Financial and Economic Literacy for Managers Report, Summer 2019

This report delves into the realm of financial and economic literacy, providing a comprehensive analysis of various key concepts. It begins by examining the classification of goods, differentiating between normal and inferior goods, and exploring the concept of price elasticity of demand. The report then transitions to discuss production types and growth strategies of firms, with a focus on the gold mining industry. It further analyzes fiscal policy, including the fiscal policy implemented by the UK government in 2018, and then explores the benefits of globalization and international trade, particularly for the UK. Finally, the report concludes with an analysis of financial performance.

Running Head: FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Name of the Student
Name of the University
Author Note

1FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Table of Contents
Answer of Question 1.................................................................................................................2
Types of Goods and Price Elasticity of Demand...................................................................2
Determination of Consumption by Type of Goods and Price Elasticity................................3
Answer of Question 2.................................................................................................................4
Three Types of Production and Growth Strategies of Firms.................................................4
Growth and Expansion of Gold Mining Firm........................................................................5
Answer of Question 3.................................................................................................................6
Theory of Fiscal Policy..........................................................................................................6
Fiscal Policy Implemented by UK Government in 2018.......................................................6
Answer of Question 4.................................................................................................................7
Benefits of Globalization and International Trade.................................................................7
Benefits of UK from Globalization and International Trade.................................................9
Answer of Question 5.................................................................................................................9
Financial Performance Analysis............................................................................................9

2FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Answer of Question 1
Types of Goods and Price Elasticity of Demand
Goods are generally classified into two categories that are normal goods and inferior
goods. Normal goods are defined as the increase in the income affects the increase in the
demand. It is that good for which the consumption increases with the increase in the income.
This is also known as the necessary goods because it does not refer good’s quality rather
demand’s level for goods relating to the wages decreases or increases. In contrary, inferior
goods are the goods for which the demand decreases as the income increases. As there is the
improvement in the economy and increasing of the wages, the consumers would have rather
more costly alternative than the inferior goods (Evans and Popova 2017). Here inferior refers
to affordability not the quality. Moreover, the other types of goods include luxury goods,
complementary goods, giffen goods and snob goods. Luxury goods are the goods in which
the increase in the income increases the major percentage of increase in the demand.
Complementary goods are the goods that are being used together such as tea and milk.
Substitute goods refer to the alternative goods such as Coca-Cola and Pepsi. Giffen goods are
the goods in which the increase in the price increases the demand. Lastly, the snob goods are
the goods in which the increase in the price encourages the people for buying more of It
(Bridge 2017).
Price elasticity of demand is one of the key concepts that help in indicating the
relationship between the quantity demanded and the price by the consumers in the given
period. It the measure that is being used for showing the elasticity or the responsiveness of
the quantity of the goods that are demanded or the services to the changes in the price, in case
when nothing but there is change in the price. In other words, price elasticity of demand is the
measure of the changes in the demanded quantity or the product being purchased in relation

3FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
to their changes in price (Evans and Popova 2017). It is one of the most important concepts of
microeconomics. The calculation of price elasticity is done by the help of following formula:
Price Elasticity of Demand= % change in Quantity Demanded of Goods and Services / %
change in Price Level.
Hence, with the help of the price elasticity, the business organizations can predict the
changes in the total revenue with the changes that are predicted in the prices. Moreover, it
helps in charging different prices for the different markets, if there is difference in the
elasticity in the income groups. Moreover, it enables the government for predicting the
taxation policies impact on the products (Huang, Tauras and Chaloupka 2014).
Determination of Consumption by Type of Goods and Price Elasticity
The decisions regarding the consumptions of the items type of the goods and the price
elasticity. The level of price affects the goods and services demand. Moreover, goods and
services types also affect the demand elasticity. Further, the availability of the substitute
goods helps in affecting the demand elasticity of the goods or the services. In addition, the
consumer income level plays the important role in their decisions regarding consumption of
the types of goods and services (Coglianese et al. 2017).
The factors that are responsible for the changes in the price elasticity of the goods are
availability of the substitutes, necessity and time. If there will be more substitutes then the
demand will be more elastic and vice versa. Moreover, if there is something that is required
for the comfort or the survival then people can pay higher prices for it. Lastly, if the prices of
one-product increases then people with some available substitutes would likely to continue
their buying his her daily product (Labandeira, Labeaga and López-Otero 2017).

4FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Answer of Question 2
Three Types of Production and Growth Strategies of Firms
The economic activity has the main purpose of producing the utility for the
individuals. Production is the process of combining the different material inputs as well as
immaterial inputs for making something for the consumption or the output. It is method,
which is used for turning the raw materials or the inputs into the finished goods or the
products in the process of the manufacturing. The business organization purchases the factors
of the production for example labor, land, capital, raw materials from the other business
organization or the household for transforming these resources into various goods or the
services for selling it to the customers (Hudson 2014). Hence, the activity is directed for the
satisfaction of the wants of the other people through the exchanges.
There are three main types of the production, which are as follows:
 Primary Production: It generally includes all those types of the industries that are in
their first stage on the process of the production. It is at their primary stage of the
production. It is carried out by the extractive industries such as mining, agriculture,
fishing, forestry and oil extraction. These types of the industries are generally engaged
in the activities of extracting nature’s gift from the surface of the earth (Becker 2017).
 Secondary Production: It generally includes all those types of the industries that are
involved in the manufacturing of the finished goods from that of the raw materials
that are provided by the primary producers such as textile manufacturers, steel
industries, motorcar industries and so on.
 Tertiary Production: It includes the industries that are engaged in producing the
services that enables the finished goods for putting it in the consumers’ hand. These
services are generally supplied to firms in all the industry types and to the consumers
directly such as banking, transport and communications, transport, health and so on.

5FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
The major tactics that are adopted by the firm is to enhance the position in the market
place is the growth strategies. The growth of the firm is related to the economical
development because of the processes that are taking place in the firm. The more the firms
are growing, the more will be the requirement of the resources. In the view of resource-based,
the firm has its own set of the resources as well as the ability as growth driver. The firm
predicts their growth strategies based on their competence and the resources. This strategy
helps in seeking the increase in the sizes and the current operations expansions (Buzuloiu
2018). Hence, firms should use some approaches for executing the growth strategy. The use
of the method by the company is contingent upon the financial position, government directive
and the competition. Some of the growth strategies of the business include product
expansion, market expansion, acquisition, diversification and market penetration. The growth
strategies are classified in two parts, internal and external. Internal growth consists of
expansion, diversification and modernization and the external growth consists of merger,
joint ventures, acquisitions and the strategic alliances (Buzuloiu 2018).
Growth and Expansion of Gold Mining Firm
The firms in the gold mining are one of the major sources of the income as well as
economic growth and it plays the important role in supporting the supporting the sustainable
socio-economic development. The production of the gold is done by the major corporations
and it is the global business with the operations on every continent (Bird 2016). For the
growth as well as expansion of the firms in the gold mining, they adopt various strategies,
one of which is producer hedging. Under this, the gold volume is supplied each year to the
market can be affected marginally by the forward selling of the future production (Ramdani
et al. 2018).

6FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Answer of Question 3
Theory of Fiscal Policy
Fiscal policy is considered to be the means by which, the government generally
adjusts their levels of spending as well as their influences the economy of the nation. It plays
vital role in managing the economy of the country. This is the theory that states that the
government can generally influence the macroeconomic levels of productivity with the help
of increasing or decreasing the levels of tax as well as the spending of the government. This
in turns curbs the inflation, increases the level of employment as well as maintains the
healthy value of the money. The effects of the fiscal policy is not same for all such as
depending upon the political goals and orientations of the policymakers, the tax cut would be
affecting the middle class and so on (Mertens and Ravn 2014).
Fiscal Policy Implemented by UK Government in 2018
The economy of UK has the solid foundations and it has grown almost every year
right since 2010. The employment is high and the real wages are increasing, The UK is now
continuing to be of the best competitive economies of the world and it remains one of the
attractive destinations for the inward investment. Moreover, over the six years, it has been
observed that there is large discretionary fiscal tightening in UK (Jordà and Taylor 2016).
In the year 2018, the total spending of the UK government is expected around £814.0
billion. The contribution of £150 billion will be in health care, £165 billion will be in
pensions, £85 billion will be in education and £47 billion in defense. Moreover, the overall
forecast of the government spending is expected to be 41% of GDP of UK in the year 2018.
The main aims of the fiscal policy is to cut structural fiscal deficit to 2% of the GDP by the
end of 2020-2021 as well as achieving the balanced budget that is (G=T) by middle of next
decade (Barnes and Hicks 2018).

7FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
The level of unemployment is closing on 4% of labor force as well as by most of the
estimates; the economy of the UK is close to the potential productive that is being measured
by the gap in output. Generally, at this particular stage of economic cycle, there are the
expectations of the government for running either the balanced budget or even the surplus.
However, the country UK has continued for running the deficit budget, which suggests the
existence of structural gap between the spending of the government and the revenues from
the tax. The long-term fiscal risks for UK have mainly two types of risks, the first one is
macroeconomic risks and the second one is financial sector risks. The macroeconomic risk
includes the risks to the potential growth of output that is slow growth of productivity and the
secular stagnation and the risks that are associated with the exit of UK from EU that includes
a fall in the divorce bill or the net migration (Jordà and Taylor 2016). Moreover, the financial
sector risks includes direct costs that includes cost of the bail outs of the banks as well as
other financial institutions and the indirect costs that reflects the effects of the fiscal of the
damages, which is done by the financial crisis to the economy such as rising in the
unemployment and the lower profits. Moreover, the long-term risks that arises from the
structural changes in the economy involves, decline in the sectors such as gas and North sea
oil, demographic changes such as ratio of increasing age-dependency and rising age of media,
impacts of the change in the technology. The example of this is electric vehicles are cutting
the taxes from the fuel duties, growth of the self-employment and long term trends in the tax
avoidance such as digital businesses (Dell'Ariccia, Rabanal and Sandri 2018).
Answer of Question 4
Benefits of Globalization and International Trade
Globalization is defined as the interdependence between the countries that arises from
integrating the various aspects of the economy such as international trade. It can be helpful in
stimulating the economic growth of the countries, which are interconnected now. The

8FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
globalization of trade immediately offers the benefit such as higher standard of living, faster
growth as well as new economic opportunities. The globalization as well as international
trade helps in boosting the growth of the economy and helps in creating the jobs. The theories
helps the economists, government and business for gaining better understanding of
international trade and the way it can be promoted, managed and regulated because
sometimes these theories are occasionally contradicted by real-world events. There are so
many companies, who do not have the absolute advantage in the various areas of production
or the services and there is no distribution of the factors of production between the countries.
However, some countries have a disproportionate benefit of some factors. International
business is considered as the type of the activity of the business that crosses the national
borders. It deals with the financing of the business that operates across the geographical
frontiers. International business, as one aspect is described as buying as well as selling of the
goods as well as services all across the national boundaries even though the management of
the company is located in the single country (Wunderlich 2016).
In the financial economics, international trade plays the important role. It deals with
issues, which are concerned with monetary interaction between the two or more countries.
The subjects that are covered in international finance are currencies exchange rates, foreign
direct investments, world’s monetary system and other important issues that are within the
scope of international financial management. Most of the countries who are engaged in the
trading by borrowing and lending with each other country use their own country’s currency.
For the prosperity and growth of participating economies, international trade plays the key
role. In addition, it also plays the key role international trade and the inter-economy goods
and services exchange. In the particular country, it is the considered as the most important
tool for determining the exchange rate, making judgment of the foreign markets, ascertaining
other country’s economy status, idea for doing investment in international dent securities and

9FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
lastly, for comparing rates of inflation. In the international finance, exchange rates help in
ascertaining the relative value of currencies of the country. Therefore, international finance
helps in the calculation of these particular rates. Various economic factors help in taking the
decisions regarding the international investment. Moreover, it also helps in determining
whether the investor’s money is safe with foreign debt securities (Cavusgil et al. 2014).
Benefits of UK from Globalization and International Trade
The UK has been benefitted from the more globalized world ever since from the
imports and the exports. Globalization involves generally increased integration as well as
interdependence of the globalized economy that involves increase in trade as well as increase
in the movements of the labor as well as capital. However, the economy of the UK has
influenced by the effect of globalization and the international trade (Brenton 2014). UK has
benefitted in terms of increase in trade by specializing in the goods in which it has
comparative advantage, greater choice of the imports, increases competition and lower prices,
lower costs for the firms, migration has helped in entering and working in UK. Moreover, it
is affected by global economic cycle, shifting in sectors of the economy and leading to
temporary structural unemployment, tax avoidance, growing inequality and the
environmental impact. Hence, globalization is not new phenomenon for the economy of UK.
It was during the industrial revolution, the global ties were important in order to enable UK
for importing the raw materials and exporting the goods. Therefore, the recent decade is the
continuation of the globalization process (McCann 2016).
Answer of Question 5
Financial Performance Analysis
a)

10FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
After the calculation of the ratios of both the company that is RON Ltd. and MES
Ltd., it has been found that the performance of RON Ltd. is much better in terms of its
profitability, solvency and liquidity.
RON Ltd. MES Ltd.
2018 2017
Current ratio
Current Assets 1,360.00 1,020.00
Current Liabilities 760.00 1,040.00
Result 1.79 0.98
Quick Ratio
Cash and Cash Equivalents 40.00 -
Trade Receivables 900.00 680.00
Current Liabilities 760.00 1,040.00
Result 1.24 0.65
Gross Profit Margin
Gross Profit Margin 720.00 364.00
Net Sales 2,150.00 1,512.00
Result 33% 24%
Return on Capital Employed
Operating Profit 470.00 174.00
Total Assets 2,370.00 876.00
Current Liabilities 760.00 1,040.00
Result 29% -106%
Return on Equity
Net Income 350.00 84.00
Shareholders Equity 2,170.00 276.00
Result 16% 30%
Figure 1: Ratio Calculation (Williams and Dobelman 2017)
b)
NPV is the net present value that is the method used for determining the current value
of all the future cash flows, which is generated by the project that includes initial investment
of the capital. The NPV calculated for both the project that is Israel Project and South Korea

11FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Project is good enough but the NPV of the Israel project is better than the South Korea
Project with the figure of £1,805,711,593.05 (Marchioni and Magni 2018).
Year Israel Project South Korea
Project
0 1,800,000,000 1,800,000,000
1 1.500,000 500,000
2 1,500,000 1,100,000
3 1,500,000 250,000
4 1,500,000 1,220,000
5 1,500,000 1,400,000
NPV 1,805,711,593.05 1,804,178,176.87
Figure 2: NPV Calculation

12FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Reference
Barnes, L. and Hicks, T., 2018. Making Austerity Popular: The Media and Mass Attitudes
toward Fiscal Policy. American Journal of Political Science, 62(2), pp.340-354.
Becker, G.S., 2017. Economic theory. Routledge.
Bird, F., 2016. The practice of mining and inclusive wealth development in developing
countries. Journal of business ethics, 135(4), pp.631-643.
Brenton, P., 2014. International Trade, Distribution and Development: Empirical Studies of
Trade Policies. World Scientific Books.
Bridge, M.G., 2017. The international sale of goods. Oxford University Press.
Buzuloiu, C.M., 2018. The process of strategy formation in high-growth SMEs (Doctoral
dissertation, University of Cambridge).
Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. and Rose, E.L.,
2014. International business. Pearson Australia.
Coglianese, J., Davis, L.W., Kilian, L. and Stock, J.H., 2017. Anticipation, tax avoidance,
and the price elasticity of gasoline demand. Journal of Applied Econometrics, 32(1), pp.1-15.
Dell'Ariccia, G., Rabanal, P. and Sandri, D., 2018. Unconventional monetary policies in the
euro area, Japan, and the United Kingdom. Journal of Economic Perspectives, 32(4), pp.147-
72.
Evans, D.K. and Popova, A., 2017. Cash transfers and temptation goods. Economic
Development and Cultural Change, 65(2), pp.189-221.

13FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Huang, J., Tauras, J. and Chaloupka, F.J., 2014. The impact of price and tobacco control
policies on the demand for electronic nicotine delivery systems. Tobacco control, 23(suppl
3), pp.iii41-iii47.
Hudson, R., 2014. Production, places and environment. Routledge.
Jordà, Ò. and Taylor, A.M., 2016. The time for austerity: estimating the average treatment
effect of fiscal policy. The Economic Journal, 126(590), pp.219-255.
Labandeira, X., Labeaga, J.M. and López-Otero, X., 2017. A meta-analysis on the price
elasticity of energy demand. Energy Policy, 102, pp.549-568.
Marchioni, A. and Magni, C.A., 2018. Investment decisions and sensitivity analysis: NPV-
consistency of rates of return. European Journal of Operational Research, 268(1), pp.361-
372.
McCann, P., 2016. The UK regional-national economic problem: Geography, globalisation
and governance. Routledge.
Mertens, K.R. and Ravn, M.O., 2014. Fiscal policy in an expectations-driven liquidity
trap. The Review of Economic Studies, 81(4), pp.1637-1667.
Ramdani, D., Primiana, I., Kaltum, U. and Azis, Y., 2018. Business Growth Strategy:
Collaboration-Literature Review. Sustainable Collaboration in Business, Technology,
Information and Innovation (SCBTII), 1(1).
Williams, E.E. and Dobelman, J.A., 2017. Financial statement analysis. World Scientific
Book Chapters, pp.109-169.
Wunderlich, J.U., 2016. Regionalism, globalisation and international order: Europe and
Southeast Asia. Routledge.