Financial and Economic Literacy for Managers - Coursework Report

This report, focusing on financial and economic literacy, explores various key concepts. It begins by classifying goods and analyzing price elasticity of demand, then delves into production types and firms' growth strategies, particularly within the gold mining sector. The report also examines fiscal policy theory and its implementation in the UK, followed by a discussion on globalization and international trade benefits. Furthermore, it analyzes investment decisions through ratio analysis. The report provides a comprehensive overview of these topics, offering valuable insights into financial and economic principles.

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 1....................................................................................................................................2
Goods Types and Price Elasticity of Demand........................................................................2
Decision for Consumption of Item.........................................................................................3
Answer 2....................................................................................................................................3
Production Types and Firms Growth Strategies....................................................................3
Growth and Expansion of Firm in Gold Mining....................................................................5
Answer 3....................................................................................................................................5
Fiscal Policy Theory..............................................................................................................5
Implementation of Fiscal Policy by Government of UK.......................................................6
Answer 4....................................................................................................................................7
Globalization and International Trade Benefits.....................................................................7
UK benefited by Globalization and International Trade........................................................9
Answer 5....................................................................................................................................9
Ratio Analysis......................................................................................................................10
Investment Decision.............................................................................................................11
Reference..................................................................................................................................12

2FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Answer 1
a)
Goods Types and Price Elasticity of Demand
The goods, in general are classified into two types normal and the inferior goods. The
goods, which is normal is defined as the rise in the level of income affects the rise in the
demand level. In this type of good, the consumption increases with the rise in the income.
The normal goods is also called necessity goods because in this type of goods, quality is least
important than the level of demand for the goods that decreases with the increase in income
(Varian 2014). However, as opposite to the normal goods is inferior goods, for which there is
decrease in demand with the increase in income. When the economy improves and wages
increases, the consumers would be preferring alternative to the inferior goods that are
costlier. It does not relate to quality rather it relates to affordability. Further, other types of
the goods are complementary goods, luxurious goods, snob goods and giffen goods (Evans,
Evans and Mayo 2017).
Price elasticity of the demand is the concepts, which helps to indicate the relationship
between demand of the quantity and price by consumers in the given time–period. This is the
measure, which shows the responsiveness of the quantity demanded of goods or services to
the changes in price level. It is considered as the vital concept of the microeconomics. Below
is the formula of price elasticity of demand (Coglianese et al. 2017).
Price Elasticity of Demand= %changes in the Quantity demanded/ % changes in the Price
Level.
Therefore, the business organizations, with the price elasticity would be able for
predicting the changes in total revenue with the changes in the price predicted. Further, with
the help of this, different prices can be charged for the different markets, in case of

3FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
differences in income groups’ elasticity. It helps in enabling the government to predict how
many the policies of taxation impacts the products (Labandeira, Labeaga and López-Otero
2017).
b)
Decision for Consumption of Item
The demand of the goods and services are affected by the price level. It is also
affected by the type of the goods and services that are being sold. If there is availability of the
substitutes then it affects the demand elasticity. Moreover, income level of the consumer
helps in playing important role in consumptions decisions of types of goods and the services.
The factors such as time, necessity as well as substitutes availability are responsible for the
price elasticity changes of goods and services. In case of availability of more substitutes, the
demand of the goods and services will be more elastic and vice-versa. Further, customers
would be willing for paying higher for the goods and services that exerts comforts. Moreover,
increase in the price of one product will result in moving towards substitutes products by the
customers (Möhlmann 2015).
Answer 2
a)
Production Types and Firms Growth Strategies
Production of the utility for individuals is the main purpose of the economic activity.
Production is generally defined as the combination of the various inputs of the materials and
the immaterial inputs in order to make something for output or consumption. This is the
method that is being used to convert input or raw materials into finished products in
manufacturing process. The factors of production such as capital, labor, and raw material are
being purchased by the business organizations to transform the resources into the finished

4FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
products for selling to the ultimate customers. Therefore, production activities are directed
towards satisfying the needs as well as wants of the people by the help of exchanges (Fuss
and McFadden 2014). There are three types of production that are following:
 The first type of production is Primary production. This type of production generally
includes all those type of the industries, which are at their initial stage in the
production process. These activities are generally carried out by extractive industries
such as oil extraction, mining, fishing and so on. They are engaged in activities of
extraction gift of the nature.
 The second production type is secondary production. This type of production consists
of all industries types, which are engaged in the production of the finished goods from
that of the raw materials, which are provided by primary producers such as motor
vehicle industries, textile industries and so on (Iamsiraroj 2016).
 The third production type is tertiary production. This type of the production generally
consists of the industries, which are engaged in the production of the services that
helps in enabling the finished goods to provide it to the consumers. The services
include supplying to firms in every types of industry as well as directly to the
consumers such as transportation, communication, banking and so on.
The firms generally adopt the growth strategies for enhancing their market position. This
firm’s growth is related with the economic development, it is because of processes taking
place in firm. According to the resource based view, the company has their own resources
and ability set as the driver of growth. The growth strategies are predicted on the basis of
their resources and their competencies. This particular approach provides the scope for
expansion of the sizes as well as current operations. The uses of this approach by the firm are
contingent upon the competition, directive of government and the financial position. The
growth strategies adopted by the business organization includes diversification, market

5FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
expansion, market penetration and so on. The strategies of growth are further divided into
internal growth, which includes modernization, expansion and diversification as well as the
external growth, which includes strategic alliances (Fang and Jiang 2014).
b)
Growth and Expansion of Firm in Gold Mining
The organization in gold mining are considered being the major sources of the
economic growth and the income as it helps in playing the vital role in the support of the
sustainable development of socio-economic. The gold production is generally done by the
majority of the corporations and it is one of the globalized businesses, which is having the
operations on each of the continent. Various strategies are being adopted, one of which
includes producer hedging, for the expansion and the growth of the gold mining firms. Each
year, majority of the volume of gold are supplied to market, which is marginally affected by
forward selling of future production (Verbrugge 2015).
Answer 3
a)
Fiscal Policy Theory
Fiscal policy is the theory that is means, with the help of which the government of the
particular country adjusts the spending levels and influences the national economy level. This
theory explains that how the government of the country influences the macroeconomic
productivity levels through the increasing and decreasing tax levels and government
spending. Fiscal policy plays very important role in any country’s economy. It helps in
increasing employment level, maintaining value of the money as well as reducing the
inflation as much as possible. However, the fiscal policy effects are not same for all the

6FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
country as it heavily depends upon the policymaker’s political goals as well as orientations,
cutting of tax would be affecting the middle class people and so on (Hansen 2014).
b)
Implementation of Fiscal Policy by Government of UK
Since, the year 2010, the economic condition of the UK has grown every year almost
and it is having solid foundation. The real wages are getting increase and the employment
level is high there. All around the world, UK in recent decades is known to be the country
having best competitive economies. Further, over the years, there is the observation that UK
is having increased discretionary tightening of fiscal (O'Brien and Pike 2015).
The total spending of the government of UK in the year 2018 is expected to be around
£814 billion that includes contribution towards health care for £150 billion, contribution
towards education £85, contribution towards defense £47 billion and contribution towards
pension £165 billion. Further, it has been forecasted that the spending of the government for
the year 2018 would be around 41% of the total GDP of the UK. Fiscal policy of the country
has the aim of cutting 2% structural fiscal deficit of the GDP by the year end of 2020-2021
and achieving budget that is balanced (G=T) by the middle of the next decade (Eze 2014).
The unemployment level of the country is estimated to close on the 4% of the labor
force and it is been found that by most estimates, UK economy is close to potential
productive, which is measured by output gap. In generally, in this economic cycle stage,
government is expected to run either surplus budget or the balanced budget. Although, it has
been observed that UK has run many of times deficit budget that means there exists structural
gap between government spending and revenues from the tax. For UK, long-term fiscal risks
are divided into two parts that is macroeconomic risks and financial sector risks. The risks of
macroeconomic consists of the risks of the potential growth of the output, which is slow

7FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
productivity growth as well as secular stagnation and associated risks with exit of UK from
the EU that consists of net migration or decreasing divorce bill. In addition, the risks of
financial sector is consists of the indirect costs, which reflects fiscal effects of the damage
done by financial crisis to economy of the country such as rise in unemployment as well as
lower profits and the direct costs is consists of banks bail out costs and the other financial
institutions (Ajayi and Oyedele 2017).
Answer 4
a)
Globalization and International Trade Benefits
The international business finance helps in dealing with the financing businesses, which
operates across geographical frontiers. International business is the type of the business
activity, which crosses national borders. It is defined in different aspects, at the first aspect, it
is defined as the organizations, which buys as well as sells the goods and the services across
two or more than the national boundaries, even in the case that the management is located at
single country. However, on the other hand, international business is considered by only big
organizations that have their operating units outside to their own country (Nobes2014).
Institutional arrangements are in middle, which provides some type of managerial direction
against the economic activity that is taking place abroad but it stop short of controlling the
business ownership that is being carried out on the activity such as joint ventures can be done
either with the locally owned business or with the foreign government. Either in the
traditional form of the international trade and finance or in its latest form of the multinational
business operations, the international business has now become wider in scope (Picciotto and
Mayne 2016).It exerts major influences over the economic, political and social from different
types of the comparative studies of business as well as from the knowledge of the different
aspects of the foreign operations of business. Business can be financed by different ways.

8FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Capital for International Businesses can be raised with the help of stock market, derivative
market, investment banking and commercial banks (Feenstra2015).
International Finance is one of the important parts of the financial economics. It deals
with the issues that are related with the monetary interactions of two or more counties.
International finance includes the subjects such as monetary system of world, exchange rates
of the currencies, foreign direct investment as well as other issues that are important with the
international financial management. International finance such as international trade and
business exists because existence of the nations affects the economic activities of the
business, organizations as well as government. In the trades where countries are often engage
in borrowing as well as lending with each other, many of the countries uses their own
currencies. International trade is considered as the key factors for the growth as well as
prosperity of the participating economies. Moreover, international finance plays vital role in
the international trade as well as inter-economy exchange of the goods and services (Chenget
al. 2014). It serves as the important tool for finding out the exchange rates, comparing the
inflation rates and getting the idea about investing in the international debt securities,
ascertaining the economic status of the other country and judging the foreign markets.
Further, exchange rates are important in the international finance as it helps for determining
the relative values of the currencies. Hence, with the help of international finance helps in
calculating these rates. Different economic factors help for making the international
investment decisions. It helps in determining whether the money of the investors’ is safe or
not with the foreign debt securities (Jones and Kierzkowski2018).
b)

9FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
UK benefited by Globalization and International Trade
The main sources from which the country UK has got benefitted from globalization is
because of the imports as well as exports. Globalization provides interdependence and
integration of globalized economy, which generally involves increase in the level of trade and
increase in the capital and labor movements. In the country of UK, the economy has greatly
impacted by the international trade and globalization. The benefit that UK has availed is
because of the increase in trade due to having comparative advantage in the goods and
services in which it is specialized, increased competition as well as lower prices, imports,
firms lower costs and migration facilitated entering & working in the UK (Hirst, Thompson
and Bromley 2015). Further, UK is also influenced by the globalized cycle of economy,
environmental impacts, avoidance of tax, growth in inequality and shifting in economics
sectors and leading towards structural unemployment. Therefore, it can be said that
globalization is the UK’s economy new phenomenon. Moreover, late during the period of
industrial revolution, it was important to have global ties for enabling the country of UK to
import the raw materials as well as exports the goods. Hence, the current decade in the UK is
continuance of the process of globalization as well as international trade (Croucher 2018).
Answer 5
a)

10FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Ratio Analysis
RON Limited MES Limited
Year- 2018 Year- 2018
Current ratio
Current Assets 1,360.00 1,020.00
Current Liabilities 760.00 1,040.00
Result 1.79 0.98
Quick Ratio Year- 2018 Year- 2018
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 Year- 2018 Year- 2018
Gross Profit Margin 720.00 364.00
Net Sales 2,150.00 1,512.00
Result 33% 24%
Return on Capital Employed Year- 2018 Year- 2018
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 Year- 2018 Year- 2018
Net Income 350.00 84.00
Shareholders Equity 2,170.00 276.00
Result 16% 30%
Ratios
Figure 1: Ratio Calculation
The analysis of ratios of both RON limited company and MES Limited Company
shows that the company RON Limited is performing well for the year ended 2018. The
profitability position followed by liquidity and solvency position shows that it is holding
good position in comparison with the other one that is MES Ltd (Williams and Dobelman
2017).
b)

11FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Investment Decision
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
NPV of the project is defined as the net present value, which is used for the
determination of the current value of the future cash flows. It is being generated by project,
which consist of initial investment. The calculation of both the projects that is Israel project
and the South Korea Projects shows that the Net present value of Israel project is better in
comparison with the South Korean Projects (Arnold and Yildiz 2015).

12FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
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