Financial Crisis By Mainstream And Heterodox Economists

Financial Crisis By Mainstream And Heterodox Economists
The occurrence of financial crises following financial reforms is attributed by mainstream economists to economic reforms being incomplete or to their
incorrect sequencing. Briefly explain this argument. Focus your briefing note on the reasons advanced particularly by heterodox economists to criticize
this argument. The purpose of this note is to briefly examine the different approaches in interpreting the financial crisis by mainstream and heterodox
economists. To emphasize the drawbacks in the neoclassical (mainstream) view, and criticize it from the post–Keynesian (major heterodox) viewpoint.
The latest financial crisis of 2008 and 2009 will definitely become a cornerstone in the history of economic though and, correspondingly, the
development of capitalistic system. It is a turning point as the neoclassical (mainstream) theory that has seemingly been a driver of the late 30 years of
development lacks the ability to comprehensively explain the causes of frequent economic downturns, and provide policy implications for preventing
crisis from occurring again and again. However, the masterminds of the neoclassical school have suggested some reasonable arguments in favor of free
markets, liberalized interest rates, trade, foreign direct investments, privatization, deregulation, and property rights summarized in the list of 10 reforms
(John Williamson, 2004) and called for more financial liberalization policies. While the financial markets are liberalized and the real
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Time Value of Money
Time Value of Money (TVM), developed by Leonardo Fibonacci in 1202, is an important concept in financial management. It can be used to compare
investment alternatives and to solve problems involving loans, mortgages, leases, savings, and annuities. TVM is based on the concept that a dollar
today is worth more than a dollar in the future. That is mainly because money held today can be invested and earn interest. A key concept of TVM is
that a single sum of money or a series of equal, evenly–spaced payments or receipts promised in the future can be converted to an equivalent value
today. Conversely, one can determine the value to which a single sum or a series of future payments will grow to at some future date. Thetime ... Show
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Credit card financial service companies are commonly known to issue private student loans. Therefore, credit card companies would use the time value
of money to determine loan payment schedules and the ending balance, the future value of the loan. Credit card companies would use the formula for
present value of an annuity to determine the payment schedule, and they would use the formula for future value of an annuity to determine how much
money the student will end up paying the credit card company at the end of the student loan. Insurance companies use Time Value of Money
applications to determine and manage their cash flow and reserve to make sure they are prepared to cover their customers' insurance claims at a
certain point in time. Another way insurance companies make use of time value of money is by earning investment income on premiums between the
time of receipt and the time of payment of claims or benefits. State Governments and Retirement Plan financial service providers use TVM to prepare
the amount of money needed for a certain period of time, and the Retirement plan can be adjusted accordingly from time to time.
TVM is also used by individuals as it helps one to measure the trade–off in spending and saving. This can have important consequences for their
personal budgeting. If market interest rates are at 5%, one may decide that the time value of money is greater in the future, and decide to invest. If
rates are 2%, one may

Increase Household Debt Levels At Australia
Increase Household Debt Levels
At the end of 2013 total household debt was at a 25 year high of $1.84 trillion, the amount of debt owed by households was nearly 1.8 times the
amount of disposable income earned by households in that year, (ABS 2014). This significant rise in debt taken on by Australian households can be
attributed to favourable macroeconomic conditions and historically low rates of interest and inflation, (Meng, Hoang & Siriwardana 2013).
Favourable macroeconomic conditions:
Prior to the Global Financial Crisis Australia experienced strong economic growth, low levels of unemployment and strong growth in both the housing
and share market. This was due to the mining boom and strong demand for Australia's commodity exports. ... Show more content on Helpwriting.net ...
This can be seen through the fisher equation when nominal interest rates are low and inflation rates are low, households are able to borrow more at
the same level of repayment costs. This leads to an increase in the average size of new housing loans. The current 'borrowers market' along with the
governments first home buyers scheme and the vast availability of finance has meant that their has been an increase in the number of first home buyers
acquiring debt, therefore increasing household debt levels, (Sheehan 2014).
Risks of high household debt levels
Australian households:
(McGrath 2014), suggests that high levels of household debt result in Australian households being more susceptible to changes in interest rates,
changes to household income and other economic shocks. For example if the Australian economy experience a rise in the level of unemployment or a
reduction in the level of wages, households with high debt levels will be unable to finance their debt and will eventually default on their loans. This
results in consumption spending becoming more sensitive to changes in expectations about future income, resulting in greater levels of uncertainty,
(Joye 2014).
Additionally because the majority of household debt in Australia is linked to variable rates, rather than a fixed rate of interest, households a more
susceptible to unanticipated changes to the

The Supply And Demand For Metals Found At The Ocelot Mine
The supply and demand for metals found at the Ocelot Mine will vary by commodity although the demand for all three is increasing. Zinc, in
particular, shows the most potential for increase, as many of the world's main producers are closing between the years 2015 and 2020 [16]. It is
believed that this will result in a gap between supply and demand. Already the demand is outweighing the supply, and as such, zinc prices have
increased dramatically. Silver and lead also show growth potential, largely due to high demand from developing nations and the increase in the
industrial sectors of these countries. Being an operator in Peru also requires understanding what countries are buying Peru 's exports. China
received 16.65% of the total value of Peru 's exports in 2012 [22]. As such, the continued growth of Peru 's economy is largely dependent on the
wellbeing of China 's economy. A slowdown in their economy would reduce the ability of producers to export their products. An example of this can
be seen in the financial crash of 2008 to 2009, which had a devastating impact on the production of galvanized steel sheets. The global production
decreased by 40% during this crisis, as depicted in Figure 8.10. Since then the market has recovered approximately 65%, primarily due to the growth in
Chinese steel production [17]. This highlights the sensitivity of the zinc market to the wellbeing of the Chinese economy. Figure 8.5: Historic
production of galvanized steel [17] 8.4.

Interest Rate Risk Analysis Case Study : Brac Bank
Table of Content
1. Executive summaryiv 2. Introduction2 3. Repricing Model2 I) Refunding or funding gap3 II) Advantage/Disadvantage4–5 4. Maturity Model6–10 5.
Weakness of maturity model11 6. Duration Model12–15 7. Limitation of Duration model15 8. Case Study –Brac Bank Ltd16–20
INTRODUCTION:
Interest Rate Risk – In the process of FIs performing their asset–transformation function, FIs are exposed to Interest Rate Risk, from Mismatched
Maturity/Duration: Borrowing Short, Lending Long. The risk that an investment 's value will change due to a change in the absolute level of interest
rates, in the ... Show more content on Helpwriting.net ...
в—† Changes proportional to CGAP assuming no spread effect
Unequal Changes in Rates:
в—† If changes in rates on RSAs and RSLs are not equal, the spread changes. In this case, (NII = (RSA Г— ( RRSA ) – (RSL Г— ( RRSL )
в—† Spread effect: the effect a change in the spread between the rates on RSAs and RSLs has on net interest income as interest rate changes.
Advantages of Repricing Model:
Easy to understand, easy to work with, easy to forecast changes in profitability from interest rate changes.
Disadvantages/Limitations of Repricing Model: 1. Does not account for balance sheet changes in the market value (PVA and PVL) of the bank when
interest rates change, so is only a partial model of interest rate risk.
2. Within a given time period (bucket), e.g. 1–5 years, the dollar values of RSAs and RSLs may be equal (indicating no interest rate risk), but the
assets may be repriced early, and the liabilities repriced late, within the bucket time period, exposing the FI to interest rate risk not accurately captured

by the Repricing Model. "Ignores CF patterns within a maturity bucket," e.g. one–year ARM rates might be re–set on a different date than the maturity
patterns of 1 year CDs.
3. Assumes NO prepayment of RSAs or RSLs, when there can actually be a high volume of

