What are the types of interest rate premiums related to interest rate risk?
First off, let’s make sure we understand what interest rate risk is. Interest rate risk is that risk that interest rates change, and a company/individual is negatively impacted (i.e. lose money) as the value of their bonds or fixed-rate investments may decline. To compensate investors for taking on additional interest rate risk, risk premiums may…
What is economies of scale?
Economies of scale illustrate the advantages companies are able to realize from increasing their volume or output. For example, if the fixed cost to operate in the automotive industry is $100,000, then producing 100 cars instead of 5 cars represents a lower fixed cost per unit and overall cost per unit. Due to the higher…
What is the law of supply and demand?
The law of supply and the law of demand are two separate laws that work together to determine the optimal price point of a product (rather than the market as a whole). As a general rule, if price increases, then supply will increase, and demand will decrease. If price decreases, then demand will increase, and…
Types of elasticity measures in supply and demand?
To understand elasticity measures, you will need to have a solid understanding of the law of supply and demand. In short, the law of supply and demand says that a price increase will increase supply and decrease consumer demand, but a price decrease will decrease supply and increase demand. Aside from changes in price, there…
What is a SWOT analysis?
A company would create a SWOT analysis to understand their strengths, weaknesses, opportunities and threats. Its a very common planning technique that helps companies understand their strategic position compared to their competitors. Business leaders often overlook this basic analysis because they think they already have all of these aspects nailed down. A SWOT analysis can…
What is a circular business combination?
A circular business combination occurs when the combining companies offer different types of products. The products may or may not be complimentary. Circular combinations occur when one company is working to expand its presence in different verticals.
What is a diagonal business combination?
A diagonal business combination is when two companies that provide support services combine to make them one company. The main objective in a diagonal business combination is to make the support service larger and self sufficient. For example, if one company is a manufacture and one provides repair services, then they would merge so that…
What is the difference between a horizontal and vertical business combination?
The key difference is that each company operates in a different phase or stage of the supply chain. A horizontal business combination occurs when a company acquires another company in the same industry or vertical, and that company is in the same phase of the supply chain (both companies manufacture cars). A vertical business combination…
