...Final Draft Although there are many advantages of possessing credit cards, most Americans should not use them; because they do not use them properly to where they become liable or subject to overwhelming debt, which could damage their credit history. Personal credit card debt has doubled in the past four years and personal bankruptcies are at the highest ever, and still more Americans are spending money that they do not have. Credit cards allow and encourage individuals to buy more than budgeted, and this is obviously a situation, which is best to avoid. Knowing when it is a bad idea to use a credit card can help you to avoid adding debt to your credit card. It is no doubt that the use of credit cards have eased the rate in which people obtain goods and services, but the use of credit cards have done more damage to the finances of Americans credit card users than good. Credit cards have become a problem for most American credit card users and there are even cases that some Americans have committed suicide because of the heavy debts he or she owes the credit card companies. Should Americans continue using credit cards? The answer is definitely no as the detriment that comes with using credit cards outweighs the benefits. Credit cards are a huge convenience in everyday life, yet most people are irresponsible when using them. The convenience of possessing credit cards increase the risk of overspending because people can convince themselves to spend more than what they...
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...Enablers of Exuberance Jennifer S. Taub Sept. 4, 2009 DISCUSSION DRAFT Enablers of Exuberance: Legal Acts and Omissions that Facilitated the Global Financial Crisis Jennifer S. Taub1 I. Introduction This paper explores certain legal acts and omissions that facilitated the over-leveraging and near collapse of the global financial system. These ―Legal Enablers‖ fostered the boom that enriched a class of financial intermediaries who followed a storied tradition of gambling away ―other people‘s money.‖2 These mechanisms also made the pain of the bust disproportionately felt by the middle class and poor while shielding the middlemen who created the problems. These legal Enablers permitted the growth of a shadow banking system, without investment limits, transparency or government oversight. In the shadows grew a variety of highly leveraged private investment pools, undercapitalized conduits of securitized loans and speculation in complex credit derivatives. The rationale for allowing this unregulated, parallel system was that it helped to create innovation and provide liquidity. The conventional wisdom was that any risks associated with a hands-off approach could be managed by the ―invisible hand‖3 of the market. In other words, instead of public police, it relied upon private gatekeepers. A legal framework including legislation, rules and court decisions supported this system. This legal structure depended upon corporate managers, counterparties, ―sophisticated investors‖ and the...
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...AN INVESTIGATION INTO HOW CREDIT RATING AFFECTS LOAN APPROVALS IN COMMERCIAL BANKS. MARCH 2013 “A research project proposal submitted to the school of business and public management in partial fulfillment of the requirement for the award of the degree of bachelor if commerce finance option in KCA University.” TABLE OF CONTENTS pages DECLARATION 3 CHAPTER ONE 3 1.0 Introduction 3 1.1 Background 3 1.2 Statement of the problem 3 1.3 Research objectives 3 1.4 Research questions 3 1.5 Importance of the study 3 CHAPTER TWO: Literature review 3 2.0 Introduction 3 2.1 Literature review Error! Bookmark not defined. 2.2 Chapter summary 3 CHAPTER THREE: Research methodology 3 3.0 Introduction 3 3.1 Research Design 3 3.2 Population and sample 3 3.3 Data Collection Methods 3 3.4 Data Analysis 3 REFERENCES 3 APPENDIX ONE: Questionnaires Error! Bookmark not defined. APPENDIX TWO: List of Kenyan Banks in the study 3 CHAPTER ONE 1.0 Introduction Credit rating has been defined in different ways: Admin (2008) defines it as the degree of credit worthiness assigned to an individual based on the credit history and financial status. Credit rating also assesses the credit worthiness of a country and corporation. It helps lenders or investors to know if the subject will be able to pay back a loan and can also be used to adjust the insurance premium, to determine employment...
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...G L O B A L A S S O C I AT I O N O F R I S K P R O F E S S I O N A L S R I S K H I S TO R Y The Origins and Evolution of Credit Risk Management Credit risk can be traced back thousands of years. But where exactly did it come from and what are its basic tenets? What events changed the course of credit risk history? And who were the true innovators of credit risk management? Aaron Brown takes us on an interesting journey, from the ancient origins of credit to the birth of ratings agencies, all the way through modern-day deficiencies in understanding probability of default. C redit is much older than writing. Hammurabi’s Code, which codified legal thinking from 4,000 years ago in Mesopotamia, didn’t outline the basic rules of borrowing and didn’t address concepts such as interest, collateral and default. These concepts appear to have been too well known to have required explanation. However, the Code did emphasize that failure to pay a debt is a crime that should be treated identically to theft and fraud. The Code also set some limits to penalties. For example, a defaulter could be seized by his creditors and sold into slavery, but his wife and children could only be sold for a three-year term. Similarly, the Bible records enslavement for debt without disapproval; for example, the story of Eli’sha and the widow’s oil concerns the threatened enslavement of two children because their father died without paying his debts. But the Bible also goes further than Hammurabi...