The Impact Of Barclay 's On The United Kingdom
Barclay's has grown into one of the largest financial groups in the United Kingdom. The company has diversified itself and is involved with banking,
investment banking, and investment management. They operate over 4750 branches in 50 countries in which 1600 are based in the United Kingdom.
The company has over 4.5 million registered online bankers and over 10.6 million Barclaycard customers in the United Kingdom. Barclay's is currently
the 7th largest bank in the world with assets valuing $2.41 trillion.
Barclay's has an extensive history as one of the oldest banks in the world dating back to the late 17th century. John Freame and Thomas Gould were
goldsmiths working in Lombard Street, London. Goldsmiths at the time lent out money to ... Show more content on Helpwriting.net ...
Libor, the London Interbank Lending Rate, is considered to be one of the most important rates in finance because trillions of financial contracts utilize
this rate. Libor is used globally as a base interest rate in which it is used to set up a range of financial deals. It is also used as measure for financial
institutions to gauge their trust level in the financial system and to check each institutions financial health. This rate is determined by a group of
leading banks that submit the rates of ten different currencies and fifteen lengths of loans, which range from overnight to twelve months. The most
important part is the "three–month dollar Libor", which is the rate that other banks would borrow from each other for three months. Traders managed
to manipulate this rate because the rates submitted are estimates; it would be relatively easy to submit false figures. Traders at several banks conspired
to influence the Libor by getting colleagues to submit rates that were higher or lower than their actual estimate.
Libor is an interest rate that is determined by the rates at which banks lend funds to each other on the London interbank market. Every day the banks
submit their borrowing costs to the Thomson Reuters data collection service in which an agent calculates out Libor. The agent discards the highest and
lowest quarter of submissions and then averages out the remaining rates to calculate out Libor for the day. Barclays manipulated this rate by submitting
rates

What Factors Are There For Obtaining A Loan?
What Factors Are There In Obtaining A Loan?
By Joe Barbieri | Submitted On October 25, 2015
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Expert Author Joe Barbieri
The key premise to keep in mind is that if someone lends you money, they want you to be able to pay it back. They would like you to pay it back
slowly so that the lender makes money with the interest. Paying back the principle shows that you have credibility, but it does not make the lender
money. What is considered when a loan is created? The factors are:
Interest rate
The interest rate can be fixed or variable. A fixed rate stays the same for a certain length of time. The rate can change once the period of time has
expired. A variable rate is tied to a market interest rate like the prime rate or bank rate and will vary typically each day or each month. If you want a
predictable interest payment every month because your income is fixed or you cannot afford to pay more than a certain amount, a fixed rate would
give you more predictability in your budget. A fixed rate is also advantageous if you thinkinterest rates will rise and you want to lock in a rate
beforehand. If you have flexibility in your ability to pay and you are okay

Interest and Risk-free Rate
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Assignment 9
The due date for this quiz is Mon 16 Sep 2013 6:30 PM IST (UTC +0530).
Please read all questions ... Show more content on Helpwriting.net ...
Alpha, Inc., has debt that is viewed by the market as risk–less with a market value of $500 million. Beta, Inc., has no debt. Both firms are expected to
generate cash flows of $100 million per year for the foreseeable future and the market value of the equity of Beta, Inc is $1 billion. Estimate the return
on equity of Alpha, Inc. Assume there are no taxes, and the risk–free rate is 5%. (No more than two decimals in the percentage interest rate, but do not
enter the % sign.)
Answer for Question 7
Question 8

(10 points) Mango, Inc. has had debt with market value of $1 million that has paid a 6% coupon and has had an expiration date that is far, far away.
The expected annual earnings before interest and taxes for the firm are $2 million and the firm has not grown, nor does it have plans for any growth.
The firm however has just raised more equity to retire all its debt. If the required rate of return to equity–holders (after the capital structure change) is
now 20%, what is the market value of the firm? Assume there are no taxes. (Enter just the number without the $ sign or a comma; round to the nearest
whole dollar.)
Answer for Question 8
Question 9
(15 points) Suppose all investors are risk–averse and hold diversified portfolios. You are evaluating a new drug company that is going to have two
divisions: an R&D unit and a Sales unit. Your CEO and you are arguing about whether the two units should have the same cost

A Report On The Bank's Roe
in the 91st and 90th percentile respectively in the peer group. Figure 13 shows the peaks and valleys of the Bank's ROE over the course of the
previous five years.
Figure 13 shows the upward momentum of the Bank's ROE from 2011 through 2014 with a downturn in 2015. The 2015 downturn is contributed to
the overhead costs of the bank acquisition activity. Expect to see an uptick at year end due to recoveries gained from the acquisitions. The 9/30
/2015 UBPR reports the Bank's securities to assets represent 11.10%, compared to peers at 18.50%. The Bank's securities to assets have been
consistent over the previous five years. The portfolio is mostly made up of 4.30% US Treasury and Agency Securities, 38.50% Municipal Securities
and 50.62% Mortgage Backed Securities. The portfolio has little interest rate risk and as a result, the Bank's yields have remained high. Figure 14
reflects the banks exceptional returns on its securities portfolio at 2.78% which is higher than all peer group members. FirstBank's efficiency ratio has
remained one of its Achilles heels. Efficiency ratio is a large focus atmanagement level and steadily dropped from $76.77% in 2011 to 68.25% in
2014. The Bank experienced an increase to 73.91% in 2015 due to bank acquisition activity, adding staff and cost of funds. However, the Bank expects
staffing to level out and cost of funds to decrease due to FHLB payoffs. The Bank's current key strengths are strong loan growth, the local housing

