Asymmetry can lead to market abuse, as when those with inside information of a coming takeover buy shares in the target company. This occurs when one party to a transaction knows more than the other. Normally, a company’s debts are deducted to calculate a net asset value. One measure used by investors to calculate the worth of a company. This often leads to great disruption in the business and a loss of jobs. The practice of buying a company and rapidly selling off the component parts with the aim of making a profit. Assets make up one side of a company’s balance-sheet the other is liabilities. An asset can be tangible, such as a building or machinery or intangible, such as a patent or a brand name. Something that can be used to create economic value. Thanks to the speed of modern information flows, risk-free arbitrage opportunities are rare. The practice of exploiting price differentials in different markets for example, buying an asset cheaply in London and selling it for a higher price in New York. In particular, currencies are often described as appreciating when they go up and depreciating when they go down. Term used to describe laws or regulations designed to stop firms from exploiting their monopoly positions in markets at the expense of consumers or rival businesses. If sentiment is depressed, economies may struggle to escape from recession. Term used by John Maynard Keynes to describe sentiment among businesspeople and consumers. Companies use amortisation to steadily reduce the value of intangible assets on their balance-sheets. A debt (such as a mortgage) is amortised via regular repayments. The gradual reduction in the value of an asset (or a debt) over time. That part of an investment return that is due to the skill of the fund manager. For millennia, this was mankind’s primary economic activity. The cultivation of crops and the tending of animals for the purpose of supplying food. Demand can fall, even if people’s income and wealth are unchanged, if they decide to save, rather than spend. The flow of spending, across the economy, on goods and services. Examples include hiring a fund manager to look after an individual’s investment portfolio, or the cost to shareholders of having professional managers run a business. The expense involved in using a third party to carry out a task. One way to avoid the problem is to make insurance compulsory for all, as happens with car ownership. People who are worried about their health will be more inclined to pay for health insurance than those who are fighting fit. See also passive management.įund managers who take a stake in a company and then agitate for a change of management, or strategy, in the belief that this will increase profits, and thus the share price.Ī risk associated with insurance, and linked to asymmetric information. But see, more importantly, comparative advantage.Ī branch of investment management that attempts to outperform other investors by selecting a limited number of assets, and trading them regularly. If country A is better at making toasters than country B, and B is better at making kettles than A, it makes sense for each country to focus on the area where they have this advantage, and then trade toasters for kettles. A concept that helps to explain international trade.
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