Approximately 1,000 words Business Strategy Analysis Explain the strategies of t

Question

Approximately 1,000 words
Business Strategy Analysis Explain the strategies of the company that may create competitive advantage, e.g. product differentiation, cost leadership, etc. Investigate and report share ownership structure of the company, paying special attention to managerial and institutional ownership Prepare a report interpreting the trend of liquidity and some potential reasons for liquidity movements (You may need to search the internet for these events), paying attention to the ownership structure of the firm.
3. Business Strategy Analysis Explain the strategies of the company that may create competitive advantage, e.g. product differentiation, cost leadership, etc. Investigate and report share ownership structure of the company. paying special attention to managerial and institutional ownership Prepare a report interpreting the trend of liquidity and some potential reasons for liquidity movements (You may need to search the internet for these events), paying attention to the ownership structure of the firm. Release date: Not applicable Word limit: Approximately 1,000 words for part A (not including appendices or attachments).

Explanation / Answer

Strategies that create competitive advantage:

Given the considerable sums of money that institutions invest, it is not surprising that they tend to be much more knowledgeable than the average investor when it comes to the companies and industries in which they have invested. Institutional portfolio managers often meet personally with a company's top executives, and in many cases the research they conduct is further supported by equity analysts -- known as "buy side" analysts -- who evaluate prospective companies and industries in great depth before making specific investmentrecommendations. •Liquidity risk arises from situations in which a party interested in trading an asset cannot do it because nobody in the market wants to trade for that asset. Liquidity risk becomes particularly important to parties who are about to hold or currently hold an asset, since it affects their ability to trade.

Manifestation of liquidity risk is very different from a drop of price to zero. In case of a drop of an asset's price to zero, the market is saying that the asset is worthless. However, if one party cannot find another party interested in trading the asset, this can potentially be only a problem of the market participants with finding each other. This is why liquidity risk is usually found to be higher in emerging markets or low-volume markets.

Liquidity risk is financial risk due to uncertain liquidity. An institution might lose liquidity if its credit rating falls, it experiences sudden unexpected cash outflows, or some other event causes counterparties to avoid trading with or lending to the institution. A firm is also exposed to liquidity risk if markets on which it depends are subject to loss of liquidity.

Market and funding liquidity risks compound each other as it is difficult to sell when other investors face funding problems and it is difficult to get funding when the collateral is hard to sell. Liquidity risk also tends to compound other risks. If a trading organization has a position in an illiquid asset, its limited ability to liquidate that position at short notice will compound its market risk. Suppose a firm has offsetting cash flows with two different counterparties on a given day. If the counterparty that owes it a paymentdefaults, the firm will have to raise cash from other sources to make its payment. Should it be unable to do so, it too will default. Here, liquidity risk is compounding credit risk.

A position can be hedged against market risk but still entail liquidity risk. This is true in the above credit risk example—the two payments are offsetting, so they entail credit risk but not market risk. Futures contracts were used to hedge an Over-the-counter finance OTC obligation.

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