Airline Foreign Exchange Risks Finance Essay - Free Essay Example

Sample details Pages: 7 Words: 1980 Downloads: 9 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? Airline carriers sell tickets in many part of the world, and each country has different policies that govern their currencies. Countries such as the Great Britain uses Pounds sterling (BGP), Japan with Yen, and United of America with Dollar and some parts in EU uses Euros. Basically airlines around the globe fly to different parts of the world, and majority of these airlines have offices around the globe which incur operating expenses in the currencies of the countries they operate. Don’t waste time! Our writers will create an original "Airline Foreign Exchange Risks Finance Essay" essay for you Create order Exchange rate has become a big threat to the airline industry. The turbulence of an exchange rate makes it impossible for airlines to match in transaction and timing of foreign currency expenses. The airlines around the globe have a huge task of managing revenues,assets, capital investments and liablities in the local and foreign currencies. More often than not airlines minimise the risk of exposure to large currencies. Allthough fluctuation of foreign exchange happens because of supply and demand for currencies in the airline industry, airlines must ensure that foreign exchange exposure is limited, or they face financial contrain at the end of the financial year. There are different possibilities in dealing with foreign currency exposure. Either the airlines do nothing but depend on the spot market, or hedge the risk by having a negative by buying a forward. Spot market can be difine as a market in which currencies are sold for cash and immediately transfered to the airline s. Spot can help the airlines operate whenever an infrastructure exists for conducting transactions. Aim and Objectives The aim of the project is to explore the relevance of airline foreign exchange risk and identify other present factors, such as currency and hedging which could affect the airline industry. The objectives below would attain the aim of the project. They are: To evaluate the foreign exchange risk in the airline industry To define how the currency issue is changing the airlines Review the result against the finding of other research Evaluate how hedging on fuel has greater profit than airline purchasing fuel at current market prices. Literature Review The following literature review will examine the research project topic. The literature will be examined and reviewed critically. Literature review is an analysis of previous works relating to the subject being examined. Hart considers a review to be important as it would provide an understanding of your topic, of what has already been done on it, how it has been researched, and what the key issues are. (Bell 2005). According to a case study by Daniels, Radebaugh, and Sullivan, 3M uses operational methods for managing the foreign-exchange risk to which its overseas operations are exposed.   In its annual report, 3M states its policy towards foreign-currency translation:   local currencies generally are considered the functional currencies outside [domestic operations], and therefore 3M implements a current-rate method of translation in its accounting practices (Daniels, et al, 728).  [1] The subsequent literature review will examine the literature which is for and against the significance of foreign exchange risk policy in decisive currency value in different countries. This review would identify the methods used and characteristics of various airline industries which have been examined with the aim to identify any variation to the theory surrounding foreign exchange risk in the airline industry. The theories will be discussed in the theoretical literature. THEORETICAL LITERATURE There has been research on the effects foreign exchange risk has on the airlines. However these researches were generated from three theoretical literatures which provided explanation of the effects. Hedging reduces the expected cost of financial distress. According to Mayers and Smith (1982), and Smith and Stulz (1985)), Hedging may also be motivated by tax incentives. They explain that when firms face a convex tax function, hedging should help reduce the expected taxes. However, Leland (1998)  [2]  explained that Hedging can also increase the debt capacity, therefore realising greater tax advantages from greater leverage. Many researchers are keen to know whether the value of hedging increases in the airline industry. According to the Financial Management (Financial Management Association, spring 2006 ), David A. Cater, Daniel A. Rogers, and Betty J. Simkins stated in their research that currency had a significant effect on the foreign exchange market. The relationship between foreign currency, hedging and Tobins Q was examined by Allayannis and Weston (2001) and they