Given that \(∑p_0q_0\) = 700, \(∑p_0q_1\) = 1450, \(∑p_1q_0\) = 855 and \(∑p_1q_1\) = 1300. Where subscripts 0 and 1 are used for the base year and a current year respectively. The Laspeyer's price index number is:
- 118.46
- 119.35
- 120.23
- 122.14
The Correct Option is D
Solution and Explanation
Based on the given information we can calculate,
Laspeyer's price index number is
= \(\frac {\sum P_1Q_0 }{\sum P_0Q_0} \times 100\)
= \(\frac{855}{700} \times100\)
= \(122.14\)
Hence, the correct option is (D): \(122.14\)
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Concepts Used:
Financial Management and Financial Market
Financial Management: Financial management refers to the strategic planning, organizing, controlling, and monitoring of financial resources within an organization. It involves making informed decisions to optimize the acquisition, allocation, and utilization of funds to achieve the organization's financial objectives. Key aspects of financial management include:
Financial Planning: Developing short-term and long-term financial goals and strategies to ensure the organization's financial stability and growth.
Capital Budgeting: Evaluating investment opportunities and making decisions on allocating funds to different projects or assets based on their potential returns and risks.
Financial Analysis: Analyzing financial statements, ratios, and performance indicators to assess the organization's financial health and make informed decisions.
Cash Flow Management: Managing cash flows to ensure adequate liquidity for day-to-day operations, timely payment of obligations, and strategic investments.
Risk Management: Identifying, assessing, and managing financial risks, such as market risks, credit risks, interest rate risks, and operational risks.
Cost Control: Implementing measures to control costs and improve operational efficiency to maximize profitability and financial performance.
Financial Market: A financial market refers to a marketplace where buyers and sellers engage in the trading of financial assets such as stocks, bonds, currencies, commodities, and derivatives. It provides a platform for participants to buy, sell, and trade financial instruments, facilitating the flow of capital and enabling price discovery. Key aspects of financial markets include:
Capital Markets: These markets facilitate the buying and selling of long-term financial instruments such as stocks and bonds. They provide a means for companies to raise capital and investors to invest in securities.
Money Markets: Money markets deal with short-term borrowing and lending, typically involving low-risk instruments like Treasury bills, certificates of deposit, and commercial paper. They provide liquidity and short-term funding for participants.
Foreign Exchange Markets: Foreign exchange markets facilitate the trading of currencies. They enable participants to exchange one currency for another, facilitating international trade and investment.
Derivatives Markets: Derivatives markets involve the trading of financial contracts whose value is derived from an underlying asset. Examples include futures contracts, options, and swaps. These markets provide participants with risk management tools and speculative opportunities.
Commodity Markets: Commodity markets deal with the trading of physical or derivative contracts for commodities such as oil, gold, agricultural products, and metals. These markets allow participants to hedge against price volatility or speculate on future price movements.
Financial Intermediaries: Financial markets are supported by various intermediaries such as banks, brokerage firms, investment funds, and insurance companies. These institutions facilitate transactions, provide liquidity, and offer financial services to market participants.
The financial market serves important functions such as allocating capital, determining prices, providing liquidity, and enabling risk management. It plays a crucial role in the overall functioning of the economy by mobilizing savings, facilitating investments, and enabling efficient capital allocation.
In summary, financial management focuses on managing financial resources within an organization, while financial markets provide the infrastructure for the trading and exchange of financial assets. Effective financial management requires an understanding of the dynamics and functioning of financial markets to make informed decisions and optimize the organization's financial performance.