...managed by several executives. The deregulation of public utility industries gives Enron chance to make profit by trading energy as commodity in the open market. Thus, Enron ranked the seventh largest of the Fortune 500 at the year of 2000. However, for the purpose of rise company shares and control current risk of company, Enron deals agreements with internal related companies, which is owned by Enron executives, in order to rise company value and increase stock price. These special purpose entities (SPEs) overvalued Enron’s share about 600million and finally drove company to bankruptcy. Three main aspects point out by author that indicates how Enron Company filed for bankruptcy. Firstly, rather than hedging its risk by entering into contract with independent third parties, Enron entering agreement with its own executives company to control risk level. Secondly, Enron’s Chief Financial Officer Andrew Fastow fully controls trading agreements between Enron and SPEs, which means he can make personal profits by cheat other investors. Thirdly, the accounting firm—Arthur Andersen, which have responsibility to providing allegedly unbiased and accurate financial reports to help investors decision making whether invest or not into a corporation. For the purpose of keep receiving huge amount of consulting and advising fees from Enron, Andersen auditors also involved in to keep Enron’s balance sheet less debts and cheat investors. This article reveals business ethical problem by using...
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...Study the Role of Hedging to Reduce Exchange Risks on Investments in Global Stock Market Executive Summary In this global business environment, organizations are engaged to perform business activities across the countries. In order to execute international activities, they are tended to receive and make payment in different currencies. Currency value of country tends to change due to several economic aspects such as government decisions, stability, GDP and BOP rate etc. Changes in such factors are tended to increase vulnerability of currency value that is responsible for creating exchange risk. Exchange of currencies among the business organizations and corresponding changes in their values creates variation in their positions of cash flow, balance sheet and future profitability. An adverse effect of firm’s profitability leads significant decrement in the value and performance of respective stock. Due to this, exchange risk is needed to be addressed with use of risk management strategy. The research is designed to Study the role of hedging to reduce exchange risks on investments in global stock market. Research objective will contribute to determine hedging strategy role in reducing exchange risk from stock market investment. By using inductive approach, interpretive philosophy, mixed design and non-probability sampling method, objectives of this research will be achieved by the researcher. Both primary and secondary data sources will be used to obtain information. An...
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...FIN30014 Financial Risk Management Topic Outline, Reading and Tutorial Questions Semester 2, 2015 ------------------------------------------------- Topic 1: Introduction to Derivatives and Financial Risk Management ------------------------------------------------- Mechanics of Futures Markets Topic Outline * Financial risk management – an overview * The nature of derivatives and their uses for financial risk management * Futures exchanges and futures contracts * Over-the-counter markets and forward contracts * Uses of derivative contracts markets: Hedging, Speculation and Arbitrage * The mechanics of futures markets * opening and closing futures positions * the operation of margins on futures contracts * the role of the “Clearing House” * Futures contracts compared with forward contracts Essential Reading: Hull (2014) Chs. 1 & 2 Additional Reading: Viney, Ch 18, pp. 604 – 613; Ch 19, pp 636-648 Web Resources (Refer to the “External Links” tab on Blackboard) * Financial Pipeline: Derivatives Self-test Quiz Questions Hull Ch. 1: 1.2, 1.4, 1.7 Hull Ch. 2: 2.3, 2.4 (ignore tax questions), 2.5 Tutorial Questions Hull Ch. 1: 1.10, 1.11, 1.12, 1.18, 1.20, 1.21, 1.33 Hull Ch. 2: 2.10, 2.14, 2.16, 2.18, 2.25, 2.26, 2.28 Additional Questions 1. Suppose that on Jan. 4, 2011, an investor...
