Foreign Currency Debt at Vodafone Group plc Case Study

Foreign Currency Debt at Vodafone Group plc - Case Study Example 2-3; Lustgarten, 2006, p. F-22). The aim of management is to give investors the highest possible return on their investment (Jensen and Meckling, 1976). A common strategy is to bring up the stock price if the company, like Vodafone, is listed. Since stock price is based on net present value of all future cash flows of the company, and cash flow depends on profits, the price goes up if profits go up. Profits go up if turnover increases or expenses go down, or both. The stock price reflects the value of the company, so an increase in the price results in the growth of the stock's value to its shareholders. This is known as shareholder value. The growth in shareholder value and the increase in the stock price depend on the growth of profits, which in turn depends on how well the management raises turnover or controls costs. Since Vodafone does business all over the world, it earns and spends money in different currencies. This exposes it to several risks that can bring down revenues or bring up expenses: political, ma rket, interest, or currency risks. Each risk can affect the firm's finances. Political risk can lead to changing firm ownership and loss of investment and value, as when government takes over the firm. Market risk can collapse the stock price and shareholder value when investors lose confidence in the stock market. Interest risk can raise expenses if interest rates on the firm's debts go up; financial income can also decrease if interest rates go down. Currency risk can raise (or bring down) expenses or sales if exchange rates change: if the home currency (sterling) weakens relative to the host (or foreign) currency (dollar), dollar loans would be more expensive and increase expenses in sterling. Of these four types of risk, the last two - interest and currency risks - can be minimised by using foreign currency debt (Allayannis et al., 2001; Keloharju et al., 2001). How does this happen If a firm is well-managed, its assets produce a stream cash flow that goes to shareholders if the firm is financed entirely by common stock. But if it issues debt securities, which is borrowing money from lenders, the firm would divide the cash flows between holders of debt and the stockholders or holders of equity securities. The firm's mix of securities is known as its capital structure. Since the most important task of managers is to maximise the firm's market value, is there a combination of debt and equity securities that would

The Federal Reserve Essay Example | Topics and Well Written Essays - 1250 words

The Federal Reserve - Essay Example An important policy that has been implemented by the FED is the easy money policy. The easy money policy is important to allow money to flow through the economy at a lowered interest rate. The lowered interest rate allows money to be lent at a rate that is more appealing. The FED likely issued the easy money policy to increase investing and spending. Being able to achieve loans at a lower rate allows consumers to obtain loans. The banks giving the loans also benefit. The bank’s ability to offer the loans at a lowered rate increases the amount of loans that the bank is able to issue. This type of policy reduces the amount of money that is held in the Federal Reserve’s. Allowing for more money to circulate and better lending rates can be a good thing in an attempt to boost a struggling economy. Allowing more money to circulate and spending to happen seem to be nothing but great news. This is not always so. The free flowing money and spending can lead to inflation. Inflati on leads to higher prices. This is so because the dollar becomes worth less. The dollar being worth less means that it will costs more for an item. An example of this is purchasing a loaf of bread. In a stable economy were inflation is not an issue, a loaf of bread can be bought for around $3.00. When inflation sets in, the same loaf of bread can be worth $4.00 or $5.00. ... Â   Â   Â   Â   Â   Â   Â   Â   Â   2010 Â   2.63% Â   2.14% Â   2.31% Â   2.24% Â   2.02% Â   1.05% Â   1.24% Â   1.15% Â   1.14% Â   1.17% Â   1.14% Â   1.50% Â   1.64% Â   2009 Â   0.03% Â   0.24% Â   -0.38% Â   -0.74% Â   -1.28% Â   -1.43% Â   -2.10% Â   -1.48% Â   -1.29% Â   -0.18% Â   1.84% Â   2.72% Â   -0.34% Â   2008 Â   4.28% Â   4.03% Â   3.98% Â   3.94% Â   4.18% Â   5.02% Â   5.60% Â   5.37% Â   4.94% Â   3.66% Â   1.07% Â   0.09% Â   3.85% Â   2007 Â   2.08% Â   2.42% Â   2.78% Â   2.57% Â   2.69% Â   2.69% Â   2.36% Â   1.97% Â   2.76% Â   3.54% Â   4.31% Â   4.08% Â   2.85% Â   2006 Â   3.99% Â   3.60% Â   3.36% Â   3.55% Â   4.17% Â   4.32% Â   4.15% Â   3.82% Â   2.06% Â   1.31% Â   1.97% Â   2.54% Â   3.24% Â   2005 Â   2.97% Â   3.01% Â   3.15% Â   3.51% Â   2.80% Â   2.53% Â   3.17% Â   3.64% Â   4.69% Â   4.35% Â   3.46% Â   3.42% Â   3.39% Â   2004 Â   1.93% Â   1.69% Â   1.74% Â   2.29% Â   3.05% Â   3.27% Â   2.99% Â   2.65% Â   2.54% Â   3.19% Â   3.52% Â   3.26% Â   2.68% Â   2003 Â   2.60% Â   2.98% Â   3.02% Â   2.22% Â   2.06% Â   2.11% Â   2.11% Â   2.16% Â   2.32% Â   2.04% Â   1.77% Â   1.88% Â   2.27% Â   2002 Â   1.14% Â   1.14% Â   1.48% Â   1.64% Â   1.18% Â   1.07% Â   1.46% Â   1.80% Â   1.51% Â   2.03% Â   2.20% Â   2.38% Â   1.59% Â   2001 Â   3.73% Â   3.53% Â   2.92% Â   3.27% Â   3.62% Â   3.25% Â   2.72% Â   2.72% Â   2.65% Â   2.13% Â   1.90% Â   1.55% Â   2.83% Â   2000 Â   2.74% Â   3.22% Â   3.76% Â   3.07% Â   3.19% Â   3.73% Â   3.66% Â   3.41% Â   3.45% Â   3.45% Â   3.45% Â   3.39% Â   3.38% It is important for the FED to make sure there is enough money in the Federal Reserve System to balance out the money that is floating around throughout the American economy. A monetary policy is put into affect for an important reason. A monetary policy allows f or the government to control certain different aspects of the economy. Some of the aspects that are controlled are the Federal