...Position Limits and Rules In practice, many financial institutions included our selected bank have faced with certain risk. How banks manage risk, through what? In my suggestion, the management of the banking firm relies on a position limits and rules to implement a risk management system. On the whole, these tools are established to limit individual positions to acceptable levels, measure exposure, encourage decision makers, and define procedures to manage these exposures to manage risk in a pattern that is constant with the firm's objectives and goals. The use of position limits and rules for internal control of active management in minimum standards for participation. In the latter, those banks' counterparties or assets that once pass some prespecified quality standard just can take the domain of risk. There some limits are imposed to cover exposures to overall position concentrations, counterparties, and credits that relative to different types of risks, even that are eligible for those investments. As a whole organization and any one individual can be assumed their imposition restricts the risk, although the limits are expensive to administer and establish. The general case, each portfolio managers, lenders, and traders must have well-defined limit in commit capital. For example, Volcker Rule. What is Volcker Rule? In the wake of the financial crisis of 2008, Dodd-Frank is a key part to reform its rule and this Volcker Rule was named by former Fed Chairmen Paul Volcker...
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...Intramuros, Manila COLLEGE OF MANAGEMENT AND ENTREPRENEURSHIP September ___, 2012 The Management __________________________ (Name of the Institution) __________________________ (Address) TO WHOM IT MAY CONCERN : We, the senior students of Finance & Treasury Management (FTM) under the College of Management and Entrepreneurship of Pamantasan Ng Lungsod Ng Maynila hereby respectfully request for the conduct of research / study about the following topics that concern your prestigious company, to wit: 1. Vision, Mission, Objectives, and Philosophy 2. Nature of Business 3. Corporate size 4. Rank in the industry as to profitability, liquidity, and solvency 5. Finance organizational structure and composition 6. Treasury department’s role, function, and delimitation of authority 7. Set qualification standards in the appointment or designation of a treasury manager 8. Treasury manager’s duties and responsibilities 9. Usual management practices that a corporate treasurer undertakes to ensure the company’s profitability 10. How does the treasury manager contribute towards the company’s growth 11. What are the common problems that the treasury manager encounters and how he resolves them? As such, the data and information that you may possibly disclose to us will be utilized in compliance with the terminal requirement of our currently being undertaken subject entitled TREASURY MANAGEMENT. Rest assured that all...
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...CHAPTER 11 Corporations: Organization, Share Transactions, Dividends, and Retained Earnings ASSIGNMENT CLASSIFICATION TABLE Brief Exercises Do It! Exercises 1, 2, 3, 4, 5, 6 1 1, 2 1, 2 Record the issuance of ordinary shares. 7, 8, 9, 10, 11 2, 3, 4 3 *3. Explain the accounting for treasury shares. 12, 13, 14 5 4 *4. Differentiate preference shares from ordinary shares. 15 6 *5. Prepare the entries for cash dividends and share dividends. 17, 18, 19, 20, 21, 22 7, 8, 9 *6. Identify the items that are reported in a retained earnings statement. 16, 23, 24 Questions *1. Identify the major characteristics of a corporation. *2. 7. Prepare and analyze a comprehensive equity section. *8. Compute book value per share. B Problems 2, 3, 4, 7, 8, 11, 12 1A, 3A, 6A 1B, 3B 5, 7, 9 11, 12 2A, 3A, 6A 2B, 3B 6, 7, 10, 11, 12, 24 1A, 3A, 6A 1B, 3B 5, 6 13, 14, 15, 16, 25 4A, 5A, 7A 4B, 6B 10, 11 7 17, 18 5A 5B, 6B 8 10, 11, 19, 20, 21, 22, 23, 25 1A, 2A, 3A, 4A, 5A, 6A, 7A, 8A 1B, 2B, 3B, 4B, 5B, 6B, 7B Describe the use and content of the statement of changes in equity. *9 A Problems 12 Study Objectives 9A 25, 26 13 23, 24, 25 3A, 8A 3B, 7B *Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix to the chapter...