The Islamic Banking System ( Credit Risk )
In the Islamic banking system,according to sources and causes of risks, it might be an external risk which due to changes in risk policies and
regulations caused by banking supervisory authorities ( regulatory risk ) or macro and external impact of benchmarks such as LIBOR interest rate
factors, namely the use of determine the speed mark Islamic Bank ( known as interest rate risk ) ;There are risks to fulfill obligations related to the
debtor by Islamic Banking( Credit risk ) , there are a set of risks, operational risks collectively,Islamic banks themselves , the people involved / staff,
including errors, negligence and fraud, the system and the use of technology in the Islamic Banking , the proceedings and / or processes and procedures
... Show more content on Helpwriting.net ...
Sundarajan and Errico (2002) pointed out that attach to various non– PLS methods, such as the specific risks of Salam and Ijara. Firstly, the Islamic
bank is exposed to credit and commodity price risk ; Secondly, unlike traditional lease contracts, Islamic banks can not transfer ownership , and
therefore have to bear all risks until the end of the lease .
Credit risk in Islamic banks
Musharakah, Mudarabah, Istisna', Salam, Ijarah and murabahah is the main contract with their customers to use in providing facilities for Islamic
banks. Possible classification , these contracts may be: Islamic pattern of non– debt financing (Musharakah and Mudarabah) and debt creation mode (
the Other ) . A third possible classification : Original Islamic mode of financing (Musharakah, Mudarabah, Istisna , Salam ) and financing of
"reinventing " mode (Ijarah and murabahah).
Credit risk is the most important source of risk in Islamic banking and in Conventional banks.Credit risk ( counterparty risk of failure ) is
significant for banks that 1988 standards of Basel Committee on Banking Supervision Bank. Capital requirements , the establishment of a major
deal with this risk. Default risk which the risk of the bank portfolio covering 80 % of the average bank account ; It is 80% of cases of bank failures
reasons. It is generally considered the Islamic Banks face higher credit risk than their traditional counterparts . Islamic banks ( which is not the Islamic
Bank based on

Michelle Dellatorre Financial Case
Examination One Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the
brokerage firm of Balik and Kiefer Inc. One of the firm's clients is Michelle Dellatorre, a professional tennis player who has just come to the United
States from Chile. Dellatorre is a highly ranked tennis player who would like to start a company to produce and market apparel that she designs. She
also expects to invest substantial amounts of money through Balik and Kiefer. Dellatorre is also very bright, and, therefore, she would like to
understand, in general terms, what will happen to her money. Your boss has developed the following set of questions which you must ask and answer
to explain... Show more content on Helpwriting.net ...
C. (2) Is stock price maximization good or bad for society? The same actions that maximize stock prices also benefit society. Stock price maximization
requires efficient, low–cost operations that produce high–quality goods and services at the lowest possible cost. Stock price maximization requires the
development of products and services that consumers want and need, so the profit motive leads to new technology, to new products, and to new jobs.
Also, stock price maximization necessitates efficient and courteous service, adequate stocks of merchandise, and well–located business
establishments––factors that are all necessary to make sales, which are necessary for profits. C. (3) Should firms behave ethically? Yes. Results of a
recent study indicate that the executives of most major firms in the United States believe that firms do try to maintain high ethical standards in all of
their business dealings. Furthermore, most executives believe that there is a positive correlation between ethics and long–run profitability. Conflicts
often arise between profits and ethics. Companies must deal with these conflicts on a regular basis, and a failure to handle the situation properly can
lead to huge product liability suits and even to bankruptcy. There is no room for unethical behavior in the business world. D. What factors affect stock
prices? The price of a firms stock depend on

Lehman Lynch's The Federal National Mortgage Association
1st April 2008, Bear Stearns is acquired by JP Morgan Chase. September 7th 2008 the Federal National Mortgage Association, "Fannie Mae" and the
Federal Home Loan Mortgage Corporation, "Freddie Mac" are acquired by the United States Federal Housing Finance Agency. September 14th 2008,
Merrill Lynch is acquired by Bank of America. September 16th 2008, American International Group is acquired by the United States Federal
Government. September 17th 2008, Lehman Brothers is acquired by Barclays. September 26th 2008, Washington Mutual is acquired by JP Morgan
Chase. In a period of six months, seven of the most dominant financial institutions in the country crashed. Seven Goliaths were downed by stone shots
right to the sweet spot but there were no Davids in this story, these were all self–inflicted wounds. Deep wounds that affected the nation as a whole,
wounds that cut so deep that they crushed the American Dream for some with each passing day. In this essay I aim to address the decisions that led to
the demise of these behemoths and the worst economic downturn since the infamous Great Depression of the early 20th century.
The 1930s, the period of the Great Depression is perhaps the most unstable financial time in United States history. The decade where more than 40
percent of nation's banks disappeared crippled the economy for years and caused the Senate to pass the Glass–Steagall Act (part of the U.S. Banking
Act of 1933). The main purpose of the legislation was to separate

Assessment Of Interest Rate Risk
Assessment of Interest Rate Risk
This study presents a comprehensive assessment of the interest rate risk. Risk is an expression of severity and possibility of loss that applies to every
operation or human activity in all spheres of life (Kulpa, & MagdoЕ„, 2012). The Basel II Accord, as a cornerstone of a formal quantitative framework
of risk management, proposed to quantify interest rate risk by requiring that financial institutions retain a minimum level of capital to guarantee that
obligations are met (Entrop, Wilkens, & Zeisler, 2009). Interest rate risk substantially affects the institution's asset and liability sections of the balance
sheet. In this paper, I will examine the re–pricing model for measuring interest rate risk exposure, discuss the benefits of utilizing duration for
measuring interest rate risk in financial institutions and evaluate how interest rate risk can be managed.
Interest Rate Risk and Bond Analysis
Interest rate risk is the sensitivity of assets and liabilities towards changes in interest rates (Entrop, et al 2009). Interest rate risk has two dimensions
namely; price risk and re–investment rate risk. Price risk is the change in the value of the bond due to changes in interest rates (Bierwag & Fooladi,
2006). The meaningful analysis for price risk is the level of volatility in the price which is captured in a summary measure by duration (Bierwag &
Fooladi, 2006). When rates rise the price risk falls which means that the value of the bonds will

Interest and Real Rate
P6–1Interest rate fundamentals: The real rate of return Carl Foster, a trainee at an Investment banking firm, is trying to get an idea of what real rate of
return investors Are expecting in today's marketplace. He has looked up the rate paid on 3–month U.S. Treasury bills and found it to be 5.5%. He has
decided to use the rate of change In the Consumer Price Index as a proxy for the inflationary expectations of Investors. That annualized rate now
stands at 3%. On the basis of the information That Carl has collected, what estimate can he make of the real rate of return?
P6–2Real rate of interest To estimate the real rate of interest, the economics division of Mountain Banks–a major bank holding company–has gathered
the ... Show more content on Helpwriting.net ...
If the real rate of interest is currently 2.5%, find the nominal rate of interest on each of the following U.S. Treasury issues: 20–year bond, 3–month bill,
2–year note, and 5–year bond.
b. If the real rate of interest suddenly dropped to 2% without any change in inflationary expectations, what effect, if any, would this have on your
answers in part a? Explain.
c. Using your findings in part a, draw a yield curve for U.S. Treasury securities.
Describe the general shape and expectations reflected by the curve.
d. What would a follower of the liquidity preference theory say about how the preferences of lenders and borrowers tend to affect the shape of the
yield curve drawn in part c? Illustrate that effect by placing on your graph a dotted line that approximates the yield curve without the effect of liquidity
preference.
e. What would a follower of the market segmentation theory say about the supply and demand for long–term loans versus the supply and demand for
short–term loans given the yield curve constructed for part c of this problem?
P6–6Nominal and real rates and yield curves A firm wishing to evaluate interest rate behavior has gathered