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...borrow both the long-term and short-term debt. Table 1.1 Payment Period Interest Rate Total Net Debt Amount to Pay for Debt/yr 1 yr 10 yrs 30 yrs 4.54% 4.66% 4.98% $80,000 $80,000 $80,000 $83,632 $10,190 $5,192 From table 1.1, we tell that 1-year debt is not a good choice, since about 33% of revenue (i.e. $83K out of $250K) will be used to clear the debt, which will dramatically increase the risk of default. The 10-year and 30-year debts are henceforth both feasible choices, but our suggestion is to choose the 10-year debt so as to reduce the cost of debt. We choose to use 4.66% as the RFR (Rf). ii. Table 2.1 Credit Rating 10-yr US Treasury Spread to Treasury Cost of Debt Consolidated E&P R&M Petrochemicals A+ A+ BBB A4.66% 4.66% 4.66% 4.66% 1.62% 1.60% 1.80% 1.35% 6.28% 6.26% 6.46% 6.01% Midland Energy resource, Inc. 2 Given that the lower the credit rating is, the riskier the business would be in terms of the danger to default. A normally larger risk premium is added on to Rf for a riskier business (refer to Eq 2.1). Debt rate = Risk-free Rate + Risk Premium E&P. The most profitable department of Midlands with dominant performance over the industry for the past five consecutive years, the E&P department is the star of the company. With continuously growing demand in the foreseeable future, the performance of this department is unlikely to default the...
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...------------------------------------------------- Nike Case Study ------------------------------------------------- 15th June 2012 – OneMBA 2013 – Justin Lee Bennett 1. How does Joanna’s analysis (exhibit 5) differ from BEHH best practice, HV Chapter 10 and/or my lecture notes? a. The differences between Joanna’s calculation and the other sources mentioned above can be summarized as follows: a. She used statutory tax rates where as BEHH, Chapter 10 and class notes show best practice as using effective marginal rates b. When calculating the WACC Joanna used a single cost of capital as she believes that only the Cole-Hann business is different, given this only makes up a small part of revenues and all other businesses were sports related, this makes some sense however BEHH, chapter 10 and our course lecture state we should use different cost of capitals for each business. c. Joanna uses book values to calculate cost of debt; BEHH, chapter 10 and class lecture advise us to use market values. d. She used a market risk premium of 5.9% for her calculations that is equal to the geometric mean. BEHH agrees with this for bonds, but suggest arithmetic mean when using treasury bills (shorter time period). In our class notes it also states we use geometric mean for long term investments, but recommends 6% for OneMBA calculations e. For the cost of debt calculation Joanna used current interest payments which deviates from BEHH, Chapter 10 and...
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...Resize Font: A- A+ The Polarizing Michael Vick Unknowable. Infuriating. Impossible to pigeonhole. Is there any way to define the legacy of the Eagles $100 million quarterback? By Bill Simmons on November 2, 2012 * PRINT Michael Vick's career is like football Play-Doh — an amorphous hunk that you can shape however you want. You could craft a Vick-centric essay about redemption just as easily as one about squandered potential. You could unleash a "Vick was totally and tragically underrated!" argument with the same gusto as a "Vick was the most overrated football star ever!" rant. You could borrow certain statistics to plead his case as an elite quarterback, and other numbers to bury that same case. You could declare with complete authority that "nobody is ever winning a Super Bowl with Michael Vick," or you could veer the other way and say, "If Michael Vick finds the right team, maybe he could thrive like Steve Young did in San Francisco." Vick didn't need a dogfighting scandal to retire as the most polarizing NFL quarterback ever — it would have happened anyway. Even the process of drafting Vick was polarizing. When Vick declared for 2001's NFL draft after just two Virginia Tech seasons, Peter King wrote a Sports Illustrated piece headlined "Risky Business," with the subhead "Snakebitten San Diego will likely cast its lot with Michael Vick, who's making a perilous leap from college sophomore to No. 1 pick in the NFL draft." It's an uncanny piece to reread, like...
