Jagdambay Exports and its Financial Analysis

Jagdambay Exports

1. Explain the components of a financial market and its relevance to Jagdambay Exports. Be explicit and explain to the CFO how financial markets differ from markets for physical assets and why that difference matters to Jagdambay Exports

A financial market brings together and combines both buyers and sellers to conduct the trading of financial assets like stocks, currencies, commodities, and bonds. The key aim of the financial market is to establish prices for international trade, raising capital and the transference of risk and liquidity. There are several different components of a financial market. First, money markets are utilized by the government and corporate establishments as a way for borrowing and loaning in the short-range period, more often than not for assets being held for up until one financial year. In contrast, capital markets are more often than not utilized for longstanding assets, which are delineated as the ones with maturities that surpass one financial year. Third, there is the commodity market which makes it possible for trading in commodities. A fourth component is the derivatives market, which focuses on sharing of financial risk together with risk management (Zucchi, 2018).

It is imperative to note that there is a significant difference between financial markets and markets for physical assets. On the one hand, physical assets markets are also referred to as real, commodity and tangible markets. In delineation, this kind of market copes with tangible products and commodities. For instance, in the case of Jagdambay, physical assets markets are where the company retails its tangible products such as baby garments. On the other hand, the financial asset markets takes into account markets that cope with financial instruments like bonds, stocks, and mortgages. The value of these financial instruments is reliant on what occurs on the value of other assets, the implication of which that they have prescribed requirements that warrant the holders of these instruments to distinctive privileges and entitlements on real assets. This difference matters to the organization for the reason that physical assets markets is where Jagdambay will sell its tangible products and commodities whereas the financial assets markets is where the company will be able to sell shares on its initial product offering (IPO) when going public (Brigham and Houston, 2012). Financial markets are important to Jagdambay for the reason that individual and organizations endeavoring to borrow funds, such as the company in question, are brought together with the entities that have excess funds.

2. Explain the relevance of money markets and capital markets for Jagdambay Exports

Money markets take into account the transactions in short-range debt instruments that are by and large issued by borrowers that have considerably high credit ratings. The key financial instruments that are issued and traded within the money market are significantly liquid debt securities and comprise of commercial papers and treasury bills. These are imperative for Jagdambay Exports for the reason that they are largely sage investments returning comparatively low rates of interest that are suitable for short term necessities. On the other hand, capital markets are dissimilar kinds of financial markets coping with the trading of particular kinds of stocks and bonds. Notably, these markets can either have to do with newly issued bonds or stocks. The significance for Jagdambay exports is that capital markets are for long-standing financial instruments (Brigham and Houston, 2012).

3. Analyze Jagdambay exports and advise how the CFO should consider the primary market and secondary market in the expected transaction. Base your advice, in part, upon the fact that the CFO informed of two things: 1. Jagdambay exports decided to issue additional common stock, and 2. An investor purchased 1,000 shares of this common stock from the underwriter (Merrill Lynch).

Primary markets are the markets in which companies raise new capital by means of selling a new issue of common stock in order to raise capital to prospective investors. Imperatively, these markets can be delineated as part of the capital that copes with new securities issuance. In this regard, Jagdambay should consider the primary market as to where the company will be able to issue its additional common stock as this is where corporations can attain funding by means of selling a new stock. On the other hand, secondary markets are where the trading of presently owing or outstanding securities takes place. Moreover, this is delineated as the place where securities and financial instruments that have been previously issues are purchased and sold. The aspect of an investor purchasing 1,000 shares of this common stock from Merrill Lynch as an underwriter should be considered as the secondary market transaction (Brigham and Houston, 2012).

4. Advise the CFO on three primary ways in which capital may be transferred between savers and borrowers in Jagdambay Exports. Explain the advantages and disadvantages of each within the organization.

The three primary ways in which capital may be transferred between savers and borrowers in Jagdambay exports comprise of the direct transfer of money and securities, via an investment banking entity, or via a financial intermediary.

1. Direct transfer of money and securities

This takes place when a business retails its financial securities such as bonds and stocks directly to the savers devoid of using any other kind of financial entity. In essence, the business partakes in the delivery of its financial securities to the savers who in return hand out the finances that the corporation requires.

One advantage of this approach is that is convenient and simple with respect to the trading between the savers and borrowers. Secondly, it saves both time and expenses. One disadvantage is that savers do not have specialized consultation from experts and can eventually make a wrong investment. The business faces the downside of decreased efficacy during direct transfers (Baker and Powell, 2009).

2. Investment banking entity

In this approach, the investment banking entity operates as middleman. In this regard, the corporation retails its securities to the investment banking entity, which thereafter retails them to the savers. Despite the fact that these financial securities are retailed twice, these two sales processes comprise of one full transaction within the primary market.

One advantage of this approach is the availability of professional advice from experts regarding the details of selling financial securities. Corporations are able to raise funds more efficaciously. A disadvantage of this approach is that companies may experience a decline in price of securities in the sense that when there is a significant need for emergency funds, then the investment banking entity may choose to depress such prices so as to generate more funds. There is also the likelihood of obtaining false or inaccurate information from the investment banking entity (Baker and Powell, 2009).

3. Financial intermediary

In this approach, the savers make an investment of their funds with the intermediary, which thereafter makes an issuance of its own securities in exchange. Subsequently, the savers obtain a certificate of deposit in return for the finances that have been deposited. The different financial intermediaries comprise of banks, insurance corporations, and mutual funds.

One advantage of using this approach is that there is cost advantage over direct borrowing or lending. A second advantage takes into account market failure safety in the sense that the contradictory needs and borrowers and lenders are resolved and settles thereby precluding market failure. In addition, intermediaries that are risk averse aid in spreading out and diminishing the risks and also facilitates the reduction of the costs of lending and borrowing. An advantage of this approach encompasses insufficient consideration given to the social and environmental apprehensions as well as a lack of transparency (Baker and Powell, 2009).

5. Advise the CFO on securities trading on physical exchanges or over-the-counter market. Base your analysis upon what you know about Jagdambay Exports and discuss why you advise one method over the other.

Trading securities can either be done through physical exchanges or over-the-counter. On the one hand, physical location exchanges are official tangible physical entities that conduct auction markets in listed securities. Imperatively, the exchange members that have sell orders provide the shares that are for sale and these are bid by the exchange members that have buy orders. As a result, the exchange functions as auction markets. On the other hand, over-the-counter market can be delineated as a huge gathering of brokers as well as dealers interlinked electronically by means of telephones and computers that offer for trading in unlisted securities. In the case of Jagdambay exports, the physical exchanges would be considered to be the most ideal approach owing to the fact that the company’s stock will be listed and therefore exchanges can be done un the formal tangible physical entities (Brigham and Houston, 2012).