...{draw:g} {draw:frame} INTRODUCTION G3 Consultants Inc. has been faced with the assignment of determining the feasibility for HSBC Holdings to invest more money into their Argentine subsidiary. Argentina is currently in the midst of a recession that has lastednearly 4 years. After considerable help from the IMF in an attempt to control impending foreign debt, a mix of Argentina’s political and monetary policies has resulted in the instability of the Argentine economy and the suspension of payments leading to an uncontrollable build up of national debt. The questionable sustainability of the Argentinean government has led to a freeze in the cash flow of foreign investors in the country, consequently placing HSBC as one of the main investors to decide whether or not to permanently cut its losses and fully pull out of Argentina or believe in Argentina’s historical economic climate and continue to invest in the hopes of an outstanding upside to the current crisis. G3 Consultants Inc.’s objective is to evaluate and analyze the crisis and provide HSBC Holdings with a recommended course of action. KEY ISSUES Fiscal Policy Convertibility Plan Structural Reform Throughout the 1990s, G3 Consultants Inc. identifies Argentina as a relatively closed economy based on several factors and with little control to implement the necessary structural reforms. Firstly, the country was fairly closed-off to tradeand while it did remove some barriers...
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...The Fiscal Mismanagement and Fixed Exchange rate were the cause of Argentina 2001 Crisis Summary: Argentina’s economy verge to a state of collapse in the year of 2001, but the economy started to struggle with an economic recession in 1997. The fiscal mismanagement paired with the fixed exchange rate policy conducted the country to a financial crisis. IMF policies in lending to a country with struggling economy made people think if IMF was the responsible for the default crisis that affected Argentina in 2001. Public Deficit – The Major “devil” As economic reforms were happening in Argentina, the country started to face large capital inflows, as it was able to borrow large capital amounts at lower interest rates because of the currency pegging, in the global market. However the government fiscal policies failed to maintain surpluses during economic growth period and actually even during this period the government budget deficits were large. Fiscal mismanagement can be considered as the main reason for the economic crisis, which includes: * Weak fiscal policy – the fiscal policy should have been adjusted during times of economic rapid growth in order to achieve fiscal surpluses and give a cushion in government accounts against future downturns. Lax in tax collection and high budget expenditures led the government budget to deficits which combined with the economic recessions led to long-run budget constrains because the deficit was unsustainable. * Structural Reforms...
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...Mendiola, Julie Ann Banco Rio’s Case Analysis 10-10-2012 Strategic Financial Management 4FM01 I. Point of View The financial analyst is a decision maker or person who is in the position to make the final recommendations as mentioned in the case. He will be responsible with the interactions with other executives, developing information flow system, research and development and investment decisions referring to capital budgeting and financing sources, forms and methods. He will communicate, judge and monitor the results of business decisions knowing how to make strategic investment decisions as well as operational decisions. II. Time Content Between the years 2001-2002, it is the time when the situation is to be analyzed where the financial and economic crisis happened. III. Statement of the Problem 1. How does Banco Rio made a strategic management in terms of its: a. Management and Human Resources b. Marketing aspects c. Corporate social responsibility d. Financial aspects e. Future Plans 2. What recommendations can be made to develop a continuous innovation and improvement on Banco Rio’s action plans? IV. Statement of the Objectives The case analysis sought to determine the strategic managements of Banco Rio. The following are the goals which the case analysis hopes to achieve: To know the strategies the Banco Rio had made to survived in their competitive environment. To made some recommendations about a continuous innovation and...
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... IBS_HSBC in China Hong Kong and Shanghai Banking Corporation was founded to finance the growing trade between Europe, India and China in Hong Kong March 1865 and month later in Shanghai. (King, 1987) With its longtime settled in China, HSBC is already member of top tier financial institutions operating in the biggest emerging market and been the largest foreign banking group in China. This essay is aiming to exam the strategy of HSBC revolution over the years in China, meanwhile to illustrate the HSBC’s strategy changed before and after China’s accession to the WTO. Then, the strategy of HSBC’s expands in China’s rural areas will be mentioned with both evaluation of advantages and disadvantages. Following, the strategy of HSBC on how to enter and operate in the other emerging markets will be discussed in terms of successful cases and setbacks. Finally, the influence from world economic crisis on HSBC and future potential opportunities for HSBC will definitely be focused on. Before the WTO accession in 2001, China’s banking industry relied on directed lending practices from government, in turn created many China’s most successful enterprises under centrally planed economy. This approach resulted in thousands of state-owned enterprises, which were unprofitable and inefficient...