concluded that hedging is associated with higher firm value. On the other hand, according to Jin and Jorion (2004), there is no relation between hedging and firm value for oil and gas procedures. Pulvino (1998, 1999) also found that distressed airlines are forced to sell aircraft at below-market prices. It is also noted that (Froot et al. 1993), that firms facing significant expected distress costs will choose to under invest. Based on the theories it is evident that as the currency in different countries changes, it increases the expenses of the airlines and it would also increase as long as there is no equivalent decrease in the growth rate. For example, Laker Airways, one of the British airline in the 1980s, the airline borrowed huge amount of dollars to purchase new aircrafts, the airline eventually purchased in fixed payment dollars, unfortunately for the airline they rece ived more than half of the airlines revenue in Pound sterling. This led the airline to bankruptcy. This illustrates how serious currency risk can easily affects the airline industry unaware. However, a rise in the payout ratio of an airline would decrease the amount of money available to be reinvested in the company to yield more profits. Therefore, the growth rate would fall. It can be concluded that an increase in dividend could have two opposing effects if the earnings of the airline has not increased inline. The expected present and future foreign exchange risk in the aviation industry also provides a signalling effect and could affect the value of the airline capital. For example, the way an airline collects its revenue is different to most other business transactions. According to International Civil Aviation Organization (ICAO) An airline is constantly exposed to transactions in different currencies that are different from the airlines home currency. Airlines usually capture currency of collection while processing tickets in its revenue accounting system and they will be used to determine foreign currency component and multi-currency mix of sales for every route group operated by the airlines  [3] According to the case study of Froot, Scharfstein, and Stein (1993) explained we are the first to find empirical evidence pointing to the source of value from hedging operations. We find that the airline industry exhibits two characteristics consistent with the general assumptions the airline industrys history of investment spending is not negatively correlated with jet fuel costs, as one might expect. In fact, the relation between these two variables is largely positive. Second, airlines face significant distress costs  [4]  . A typical example is the finding of Pulvino (1998, 1999) which shows that distressed airlines are forced to sell aircraft at below-market prices. Additionally, firms facing significant expected distress costs will choo se to under invest. (Froot et al. 1993) METHODOLOGY Methodology refers to the philosophical basis on which the research is founded and the technique used to collect the data is the method. (White 2005) The methodology adopted in this thesis is the analysis of secondary data with the aim of establishing whether any of the theories relating to the effect of currency will be present in airline foreign exchange risk. Secondary data as described by Saunders. M (2007) is used to illustrate descriptive and explanatory research and may contain raw data which has little or no processing or complied data that have received some form of selection or summarising The secondary data for this thesis will be drawn from different airlines around the world and how they manage risk will be examined. A hypothesis question will be drawn from the information. The information will be analysed using different airline strategies to help identify a correlation between the two variables. An example of the hypothesis question is illustrated below: H1: Foreign exchange risk has a significant effect on the airline industry VS H2: Foreign exchange risk does not have a significant effect on the airline industry. As there are limitations to the data available a cross section of hypothesis will be carried out. Example, airline foreign exchange against or actual currency market share prices. The analysis of the information will aid in achieving the objectives of the thesis. RESEARCH QUESTION The project is important as it aims to identify the relevance of airline hedging strategies in an up-and-coming market where mainstream of the airlines choose to hedge fuel for a set amount of time with no instants outflow of cash. The proposed study would be concerning with the following questions: How does a multi currency affect the airline industry? Does aircraft cost affect airlines foreign exchange? How can airlines win through the turbulence of foreign exchange? DESCRIPTION OF DATA ANALYSIS Interviews will be transcribed by listening to the audiotape while reviewing the transcript