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...International Management, 7e (Deresky) Chapter 1: Assessing the Environment Political, Economic, Legal, Technological 1) Which of the following is characterized by networks of international linkages that bind countries, institutions, and people in an interdependent global economy? D) globalization 2) All of the following factors contribute to globalization EXCEPT ________. C) higher number of trade restrictions 3) Which of the following is the most highly globalized in regards to economic integration, technological connectivity, personal contact, and political engagement? A) Singapore 4) Most small and medium-sized enterprises (SMEs) are ________. C) contributing to their national economies through exporting 5) Gayle Warwick Fine Linen owes its success as a global business primarily to the firm's ________. B) labor outsourcing in Vietnam 6) Which of the following are the three dominant currencies in the world today? C) Euro, Japanese yen, U.S. dollar 7) Most of today's world trade takes place in which three trade blocs? C) European Union, Asia, and the Americas 8) The European Union currently consists of how many nations? B) 27 9) Which of the following is NOT one of the Four Tigers? D) Thailand 10) Which of the following best explains China's success in exporting? A) low costs and steady stream of capital 11) Which of the following is NOT a true statement about India? A) India's biggest contributor to growth is its excellent infrastructure. 12) India's economic boom is most likely...
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... they will realize they can get away with this sort of behavior, and the prevalence of unethical behavior will continue to rise. Research Question Are the accountants truly responsible for the fraudulent claims companies are making these days, or are they simply pressured by their bosses to fabricate figures that enhance the image of the company's profitability and fill the CEO's greedy pockets? Literature Review In the past 5 years, a plethora of articles and books have been released, dealing with ethical business practices. Balancing the books: The crooked E, is an article by Anita Peltonen, which examines Enron's practice of kiting (Illegally benefiting from altering the amount of money or time represented by checks that are in transit between deposit and payment, or credit card purchases that are between the purchase and the payment. For example by depositing and drawing checks between accounts at two or more banks)their stock price and hedging (Hedging a cash commodity using a different but related futures contract, often done when there is no futures contract for the cash commodity being hedged). Another Enron article entitled, Jeff Skilling: Enron's Missing Man; The CEO who created its in-your-face culture has been largely absent...
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...potential is key for most investors , that is why a number of traders and investors are diversifying and hedging with currency, currencies benefit from some of the same things that may hurt stock indexes, bonds or commodities and can be a great way to diversify a portfolio. Investing in foreign currency is mutually beneficial. Investor are exposed to two types of risk: idiosyncratic risk and systemic risk. Idiosyncratic risk is the risk that an individual stock's price will fall, causing you to accumulate massive losses on that stock. Taking this risk out of your portfolio is easy, just diversify your account across a broad range of stocks or stock-based ETFs, in turn reducing your exposure to a particular stock. Though diversifying across a broad range of stocks only addresses idiosyncratic risk. You still have to face the systemic risk. That risk , is the risk based on the whole stock market failing, the way to fix this problem is to minimize your portfolios exposure to a bear market by the use of a forex account, using the forex account to trade from while simultaneously managing your stocks. http://www.investopedia.com. B) Why is corporate finance important to all managers and discuss their primary objective. Corporate finance is a type of finance dealing with monetary decisions that business enterprises make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize corporate value,while managing the firm's financial...
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...will help the company. Classic Airlines will use the 9-step model to solve some of their problems. It is not required for the company to use a problem solving model. In using the 9-step model classic Airline’s will be able to identify and define some of the problems that the company faces. It will consider the internal and external pressures that happen to be contributing to the current crisis that Classic’s faces. Classic Airlines implementing the 9-step problem’s solving model Classic Airlines will be able to uncover numerous opportunities that the company may not have found, It will help Classic Airlines to identify the problems that the company has, help them come up with plans for the solution, help the company display ethical dilemmas, and it also helps the company measure the solutions that may help the company correct ensuring issues. With Classic Airlines challenges needs to use the following 9- step to resolve their decline in customer revenue: Step one: Is for Classic Airlines to determine the overall problem, to define the problem. Step two: Is for Classic Airlines to measure the problem, to collect data on the problem. Step three: Is...
