EU Common Agricultural Policy Essay Example | Topics and Well Written Essays - 1750 words

EU Common Agricultural Policy - Essay Example onsumer market.5 While CAP is based on the welfare of rural communities and areas, the fact is that it is not a realistic policy and is the source of economic problems that can only be resolved through the reform of CAP and the liberalization of EU agricultural trade policy. The EU CAP is a source of several problems. In the first place, creating a common agricultural policy means reforming the agricultural strategies and policies which are used in twenty-five member countries. Establishing and implementing a common policy for the Western European countries was difficult but the enlargement of the European Union to include Eastern European countries made it very difficult. It did not just mean that the new member countries had to abide by CAP policies but that they had to change their agricultural policies and strategies in order to be able to adhere to CAP.6 A second important problem is the economic consequences of CAP. As a result of CAP, the price of agricultural goods was raised and, as mentioned earlier, these prices were not related to those on the global market. In addition, to make sure that cheaper agricultural goods did not enter the EU market and compete with EU agricultural produce, levies were imposed on imported goods to make up the price difference. As the price of agricultural goods went up to their highest levels and because EU agricultural producers were protected from competition, there was a greater incentive to produce and the EU eventually became the world's second largest agricultural exporter. 7 The problem developed when the price of agricultural goods dropped on the international market but the price of EU agricultural goods remained high. This meant that EU farmers continued to produce surplus and that the EU had to continue to support its farmers. In 1988, 62% of the EU's budget went to agricultural goods.8 Th is was a serious economic problem and the EU could not any longer support CAP under these circumstances. Its economic cost was too high. The identified problems are serious. The first refers to the difficulties of implementing a common agricultural policy and the second to the difficulties of economically supporting these policies. Therefore, for the European Union leaders it was clear that these problems could only be solved through the reform of CAP. 3 Reform Policies CAP reforms were first implemented in 1988. The first set of reforms focused on limiting agricultural outputs and,

The Capital Asset Pricing Model (CAPM) isn't wrong. It just doesn't go Essay

The Capital Asset Pricing Model (CAPM) isn't wrong. It just doesn't go far enough. Discuss - Essay Example The cpitl sset pricing model (CPM) theory ssumes tht n investor expects yield on certin security equivlent to the risk free rte (sy tht rte chievble on six-month Tresury bills) plus premium bsed on mrket vribility of return X mrket risk premium. In Winter 1991, the mrket risk premium on listed U.S. common stocks ppers to hve been bout 6.5%, ccording to sttistics published in the Qurterly Review, Winter 1991, by the Federl Reserve Bnk of New York (though the Ibbotson study found it to exceed 8% from the mid 1920s through 1987). Thus in period of 4% infltion, the T-bill rte might be ppropritely 4.5 to 5%; four- or five-yer Tresury note should hve yield of 5.5 to 6%; Tresury bonds should yield percent higher thn this; nd corporte bond yields should hve even higher returns to compenste for their dditionl credit or business risk. The cpitl sset pricing model for this scenrio suggests tht nnul returns on low-bet electric utility might be .05 + .50 bet (.065) = 8.25%. bout 75% of this might come from dividends nd the blnce from expected growth in dividends over n extended time period. By contrst, n verge stock with bet of 1.00 should provide rte of return of 4.5 to 5.0% plus the mrket premium of 6.5% or between 11 nd 12%. high-bet stock (one operting in cyclicl industry, for exmple) with bet, or reltive mrket voltility in price, of 1.50 should provide mrket return of 5.0% + 1.50 (0.065) or bout 15%. We could convert these from ernings price rtios to price-ernings (P-E) rtios nd determine tht the electric utilities, in this scenrio, should trde t bout 12 P-E rtio nd the high-bet stock should trde t P-E rtio of bout 6 to 7 . Three-yer verge (smoothed) ernings for these type firms hve, in fct, provided bout these P-E levels for highly cyclicl stocks during recent yers. The problem is in how to evlute bove verge or super growth rte for non- or low-dividend-pying stocks, topic of mjor concern to investment fundmentlists. Since stocks re bought on the bsis of expected returns for the next yer (or for severl yers into the future), perceived shift in the rte of infltion (or of the interest rte level), will send most common stocks to higher or lower levels. Strength of the overll economy, the sector in which the firm opertes, its own industry's strengths nd weknesses, nd individul firm's chrcteristics likewise hve bering on the ssessed mrket vlue of equity issues. In fct, this hypothesis is greed on by most fundmentlists nd technicins. The pproch recommended by most investment fundmentlists moves from the mcro to the micro nlysis. First of ll, we should determine if the overll stock mrket is the plce to be. Next, we should zero in on the industries tht re showing bove-verge strength. Next, we should select individul firms tht re likely to led others in their respective industries. In generl, the security mrket line, t given point in time, ppers to do resonbly efficient job of explining differences in expected yields on lterntive types of finncil issues. The cpitl sset pricing model is merely grph showing the nticipted yields on securities trded in money nd cpitl mrkets with vrying degrees of finncil risk. The trend line tht joins the points on the grph is referred to s the security mrket line. Mrket yields re shown on the y (verticl) xis nd the vribility of return on the x (horizontl) xis.