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...BRANDEIS UNIVERSITY International Business School Case Write-Up The Fiscal Mismanagement and Fixed Exchange rate were the cause of Argentina 2001 Crisis Summary: Argentina’s economy verge to a state of collapse in the year of 2001, but the economy started to struggle with an economic recession in 1997. The fiscal mismanagement paired with the fixed exchange rate policy conducted the country to a financial crisis. IMF policies in lending to a country with struggling economy made people think if IMF was the responsible for the default crisis that affected Argentina in 2001. Public Deficit – The Major “devil” As economic reforms were happening in Argentina, the country started to face large capital inflows, as it was able to borrow large capital amounts at lower interest rates because of the currency pegging, in the global market. However the government fiscal policies failed to maintain surpluses during economic growth period and actually even during this period the government budget deficits were large. Fiscal mismanagement can be considered as the main reason for the economic crisis, which includes: * Weak fiscal policy – the fiscal policy should have been adjusted during times of economic rapid growth in order to achieve fiscal surpluses and give a cushion in government accounts against future downturns. Lax in tax collection and high budget expenditures led the government budget to deficits which combined with the economic recessions led to long-run...
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...that contributed to the devaluation of the peso against the dollar, the affect it has on business opportunities for trade (importing and exporting), and the Argentina’s Government intervention to recovery. Additionally, this paper will illustrate the incompatibility between Argentina and the IMF (International Monterey Fund), and show the downfall of the IMF’s influence in Argentina. Furthermore, this paper will explain how the HSBC should maintain its status of investments and strategies in Argentina, and factors that should be monitored. Economic Crisis: Argentina and the HSBC Past to Present In the beginning of the 21st Century, Argentina’s economy prospered with a booming 5 percent annual growth rate over a three-year span; this economic phenomenon would not last. By the mid-21st century, Argentina was printing money to finance munificent benefits for workers, and protectionist measures were establishment. This intervention only led to poor productivity and crated a weakness in the structure of Argentina’s economy. During the 1980s, inflation became an epidemic that reached a high point (hyperinflation) twice and the collapse of two banks. Additionally, the people lost faith in the Argentina currency (peso), which led to shipping capital abroad and investing in the U.S. dollar (Daniels, Radebaugh, & Sullivan, 2011, pp. 333-334). Over the next decade, new economic policy was established; privatization of various state-run organizations, strengthen fiscal management...
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...THE RECENT CRISIS AND RECOVERY OF THE ARGENTINE ECONOMY: SOME ELEMENTS AND BACKGROUND Arturo O’Connell Universidad de Buenos Aires and Università di Bologna a Buenos AiresT 1 Argentine-Australia Economic Conference Buenos Aires, April 2007 Draft version; not to be quoted without permission from the author Introduction The Argentine crisis could be examined as one more crisis of the developing countries – admittedly a star pupil that had received praise from many sides – hit by the vagaries of the international financial markets and/or its own policy mistakes. illumination. But it could even be more interesting to examine the peculiarities of the Argentine experience – always in that general context – which did add to the difficulties other economies have faced and that have made it such an intractable case for normal medication. And not only those peculiarities and their consequences should better been pinned down. But also an attempt should be made at understanding that they were not just a result of the extravagance of that far away people in one Southern end of the world. This paper is organized in the following way. In the first section a brief And to a great extent that is a line that could provide some examination of some long-run trends in the Argentine economy is introduced. The next section is an attempt at a thorough examination of the performance of the Argentine economy in the 1990’s and the development of some severe imbalances eventually leading to an unsustainable...