word by word. During this process, all personal identifiers will be removed and a subject/interview code will be assigned to protect confidentiality. The researcher will code the content to look for common responses, ideas and feelings expressed in the interviews. A second and third person will also analyse the tapes and their transcripts in order to check for any coding carried out and subjective biases in analyses. In the data analysis below, pseudonyms will be used to protect respondents identities (Bowling, 1997). After collecting, collating, analysing and interpreting the data, the findings of the study will be presented. The findings of this study will be presented in a narrative manner by analysing the data under each question ETHICAL ISSUES Even though as a member of staff of an aviation company where the study was to be conducted, I have to be mindful of ethical considerations. One of my concerns is that of informant consent. As Grieg and Taylor 1999) suggested that in words they would understand, ensure that the subjects/ sample know what they are doing and enlighten the sample on the research and my role as a researcher and there in the matter. I will be sure to highlight that they are free to withdraw at anytime without any detriment. Furthermore, it will be made known to the sample what will be done with the data and who hear it. Another ethical concern is that of access to setting. According to Cohen and Manion (1994), permission must be seek from first the anonymous responsible for the sample and, then the sample. Therefore, I will seek permission from the head of the department for permission to use the company lounge and the members. I will provide to provide an informed letter from the university and also personally acquaint the year tutor with the proposed topic and procedure. In most research, samples are preferred to be anonymous. Therefore consent for confidentially and privacy would be maintained. Real names will not appear in report /write up and other identifying information will not appear. Cooperation shall be a priority and do not take advantage of the power relations between employers and the staffs. IDENTIFICATION OF POTENTIAL PROBLEMS AND LIMITATIONS OF THE STUDY Time constraints of the semester and job call for less time than maybe sufficient for an aviation study. By being in an aviation company for only seven months, there are hurdles. The companys culture and leadership practice pose limitation for vital information that could help the study. The terms and condition of the company led to screening of some information gathered during the interview. The reason for this action was to protect the companys brand and position in the aviation industry. REFRENCE https://207.36.165.114/NewOrleans/Papers/4401786.pdf lhttps://findarticles.com/p/articles/mi_m4130/is_1_35/ai_n26898315/ https://www.afajof.org/pdfs/2004program/UPDF/P330_Corporation_Finance.pdf Goldberg, Laura. Hedging Your Jets. Houston Chronicle 5 Jan. 2001. Factiva. 10 Nov. 2004 https://www.afajof.org/pdfs/2004program/UPDF/P330_Corporation_Finance.pdf https://www.accessmylibrary.com/article-1G1-147058051/does-hedging-affect-firm.html

The Exxon Valdez Oil Spill - 1581 Words

Governments should be held responsible for dealing with environmental hazards resulting from previous resource use and environmental standards that are no longer acceptable today. Through the instances of the Exxon Valdez Oil Spill, the Kuwait Oil Fires, the Hurricane Katrina devastation and the Sydney Tar Ponds, this paper will develop an argument supporting the idea that governments should be given the responsibility to handle environmental hazards that result from the prior use of resources as well as environmental regulations that are no longer up to standard. Arguments/Examples I. The Exxon Valdez Oil Spill To begin, the Exxon Valdez Oil Spill was a man-made environmental disaster that occurred in 1989. On March 24, the Exxon Valdez oil tanker struck Bligh Reef and spilled 260,000 barrels of crude oil into the waters of Prince William Sound in Alaska (Piatt, Lensick, Butler, Kendziorek Nysewander, 1990). Eventually, this oil spread across 30,000 km ² of water, damaging ecosystems and marine life along the way (Piatt, 1990). Evidently, this oil spill is considered to be one of the most destructive man-made environmental disasters in history (Dimdam, 2013). Initial government response to the disaster proved challenging due to the remote location of Prince William Sound. As a result, this led to a slow and inadequate clean up of oil in the Alaskan waters. The oil clean up took approximately four years, until the clean up efforts were eventually called off by theShow MoreRelatedThe Exxon Valdez Oil Spill1718 Words   |  7 PagesThe Exxon Valdez A corporation has a moral duty to ensure that their products and operations do not cause harm to society and the environment. There are significant