chapter 2: external environment chapter 2 external environment
TRANSCRIPT
Chapter 2: External Environment
Chapter 2
External Environment
Chapter 2: External Environment
2005 Kaplan Financial
2
External Environment
Economic Environment Legal Environment Social Environment Technological Environment Political Environment Taxation Environment
Chapter 2: External Environment
2005 Kaplan Financial
3
External Environment
Goals
FinancialStatements
RiskTolerance
Legal
Social
Technological
Political
Taxation
EXTERNALENVIRONMENT
INTERNALENVIRONMENT
(CLIENT)
Economic
Chapter 2: External Environment
2005 Kaplan Financial
4
The General Economy
Demand Supply Substitutes & Complements Diminishing Marginal Utility Price Elasticity Equilibrium
Chapter 2: External Environment
2005 Kaplan Financial
5
Demand Curve
Chapter 2: External Environment
2005 Kaplan Financial
6
Supply Curve
Chapter 2: External Environment
2005 Kaplan Financial
7
Substitutes & Complements
Substitutes products that serve similar purposes chicken and turkey
Complements products consumed jointly peanut butter and jelly
Chapter 2: External Environment
2005 Kaplan Financial
8
Diminishing Marginal Utility
As Rate of Consumption increases, enjoyment or use of additional units decreases.
Chapter 2: External Environment
2005 Kaplan Financial
9
Price Elasticity
For some goods (elastic), demand will change greatly with a small price change. cars, boats, vacations
For other goods (inelastic), demand will change little with a large price change. electricity, water
Chapter 2: External Environment
2005 Kaplan Financial
10
Price Elasticity
% Δ in Quantity Demanded % Δ in Price
= Price Elasticity (PE)
PE > 1 ElasticPE < 1 InelasticPE = 1 Unit elastic
Chapter 2: External Environment
2005 Kaplan Financial
11
Equilibrium
SupplyDemand
Pri
ce
Quantity
Equilibrium
Chapter 2: External Environment
2005 Kaplan Financial
12
Hypothetical Business Cycle
Chapter 2: External Environment
2005 Kaplan Financial
13
Business Cycle Components
Expansion Phase Contraction Phase Peak Point Trough Point
Chapter 2: External Environment
2005 Kaplan Financial
14
Business Cycle and GDP
Chapter 2: External Environment
2005 Kaplan Financial
15
Actual Business Cycle
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001
Per
cen
t C
han
ge
Change in GDP 47-yr Average Change in GDP10-yr Average Change in GDP
Chapter 2: External Environment
2005 Kaplan Financial
16
The Economy and Inflation
Inflation Deflation Disinflation Moderate Inflation Galloping Inflation
Chapter 2: External Environment
2005 Kaplan Financial
17
Measures of Inflation
Consumer Price Index Gross Domestic Product Gross National Product Producer Price Index
Chapter 2: External Environment
2005 Kaplan Financial
18
Monetary and Fiscal Policy
Monetary Policy Easy vs. Tight Monetary Policy Methods of Controlling Money Supply
Discount rate Reserve requirements Open market operations
Fiscal Policy Taxation, expenditures, and debt
management of the federal government
Chapter 2: External Environment
2005 Kaplan Financial
19
Nature of Interest Rates
Interest rate = price of money Nominal interest rate = stated rate Real interest rate = nominal rate
adjusted for inflation
Chapter 2: External Environment
2005 Kaplan Financial
20
Expansion & Recession Expansion
High Employment High resource demand Output > GDP average
Recession High unemployment Low resource demand Falling real wages Decreasing real interest rates
Chapter 2: External Environment
2005 Kaplan Financial
21
Legal Environment Torts
Liability & Negligence Consumer Protection
Federal Consumer Protection Laws Bankruptcy Laws
Worker Protection OSHA Workers’ Compensation Unemployment Compensation Social Security ERISA COBRA
Chapter 2: External Environment
2005 Kaplan Financial
22
Legal Environment (cont.)
Financial Institutions FDIC Insurance Negotiable Instruments Investor Protection
Securities Acts of 1933 and 1934
Chapter 2: External Environment
2005 Kaplan Financial
23
Torts
Standards of Care Damages Vicarious Liability Defenses to Negligence
Chapter 2: External Environment
2005 Kaplan Financial
24
Federal Consumer Protection Laws
Fair Packaging and Labeling Act Equal Credit Opportunity Act Fair Credit Reporting Act Fair Credit Billing Act Truth in Lending Act Magnuson-Moss Warranty Act
Chapter 2: External Environment
2005 Kaplan Financial
25
Federal Consumer Protection Laws (con’t)
Fair Debt Collection Act Federal Bankruptcy Laws Consumer Protection at State Level Antitrust Legislation
Monopoly Oligopoly
Federal Trade Commission Act
Chapter 2: External Environment
2005 Kaplan Financial
26
FDIC Insurance
Single Ownership Accounts Joint Accounts Business Accounts Retirement Accounts
Chapter 2: External Environment
2005 Kaplan Financial
27
Other External Factors
Social Environment Technological Environment Political Environment Taxation Environment