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Dear Sir,
May i ask question 2( c)from the answer provided why the lower wages will be consider desirable? The purpose of IR is to explain how company create value is it? May i know the linkage on the criticism and IR?
Confusing on the answer provided. Thank you.Ans state: However, the fact that there is a government enquiry into low pay in the sector suggests that pay levels are lower than society deems desirable. The force of the criticisms may be enhanced by the statements which Cadnam Co has made about developing an integrated reporting approach. Integrated reporting is not just about extra details in the annual report, but also reflects an underlying policy of carrying out business which includes responsiveness to the needs of different stakeholders
Sir, my second question( different from the first question i posted)
May i ask is the risk possible to be diversified when combine with another company which has same nature of business?
As what i understand is the risk able diversified when hold or join company that within different industry..Thank you.
First question:
In order to create value the company needs to take account of the needs of all stakeholders. The employees are stake holders and paying them low pay is not desirable (and risks damaging the company in the future as well – for example, employees might go on strike or customers may start avoiding the company if they are exploiting the workers.
Second question:
Unsystematic risk can be diversified away (as I explain in my lectures on portfolio theory and CAPM). However given that shareholders can diversify themselves it is not necessary for the company to do it.
Acquiring a company in a different type of business which change the level of systematic risk, but does not remove it.
Sir for the first question,
answer state that low wages will consider desirable what it actually means?( this is the part that I confused on)Another new question,
Ans state:
The BSOP model was developed for financial products and not for physical products, on which real options are applied. The BSOP model assumes that a market exists to trade the underlying project or asset without restrictions, within frictionless financial and product marketswhat it is means for financial product? as from my understanding, option could be enter for whether want buy the machines is it?
Thank you.
It is not saying that paying low pay is desirable, it is saying that they are paying less than society thinks is desirable. They should not be paying less than what is a fair wage – it is not ethical and will damage the companies reputation if society thinks that they are paying too little.
Financial products are things like shares, currency options etc..
We can apply the same model to real options (such as the option to invest in a new machine) but the Black and Scholes came up with the formulae for financial products and were not thinking about machines etc. when they developed it
Dear Sir,
thank you for your explanation.However, I have a question on Mar/ June 2019 question 3 part c
what the question is actually asking?
is it means that a restructuring take place, factor need consider for communicate to stakeholders?Yes – it is asking about the need for the company to inform all the stakeholders about what is happening and what effect it will have on them.
Thank you Sir.
Sir May i know what refer to exchange traded derivatives?
And otc is it refer to option contract?Thank you
In future you must start a new thread when you are asking about a different topic (it is because our answers are for the benefit of all students and many use the search box to see if a question has already been answered).
Exchange traded derivatives are bought and sold on the relevant exchanges (just as shares are bought and sold on the stock exchanges).
OTC (over-the-counter) are ‘private’ arrangements directly with a bank.
Options can either be exchange traded or can be OTC.
This is all explained in my free lectures on risk management. Have you watched them?
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