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Assessment on Economic Problem

   

Added on  2020-03-16

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Running head: FNSACC 601FNSACC 601Name of the StudentName of the UniversityAuthor Note

1ASSESSMENT 2 Assessment 1 Q1. What is an economic problem? The economic problem – even called the central or the basic economic problem – states that aneconomy's limited assets are inadequate to fulfill every human needs and wants. It expects thathuman needs are boundless, however the way to fulfill human needs are scarce.Q2. What is WACC and Leverage ratio? The ratio among the debt and equity in the cost of capital computation should be similar as theratio between a company's overall debt finances and its total equity financing. This is alsoknown as the weighted average cost of capital, or WACC.The organizations depend on a blend of owners' equity and debt to finance their operations. Aleverage ratio is any one of the numerous financial techniques that look at how much capitalarrives in the form of debt, or assesses the capability of a firm to meet their financial obligations.Q3. Explain capital structure policy and Why does Capital structure matter?Capital structure, the mixture of a firm's debt and equity, is important because it costs companymoney to borrow. Capital structure also matters because of the different tax implications of debtvs. equity and the impact of corporate taxes on a firm's profitability. Firms must be prudent intheir borrowing activities to avoid excessive risk and the possibility of financial distress or evenbankruptcy.The capital structure policy comprises of the capital structure, financial leverage, Modigliani andMiller's Capital Structure Theories, Bankruptcy Costs and Optimal Capital Structure, ExtendedPie Model, Observed Capital Structures and Long-Term Financing.

2ASSESSMENT 2 The capital structure of a firm does matter as it helps in the development of an effectiveframework within which the company would operate their financial activities and regulate theprocess of investing and gaining their capital so that effective operational activities can beattained. Q4. What is The Capital Asset Pricing Model (CAPM)? Explain with EquationThe capital asset pricing model (CAPM) is a model that describes the relationship betweensystematic risk and expected return for assets, particularly stocks. CAPM is widely usedthroughout finance for the pricing of risky securities, generating expected returns for assets giventhe risk of those assets and calculating costs of capital. The equation is as follows: Q5. “Prudential Standard APS 110” download from government website.Summarize the whole concept (minimum 600 words) and make short class lecture (10 minutes).YOU MUST EXPLAIN FOLLOWING POINT•Responsibility for capital management•Measurement of capital adequacy•Minimum capital adequacy requirement•Risk-based capital adequacy framework

3ASSESSMENT 2 The Prudential Standard APS 110 comprises of the various concepts that are useful for thedevelopment of the capital management of an organization. This standard is under the section11AF of the Banking Act 1959. This standard is applicable to all the permitted deposit takingorganizations with respect to the Banking Act that is subject to paragraph 3. It is seen that with respect to the responsibility capital management, it is seen that capital hasbeen looked down upon as the cornerstone of the financial strength of an ADI. It aids theoperations of ADI by giving out a cushion to absorb the losses that have not been predicted fromtheir actions and in the event of the issues that enables the ADI to sustain to operate in a viableand sound manner while the issues are resolved and addressed. The capital management requires to be an integral part of the risk management of ADI byaligning their appetite of risk and the risk profile with its ability to gain in losses. The board of directors of ADI has to the role to make sure that ADI maintains a degree andquality of the capital commensurate with the amount, type and focus of risks to which ADI hasbeen exposed from their operations. In doing so, the board needs to have knowledge about thechanges that can be possible in the risk profile of ADI and the capital holdings. The member of an ADI can be exposed to risks, inclusive of the contagion and reputational riskthrough their relation with the other members of the group. The issues that arise in the groupmembers consist of the operational and financial position of ADI. The measurement of capital adequacy can be found by explaining that APRA utilizes a tieredmethod to the computation of an ADI’s adequacy of capital. It evaluates the financial strength ofADI at three levels in order to make sure that the ADI is capitalized adequately both on a groupor an individual basis. The levels are:

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