Financial Risks That Are Faced By Modern Firms
In this essay I will assess the key financial risks that are faced by modern firms and illustrate the ways in which firms go about managing these risks
so that they overcome the possibility of a loss in profits. The key risks that I will analyse, will be the fluctuations in inflation, commodity price,
exchange rates and interest rates. I will then identify the key problems face by firms in managing these risks. One key risk faced by firms, is the risk in
the fluctuation of interest rates over the borrowing of sums. The fluctuation of interest rates can effect businesses due to the uncertainty of the rate of
interest increasing. The effect of changes in interest rates can depend on many factors such as; the amount that a business has borrowed and for what
period of time for, the amount of cash that a business holds and also whether the business operates in certain markets where demand is sensitive to
changes in the interest rates. The effect of fluctuating interest rate on businesses can lead to borrowing becoming expensive as a result of a high rate,
therefore it makes it much more financially difficult to receive the necessary funds needed for the business operations. One way in which these risks
of fluctuations are managed by businesses, is that they use a method of hedging called 'swaps'. Seen in figure 20.11–fundamentals of corporate finance,
it shows how two firms can use the 'swap' contract to limit and/or manage the exposure to the fluctuation of interest rates, or

Risk Free Interest Rate
CHAPTER 12: COST OF CAPITAL A. OVERVIEW Definition: Cost of capital refers to the rate of return a firm must earn on its investment
projects to increase the market value of its common shares required by market suppliers of capital to attract funds to the firm Notes: If project rate
of return > cost of capital ( value of firm increases If project rate of return < cost of capital ( value of firm decreases Goal: minimize cost of capital
Assumptions: 1. Business risk (not able to cover operating costs) is unchanged 2. Financial risk (not able to cover financial obligations) is unchanged
3. Cost of capital is measured on an after–tax basis Basic equation: Ways to evaluate the basic... Show more content on Helpwriting.net ...
Keep weights in decimals; keep cost in %. Should we use kr or kn? – Kr is often less costly than Kn ( retained investment is often used first for
long–term financing. How to find weights? – Book value weights: use accounting values to measure the proportion – Market value weights: use market
values (prices) to measure the proportion (preferred) – Historic weights: book/market value weights based on actual capital structure proportion –
Target weights: book/market value weights based on desired capital structure Example A firm has on its books the amounts and specific (after–tax)
costs shown in the following table. Find WACC. |Source |Book value |Specific cost | |Long–term debt |$700,000 |5.3% | |Preferred equity |50,000 |12.0 |
|Common equity |650,000 |16.0 | 1. The text book uses slightly different notations: G. Final Notes 1. Relative risks and costs; not absolute 2. Changes
in capital structure may affect The weights in calculating WACC The relative risks and, therefore, return on equity (and the cost of debt) 3. Combine
with CAPM to assess changes in capital structures and the beta Example Suppose a

The 2007-2008 Financial Crisis: Causes, Impacts and the...
THE 2007–2008 FINANCIAL CRISIS:
CAUSES, IMPACTS AND THE NEED FOR NEW REGULATIONS
The initial cause of the financial turbulence is attributed to the U.S. sub–prime residential mortgage market. The sustained rise in asset prices,
particularly house prices, on the back of excessively accommodative monetary policy and lax lending standards during 2002–2006, increased innovation
in the new financial instruments, unusual low interest rates resulted in a large rise in mortgage credit to households; particularly low credit quality
households, the greed of investors' for ever higher returns coupled with very minimal down payments, along with the dependence on major global
rating agencies, allowed complex investments products to be sold to an ... Show more content on Helpwriting.net ...
These corporations are known as the "monoline" insurers or "monoline" guarantors, and it became another casualty of the financial crisis. Globally,
many financial institutions had purchased these new promising guaranteed of debts. But, every good item has a bad side, and several of these factors
started to emerge alongside one another. Insolvency on one of these institutions could threaten the solvency of many others. When the "monoline"
insurers started to fall into insolvency problem, the market was illiquid. Suddenly, emerging financial institutions were short of cash, as well as
become insolvent. Some of the affected are such Goldman Sachs, Merrill Lynch, and Bear Stearns. But, at the end of the day, the worst effected from
this financial crisis were the mortgage borrowers. Most of these "monoline" insurers did not have adequate capital to fulfill their guarantee promises.
Investors' dependence lied mostly on the high ratings placed by major global rating agencies for these institutions put the investors in a position
where they could experience enormous losses. In order to survive, many banks turned to sovereign wealth funds to obtain new capital. Bad news
continued to pour in from all sides. In August 2007 that the financial market could not solve the subprime crisis on its own and the problems spread
beyond the U.S borders. Lehman Brothers filed for bankruptcy, Bear Stearns was acquired by JP Morgan Chase,

Financial Consequences For A Truck Leasing Company
Almost every company in its history have made mistakes, some big, some irreparable, some not so harmful. Mistakes can vary in type widely. Some
mistakes are hiring, some in using assets to its fullest potential, etc.; while other mistakes are unfortunately intentional. Truth is that every time that
management in a company makes a mistake there are financial consequences for the company. IN this work we are going to analyze three cases where
something was wrong and we are going to provide a comprehensive solution to each problem.
The first case we are going to analyze took place within a Truck leasing company in the fall of 2000. The main problem is that the company was
having problem in making money. According to Froeb (2016), the company ... Show more content on Helpwriting.net ...
The second way we could determine feasible to fix the problem at hand was to leave the salespeople without a limit on how low to go, but change the
actual commission system to better align with the company profitability goals. This will mean to change the performance metric from trucks closed to
actual net revenue from sales. With this method, salespeople would have the incentive to try to lease trucks with the highest rate they can get, but still,
if at some point salespeople are satisfied with the sales they have made already there goes the incentive to keep selling.
The third and last way to approach this problem would be a good combination of the two solutions previously exposed. First, we will set the limit
based on the average cost of doing business per truck plus some profit. This will ensure that there is no lost in any deal. Along with that we will also
implement the commission program based on net revenue from sales per person, adding a little tweak of scale. Say, for the first $50,000 this person
makes for the company they are going to have a bonus of 10%, when they reach $100,000 they will get a 15% bonus, and so far so on until the
system caps at some percent. This will be more likely to keep motivation among salespersons to keep selling in order to achieve the bonuses.
The second problem we are to analyze is about managing