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...FACULTY OF ECONOMICS AND BUSINESS EBA 4043 INTERGRATED CASE STUDY MALAYSIA AIRLINES CASE STUDY NO NAME STUDENT ID 1 ANGELINE JONG HO CHIN 35474 2 FONG SHU YIING 36085 3 SURESH A/L MINAIAH 38941 4 LEE YOKE LAN 39541 5 WAI POH YAN 39641 Malaysia Airlines INCOME STATEMENT ANALYSIS Income Statement Analysis (Cont’) Year/ Aspect 2008 2009 2010 2011 2012 Revenue Increase 2.38% Decrease 24.78% Increase 14% Increase 5.77% Decrease 2.69% Expenditure Increase 5.44% Decrease 19.71% Increase 9.19% Increase 21.57% Decrease 12.84% Net profit for the year Net profit (RM 245,697,000 ) Net profit (RM 493,106,000 ) Net profit Net loss (RM (RM 2.5 237,346,000 billion) ) Net loss (RM 430,738,000 ) Increase 39.09% Increase 63.74% Increase 47.57% Finance Increase cost-interest 29.61% expense Increase 15.19% BALANCE SHEET ANALYSIS • Balance sheet and cash flow – interrelated • cash flow explains inflow and outflow of cash which any changes in balance will affect cash flow • Operating Activities – changes in current assets and current liabilities • Investing Activities – changes in non current assets and other income • Financing Activities – changes in equity and liabilities BALANCE SHEET ANALYSIS There was no long term borrowings in year 2003 until 2006 because of most probably government take over it...
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...an aggressive growth strategy. To ‘seal the deal’, they hired Andrew Fastow as CFO and it was he, that helped to create the complex financial structure for Enron (Reinstein & Weirich, 2002). One could say that Enron began to plummet as soon as the company shifted its focus from regulated natural gas domestically to international energy, water and broadband communications – as these were volatile and risky hedging transactions (Reinstein & Weirich, 2002). Engaging in these risky transactions, enabled Enron’s stock to rise but when these three new areas went sour, the stock plummeted as well. Enron’s management did not disclose these losses and liabilities on their financial records nor to the investors of the corporation (Reinstein & Weirich, 2002). Despite Enron being called the most innovative and having alleged annual revenue of one hundred billion dollars, Enron collapsed in 2001. One might ask how an organization such as this files Chapter 11 Bankruptcy in a matter of years; the answer is simple, a case of poor organizational behavior and poor decisions made by upper level management. This paper will identify the management and leadership failures which led to the untimely demise of Enron...
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...School for instructors considering adopting the associated material. The paper begins by arguing that the forces of globalization have fundamentally changed the scope and activities of firms thereby altering the practice of finance within these firms. As a consequence of an increasing reliance on tightly-integrated foreign operations, a parallel world of finance has been opened within every multinational firm and this world has, heretofore, been overlooked. The course materials are designed to address the many aspects of financial decision making within global firms prompted by these changes that are not addressed in traditional materials. The paper provides an overview of the structure of the course and its seven modules with particular emphasis on the three modules that constitute the core of the course. The paper also describes an analytical framework that has been developed through the creation of the course materials to guide critical financial decisions on financing, investment, risk management and incentive management within a multinational firm. This framework emphasizes the need to reconcile conflicting forces in order for multinational firms to gain competitive advantage from their internal capital markets. The paper concludes with a discussion of the course's pedagogical approach and detailed descriptions of all the course materials, including 19 case studies, corresponding teaching notes, several module notes and supplementary materials. Mark Veblen, Kathleen Luchs and...
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... The minimum passing marks is 40%. Each Question carries 1 mark. Answer all the Questions. Multiple Choices: 1. Corporate Governance is________. a) About ethical conduct in business b) Direct or indirect concerns in the organization c) A manufacturing system d) None of the above 2. The term corporate governance is derived from the__________. a) Greek word b) English word c) French word d) Latin word 3. The definition “Corporate Governance is the system by which business directed and controlled” is given by a) SEBI committee b) OECD committee c) Cadbury committee d) All of the above 4. Internal control is implemented by the________. a) Board of directors b) Audit committee c) Management d) All of the above 5. OECD stands for_______________ 6. Which of the following have the power to hire fire and compensate the top management? a) Board of directors b) Audit committee c) Shareholders d) Management 7. CII stands for _________________ Examination Paper of Certified Corporate Governance Professional 2 IIBM Institute of Business Management 8. The managers are expected to act in the interest of: a) Audit committee b) Stakeholders c) Employees d) Customers 9. To endorse the organization strategy, develop directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organization to its owners and authorities is the responsibility of: a) CEO b) Manager c) Top management d) Board of directors ...
