AL-Azahar university

‫غزة‬-‫جامعة األزهر‬
Fuculty of Economics&
‫كلية التجارة‬
Administrative Sciences
‫إدارة أعمال‬
Business Administration

Financial Management Assignment

Student Name : Lana Abd –AlHakim AL-Sakka

Supervised by : DR. Ahmed Thabet

DECEMBER 2019

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ASS1 Financial Stability
What is financial stability?
Financial Stability : is a state in which the financial system, i.e.
the key financial markets and the financial institutional system is
resistant to economic shocks and is fit to smoothly fulfil its basic
functions: the intermediation of financial funds, management of
risks and the arrangement of payments.

Financial stability is one of the most widely discussed issues in

today’s economic literature. The relevance of analyses on
financial stability was first recognised during the international
financial crises at the end of the 90s, also strengthened by the
financial and economic crisis emerging in 2007

When analysing the stability of an institutional system, we

examine the degree in which the whole of the system is capable
of resisting external and internal shocks. Of course, shocks do
not always result in crises, but an unstable financial environment
can in itself impede the healthy development of the economy.

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  The importance of Financial Stability:-

 It is fundamental to have a sound, stable and healthy financial

system to support the efficient allocation of resources and
distribution of risks across the economy.

 Financial sector stability is a state in which the economic

mechanisms of price formation, funds allocation and risk
management operate properly in support of economic growth.

 stable financial system is one in which financial intermediaries,

markets and market infrastructure facilitate the smooth flow of
funds between savers and investors and, by doing so, help
promote growth in economic activity.

When financial instability occurs, it disturbs market functioning

stable financial system is one in which financial

institutions are adhering to best practices necessary to
ensure that your investment in your first car, first home
or first child is protected.

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 Characteristics of Financial Stability:
stable
High degree of positions of payment
confidence key financial
institutions
services
allocation of well-functioning
credit to financial smooth market
investment intermediation functioning
opportunities process

monetary capability of
financial system to
stability withstand shocks

Components of financial stability:-

we can ascertain that despite their wide diversity there can be observed
significant convergence of views on financial stability. And thus we can
outline main characteristics inherent to the financial stability .
They are the following: Capability of the financial system to provide
payments services or to allocate credit to productive investment
opportunities , Capability of boosting economic activity by providing an
economy with well-functioning financial intermediation processes,
Smooth market functioning and credit availability ,stable positions of
key institutions in the financial system , bolstering a high degree of
confidence in their capability to meet contractual obligations,
elimination of relative price movements of either real or financial
assets ,monetary stability , capability of financial system to withstand
shocks without outside assistance .

Financial Stability Ratios ( measurements)

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Financial stability ratios: are tools for gauging ability to meet
long-term obligations with enough working capital left to
.operate
 The main financial measurements for testing financial
stability :-
1-Debt ratio
Debt ratio = total liability / total assets
The debt ratio is more useful to creditors than to shareholders
The debt ratio shows how much security the assets offer to the creditor.
2- Equity ratio or proprietorship ratio
Equity ratio = owner equity / total assets
This equity ratio is said to gauge long-term stability
It is supposed to measure the margin of safety for creditors at
liquidation.
3- Gearing ratio or capitalization ratio
Gearing ratio = liability /total assets
4- Times interest earned or interest coverage ratio
Times interest earned=operating profit before tax and interest/ interest exp.
5- Asset turnover ratio Asset turnover ratio = net sales revenue /
average total assets
6-Debt Equity ratio= Liability / Owner equity

A model for some financial stability ratios (measurements)

Here I will present a model of financial ratios for (ZARA) company:-

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(Amounts in millions of dollars)
1- Owner Equity = Assets – Liability

14,683 = 21,684 - 7001

2- Equity Ratio = Owner equity / total assets

0.77 = 14,683 / 21,684

3-Gearing Ratio = Liability / Total assets

32. = 7001 / 21,684

4-Debt/Equity Ratio = Liability / Owner Equity

47. 7001 / 14,683

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A simple report on the status of the company based on the
-: previous ratios
As you can see ZARA’s ratio is .77 . This means that investors rather -1
than debt are currently funding more assets .77 percent of the
company’s assets are owned by shareholders and not creditors.
Depending on the industry, this is a healthy ratio
(higher equity ratio generally indicates less risk and greater financial strength than a lower
ratio. If a company's equity ratio is high, it finances a greater portion of its assets with equity
and a lower portion with debt)

At ZARA company is 32% which means it is a healthy ratio and the -2

company and considered as well- established business
A business with a gearing ratio of more than 50% is traditionally said to be “highly
*.”geared
*”A business with gearing of less than 25% is traditionally described as having “low gearing
*Something between 25% – 50% would be considered normal for a well-established
business which is happy to finance its activities using debt.