Risk Management Failures of British Petroleum
BP is a British global energy company which is the third largest energy company and the fourth largest company in the world. As a multinational oil
company, BP is the UK 's largest corporation, with its headquarters in St James 's, City of Westminster, London. BP America 's headquarters is in the
One Westlake Park in the Energy Corridor area of Houston, Texas; the company is among the largest private sector energy corporations in the world,
and one of the six leaders.
In order to project social responsibility and improve its image British Petroleum changed its name into BP in year 2000 with a logo of green and
yellow sunflower patterns. Paradoxically the same company symbol is now under derision and the object of controversial attacks ... Show more content
on Helpwriting.net ...
On 16 October 2007 Alaska Department of Environmental Conservation officials reported a toxic spill of methanol (methyl alcohol) at the Prudhoe
Bay oil field managed by BP PLC. Nearly 2,000 gallons of mostly methanol, mixed with some crude oil and water, spilled onto a frozen tundra pond as
well as a gravel pad from a pipeline. Methanol, which is poisonous to plants and animals, is used to clear ice from the insides of the Arctic–based
pipelines.
From January 2006 to January 2008, three workers were killed at the company 's Texas City, Texas refinery in three separate accidents. In July 2006 a
worker was crushed between a pipe stack and mechanical lift, in June 2007, a worker was electrocuted, and in January 2008, a worker was killed by a
500–pound piece of metal that came loose under high pressure and hit him.
On April 1 2009, a Bond Offshore Helicopters Eurocopter AS332 Super Puma ferrying workers from BP 's platform in the Miller oilfield in the North
Sea off Scotland crashed in good weather killing all 16 on board.
On April 20, 2010, a semi–submersible exploratory offshore drilling rig in the Gulf of Mexico exploded after a blowout and sank two days later,
killing eleven people and causing a massive oil spill threatening the coast of Louisiana, Mississippi, Alabama, Texas, and Florida. The rig is owned
and operated by Transocean Ltd on behalf of BP, which is the majority owner of the oil field. The company originally estimated the size of the leak

Endogenous Money : Implications For The Money Supply...
Endogenous Money: Implications for the Money Supply Process, Interest Rates, and Macroeconomics Abstract
Endogenous money represents a mainstay of Post Keynesian (PK) macroeconomics. PK theory challenged monetarism's description of the money
supply process. The focus of PK endogenous money theory is the mechanics of the money supply process. PK theory is itself divided between
"horizontalist" and "structuralist" approaches to the money supply. Horizontalists believe the behavior of financial institutions is unconstrained by the
availability of liquidity (reserves) provided by the central bank and the supply–price of finance to banks is fixed at a price set by the central bank. The
important difference is that structuralists emphasize the role of bank lending in determining the money supply.
Structuralists believe liquidity pressures matter and the supply price of finance to banks can increase endogenously.
Endogenous money represents a mainstay of Post Keynesian (PK) macroeconomics, and the PK theory of endogenous money constitutes a significant
contribution to macroeconomic theory. PK endogenous money theory emphasizes that this linkage runs predominantly from credit to money to
economic activity. This contrasts with conventional representations that place money first, as reflected in the standard textbook money multiplier story
in which bank deposits are said to create loans.
II Against monetarism: the origins of PK endogenous money theory
The cornerstone of

Interest Rate Risk
Interest Rate Risk (IRR) Management
What is Interest Rate Risk :
Interest rate risk is the risk where changes in market interest rates might adversely affect a bank's financial condition. The management of Interest Rate
Risk should be one of the critical components of market risk management in banks. The regulatory restrictions in the past had greatly reduced many of
the risks in the banking system. Deregulation of interest rates has, however, exposed them to the adverse impacts of interest rate risk.
What is the Impact of IRR: The immediate impact of changes in interest rates is on the Net Interest Income (NII). A long term impact of changing
interest rates is on the bank's networth since the economic value of a bank's assets, ... Show more content on Helpwriting.net ...
These policies should be applied on a consolidated basis and, as appropriate, at the level of individual affiliates, especially when recognising legal
distinctions and possible obstacles to cash movements among affiliates. Principle 5: It is important that banks identify the risks inherent in new
products and activities and ensure these are subject to adequate procedures and controls before being introduced or undertaken. Major hedging or risk
management initiatives should be approved in advance by the board or its appropriate delegated committee. Risk measurement, monitoring and control
functions
Principle 6: It is essential that banks have interest rate risk measurement systems that capture all material sources of interest rate risk and that assess the
effect of interest rate changes in ways that are consistent with the scope of their activities. The assumptions underlying the system should be clearly
understood by risk managers and bank management. Principle 7: Banks must establish and enforce operating limits and other practices that maintain
exposures within levels consistent with their internal policies.
Principle 8: Banks should measure their vulnerability to loss under stressful market conditions – including the breakdown of key assumptions – and
consider those results when establishing and reviewing their policies and limits for interest rate risk. Principle 9: Banks must have

Federal Open Market Committee
Fed Changes Tact in Forward Guidance
The first Federal Open Market Committee (FOMC) meeting under Janet Yellen's leadership brought a much anticipated format change in
communication policy, as well as a widely discounted $10bn reduction in monthly asset purchases. There was also abolition of the so–called Evans
Rule, which allowed some overshooting of the Fed's 2% long–term inflation target. Despite the new Fed Chair trying her utmost to portray the policy
outlook as dovish, financial markets were not entirely convinced. Altering forward guidance was always going to be the biggest challenge in 2014,
particularly given the faster–than–anticipated decline in unemployment. Policy thresholds have been abolished.
The emphasis of forward ... Show more content on Helpwriting.net ...
Unfortunately, the increased importance of policy language has increased the scope for misinterpretation, as well as ambiguity. A hawkish view of
future Fed policy can be taken from the decision to abolish the Evans Rule, named after the President of the Chicago Fed. This formed the bedrock of
the policy thresholds. The Evans Rule was designed to tell markets that policy rate settings would not change until certain economic conditions were
satisfied. Consistent with its dual mandate, the FOMC announced policy thresholds covering both unemployment and inflation. The unemployment
threshold (6.5%) always dominated the inflation equivalent (2.5%), even though the Fed never had an explicit long–term target rate for unemployment.
In contrast, the Fed has a long–term inflation target of 2%. Under the Evans Rule, given that the threshold was above the target, there was scope for
inflation to overshoot. The abolition of the Evans Rule and the policy thresholds now means that the 2% inflation target effectively becomes the
ceiling. The importance of inflation in setting the policy rate has increased: low interest rates will only prevail if inflation remains below 2%. This
potentially marks an important shift in the Fed's thinking on the trade–off between unemployment and inflation. Previously, Fed Chair Yellen believed
the costs of overshooting the inflation target were lower than those associated with elevated unemployment.
Rising Term Premium Undermines