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...rather than what actually happened. Reasons why management may want to manage earnings include both internal and external pressures. Perhaps the most important section of this chapter is that of dealing with the common techniques used to manage earnings. It is through a thorough understanding of these methods that earnings management can be spotted. These strategies are important to know as an accountant, auditor, financial analyst, creditor, or investor. Healthy scepticism on the part of these various interests, and contributors, to the financial statements will further detection, and a reduction, of earnings management practices. By improving the quality of the information in financial statements, through better accounting standards and ethical behaviour, the cost of doing business decreases. Not only is this true with the cost of capital, as the chapter describes, but nowhere is it more clearly seen today than with the additional costs publicly traded companies are now faced with to come into compliance with the provisions of the Sarbanes-Oxley Act. Earnings management and unethical behaviour of the past is costing businesses more today. The instances of earnings management acceptable are:- * Concept of materiality. Noting that the concept of materiality plays a vital role in the financial reporting process, the Criteria for Determining Materiality, this not intended to require that misstatements arising from accounting close processes, such as a clerical error or an adjustment...
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...creating several “independent” companies, called “Special-Purpose Entities” (SPEs) and using them as a way to hide many bad and devalued assets to fool investors into believing Enron was financially healthy so Enron executives could pocket millions from sales of inflated stock. They created a company called LJM1 which purchased the provider’s stock at inflated prices and took them off the books at Enron. Later, when the price of the stock fell, Enron did not have the loss on its books. LJM allowed Enron to move money-losing assets off its balance sheet. LJM was also involved in complex hedging that was supposed to reduce the volatility of some of Enron's investments, including stakes in high-tech and telecom businesses. Arthur Andersen, Enron’s accountants, were accused to have allowed LJM1 to be isolated from Enron’s books, and go unnoticed. In the end, LJM1 was stuck with stock from the internet provider, which they purchased from Enron at inflated prices, and now were worth much less. Andy Fastow was the Enron executive who first created the company LMJ1 in order to hide unprofitable assets. It was the accounting firm of Arthur Andersen who was responsible for identifying and informing about unethical and possibly illegal activities by the company’s executives. However, “the original accounting treatments for the…LJM1 transactions were wrong…in spite of extensive involvement and advice from Arthur Andersen.”...
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...firm and academic understanding of business ethics. It will attempt to highlight the turning points in the economic crisis and bifurcate back to the ethicality issue. A brief history of the stock market and Securities and Exchange Commission will be offered. This author will then identify the various ways the crisis could affect a business in the private enterprise. Lessons of the crisis will be presented along with managerial recommendations. Business Ethics Enron, Arthur Andersen, WorldCom, Adelphia, Martha Stewart…these are all just recent examples of businesses that participated in acts not only considered unethical but also illegal. In order to qualify an act conducted by a business as ethical or unethical, it is important that a solid foundation is set that surrounds what ethical and unethical behavior actually means. According to Bateman and Snell (2004), business ethics is defined as the moral principles...
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...Executive Summary: According to the 2010 Interbrand Best Global Brands report, “McDonalds Corporation is the 6th most valuable brand globally”. The calculated value of the iconic golden arches logo has an estimated net worth of $33.58 billion (Interbrand, 2010) The company is ranked as the #1 restaurant brand and on an average day will provide food and beverage service to 60 million customers around the world. This corporation is a pioneer in global expansion and emulated by many competitors. Since the opening of the first McDonalds in California in 1940, the company has continued on its journey to continually enhance the brand and support higher sales. In July of 1966, McDonalds listed on the NYSE. By 1970 they surpassed $1 billion in annual sales; the corporation’s vision for growth and their unique business model paved the way for a global footprint that would stir media frenzy. As a global economic presence, McDonalds is a superpower. There are famous stories reported across the globe such as when McDonalds served 30,000 hungry Russians on the opening day of McDonalds Moscow in 1990. This paper will demonstrate the global reach that McDonalds has by reporting and analyzing on the global FX and debt markets and how changes in currency rates and interest rates impact the company’s financials. The analysis will provide an overview of the firm and then delve deeper into the current global presence of the organization and breakdown certain specifics by region globally...
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