3- For most companies the maximum acceptable debt-to-equity ratio is

1.5-2 and less. For large public companies the debt-to-equity ratio may
be much more than 2
(ratio greater than 1 shows that a considerable portion of the debt is funded by assets. In
other words, the company has more liabilities than assets. A high ratio also indicates that a
company may be putting itself at risk of defaulting on its loans if interest rates were to rise
suddenly) At this company the ratio is less than 1 so it’s a healthy ratio

VII
ASS 2 Definitions of some financial terms
1- (nominal GDP) : Nominal gross domestic product is gross domestic
product (GDP) evaluated at current market prices. GDP is the monetary value of
all the goods and services produced in a country. Nominal differs from real GDP
in that it includes changes in prices due to inflation, which reflects the rate of
price increases in an economy.
2-(Bitcoin): Bitcoin is a cryptocurrency which isn’t managed by a bank or
agency but in which transactions are recorded in the blockchain that is public and
contains records of each and every transaction that takes place. The
cryptocurrency is traded by individuals with cryptographic keys that act as
wallets
3-(Automated teller machine): ATM is an electronic banking outlet that
allows customers to complete basic transactions without the aid of a branch
representative or teller. Anyone with a credit card or debit card can access most
ATMs. Certain credit cards, however, may have more trouble.
4-(Debit card):is a payment card that lets you make secure and easy
purchases online and in person. Unlike a credit card, a debit card draws directly
from your checking account. You’re not borrowing; the money on your debit
card is your own. And you can use it to access your cash at ATMs.
5-(Check): is an order written by a depositor instructing the bank to pay a
specific amount to a recipient from the depositor’s bank account. In other
account to someone else personally or someone else’s bank account.
6-(Financial panic): is a sudden, drastic, widespread economic collapse. All
at once, many people become convinced their money or investments are at risk
and rush to the institutions holding their assets. Unable to pay back all their
customers at once, the institutions go bankrupt, starting a domino effect that
brings down the whole econ

7-(Financial system): financial system is a set of institutions, such as banks,

insurance companies, and stock exchanges, that permit the exchange of funds.
Financial systems exist on firm, regional, and global levels. Borrowers, lenders,

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and investors exchange current funds to finance projects, either for consumption
or productive investments, and to pursue a return on their financial assets .
8-(Fedral reserve system): is America's central bank. That makes it the
most powerful single actor in the U.S. economy and thus the world. It is so
complicated that some consider it a "secret society" that controls the world's
money. They’re right. Central banks do manage the money supply around the
globe. But there is nothing secret about it.
9-(Tax evasion): is an illegal activity in which a person or entity deliberately
avoids paying a true tax liability. Those caught evading taxes are generally
subject to criminal charges and substantial penalties. To willfully fail to pay taxes
is a federal offense under the Internal Revenue Service (IRS) tax code.
An individual, group, or organization that owns one or :)Shareholder(-10
more shares in a company, and in whose name the share certificate is issued
It is legal for a company to have only one shareholder. Also called (in the US)
.stockholder
globalization is the word used to describe the growing :)Globalization(-11
interdependence of the world’s economies, cultures, and populations, brought
about by cross-border trade in goods and services, technology, and flows of
investment, people, and information. Countries have built economic partnerships
.to facilitate these movements over many centuries
are the amount of one currency you can exchange for :)Exchange rate(-12
another. For example, the dollar's exchange rate tells you how much a dollar is
.worth in a foreign currency

13-(International bank): is a type of banking that has presence across

international borders. It is a financial entity that offers financial services like
lending opportunities and payment accounts to foreign clients. Basically, the
clients of these banks can be both individuals and companies . However every
international bank has its own policy of choosing who they can do business with.
is an electronic exchange where stocks are traded through an :)NASDAQ(-14
automated network of computers instead of a trading floor. It stands for the
National Association of Securities Dealers Automated Quotations System and is
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the world's second-largest stock exchange based on market capitalization. It
.trades listed stocks as well as over-the-counter (OTC) stocks
is a financial institution which performs the :)Commercial bank(-15
functions of accepting deposits from the general public and giving loans for
investment with the aim of earning profit.In fact, commercial banks, as their
name suggests, axe profit-seeking institutions, i.e., they do banking business to
.earn profit
the chance that a company or individual will be unable to :)Default risk(-16
make the required payments on their debt obligation. Lenders and investors are
exposed to default risk in virtually all forms of credit extensions. A higher level
.of risk leads to a higher required return, and in turn, a higher interest rate
is when there is little to no change in the economy over :)Price stability(-17
a period of time. This means that there is a lack of inflation or deflation occurring
with prices
IMT is an international organization :)International monetary fund(-18
that aims to promote global economic growth and financial stability, encourage
international trade
is an international financial :)Bank of international settements (-19.
institution that aims to promote global monetary and financial stabilityis often called the
"central bank for central banks its provide services to institutions such as the European
Central Bank and Federal Reserve
is the uncertain and rapid movement of large sums of :)Capital flight(-20
money out of a country. The UK Overseas Development Institute (ODI) defines
capital flight as "the outflow of resident capital which is motivated by economic
and political uncertainty

-:REFERENCES
*Automated teller machine . (n.d.). Retrieved from investopidea: https://www.investopedia.com/terms/a/atm.asp

*BIS. (n.d.). Retrieved from Investopedia: https://www.investopedia.com/terms/b/bis.asp