factors that must be taken into consideration to ensure the proper response is put forth if disaster rears its ugly head. Many times, when disaster strikes, companies do not always make the appropriate response, or they do not remediate the problem efficiently enough to maximize their efforts. The Exxon Valdez oil spill in 1989 is aRead MoreThe Exxon Valdez Oil Spill1090 Words   |  5 PagesThis presentation features the Exxon Valdez oil spill, which significantly affected the environment in and around Valdez, Alaska. In this connection, Group D will explore: the background information of Prince William Sound, the oil business in Valdez and the event of the oil spill. Next, the team defines the problems – that is, the effects of the spill – what damage did it cause. After, we will diagnose the issues – meaning that the group intends to pinpoint the root causes of the problems. The nextRead MoreThe Exxon Valdez Oil Spill1663 Words   |  7 PagesThe Exxon Valdez oil spill was the largest oil spill in U.S history. It was a catastrophic disaster that the U.S swore to learn from. Twenty two years later as the prevention procedures became complacent, the Deepwater Horizon explosion made us re-examine our procedures as a nation. The Deepwater Horizon explosion is now the second worst oil spill in the world following the Gulf War Oil Spill in Kuwait in 1991. The U.S used similar techniques to clean the water as the Exxon Valdez clean up, howeverRead MoreThe Exxon Valdez Oil Spill1150 Words   |  5 PagesThe Exxon-Valdez oil spill occurred on March 24, 1989, when the tanker Exxon Valdez, transporting oil from Valdez, Alaska to Los Angeles, California, ran aground on the Bligh Reef in Prince William Sound, Alaska. The root cause of the accident was the captain. After passing through Valdez Narrows , pilot Murphy left the vessel and Captain Hazelwood took over the wheelhouse. It was Captain Hazelwood who made the decision to steer the ship off its normal path in order to avoid a run in with ice. ForRead MoreThe Exxon Valdez Oil Spill1999 Words   |  8 PagesPart 1 – Briefly describe the Exxon Valdez oil spill: On March 24th 1989, the Exxon Valdez oil tanker ran aground in Prince William Sound Alaska, spilling roughly 10.8 gallons of crude oil polluting over a thousand miles of Alaska’s coast (Gerken, 2014). At its time, it was the worst oil spill in history, lasting for several days. It was caused by the negligence of the captain who was reportedly intoxicated at the time. The oil was very quickly dispersed over a wide area of land because of extremeRead More Exxon Valdez Oil Spill Essay1835 Words   |  8 Pages Exxon Valdez Oil Spill ABSTRACT nbsp;nbsp;nbsp;nbsp;nbsp;In March of 1989, the Exxon Valdez oil tanker ran aground on Bligh Reef in Prince William Sound, Alaska. An eighteen foot wide hole was ripped into the hull, and 10.9 million gallons of crude oil spilled into the ocean. In the following weeks, many things transpired. This paper will discuss the cleanup, the damage, and the results of the biggest oil spill in United States history. nbsp;nbsp;nbsp;nbsp;nbsp;On March 24, 1989, inRead MoreExxon Valdez Oil Spill Essay1855 Words   |  8 PagesExxon Valdez Oil Spill ABSTRACT In March of 1989, the Exxon Valdez oil tanker ran aground on Bligh Reef in Prince William Sound, Alaska. An eighteen foot wide hole was ripped into the hull, and 10.9 million gallons of crude oil spilled into the ocean. In the following weeks, many things transpired. This paper will discuss the cleanup, the damage, and the results of the biggest oil spill in United States history. On March 24, 1989, in Prince William Sound Alaska, the Exxon Valdez was movingRead MoreThe Exxon Valdez And Bp Oil Spill1309 Words   |  6 PagesPitchon 12/11/12 References Gill, Duane A., J. Steven Picou, and Liesel A. Ritchie. The Exxon Valdez and BP oil spills: a Comparison of Initial Social and Psychological Impacts. American Behavioral Scientist (2011): 3-23. This article was concerned in identifying psychological impact of disasters. The article analyzed the psychological effects of the 1989 Exxon Valdez oil spill and the 2010 BP oil spill. The article discussed how years after these disasters the environment and the people feltRead MoreAnalysis of Exxon Valdez Oil Spill Essay1737 Words   |  7 PagesMahalia Gauld January 18, 2011 MGMT 2850 Case Study #1- Exxon Valdez Situation in Brief: On March 24, 1989, an Exxon supertanker spilled 11 million gallons of oil while traveling through the pristine waters of Alaska’s Prince William Sound. The consequences of this spill were detrimental and continue to affect life today. The oil spill killed thousands of wildlife, extensively damaged a portion of the beautiful Alaskan environment, and eventually affected the economy to global proportionsRead More Business Ethics and the 1989 Exxon Valdez Oil Spill Essay3442 Words   |  14 Pagesunderstand the difference between right and wrong. Since businesses touch such a large segment of our society, codes of ethics must be established and followed to protect the general public. In the following pages we will discuss the 1989 Exxon Valdez oil spill disaster and examine how it relates to (1) the state of business ethics since 2000, (2) examples of the classic schools of ethics - golden rule, golden mean, utilitarianism, and categorical imperative, (3) three challenges journa list face