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...CHAPTER 15 Debt and Equity Capital Review Questions 15–1 A trust indenture is drawn to protect the position of bondholders by imposing restrictions upon the borrowing corporation. One of the most common of these restrictions is that the company must not declare dividends that would cause the working capital to fall below a specified amount. An overly generous dividend policy could leave the company so short of cash as to endanger the position of bondholders. 15–2 Restrictions commonly imposed on a borrowing company by long-term creditors relate to (a) dividend payments, (b) acquisition of property and equipment, (c) increases in managerial compensation and (d) acquisition of additional debt. Such actions are usually permitted only if they will not reduce the current ratio and amount of working capital below specified levels, or increase the debt to equity ratio above a specified level. Creation of a sinking fund is another common requirement designed to assure that cash will be available to pay the long-term debt at maturity. 15–3 The trustee protects the interests of the bondholders by accounting for the issuance and redemption of bond certificates, determining that provisions of the borrowing agreement are observed by the corporation, and reporting periodically on the amount of the liability and of any related sinking fund. This work by the trustee leaves little opportunity for either error or fraud in the issuance, servicing, or redemption of bonds...
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...Case Study: Wrigley Jr. Company – Capital Structure Case Problem: The managing partner of Aurora Borealis LLC, a hedge fund that strategized to focus on distressed companies, asked an associate to initiate the research for a potential investment in Wrigley. Aurora specialized in finding opportunities for corporate restructures, to invest significantly in the stock of the target firm and then persuade management to restructure. They noted that Wrigley had about $13.1 billion in common equity and did not have any debt on their balance sheet. Chandler was asked to perform an analysis to support the assumption that Wrigley can borrow $3 billion at a credit rating of BB to B, to yield 13%. Over the last few years, Wrigley has had revenue growth at an annual compound rate of 10% (earnings at 9%) which reflected the introduction of new products and foreign expansion. The firm has always been conservatively financed and had stock that was outperforming the S&P 500 composite index. The proposed leverage recapitalization would have Wrigley borrow $3 billion and use it to pay an equivalent dividend or repurchase an equivalent value of shares. This could increase the value of the firm by shielding the cash flows from taxes. An additional assumption is the debt rating for Wrigley, after they assume the debt would they be able to manage the interest payments. How does Chandler know that a rating of BB/B would be likely. Additionally, Chandler knew that the maximum value...
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...Preferred Stock, ($100 par value, 5% noncumulative, 50,000 shares authorized, 10,000 shares issued and outstanding) $1,000,000 Common Stock ($10 par value, 200,000 shares authorized, 100,000 shares issued and outstanding) $1,000,000 Paid-in Capital in Excess of par, Common 150,000 Retained Earnings 700,000 The following events occurred during 2014 and were not recorded: a. On January 1, Frick declared a 5% stock dividend on its common stock when the market value of the common stock was $15 per share. Stock dividends were distributed on January 31 to shareholders as of January 25. b. On February 15, Frick reacquired 1,000 shares of common stock for $20 each. c. On March 31, Frick reissued 250 shares of treasury stock for $25 each. d. On July 1, Frick reissued 500 shares of treasury stock for $16 each. e. On October 1, Frick declared full year dividends for preferred stock and $1.50 cash dividends for outstanding shares and paid shareholders on October 15. f. One December 15, Frick split common stock 2 shares for 1. g. Net Income for 2014 was $275,000. Requirements: a. Prepare journal entries for the transactions listed above. b. Prepare a Stockholders’ section of a classified balance sheet as of December 31, 2014. Common Stock 100,000.00 Stock Dividend 5% Stock Dividend 5,000.00 Total No of common Stock 105,000.00 Preferred Stock 10,000.00 Par Value 100.00 Divivdend Rate 5% Preference Dividend 50,000.00 Cash Dividends on Common Stock @1.5(105,000*1.5) 157,500.00 ...
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...outstanding..................$2,600,000 c)= 0.60 x 360,000 = 216,000 $ d) It is likely that the company has repurchased its shares and retired them. 8.10 a. Annual dividend per share= $3.25 b. Preferred dividends= $3,900 Common dividends= $4,500 Total dividends received= $8,400 Exercise 8.18 a. 800 shares after the stock split b. Dividend income before the stock split= $3,600 $4.50 per share c. 33 1/3% stock dividend would accomplish the same Problem 8.22 a. Dr. Treasury stock- 330,000 Cr. Cash 330,000 b. Shares outstanding at beginning of year 574,600 shares purchased for treasury in first quarter (4,400) Shares outstanding during second quarter 570,200 Cash dividend per share *1.20 Dividend paid at the end of second quarter $684,240 c. assets=liabilities+owners equity<-net income=revenues-expenses cash Treasury stock +117,000 +105,000 additional paid in capital +12,600 d shares outstanding second quarter 570,200 treasury shares sold in third quarter 1,400 shares outstanding in fourth quarter 571,600 cash dividend per share *1.20 dividend paid at the end of fourth quarter 685,920 e...