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...discriminations of decreasing credit risk value or an increase in market risk abhorrence can inevitably lead to a decrease in in a bond’s price (Przybylinski, 2012: pg.6). Volatility of the portfolio is then effectively increased and therefore a decrease in returns. Investors often use credit ratings provided by rating agencies, which have been highly criticized ever since the 2008 US Financial crisis (Ryan,2012:3), such as Standard & Poor’s, Moody and Fitch in order to measure credit risks of viable bonds. These ratings mostly apply to corporate bonds as the demand for sovereign bonds are not as prevalent which is also contributed to the fact that sovereign bonds are not easy to compare as non-sovereign bonds. Table 1 below clearly indicates the ratings of sovereign bonds of various countries with ratings of May 2010. As one can see, the European sovereign bonds have a dissimilar rating as oppose to the markets, especially since Europe is experiencing a financial crisis. European sovereigns appear cheap according to table 1 due to agencies not taking into consideration actual fiscal issues which implies that European economies are rated higher to that of actual market spreads which indicate rating agencies’ criticisms. Table 2 below shows how sovereign bond investors may face contests as below investment quality bonds are becoming more risky as...
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...CASE 2: JUAN AND MARIA SANTOS Presentation of the Case: Facility Applied for: P1, 500, 000 Revolving Credit Purpose of Loans: Additional Working Capital Collateral: House and Lot in a subdivision beside Ayala Alabang Appraised Value: Lot sq. meter P 1, 540, 000.00 House P 1, 200, 000.00 Fence/Landscape P 100, 000.00 Total P 2, 840, 000.00 Loan to Security Ratio (LSR) 53% Debt to Burden- For interest only 17% versus 25% guideline Facts of the Cases: * Age(s) Juan- 37 y/o Maria- 35 y/o Son (dependent)- 7 years studying at La Salle * Clients are depositors of Paranaque Branch with STD of $20, 000.00 * Other Asset(s) 2 cars. A 2-year old car financed by BA finance (good credit checking) and 3-year old car Source(s) of Income: * Fast food Business in Mandaluyong selling BBQ, siopao, mani, goto. One year in operation. Net income of 24, 000.00 a month * Uno Marketing retailing medical products with 2 branches (Mandaluyong and Paranaque) including drug store operations. Net income of P 120, 000.00 per month. Total income is P 144, 000.00 per month. Deviation Request: Waiver of submission of Statements- Income to be taken as claimed by the clients Questions: * Should the creditor approve the loan request? * What are the risks involved? I. Point of View In creditor’s point of view, the facility applied for a P 1, 500, 000.00, revolving credit for the purpose of an additional working capital. Revolving credit is the...
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...firms said that they bypassed attractive investments due to difficulties in raising external finance. In contrast, only 44% of unconstrained firms avoided such investments. Creditworthiness The organization develops creditworthiness based on debts paid and minimum credit established with the lenders. Organizations take advantage of the credit’s contribution to financial stability. The creditworthiness aspect of the organization provides a wealth of additional benefits. The borrower has the opportunity to receive a credit rating by the credit agency, and the credit rating flows across the organization’s performance throughout the life of the business, reflecting the internal and external aspects that might affect the overall credit score. Consequently, the credit agency rates the organization “A” or “BBB –”; these assigned ratings can vary depending upon the credit agency, essentially within the market-oriented setting (Kaufman, 2006). Obviously, the “A” rating offers better financial opportunities to the organization, such as low interest cost, which provides...
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...Presentation of the Case: Case 2: JUAN AND MARIA SANTOS Facility Applied For: P 1,500,000 Revolving Credit Purpose of Loan: Additional Working Capital Collateral: House and Lot in a subdivision beside Ayala Alabang Appraised Value: Lot 550 sq. meter P 1,540,000.00 House P 1,200,000.00 Fence/Landscape P 100,000.00 Total P 2,840,000.00 Facts of the Case: * Age(s) Juan- 37 years old Maria- 35 years old Son- 7 years old studying in La Salle * Clients are depositors of Parañaque Branch with STD of $ 20,000.00 * Other Asset(s): 2 cars. A 2-year old car financed by BA finance (good credit checking) and 3-year old car. Source(s) of Income: * Fast Food Business in Mandaluyong selling BBQ, siopao, mami, goto. One year in operation. Net income of P 24,000.00 a month. * Uno Marketing retailing medical products with 2 branches (Mandaluyong and Parañaque) including drugstore operations. Net income of P 120,000.00 per month. Total income is P 144,000.00/month. Deviation Request: Waiver of submission of Financial Statements-Income to be taken as claimed by the clients. I. Point of View In creditor’s point of view, Juan and Maria Santos’s loan was P 1,500,000.00 revolving credit. Revolving credit is a line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customer's current cash flow needs....