The Consequences Of Monetary Policy
Monetary policy has to do with the regulations that a government puts in place to control money in circulation in the economy. An effective monetary
policy will ensure that current and anticipated events in the economy of a country are taken care of. The Federal Reserve (The Fed) is the central bank
of the United States, and it is responsible for the formulation and execution of these policies.
Banks made available huge amounts of money available in form of loans; banks were responsible for creating large debts in form of loan interests.
People who had borrowed were eventually unable to pay. The creation of private credit and money led to a financial crisis, threatening to make banks
bankrupt. The same banks now became weary of lending ... Show more content on Helpwriting.net ...
Lenders felt the burden left by defaulters and their capital reduced.
Subprime borrowers are those borrowers who have low credit ratings and poor creditworthiness. The subprime mortgage market meltdown began on 9
August 2007 and continued into 2008 (Cecchetti, 2008). It arose when banks created a lot of money in a short time and used the opportunity to raise
house prices and speculations on financial markets. Initial subprime mortgages were affordable and many borrowers were attracted to them. However,
they were adjustable after a given duration. It is this adjustment that instigated many defaults in payments, mostly beginning in 2007 when higher
payments were demanded. By 2009, banks were going bankrupt due to the high number of defaulted mortgage payments.
Also, lenders came up with creative mortgage packages upon speculations of growing house prices. With mortgage–backed securities (MBS), the
process of securitization occurs whereby home mortgages are grouped into categorized pools by the issuing banks. They are then sold as a single
security where the risks are spread out. These pooled assets–backed securities were attractive to both lender and borrower because lender sold the loan
and borrower accessed credit easily. Such collateralized debt obligations (CDOs) were sold to other market investors to reduce the risk of default.
These investors were attracted by the higher returns, especially due to the lower interests. During the liquidity period, as

Hk-Disney Syndication by Chase
Chase's Strategy for Syndicating the Hong Kong Disneyland Loan
Group 15
XIA Yidan, ZHANG Kuo, ZHU Shihuai, WANG Qian
2012 acer CHUK
2012/9/24
Chase's Strategy for Syndicating the Hong Kong Disneyland Loan
Group 15
XIA Yidan, ZHANG Kuo, ZHU Shihuai, WANG Qian
2012 acer CHUK
2012/9/24
How should Chase have bid in the first round competition to lead the HK$3.3 billion Disneyland financing (Bid to win or bid to lose?)
In the first round of competition, there are 17 banks competing to propose a mandate for syndication. How should Chase make the proposal to Disney
depend on the following respects: (1) Disney's requests (2) Evaluation of the returns and risks. Based on the previous two parts, design the ... Show
more content on Helpwriting.net ...
Second we analysis the macro economy of HK and the anticipated effect on Disney HK's operating profits. As the "tiger" of Asia, Hong Kong has a
free market economy–low taxes, unrestricted capital movement, stable HK$ linked to US$. What's more, HK's economy was based on services,
tourism and trading. According to data in Exhibit1, the number of visitors is 1570 times its local population in 1999, with an amount of 10.7 billion.
Although we see the financial crisis had an impact on tourism, but it recovered quickly–from 11.7 billion in 1996 to 9.6 billion in 1998 then back to
10.7 billion in 1999. We anticipate a further recovery as the economy warm up. As a tourist resort, Hong Kong Disneyland has high profit potential.
In a word, the relative exposure of credit risk is low.
* Syndicate risk

Hong Kong Disneyland asked for full–underwriting. If the syndication is not successful–under subscription, Chase would end up holding too much
loans and higher credit exposure to the project. For example, if there is only one arranger and single–stage general syndication, the max exposure of
Chase would be the total amount $HK 3.3 billion–in an extreme case when nobody comes to commit for the loan.
However, a senior HK government official underscored the government's commitment to the project at Asia Pacific Loan Market Association
Conference, there is a high potential of success syndication since other banks observed the government's backing on this project.
What's

Asset-Liability Management for Correcting Mismatch
ASSET–LIABILITY MANAGEMENT: STRATEGIES FOR CORRECTING MISMATCH
Strategies that can be used to correct the mismatch in terms of D (A )> D ( L ) can be passive or benefit–driven. Assets driven strategies to correct the
mismatch approach in shortening the duration of the asset portfolio. The financing strategy based asset securitization is commonly employed. Normally
portfolios of long–term assets such as leasing and hire purchase portfolios are securitized, and the resulting product is redistributed or short–term assets
or used to pay short–term liabilities.Responsibility strategies driven primarily focus on lengthening the maturity profile of liabilities. These strategies
may include, for example issue of foreign equity in the form of additional shares of stock or convertible preference shares (which can also help in
increasing Tier I capital finance companies ) , the issuance of redeemable preference shares subordinated debt instruments , obligations and access to
long–term debt , including bank loans and long term loans . Strategies used to correct an imbalance in the form of D ( A) < D ( L ) (which is necessary
if you expect interest rates to decline ) will be the reverse of the strategies discussed above.
Assets driven strategies focus on lengthening the maturity profile of the assets by deploying loanable funds available in long–term assets such as
leasing and hire purchase .
Responsibility driven strategies focus on shortening the maturity profile of liabilities,

The Economic Crisis Of Western Central Banks Essay
Because of the extreme severity of the Great Recession in 2008, western central banks have since applied a series of unconventional monetary policies
besides normal ones. One of the characteristics of the unconventional policies is the intended near–to–zero interest rates, so those policies are also
named Zero Interest Rate Policies (ZIRP). ZIRP are designed to help the financial market escape from the "liquidity trap", a situation in which
normal expansionary monetary policies fail to decrease interest rates below zero and thus become ineffective. Without a doubt, ZIRP are necessary
tools for policymakers to intervene in the financial catastrophe of 2008; however, even though the recession has officially ended in June 2009, ZIRP
are still in effect now. The application of ZIRP in the US demonstrates the necessity of the Federal Reserve (FED) for both monetary and fiscal
policies in the regulatory system. However, ZIRP are in fact encouraging institutions and individuals to seek risks rather than avoid them, and the
accumulating dangers as a result make ZIRP necessary to protect the financial market and the US Treasury from greater destruction. Therefore, people
are trapped in a downward spiral, and the exit and economic recovery are postponed.
The negative effects of ZIRP begin from an unequal distribution of new money inflows. In the US, quantitative easings (QEs) and Fed loans were first
targeted at large financial institutions. According to a list of recipients of

The Effects Of Lowering And Raising Interest Rates
introduction this report is going to discuss the money market and how interest rates are determined, it will then look at the effects of lowering and
raising interest rates and the limitations of these effects. the money market is a section of the financial market where short term loans and financial
instruments are traded, for example these could be short term loans between banks with the debt maturing in less than a year.
"This gives banks, lenders and other borrowers the ability to satisfy their short term financial needs."
Finance & Development, June 2012, Vol. 49, No. 2, Randall Dodd
Explaining how interest rates are determined by the money market once the government has set targets and objectives, it is up to the policy makers to
use the tools available in order to meet these objectives. these levers are made up using fiscal and monetary policy tools. The tools used in the fiscal
policy is the use of taxation in order to control public spending, which can affect aggregate demand. When taxes are lower individuals and business
will be able to keep more of what they earn, causing better cash flow in the economy and increasing consumer spending ans confidence. This will
also be more of an incentive for individuals to seek work including workers from other countries in the EU, as they can keep more of what they earn as
take–home pay, this will cause a rise in employment, improving the efficiency of the country. When taxes are high this will generally work in the
opposite