Measuring and Representing Knowledge Economy †MyAssignmenthelp

Question: Discuss about the Measuring and Representing Knowledge Economy. Answer: Introduction: This report has been prepared to investigate the numbers of the Violet Chans consultancy Pty ltd. Before preparing this report, the activities and transaction of the company has been evaluated and for that preparation of journal entries, ledger account, trail balance, profit and loss account, balance sheet and calculation of ratio analysis has been done. This report depict that the performance of the company is not impressive and the company is required to manage and maintain various expenses and required to make change into the assets management, equity and debt level to enhance the profitability, liquidity and debt position of the company. In this report, the comparative study has also been done to found and analyze the changes into financial performance of the company from last year. According to the last years balance sheet of the company, it has been analyzed that the performance of the company was bit better than current year as the company was able to make at least the profit. But according to the current situation of the company, the company has faced the situation of net loss. The current scenario of capital structure and the debt equity, debt assets and equity ratio was almost similar as last year (Assessment, 2013). No extra changes have been done by the company to manage and change the level of the company, according to the performance of the company, it has been analyzed that the company is required to make various changes into its activities and performance to manage the profits. Owner is investing various capitals into the company but this amount is not used by the company in a proper manner and that is why the excess problems are faced by the company. Further, the level of the total assets, debt and equity has been analyzed and it has been found that the level of total assets has been enhanced whereas the level of debt has been reduced and the level of total equity of the company has also been enhanced from financial year 2015 in financial year 2016. The average performance of the company expresses that the company has not managed a good level of equity (Whittington, 2008). The company is suggested to reduce the level of total assets to maintain the business in a good manner. Transaction in the company: Various transaction of the company has been studied in the month of June. The main transaction was contributing more money into the account which was not required by the company. The owner has contributed $ 17,000 more into the capital of the company. Further, a new computer has also been bought by the company on credit and the payment has not been made by the company (Lee, 2006). Company has paid various monthly expenses in cash such as salary, wages, rent, advertisement, telephone bill etc. Company has bought furniture on credit basis and later on the entire amount has been paid by the company to its creditors. Company has also depreciated the old and new furniture and the old and new computer according to the SLM depreciation management (assumption). Thus through these analysis, it has been found that the company has not made any special transaction to manage the level of equity, assets, debt of the company. And company has also not made any extra effort to enhance the revenue of the company, only $ 200 has been spent by the company on advertisement. According to the evaluation of all of these, it has been found that the average performance of the company expresses that the company has not managed a good level of equity (Glasson, Therivel Chadwick, 2013). The company is suggested to reduce the level of total assets to maintain the business in a good manner. Ratio analysis study has been performed over the Violet Chans consultancy Pty ltd. The study of ratio analysis of the company depict that the return on assets of the company is -2.29% which depict that the performance of the company is not well and the company is facing various losses in the market (Dye Sunder, 2001). Through this analysis, it has been found that the net profit of the company is $ -1146 and the total assets of the company is $ 50,054. Further, it has been investigated that the current ratio of the company is 9.72:1 which depict that the current assets of the company is 9.72 times more than the current liabilities of the company. The current ratio of the company