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...11.4 STEPS IN THE OPERATION OF LETTER OF CREDIT Letters of credit accomplish their purpose by substituting the credit of the bank for that of the customer, for the purpose of facilitating trade. There are basically two types: * Commercial * The commercial letter of credit is the primary payment mechanism for a transaction. * Standby * The standby letter of credit is a secondary payment mechanism. Letters of Credit have certain advantages in foreign trade transactions not only for exporters but also for importers. Letters of Credit give comfort to exporters regarding the payment. Exporters know that as long as they comply in the terms and conditions of the credit they will be paid. Exporters can demand from a bank to add its guarantee to the Credit in order to overcome various risks such as political risk. Conditions of the Credit will not be changed without the permission and consent of the exporter as long as it is irrevocable. In Letter of credit, normally four parties are involved: (1) The Buyer (the applicant) (2) The Buyer's bank (the issuing) (3) The Beneficiary (the seller/payee) (4) The beneficiary's bank (the ADVISING BANK). (5) The CONFIRMING BANK (often the same as the advising bank) The LC outlines the conditions under which payment (credit) will be made to a third party (the Beneficiary). The conditions are specified by the buyer and may include insurance forms, Way Bills, Bills of Lading, Customs forms, various certificates...
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...substantial presence of state-owned enterprises crowds out private investment. Corruption, coupled with onerous bureaucracy, is still perceived as pervasive, and the underdeveloped financial sector impedes the growth of a more dynamic private sector. The Economic Freedom of Bangladesh Score Score (Avg.) Score Score (Avg.) 65.0 Business Freedom Avg. 64.3 55.0 Investment Freedom Avg. 50.2 58.0 Trade Freedom Avg. 74.8 20.0 Financial Freedom Avg.48.5 72.7 Fiscal Freedom Avg. 76.3 20.0 Property Rights Avg. 43.6 92.4 Government Spending Avg. 63.9 24.0 Fdm. from Corruption Avg. 40.5 68.6 Monetary Freedom Avg. 73.4 54.3 Labor Freedom Avg. 61.5 Moody’s Credit Rating: Bangladesh's Ba3 sovereign rating reflects our methodological assessment of the country’s limited economic resilience. It balances a medium-sized, though somewhat narrow, supply constrained, and low-income economy, against a track record of steady growth and macroeconomic and policy stability. It also incorporates the government’s history...
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...Closing the Gap in Homeownership Rates: How Fannie Mae and Lender-Partners Can Close the Gap Sullivan University MGT 510 Executive Summary This proposal addresses the gap in homeownership rates between whites and minorities. According to the United States Census Bureau, 67.9 percent of the population in the United States are homeowners. However, while 71.8% of Whites are homeowners, only 47.3% of African Americans and 48.2% of Hispanics are homeowners. This large gap in homeownership rates can be contributed to discrimination by lenders and minorities’ misconceptions about the lending process. To overcome these issues, lenders need to eliminate discrimination and reach out to minorities. Ultimately, lenders who discriminate are going to hurt their own bottom lines since minorities represent a large market that has the high potential for growth. Introduction: Homeownership is the “American Dream” Housing has often been referred to as the #1 creator of wealth in the United States. It has been called, (1) the leading consumer product, (2) the leading consumer investment, and (3) a leading economic driver. Homeownership, in short, is the “American Dream.” It creates wealth. If you purchase a home today, with appreciation and through upkeep, it will be more valuable in the future. That appreciation provides homeowners with opportunities to create wealth. According...
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...Debt Financing Ayivi Koutodjo Business 530 Abiola Fapetu Liberty University Debt financing decision is not a process of couple hours of meeting. It required thorough scrutiny and an effective brainstorming. Managers are, most of time, facing huge challenges in meeting the company’s cash flow target. The task on hand is to find solutions of the possible organization’s incoming shortage of cash, more precisely how to raise and maintain cash in the company six months from now until the next two years, when the company will lunch his lucrative product. Many possibilities will be analyzed and the best one will be presented to the board of directors. Debt financing is an on-going process that company uses to achieve their objectives. It is one of the chief financial officer (CFO) duties. The CFO has multitude of choices to choose from when I comes down to raise cash. He could decide to retain earnings, to sell bonds, to sell stocks, or to obtain a loan. The CFO has to choose the one that add value to the shareholders wealth. To be successful in this task the CFO must consider the current economy condition and the current organization’s standing and objectives. Furthermore, the CFO must remain trustworthy and must not...
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