Fundamental And Economical Swot Of Commonwealth And Nab...
Table of contents
1.Title
2.Executive summary
3.Introduction
4.Body
I.Macro Analysis
II.Micro Analysis
5.Conclusion
6.Recommendation
7.References
Fundamental and Economical Analysis of Commonwealth and NAB bank
Executive summary
This is an economic strategic record, which is divided into three components. Section A describes and introduced CommonwealthBank and Nab Bank
concerning the mission, current price methods and the market definition of the Commonwealth Bank and Nab Bank. These banks are the top four
biggest banks in Australia, which is delivering monetary offerings. To be trained identifies countless strategic variables, which greatly influence the
efficiency and the profitability of the bank. Section B, describes the primary strategic variables that form the part of interior analysis like: interest rates,
financial rates, financial ratios, performance, activity ratio, assets, Capabilities, Core expertise. Macroeconomic developments in the same way are
used to examine the ability of macroeconomic variables to explain movements in individual banks risk and banks credit risk. Resources kind the
essential detail for any organization and hence availability of sufficient resources determines the success of the group. Section C, demonstrates the
appropriate idea about the equity markets, credit markets, and management of economic condition of two banks.
Introduction
The Commonwealth financial institution of Australia is an Australian multinational

Notes On The Value Of Diversification
The value of diversification Introduction Every finance students have learnt diversification is to reduce total risk by investing a basket of assets in
portfolios. But what contributes to the success of portfolio diversification? A large number of assets? A variety types of asset allocation? Adding
international investment? Numerous of risk factors? They are all indicators of a well–diversified portfolio. In this case, we will discuss about the
advantages and disadvantages of diversification in portfolio management with related indicators. On one hand, some mention dynamic and numerous
assets allocation in the portfolio will reduce both risks. While some also state the benefit of introduce multi–factor portfolio pricing models. On the
other hand, arguments arise demonstrating adding international investment may disappoint investors because foreign market could be correlated and
moved together. Another disadvantage could be the correlated assets collected weaken the effect of diversification. At the end, a balanced
conclusion will be drawn to support the useful diversification. Dynamic and numerous asset allocation benefits Since there are two types of risk we
need to account for: systematic risk and idiosyncratic risk, the easiest one to be diversified away is the idiosyncratic risk. It is known that an optimal
portfolio could gain on diversification by investing a large basket of stocks. This is a good way to offset firm–specific risk. According to Bodie, Kane
and Marcus

Term Structure of Interest Rate
WITH REFERENCE TO THE UK EXPLAIN THE CONCEPT OF THE TERM STRUCTURE OF INTEREST? WHAT INFLUENCE DOES THE
BANK OF ENGLAND HAVE OVER THE TERM STRUCTURE AND WHY IS IT IMPORTANT FOR MONETARY POLICY
To understand the term structure of interest rate we need to elaborate how interest rates function and how they are determined. Interest rates are a vital
tool to all the macro–economic policy objectives of a government such as control of inflation, investment as well as employment. Interest rates refer to
the price paid by deficit agents for borrowing funds from the surplus agents. A line that plotsinterest rate at a set point in time is the term structure or
yield curve.
Interest rates which may be short term or long term are linked to a ... Show more content on Helpwriting.net ...
This particular curve is unusual as it is inverted. The market is anticipating a fall in rates and hence the shape of the yield curves. The sensitivity of
such a curve can be explained taking into account that the change in the rates reflected is small, 0.24% over the duration of the security, 30 years. This
is quite relevant when speculating on future economic conditions. (www.bankofengland.co.uk)
There are three main theories which relate to yield curves. The pure expectations theory implies that forward rates are unbiased estimators of future
interest rates. This theory states that the term structure of interest rates reflects the views of the market about the path of future short term interest
rates. Thus when explaining a positive yield curve, the market will be expecting short term interest rates to rise in the future. The opposite applies when
the curve is negative and when flat the markets expect short term interest rates to remain approximately the same. This theory generally over –estimate
interest rates and does not assume that investors are risk averse and want a higher return when investing.
The liquidity preference theory states that bond holders are risk averse and wish to be compensated for holding the long term security by a liquidity
premium. The normal yield curve to explain this should be up sloping indicating preference for liquidity by investors and lower risk of shorter term

Notes On The Value Of Diversification
The value of diversification Introduction Diversification is worth more than a word. It works on reducing the total risk of a portfolio with different
asset types. But what contributes to the success of portfolio diversification? A large size of portfolio? A variety types of asset allocation? Adding
international investment? Numerous of risk factors? They are all indicators of a well–diversified portfolio. But it is hard to achieve a perfectly
diversified portfolio in reality because you cannot diversify all types of risk. Following, we will discuss about the advantages and disadvantages of
diversification in portfolio management under circumstances. On one hand, some mention that dynamic and numerous asset allocations in the
portfolio will reduce idiosyncratic risk and some level of market risk. While some also suggest benefit exists of introducing multi–factor pricing models
to cover different risk factors. On the other hand, arguments arise demonstrating adding international investment may disappoint investors because
foreign markets could be correlated and moved together in a global world. Another disadvantage further defined will be the correlated asset
allocations weaken the effect of diversification. At the end, conclusion will be drawn to support the useness of diversification. Dynamic and numerous
asset allocation benefits Since there are two main types of risk we need to account for: systematic risk and idiosyncratic risk, the easiest one to be
diversified away is

The Value Of Ibm Stock Price The Highest And Lowest
1.a. Is the price near its high or low price? What is the total value of IBM stock (market capitalization)?
The price nears the highest it has ever reached, 179.2. This is almost an equivalent figure to what it is today (175.86). Its market capitalization is
168.41 Billion (U.S. Bureau of Labor Statistics, 2017).
b. What is the average daily trading volume (Avg Vol) of IBMstock? Click on "5y" just below the stock price chart to see IBM's stock price movements
over the last five years.
Average daily trading volume is 3.78 Million. Over the past five years, the prices have fluctuated to hit 218 in 2013 but recorded the lowest in 2016,
reaching up to 119 (U.S. Bureau of Labor Statistics, 2017).
c. Describe the trend in IBM's stock price ... Show more content on Helpwriting.net ...
Moreover, the shares outstanding for IBM are more than 2.6 Million (U.S. Bureau of Labor Statistics, 2017).
Q3: Ch 2 (10%) Go to https://fred.stlouisfed.org/categories. Under "Money, Banking, & Finance" select "Interest Rates" and then select the "Treasury
Bills" then "3–Month Treasury Bill: Secondary Market Rate". Describe how this rate has changed in recent months. Using the information in this
chapter, explain why the interest rate changed as it did.
Over the years, the percentage of bills has been growing steadily to reach 18 % in 1980. Recently, it has been dropping to rates below 1% and
steadily progressing along the same. Just like other debt securities, Treasury bill interest fluctuation could be subject to the unsteady rates in other
financial borrowings. Most likely, the interests rates by banks have also been decreasing forcing the government to price their bills lower (Becker &
Ivashina, 2015).
Q4: Ch 2 (20%) Using the same website, retrieve data at the beginning of the last 20 quarters for interest rates (based on the three–month Treasury bill
rate) and the producer price index for all commodities (under "Prices") and place the data in two columns of an Excel. Derive the change in interest
rates on a quarterly basis. Then calculate the percentage change in the producer price index on a quarterly basis, which serves as a measure of inflation.