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...What are the Determinants of Financial Access in Latin America? Financial systems that are well-functioning help improve the problems created by information and transaction costs and help allocate resources across space and time. According to the author, financial development affects capital accumulation and technological innovation through at least five channels: by facilitating risk management, by reducing the costs of acquiring information about new investment opportunities, by simplifying corporate control over managers, by mobilizing savings, and by facilitating exchanges and thus promoting specialization and innovation. The author discusses that another financial indicator that suggests the region has a significant progress to make is the interest rate spread which is the margin between rates paid on liabilities and those received on assets. This chapter provides new evidence on the extent of firms’ access to financial services in the Latin America and Caribbean region and the relationships between access and selected policy-relevant variables. Moreover, the chapter explores the determinants of access by firms in the Enterprise Surveys sample. Also, the chapter studies the relationship between quality of courts and access to financial services. According to the Enterprise Surveys, the analysis of access focuses on the following six principal measures: First, Checking, which is an indicator variable that equals 1 if the enterprise has a checking account. Second, credit...
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...Bus 162 Team 7: HSBC in China 1. How has HSBC adapted its global strategy to operate in China, both before and after China’s WTO accession? Answer: Prior to the WTO accession negotiations, China’s banking industry operated as a cog in China’s centrally planned economy. The banks adhered to directed lending practices from the government and in turn created some of China’s most successful enterprises, but also supported thousands of other inefficient and unprofitable stateowned enterprises. This practice left state commercial banks with massive amounts of debt that was largely unrecoverable and hordes of nonperforming loans. In 1865, HSBC was founded to finance the growing trade between Europe, India, and China. HSBC rapidly expanded by opening agencies and branches across the globe, but maintained a distinct focus on China and the Asia-Pacific region. By the 1880s, the bank issued banknotes and held government funds in Hong Kong, and also helped manage British government accounts in China, Japan, Penang, and Singapore. After World War I and II, HSBC turned to dramatic expansion through acquisitions and alliances in order to diversify. The bank moved its headquarters in 1993 to London from Hong Kong and continued its global acquisition strategy. In December 2001, China finally acceded to the World Trade Organization (WTO). A number of policies were immediately implemented such as foreign banks were allowed to conduct foreign currency business without any market access restrictions...
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...Hong Kong and Shanghai Banking Corporation (HSBC) was founded in Hong Kong and Shanghai in order to finance the growing trade between China and Europe. HSBC has it’s headquarter in London and enriches an international network which comprises around 6,200 offices in 74 countries and territories (HSBC, 2013). For decades, HSBC has grown and adapted to conquer the difficulties in China’s revolution and economic crises and now becomes the largest foreign bank in China. This essay combines core module theories and empirical case study to analyze HSBC’s strategy. In the first part, this essay will demonstrate how the strategy of HSBC changed, and compare the strategies before and after the accession to the WTO. The second part will discuss advantages and disadvantages of concentrating on rural areas and emerging markets. The influence of financial crisis, future opportunities as well as threats will be analyzed at last. 1. HSBC’ strategy and China accession to the WTO 1.1. The reason for changing strategy Down the decades, HSBC’s has grown and adapted their strategy from localization to globalization for China in order to react to the changes of economic reform and financial liberalization. HSBC differentiates its strategy from those competitors by describing the unique characteristics which is ‘The world’s local bank.’ Due to this position and strategy, HSBC is involved directly and indirectly in China's modern economic development and reform. HSBC’s strategy in China changed...
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... 7 The International Monetary Fund 9 Implication for Business 11 Malaysia 13 Preventing and Managing Future Crises 14 Conclusion 16 References 18 Introduction Asian Contagion In March 1997 Asia faced a serious crisis in financial sector. This concern was started from Thailand and has spread to a lot of countries in Asia. Obviously it affected to those countries in economy situation such as currency value. Also called the "Asian Contagion", this was a series of currency devaluations and other events that spread through many Asian markets beginning in the summer of 1997. The currency markets first failed in Thailand as the result of the government's decision to no longer peg the local currency to the U.S. dollar. Currency declines spread rapidly throughout South Asia, in turn causing stock market declines, reduced import revenues and even government...