depict that the liquidity position of the company has been worst and it express that the company is required to reduce the level of current assets of the company to manage the liquidity position of the company. The current assets of the company are $ 40,854 and the current liabilities of the company are $ 4,200 which express that the company must reduce the level of the current assets of the company (Laux Leuz, 2009). Further, the assets turnover ratio of the company has been analyzed and it has been found that the ratio of the company is 0.1208 which express that the total sales are 0.12 times of the total assets of the company. The total sales of the company are $ 6,050 and the total assets of the company are $ 50,054. According to this analysis, it is suggested top the company to reduce the level of current assets. Company is not required to manage and maintain this much of assets as the less level of total assets would also be sufficient for the company and the current level would enhance the cost of the company only (Whittington, 2008). More, the debt to equity ratio of the company has been analyzed. Through this ratio, it has been found that the debt- equity relation of the company is 0.0915:1 which express that the debt of the company is 0.09 times of the total equity of the company. The total debt of the company is $4,200 whereas the total equity of the company is $ 45,854 which express that the capital structure of the company is not at all good (Daly Farley, 2011). Company is required to reduce the level of equity which could be done through withdrawing the amount from the capital account of the company to maintain an optimal capital structure on the company .( Schroeder, Clark Cathey, 2001) More, the debt to assets ratio of the company has been analyzed. Through this ratio, it has been found that the debt- asset relation of the company is 0.083:1 which express that the debt of the company is 0.08 times of the total assets of the company. The total debt of the company is $4,200 whereas the total assets of the company are $ 50,054 which express that the company has not managed a good level of debt and equity (Arewa, 2006). The company is suggested to reduce the level of total assets to maintain the business in a good manner. More, the equity to assets ratio of the company has been analyzed. Through this ratio, it has been found that the equity- asset relation of the company is 0.92:1 which express that the equity of the company is 0.92 times of the total assets of the company. The total equity of the company is $45,854 whereas the total assets of the company are $ 50,054 which express that the company has not managed a good level of equity. The company is suggested to reduce the level of total assets to maintain the business in a good manner. Conclusion: Through this report, calculation of ratio analysis, preparation of journal entries, ledger account, trail balance, profit and loss account, balance sheet etc, it has been analyzed that the company is required to manage the level of the assets management and equity to maintain the business in a good manner. The company is suggested to look over the activities and transaction of competitive business and make a good decision accordingly. Through this case study, it has been found that this company is not able to manage the capital structure in a good manner and the turnover of the company is also not good. The comparative study of financial year 2015 and financial year 2016 depict that any extra efforts have not been made by the company to manage the performance and profitability position of the company. So the company is suggested to enhance the expenditure on advertisement and promotion and reduce the level of total assets and total equity. References: Arewa, O.B., (2006). Measuring representing the knowledge economy: accounting for economic reality under the intangibles paradigm.Buff. L. Rev.,54, p.1. Assessment, W.S.B.P., (2013). Conceptual Framework. Daly, H. E., Farley, J., (2011). Ecological economics: principles applications. Islpress. Dye, R.A. Sunder, S.,(2001). Why not allow FASB IASB standards to compete in the US?.Accounting horizons,15(3), pp.257-271. Glasson, J., Therivel, R., Chadwick, A., (2013). Introduction to environmental impact assessment. Routledge. Laux, C. Leuz, C., (2009). The crisis of fair-value accounting: Making sense of the recent debate.Accounting, organizations society,34(6), pp.826-834. Lee, T.A., (2006). The FASB accounting for economic reality.Accounting the Public Interest,6(1), pp.1-21. Schroeder, R.G., Clark, M.W. Cathey, J.M., (2001). Accounting theory analysis.Chapel Hill: University of North Carolina. Whittington, G., (2008) (B). Fair value the IASB/FASB conceptual framework project: an alternative view.Abacus,44(2), pp.139-168. Whittington, G., (2008). Fair value the IASB/FASB conceptual framework project: an alternative view.Abacus,44(2), pp.139-168.

