Business Finance

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Week 1

1. ASE as an Auction Market:

Auction market is a place where the buyers and sellers enter into competitive offers. The bids and offers are matched and paired together to arrive at the price that is accepted by both buyers and sellers  (Theissen, 2010). The stock exchanges are considered to be auction markets as the stocks are traded after matching the highest price that a buyer is willing to pay with the lowest price on which the seller is willing to sell the stocks. The Australian Stock Exchange (ASX) works as a continuous auction market where the buyers and sellers consummate the transactions either via open outcry at locations like floor of stock exchange or by using the electronic platform where stocks can be traded (Aitken, et al., 2007). The open outcry is traditionally known as auction market trading through which the buying and selling of the stocks and shares are conducted at ASX (Aitken, et al., 2007).

2. Difference between Auction and Dealer Market:

An auction market is a place where the buyers indicate the highest price that they are willing to pay for a product/service and the sellers set out the lowest price that they are willing to sell their goods/services at. Whereas, the deal market is a financial market where many dealers simultaneously post the prices at which they are willing to sell or buy their specific instrument/security  (Theissen, 2010). 

In the dealer market, the dealer is the market maker who provides the transparency and liquidity by electronically displaying the prices of the security including the bid price. In the auction market, the share’s current price is the match between highest buyer price and lowest seller price  (Theissen, 2010). 

The government security markets and over the counter markets is dealers market where the future markets are the auction markets. The dealer market is quote driven while the auction market is order-driven (Theissen, 2010). 

3. Forms of Business Organizations:

Form Advantages Disadvantages
Sole Trader
  • Low start-up cost
  • Decision making freedom
  • Tax advantages to owner
  • All profits attributable to owner
  • Minimal working capital required
  • Unlimited liability
  • Lacks continuity
  • Difficulty in raising capital
  • Not suitable for large scale operations
Partnerships
  • Easy to form and incorporate for
    LLP. It can be formed without
    expenses or formalities.
  • Partners can combine their
    expertise.
  • The capital burden is combined
    and it’s easier to raise funds.
  • Tax breaks and advantages
  • General partners have the unlimited liability.
  • Disagreements can occur.
  • Partnership can be dissolved if the partner dies.
  • Limited partnerships must register with the secretary of state.
  • Limited partners have no decision-making power.
Corporation
  • Public ownership
  • Limited liability of Shareholders
  • Ease of transferring the
    ownership through shares
  • Ease in raising the cash or equity
    for capital funding
  • Unlimited life of the business
  • Follow the strict regulations and needs heavy paper work
  • Double-taxation issues (corporation and dividend taxes)
  • Public reports are available to competitors posing threat to confidentiality

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