Common stockholders

Common stockholders

Question 1

Common stockholders are the real owners of the business, and they have a claim to any residuals. The statement means that after all claims and obligations, any leftovers are distributable to shareholders either in the form of dividends or used as capital for the firm’s growth.

Question 2

Participating preferred stockholders receive an amount equivalent to the initial investment plus any accrued and unpaid dividends during the liquidation process. Besides, the latter also are treated as common stockholders as they are part of the parties that receive remaining assets during the liquidation process. Non-participating dividends only receive an amount equal to the initial investment and any unpaid and accrued dividends but do not participate in receiving residual assets.

Question 3

Cumulative preferred stock is where a company must keep track of any unpaid dividends within a fiscal year. The firm must pay any dividends or benefits that accrue from previous years. Non-cumulative preferred stock, on the other hand, do not receive any accruing or unpaid bonuses of earlier years.

Question 4

A market order allows buyers and sellers to settle transactions at the immediate market price while the limit order allows traders to set a predetermined amount at which to settle a given transaction.

Question 5

There are three forms of market efficiency, including the weak form that dwells on the past price data, the semi-strong that follows the belief that information is widely available to the public, and the strong form that accounts for public information both known and unknown in determining stock prices. The US market is a developed market where there is high symmetry and discloses of information and thus has a strong form of market efficiency.

Chapter9

Question 1

The spot market involves an agreement to deliver foreign exchange transactions immediately while the forward market includes agreements to provide currency in a future date for a rate agreed today.

Question 2

The primary hedging techniques for FX includes spot contracts and currency options. Spot contracts are settled within days, while currency options involve negotiations for settlement at a predetermined future date and exercise price.

Question 3

A trade deficit creates downward pressure on the US dollar since this creates demand for more imports making them expensive and the currency devalues relative to the trading currencies.

Question 4

The shifting from the fixed to the floating exchange rate system is to have a balance on the supply and demand of currencies by pegging domestic currencies to the dollar. Under the Bretton Wood agreement between 1968 and 1973, countries were allowed to float their money freely.

Question 5

The statement is true since the shifting from $1.20 to $1.15 means you acquire fewer euros and more dollars at the appreciation of the dollar to the euro.