Piaget Theory Of Cognitive Developement Essays - Child Development

Piaget Theory Of Cognitive Developement There are two classical theories of cognitive development. The one that I will focus on is Piaget's theory of cognitive development. Jean Piaget, a Swiss, educated, mollusk biologist lived from 1896 to 1980. He hypothesized that learning is a physical, biological function of dealing with successfully with the environment. (Phillips, 1998) This is the basis for his theory. Looking at Piaget's theory of cognitive development in more detail we find that he based it on two biological tendencies. The two tendencies are organization, and adaption. Organization as Piaget saw it said that humans are designed to organize their observations and experiences into coherent sets of meanings. ( Eggen, 1999) This organization of observation makes the thinking process more efficient. If a person can put the things they observe in some sort of order the easier it is to remember and apply their observations. If we did not organize our observations and experiences we would have little bits of information floating around in our brains with no connection between them. Adaption is according to Piaget's theory is the tendency to adjust to the environment. Adaption is a process by which we create matches between our original observations and new ones that might not exactly fit together. Our original observations and conceptions are called our schemas. To adapt to new observations and experiences into our schemas we use one of two techniques. We can assimilate that information by putting it together with old schemas or conceptions. If the observations don't fit nicely into our existing schemas we use the second of the adaption techniques. We accommodate or change our schema to fit our observation. Piaget never said that our schemas had to be right or wrong. Our schemas are based on our own observations and experiences. ( Eggen, 1999) We adapt to things because we are driven by the urge to have things ?fit together? or to be in what Piaget calls equilibrium. As we use our adaption and organization we constantly get things to fit together. There is other biological functions that also help in cognitive development. Normal growth of a person helps a person to adapt and perceive things better. Social interaction is also a biotic factor in cognitive development. Humans use other humans to check their own schemas with others. We learn to use others thought relationships to help them fit their schemas together better. Piaget used the two biological tendencies and other biological functions of humans to come up with four stages of cognitive development .( Eggen, 1999) Piaget said that each developing human must go through each stage in order. The first stage is the sensory-motor stage. The approximate age of the humans in this stage is birth to 2 years. Piaget says that children learn through manipulating concrete materials. Half-way through this stage the child has the ability to know that when an object leaves their view they don't cease to exist they still are part of the physical world. This is the concept of object permanence. It also allows the child to hold a concept in their mind. The Second stage of Piaget's cognitive development is the pre-operational stage. This stage occurs from 2 - 7 years of age and in it children master many symbols and concrete concepts. In this stage the child is also very egocentric. They have a hard time looking at more than one characteristic of the object their experiencing. In the third stage called the concrete-operational stage, children age 7- 11 start to think logically, learn about the law of conservation, and serial ordering. Conservation is the concept that matter is always the same despite the change in shape of an object. Serial ordering is being able to recognize that things can be put in order. The forth and final stage is the formal-operational stage. From age 12 to adult, learners are able to think abstractly about real objects. They also use reasoning and logic to think abstractly about those objects. In this highest of the stage of development learners start to use complex language forms such as metaphors and the like. There are some weak points of Piaget's theory. The first is that Piaget underestimated children's capabilities. Most children mover through the first two stages much faster than Piaget said they would. On the other hand the last two stages Piaget overestimated the abilities of humans to master the stage. We must realize that because of