*Butcoin. (n.d.). Retrieved from coindesk: https://www.coindesk.com/price/bitcoin

*Capital flight. (n.d.). Retrieved from Economics tutor: https://www.tutor2u.net/economics/reference/what-is-capital-flight

*Check. (n.d.). Retrieved from Myaccountingcourse: https://www.myaccountingcourse.com/accounting-dictionary/check

*commercial bank. (n.d.). Retrieved from economic discussion: http://www.economicsdiscussion.net/banks/commercial-bank-

definition-function-credit-creation-and-significances/607
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*Debit card. (n.d.). Retrieved from NerdWallet: https://www.nerdwallet.com/blog/banking/what-is-a-debit-card/

*Default risk. (n.d.). Retrieved from investopedia: https://www.investopedia.com/terms/d/defaultrisk.asp

*Exchange rate. (n.d.). Retrieved from Thwbalance: https://www.thebalance.com/what-are-exchange-rates-3306083

*FED. (n.d.). Retrieved from Thebalance: https://www.thebalance.com/the-federal-reserve-system-and-its-function-3306001

*Financial panic . (n.d.). Retrieved from Encyclopedia: https://www.encyclopedia.com/history/encyclopedias-almanacs-

transcripts-and-maps/financial-panic

*Financial system . (n.d.). Retrieved from Investopedia: https://www.investopedia.com/terms/f/financial-system.asp

*Globalization. (n.d.). Retrieved from PIIE: https://www.piie.com/microsites/globalization/what-is-globalization.html

*IMT. (n.d.). Retrieved from investopedia: https://www.investopedia.com/terms/i/imf.asp

*international bank. (n.d.). Retrieved from YMH Banking: https://www.ymhbanking.com/international-banking-definition.htm

*NASDAQ. (n.d.). Retrieved from the balance: https://www.thebalance.com/what-is-the-nasdaq-356343

*nominal GDP. (2019). Retrieved from investopidea: https://www.investopedia.com/terms/n/nominalgdp

*price stability. (n.d.). Retrieved from price intelliently: https://www.priceintelligently.com/price-stability

*Shareholder. (n.d.). Retrieved from BusinessDictionary: http://www.businessdictionary.com/definition/shareholder.html

*Taxevasion. (n.d.). Retrieved from investopedia: https://www.investopedia.com/terms/t/taxevasion.asp

ASS:3 Bank failure (z-score)

The Z score is : A quantitative model that Edward Altmen developed in an
effort to predict bankruptcy of a business , using a blend of the traditional
financial ratios and a statistical method known as multiple discriminant analysis
(MDA)

The model is :
Z = 1: 2*X1+ 1:4*X2 +3:3*X3 + 0:6*X4 + 0:999*X5
*X1 = working capital =(total current assets –total current liability)
/ Total assets
*X2 = Retained earning /Total assets
*X3 = (EBIT) / Total assets
*X4 = Market value of equity / Book value of debt
*X5 = Net sales / Total assets
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Z-score probability of failure : -
1.8 Very high
1.81-2.99 Not sure
3.0 or higher Unlikely

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 Applying the model to( ZARA) company

X1 = 5237 / 21,684 = .241

X2 = 9.08 / 21,684 = 4.18
X3 = 4357/ 21,684 = 0.20
X4 = 875 / 33003 = .026
X5 = 26,145 / 21,684 = 1.20

= (1.2*.241) + (1.4*4.18) + (3.3*.20) + (.6*.026) + (.999*1.20)

= .28 + 5.8 + .66 + .01 + 1.2
= 7.95

*More than 3.0

This means that there is no possibility of loss

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ASS:4
Analyze the data given by the (spss) program by answering
the following five questions

1-Major source of financial risk that have an impact on the

commercial bank in Palestine
ANSWER: From the data provided, it was found that credit risk
constitutes the highest percentage among other sources of risk for
commercial banks in Palestine by 46%.

2-The one in charge when taking any decision in any managing

entity
ANSWER: From the data provided, it was found that the Chief Risk
Officer had the highest percentage of responsibility for decision-making
by 37%

3- The present position of ERM framework application on

commercial banks in Palestine
ANSWER: From the data given, it was found that risk management in
Palestine banks have fractional RM framework currently by 58%.

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4- The exact level of understanding risk and risk management
between the employees in the commercial bank.
ANSWER: From the data provided, it was found that the common
understanding of risk management represents the highest percentage
of stages of understanding among employees by 50%

5- Information about the international bodies involved in

promoting financial stability in the commercial banks.
ANSWER:- From the data provided, it was found that the highest
percentage of the international bodies concerned with promoting
financial stability is FSB by 46%
-BCBS is the second international body to promote financial stability
by 33%
-The lowest percentages are given to ( IAIS , IOSCO, IADI ) As the
lowest ratios for the international bodies concerned with promoting
financial stability by (8% , 7%, 6% ) placed in order

*FSB ( Financial stability board)

*BCBS ( Basel Committee on Banking Supervision)
*IAIS ( International Association of Insurance Supervisors)
*IOSCO (International Organization of Securities Commissions
*IADI ( International Association of Deposit Insurers)

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