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...As far as we know, there were more than five economic and financial crises during the recent 200 years. Society was suffering from such downturns, because each of them had its own characteristics and consequences which affected the whole economic world. In the next passages I would like to tell you about the history of financial crises and about the solutions made by governments and departments which helped to reduce the bad effects of it. Not a single year has gone by in the past two centuries where there was not a financial crisis somewhere in the world (see figure 1). Arguably, the world witnessed its first international financial crisis in 1825. The opening up of Latin America after the overthrow of the Spanish empire led to the opening up of international trade between England and the Latin American republics. The result was massive capital flows from London to finance infrastructure, mining and government spending. But once the capital outflows impinged on the Bank of England’s (BoE) gold reserves, the policy rate was raised, leading to a banking crisis. A sudden stop of capital flow from London resulted in banking panics in the US and currency crashes across Latin America. Figure 1: The history of financial crises Indeed, the crisis in 1825 marked the first of seven clusters of sovereign defaults in the period 1800 to 2010 In the first cluster of defaults, which happened during 1824-1834, 13 Latin...
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...Basel Committee on Banking Supervision FIN 311 Bank Management and Turkish Banking System What is Basel Committee? An institution created in 1974 by central bank Governors from the Group of Ten nations. It has many of members come from Argentina, Turkey, Japan, Australia, Russia, the United Kingdom, United States, France, Germany, India and other countries. They meet four times a year at the Bank for International Settlements (BIS) in Basel, Switzerland. The role of the committee is that set out the minimum capital requirements of financial institutions with the goal of minimizing credit risk. Additionally, the first contract was the Basel I. It was issued in 1988 and focused on credit risk by creating a bank asset classification system. The system has five risk categories. Some of those are; * 0% - cash, central bank and government debt and any OECD government debt * 0%, 10%, 20% or 50% - public sector debt * 20% - development bank debt, OECD bank debt, OECD securities firm debt, non-OECD bank debt (under one year maturity) and non-OECD public sector debt, cash in collection * 50% - residential mortgages * 100% - private sector debt, non-OECD bank debt (maturity over a year), real estate, plant and equipment, capital instruments issued at other banks. There is a significant point in this system, that the bank must maintain capital equal to at least 8% of its risk-weighted assets. I mean, if a bank has risk-weighted assets of $100 million, it...
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...Verified Tuitor FIN 6644 GLOBAL BANKING CRISIS DR. KRISHNAN DANDAPANI 06 – 07 – 2011 GLOBAL BANKING CRISIS Identify the lessons learned from the prior global banking crisis? There were different reasons responsible for the Financial Banking Crisis pertaining to different countries. In Argentina for example, it was due to the fact that financial institutions were forced to rely heavily on Central Bank financial assistance when they encountered deposit withdrawals; In Asia, it began as a result of Thailand devaluating its currency which caused other Asian export-oriented growth nations (Malaysia, South Korea, Indonesia etc.) to devaluate their currencies by letting them float and ending the peg to the U.S dollar: In the United States, Subprime loans induced the Financial Banking Crisis of 2007 – 2008. Notwithstanding, valuable lessons were learned from the prior Global Banking Crisis. ✓ The primary lesson learned was for Banks and financial institutions learned to be very vigilant. In doing so, they will have to set up some independent monitoring and regulatory system to oversee its activities. ✓ One lesson is that Bankers seem not to scrutinize credit risk as closely when they serve only as mortgage originators and then pass it on to Mortgage-Backed Securities investors rather than hold the paper themselves. ✓ The Central Bank will have to set in place some sort of infrastructure or framework to support to monitor, control, and prevent asset bubbles...
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...international monetary system and the International Monetary Fund. What are the three major types of crises most frequently addressed by the International Monetary Fund? Firms seek to get paid for the products and services they sell abroad. Portfolio investors seek to invest in stocks and other liquid assets around the world. The resulting monetary flows take the form of various currencies traded among nations. Accordingly, the international monetary system consists of the institutional frameworks, rules, and procedures that govern how national currencies are exchanged for one another. By providing a framework for the monetary and foreign exchange activities of firms and governments worldwide, the system facilitates international trade and investment. To function well, national governments and international agencies have focused on creating a system that inspires confidence and ensures liquidity in monetary and financial holdings. Headquartered in Washington, D.C., the International Monetary Fund (IMF) provides the framework of and determines the code of behavior for the international monetary system. The agency promotes international monetary cooperation, exchange rate stability, and orderly exchange arrangements and encourages countries to adopt sound economic policies. These functions are critical because economic crises can destroy jobs, slash incomes, and cause human suffering. Governed today by 186 countries, the IMF stands ready to provide financial assistance in the...
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