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...are based on the budget and Accounting Act of 1921 and Congressional Budget and Impoundment Control Act of 1974. Whereas budgetary systems of the Saudi Arabia are based on the rules and regulations devised by the Kingdom of Saudi Arabia. Budgetary system of the Saudi Arabia is not disclosed to the general public. National budget in Saudi Arabia compiled by the Ministry of Finance is approved by the Royal institution and then it is allowed to be published in the Official Gazette. Budgetary Systems of the Saudi Arabia was made on the basis of the Hijri year but in 1987 its basis was changed to the Gregorian calendar. In US budget is prepared when president submits a request to the congress for the preparation of the budget. Then Office of Management and Budget carries out the formulation process of the budget. Budget is prepared for all the institutions of the state from federal executive departments to the independent agencies. Budget Control Act of 2012 also plays its role to in the formation of the different provisions of the budget and controls it. Different resolutions related to the budget are also approved by the congress, House and Senate. Authorizing committee is capable of resolving any issues related to the budget process. Categories of the different types of the spending like mandatory spending and discretionary spending are also outlined in the budget process. Authorized resolutions of the budget are then presented before the general public and it becomes considered as...
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...world purchase stocks and bonds everyday form many different companies. A person’s financial goals, business interests, or current wealth are factors in helping them decide how much to invest in stocks or when to purchase bonds. The main difference between stocks and bonds; is stocks equal equity while bonds equal debt. A person buying stock in a company usually has a desire to own part of that corporation or business, whereas a person buying bonds will become a creditor to that company and usually has wants no decision making responsibilities. Apple, Inc. is one of the worlds richest companies and its stock prices has had a roller-coaster ride since Steve Jobs and Steve Wozniak founded it in 1976. On the other hand, the purchase of U.S. Treasury Bonds by bondholders has had a long history of helping America in the country’s times of need, especially during wars and other financial recessions. Buying bonds has also helped many Americans save for their retirement years or helped put their children through college. Apple began in a garage when both men had to sell their personal items and take out loans just to fulfill their first order of the Apple 1 computers they sold. Since then Apple has become one of the largest revenue companies in the world and is changing people’s lives everyday with their technology and products. Just like many other companies in the world Apple’s stock has had both good and bad years over the last twenty years, but through it all their stock has always...
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...Corporate Financial Management and Modeling Paper Data Analysis about 90-day U.S. Treasury Bill Rate and Civilian Employment-Population Ratio 1.1 Abstract This data set contains 132 monthly observations, from January 2002 to December, 2012, using three different rates: three-month Treasury bill rate from the secondary market, the implied three-month forward rate of interest computed by pure expectation, and civilian employment- population ratio. 2.1 Data Description Date is in the format of YYYY-MM-DD. 3MTB is the 3 month Treasury bill rate from secondary market, Civil EM-PO ratio is civilian employment- population ratio, 6MTB is the 6 month Treasury bill rate from secondary market, 3MFR is the implied three-month implied forward rate of interest computed by pure expectation, 3MFR is computed from the formula (1+6MTB) 0.5=(1+3MTB)0.25*(1+3MFR) 0.25 The descriptive statistics of data are showed as followed: |Civil EM-PO ratio | |3MTB | |Mean |61.18787879 | |Mean |1.636666667 | |Standard Error |0.169935661 | |Standard Error |0.14591768 | |Median |62.3 | |Median |1.13 ...
