Topic 1 A healthy and strong economy with a high rate of growth is the economy which has organized, wellfunctioning

and active financial markets. Please indicate why the existence of organized and active financial markets contribute to the creation of healthy and strong economy as well as the growth of the economy (increase of Gross Domestic Product -GDP) Book Name : Financial Management, Theory and Practice E.F Brigham and M. C. Ehrhardt, International Middle East and Africa Edition Pages 3, 15 to 19 Book Name : Essentials of Managerial Finance, Fourteenth Edition, Scott Besley and Eugene F. Brigham http://www.scribd.com/doc/45859389/Essentials -of-Managerial-Finance One of the main attributes of successful companies is having funding to execute their plans. Companies can invest portion of their earning or may need to increase their funds by selling stock or borrowing in financial markets. Getting sufficient capital for expansion defiantly is based on how successful is the organization (corporation) and healthy financial market in that document we will focus on financial market point of view. Healthy finical market and economy are tied together and cant be separated. Many economic conditions can affect the cost of money therefore they will defiantly affect organizations growth and they will increase the cost of required fund to establish new corporation or corporations growth, those conditions are: Federal Reserve policy and interest rate: If the government is stimulating the economy they increase money supply to increase the growth and lower interest rate will accordingly encourage investment and consumption. But it should remain under control, because larger money supply will lead to an increase in inflation rate that would increase interest rates. Budget deficits and surpluses: If the government on deficit thy will need to have to the following options borrowing which will lead to increased money demand , increase money supply by printing money and both of them will certainly increase interest rate affecting potential production growth. They may also increase taxes but too much tax could impact the investment and consumption as well.

Business Activity In times of high inflation and recession consumer demand decreases keeping companies from increasing prices and they work on reducing their costs and delay their expansion plans. International trade deficits and surpluses if the nation imports larger than th eir exports they are on foreign trade deficit which will force them to finance that deficit by debit increasing the interest rate and cost of money. International Country Risk depends on Countrys economic, political and social environment. Risk examples includes but not limited to expropriated without adequate compensation, tax rates, regulations, terrorism and exchange rate .