Banking Industry : An American Multinational Banking And...
Introduction
The banking industry is a huge sector of business and finance that has existed in human civilization in some form for thousands of years. In the modern
world, banks/financial institutions have become foundations of our economy for several reasons. They transfer risk, provide liquidity, facilitate both
major and minor transactions and provide financial information to individuals and organizations.
Citigroup Inc. or Citi is an American multinational banking and financial services and as of January 1st, 2015 is the third largest bank holding company
in the US by assets headquartered in Manhattan, New York City. Citigroup had the world 's largest financial services network, spanning 140 countries
with approximately 16,000 offices worldwide and holds over 200 million customer accounts in more than 140 countries (Citi, 2015).
Like any other bank, Citi deals with many risks faced by financial industry in its day to day operations. The risks to which Citi Bank is particularly
exposed in its day to day operations are: credit, market (interest rate, foreign exchange, equity and commodities risk), liquidity, systematic, operational,
and Business risk. (We will discuss credit and market risk in details as part of this paper).
Describe the industry you selected? Based on your research (i.e., web–based, news releases, business journals, etc.), what risks does this industry
currently deal with on a recurring basis (i.e., monthly, quarterly, annually)?Identify and describe a

Financial Crisis : The Recession Of 2008-2009
The most popularly known subprime mortgage crisis came into lime light when a steep rise in home foreclosures in 2006 spiraled seemingly out of
control in 2007, triggering a national financial crisis that went global within the year. The maximum blame is pointed at the lenders who created such
problems. It was the lenders who ultimately lent funds to people with poor credit and a high risk of default. When Fed flooded the markets with
increasing capital liquidity, its intention was not only to lower interest rates but it also broadly depressed risk premiums as investors sought riskier
opportunities to bolster their investment returns. At that point of time, lenders found themselves loaded with capital for lending out and higher
willingness to undertake higher risks in a surge to get greater investment returns. To overcome of the financial instability and housing price bubbles,
Federal Reserve has to intervene to combat these issues. This paper will study the after–effects of 2008 – one of the most severe U.S financial crisis
happened in the global economy. The recession of 2008–2009 was the longest and had its deeper effects. The sub–prime crisis of September 2008
affected not only US but it's footprints across the globe. The financial economy across the globe suffered very badly, thereby leading the weakening of
the economy. According to several economists, the crisis of 2008 was the most severe economic contraction, though less than the Great Depression. To
maintain

Worldwide Paper
Drexel University
Worldwide Paper Company
Group 2 Case Analysis
Brian Burke, John Lafferty
FIN 790 Winter 2015
Seminar in Finance
Dr. Samuel H. Szewczyk
Lebow School of Business
February 9, 2015
Executive Summary:
Blue Ridge Mill is a wood mill owned by Worldwide Paper Company and supplies wood pulp for the company for use in paper production. Blue
Ridge Mill bought its wood supply from Shenandoah Mill's excess production of shortwood that was processed from its longwood supplies. In 2006,
Bob Prescott, the controller for Blue Ridge Mill, was considering a project that would give Blue Ridge Mill the capability to process longwood into
shortwood, which would eliminate the need to purchase from Shenandoah Mill, as well as compete ... Show more content on Helpwriting.net ...
As a result, the cost of debt is 5.88% and is calculated as follows:
The cost of equity can be calculated by using the capital asset pricing model (CAPM). CAPM requires that a market risk free rate, the market risk
premium, and the beta for the company. The market risk premium (6%) and the company beta (1.1) is given directly and can be seen in tables 2 and 3
below. Government bonds are used for the risk free rate. Since 10 year corporate bonds are used for the cost of debt, the 10 year Treasury Bond of
5.60% will be selected as the risk free rate. The 10 year bonds are also a good match for the project duration, which is between 5 and 10 years. The cost
of equity of 11.20% is than calculated as follows:
With the cost of debt and the cost of equity calculated, the WACC is calculated below. The cost of debt is further discounted by one minus the tax rate
since the interest paid on debt is treated as an expense prior to being taxed.

Table 2: Interest Rates December 2006
Table 3: Company Financial Information
Using the calculated WACC and the company's hurdle rate for this project, under Bob Prescott's cost savings and additional revenues assumption, the
project's IRR is now greater than the hurdle rate. Furthermore, the net present value (NPV), payback period and the additional value added to the
earnings per share (EPS) are shown in Table 4 below. Using just these figures, the project should be accepted.

The Health Of The Current U.s. Economy
Situation:
The health of the current U.S. economy appears to be growing gradually. The second quarter real GDP growth was 3.7% and the unemployment rate
declined to 5.3%. The U.S Federal Reserve (Fed) is expected to raise interest rates in the near future when it sees clear signs of strong economic
growth and improvements in the job market.
The last time the Fed raised interest rates (to 5.25%) was in 2006. This move was soon reversed as the 8 trillion dollar housing market bust sparked
the global financial crises. About 8.7 million jobs (about 6%) were lost, unemployment rose to about 10% nationally leaving many households with less
to spend and higher debt.
Given its mandate to maximize employment and maintain price stability, the Fed took monetary policy actions in December 2008 to keep long–term
interest rates at near zero (between 0.0% and 0.25%) to help stabilize and revive the U.S economy –– leaving no option for further interest rate
reduction.
The U.S has a hybrid economy and is considered a large market economy, where there is no central authority directing people what to produce or
where to ship it. So, what are the implications and likely economic consequences of an interest rate hike using the IS–LM model in a closed economy
and a basic market for loanable funds?
Closed economy IS–LM analysis: The IS–LM model focuses on the equilibrium of the goods market and the money market. In other words, it shows
the relationship between real output and interest rates.

History Of The Financial Crisis During The Great...
HISTORY OF THE FINANCIAL CRISIS
There have been many accounts on what the financial crisis was and how it started with different people giving different opinions on what caused the
crisis. According to the IMF (international Monterey Fund), it is said to be the worst financial crisis since the Great depression of the 1930's.
The first claims that the chief root was government involvement in the housing market, this contribution is said to have overvalued a housing bubble
and resulted in the crisis. Another attributes the financial crisis to greedy wall street bankers who intentionally influenced the financial market to take
advantage of homeowners and mortgagers, deliberately making the financial system vulnerable for their personal satisfaction. A third account
underlines both global economic forces and failures in U.S. policy and supervision. This account states that a high influx of money into the economy
caused bankers to look for resourceful ways to make profit. This resulted in the inflation of housing prices with the hopes of reselling at a higher price
between 6 months to two years. Banks also introduced an adjustable rate mortgage (sub–prime mortgages) which allowed borrowers to vary their
monthly payments. That meant the overall principal grows over time, compared to normal mortgages where the balance owed reduced over 30 years
to zero and the debtor owns the house and is not obliged to make any more payments. If the price of houses kept going up and the debtor

Financial Crisis By Mainstream And Heterodox Economists

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