn or upturn in the share market can be measured in the All Ordinaries Index, which measures the overall value of companies listed on the ASX. By comparing the AOI with changes in the economy’s growth rate we see that the share market generally rises and falls similarly to economic growth. However, the share market is much less stable and thus small changes in economic growth consequent in much larger changes in share values. The share market also affects the market through its ability to reallocate resources to different sectors in the economy. Those companies and sectors with the best growth prospects will be able to acquire additional funds most effectively and thus will raise the most funds when floated. In such a way share prices will be higher for firms in industries that shareholders expect will experience growth and thus the share market will raise the medium-term growth prospects of an economy. However, the main issue with using the share market as a guide to the state of the economy is that not all share purchases are based on a rational belief by the shareholder that the industry’s future prospects are solid. Many purchases are speculative, which means that shares are bought with intention of being resold within a short period. These investors are not buying with the intention of long-term capital gain, rather, short-term. The major problem with this sort of investment is that speculators base their investment on the ‘hype’ of the market, rather than the real profitability of the firm. This has the potential to see share prices that are overvalued, drawing further investment and leading to the misallocation of resources.