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The Tadawul Saudi Stock Market started its operations in 1986. It has since grown to become the region’s leader in the stock exchange market. Research reveals that Tadawul is among the leading stock markets in the world. However, critics assert that the 37-year old industry bars foreign investors from engaging in its business activities. Under the Capital Markets Authority (CMA), Tadawul remains a competent stock market with at least 160 companies trading their stocks therein. Statistics reveals that the market is worth $360 billion currently. The market’s success emanates from the country’s economic stability and oil mining activities. Despite its streak of success, research indicates that the market has been subject to economic challenges. The argument is that the country’s authorities viewed the stock’s boom as a sign of economic growth. Therefore, they failed to predict the occurrence of a subsequent downfall once the market’s potential was exploited to the optimum. Further, the 2006 to 2008 economic crunch in the world challenged every country’s business, and Saudi Arabia was not an exception.
During the 3-year long economic downfall, the country’s stock exchange market experienced lows of 8,000 and 5,000 simultaneously. The outcomes of these lows compelled investors to engage in the selling of their stocks in order to avoid additional losses. However, the investors’ decisions to sell their stocks led to the incurrence of more losses as the move heightened the supply, amidst poor demand. It is evident that the Tadawul Market suffered an overall loss of 65% in that period. Research indicates that the situation occurred because of the level of ignorance that prevailed upon the responsible authorities, the country’s media, and the entire population of investors.
Case Study: Financial Management Principles (FINA) 3311
As a financial analyst in the BHH Company, a person realizes that the company trades its preference and ordinary stocks with a view of amassing extra capital from the investors. According to the firm’s recent statistics, its tax rate is 30%. On the other hand, the company’s current price per coupon rests at 12%. The information is vital in the process of evaluating the expected growth rate of the preference and common shares. The coinciding calculations to establish the firm’s stock changes indicate the possibility of a 7% overall growth. Therefore, the predictions that the firm’s semi-annual payments and bonds are predicted to escalate to a maturity price of $1,140 within a scope of ten years. According to the corporation’s president, the firm intends to avoid the prevalence of chances that might coerce it to issue new shares in the market. The perception that the restraint will act as a remedy to avoid dwindling of the company’s capital amount remains insufficient. The argument is that the subsequent decision will lead to the inflation of its preference and common share prices at a 7% rate for every unit.
The status of the company’s share par value is $120; hence, the market price is $75 per share. The results emanate from the fact that the floatation rate is 5%. After reviewing the preference and common shares against other capitals, the company will bear the ability to issue a dividend of $4.9 for every share held. Despite such outcomes, BHH Inc should expect a continuous growth rate of 7% per annum. In conclusion, the company’s management should include the 20% long-term debts to the overall capital. Further, the management should prepare for the inevitable 7% escalation of its common share prices if new ones are not issued. The same case will apply to the preference shares.
Comparison of the Saudi Arabian Monetary Agency (SAMA) and the US Federal Reserve System
The Saudi Arabian Monetary Agency (SAMA) and the US Federal Reserve System are the central banks of their respective countries. The Federal Reserve System’s form of governance differs from that of SAMA. Arguably, the president and the board of directors lead the US Federal Reserve Bank, which spreads into 12 branches across the nation. On the other hand, the governor and a subsequent board, head the SAMA. The US Federal Reserve Bank is the lender of last resort to all the banks present in America. The US Congress has been passing laws since 1913, which have propelled the bank’s performance to dominate its domestic and foreign financial institutions. Further, the Federal Reserve is the custodian of the dollar; hence, its financial policies have influenced the currency’s success to become the global unit of exchange.
The relationship between the US Federal System and the SAMA is that both are associated with the use of political influence to control international and domestic financial institutions. Research indicates that SAMA is the overall bank in the country, and it controls the foreign banks through the Saudization Policy. The Saudi Kingdom authorises SAMA’s policies in order to ensure security in the revenues created from the petroleum industry. On the contrary, the US Congress’ influence over the Federal Reserve System targets to ensure that the country remains an economic giant through its unchallengeable currency.
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