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Vertical Integration

Vertical integration occurs when a firm controls different stages of production. For example, in the brewing industry you have Production – Brewing of beer. Distribution – beer transported to local markets. Retail – Beer sold in pubs and shops. To remember vertical integration – think of going up the supply chain. Horizontal integration by contrast is at the same stage of production think of other business at the same stage of production, e.g. different pub companies, different brewers. A large brewer could also own transport and the pub in which it is sold. In…

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Interest Rate Swaps Explained

]]> Interest rates swaps are a way for financial bodies to exchange risk on the movement of interest rates. They were originally designed as a way for firms to avoid exchange rate controls because interest rate swaps can be done in different currencies. Interest rate swaps are one of the most common type of derivatives and are highly…

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Impact of a Recession in China

Readers Question: What would be the impact of a bust in China on UK and global economy? China’s economy continues to break records with its break neck records. Depending which measure you use, China is likely to be the world’s biggest economy very soon. Yet, there is no guarantee that this impressive growth will always continue. How would the world economy be affected by a slowdown in Chinese growth? China is the world’s largest exporter. Despite  a slowdown in 2009, China now accounts for 10% of global exports. This is predicted…

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Saving, Capital Stock, and Levels of Investment

“Maintaining and expanding a nation’s stock of capital requires saving.” Evaluate and explain. Is the assumption of full employment of any relevance? Capital Stock is the level of productive capacity in the economy. Saving and Investment. There is an important economic idea that Savings = Investment. The logic is that without bank deposits, banks are not in a position to lend money for investment. An economy with a low savings ratio has little funds to finance investment because it is all being used to finance current consumer spending. However, higher levels of saving do…

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Stakeholders in a Business

Stakeholders are groups of people who are involved or affected by a particular business. The main stakeholders of a business are: Shareholders – people who own shares in the company Employees – workers employed by the company Customers – People who buy and use the products the firm makes Suppliers – Firms who sell raw materials to the firm. Local Community – local area affected by business, e.g. local shops who sell sandwiches at lunch time. Local environment – increasingly people are considering the environmental impact of business, not just people. The success or failure of…

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UK Construction Industry

Readers Question: What is the Economic significance of the construction industry to the UK economy, how it impacts, with respect to trend in economy. According to BIS The UK construction industry   contributed 9.2% of the nations GVA (Gross Value Added) in 2007. The UK construction industry consists of over 250 000 firms employing 2.1 million people in a multitude of roles. (I assume that they are including people indirectly involved in industry e.g. supply chains) – It doesn’t mean there are 2.1 million builders…. The construction industry tends to be…

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Bank Bonus Windfall Tax

In 2009, Alistair Darling introduced a 50% tax rate on bank bonuses of more than £25,000. The bonuses would be paid by the banks rather than employees. I spent a lot of last year, saying how much tax revenues had fallen. The credit crunch and recession caused many traditional sources of revenue to dry up. Especially higher rate of income tax, stamp duty on housing purchases e.t.c. Alistair Darling will be feeling somewhat relieved that his windfall tax on bank bonuses has netted the government an extra £2bn in tax revenue…