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...ABMF3174 BUSINESS FINANCIAL TUTORIAL 1 1. If you bought a share of stock, what would you expect to receive, when would you expect to receive it, and would you be certain that your expectations would be met? A: When you purchase a stock, you expect to receive dividends plus capital gains. Not all stocks pay dividends immediately, but those corporations that do, typically pay dividends quarterly. Capital gains (losses) are received when the stock is sold. Stocks are risky, so you would not be certain that your expectations would be met—as you would if you had purchased a U.S. Treasury security, which offers a guaranteed payment every 6 months plus repayment of the purchase price when the security matures. 2. If most investors expect the same cash flows from Companies A and B but are more confident that A’s cash flow will be close to their expected value, which should have the higher stock price? Explain. A: If investors are more confident that Company A’s cash flows will be closer to their expected value than Company B’s cash flows, then investors will drive the stock price up for Company A. Consequently, Company A will have a higher stock price than Company B. 3. When is a stock said to be in equilibrium? At any given time, would you guess that most stocks are in equilibrium as you defined it? Explain. A: Equilibrium is the situation where the actual market price equals the intrinsic value, so investors are indifferent between buying or selling a stock. If a stock...
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...business cycle, the current years GDP is compared to previous years to determine a trend and to possibly predict future outcomes or to just see how an economy is doing. When the GDP rises, then there is growth in the economy. If the GDP is falling, then there is a slump in the economy. If the GDP falls to the point of creating hardships for businesses then the economy is considered to be in a recession. If the GDP rises close to the maximum point, then the economy is considered to be booming. There are four major government bodies that determine national fiscal policies. They are the department of treasury, government accountability office, office of management and budget, and the office of the president of the United States. The treasury department handles, creates, and applies the fiscal policy. The government accountability office is in charge of audits. The office of management and budget deals with the improvement and study of fiscal policy and the office of the United States president is the decision maker. Fiscal policies effect both an economies production and employment. When taxes are low, consumers are more apt to purchase goods. This increase in consumption stimulates the economy, thus providing more employment opportunities. This is a positive impact, because not only is employment increased, so is production. When taxes are high, the opposite situation occurs in that...
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...2013 MANAGERIAL ECONOMICS GROUP PROJECT: “US TREASURY BILLS AUCTION PRICING: ANALYSIS OF THE STRUCTURE AND PROCESSES” Professor: Done by: The goal of this paper was to analyze and explain the auction system process held by US Treasury and the possible alternatives for it (multiple-pricing auction). Introduction. The U.S. Treasury Department regularly borrows to finance the Federal Government's debt. From 1980 to 2006, the public debt of the United States grew from $930 billion to $8.68 trillion. Approximately one-half of that debt is held in Treasury bills, notes, and bonds, or "treasuries." The Treasury Department sells these securities at auctions held at the Federal Reserve Bank of New York, and the Bureau of Public Debt (BPD) in Washington, D.C. The rest of the debt is held mostly in federal and federally sponsored agency securities and U.S. Savings Bonds, and is not sold through the auction process.1 The modern auction process for bills, notes, and bonds begins with a public announcement by the Treasury. A typical announcement might read, "The Treasury will auction $11,000 million of 91-day bills to refund $9,000 million of maturing securities and to raise about $2,000 million new cash." This statement clearly describes the 2 goals of Treasury: to refund old debt and to raise new funds. Such announcement is carried by most...
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...Midland Energy resource, Inc. i. 1 Let’s assume that the Midlands borrows its debt at the yield rate of US Treasury Bonds, which is theoretically the minimum choice, and Midlands is going to pay back the debt in a recurring annual payment. We can therefore estimate the amount of annuity that Midland is going to pay back annually. Although we are only going to analyze the single debt option, we should nonetheless keep in mind that Midlands may choose to use a combined debt strategy, which is to 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...
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...discusses that because of bad investment in the subprime mortgage market, insolvency, and shattered investor confidence led to the inevitable downfall of Lehman. At the beginning, Lehman was looking for 30 to 50 billion dollars in financial support by Warren Buffett. Moreover, Lehman tried to seek the financial assistance of the Korea Development Bank. The bank also wanted the government to provide financial assistance. But the results have failed. On September 12, 2008, many different banks including bank of America, JP Morgan, Goldman Sachs, Merrill Lynch, and Barclays met at the Federal Reserve in New York to try to come up with a way to save Lehman Too Big to Fail chronicles the 2008 financial meltdown, focusing on the actions of U.S. Treasury Secretary Henry Paulson (William Hurt) to contain the problems during the period of August 2008 to October 3, 2008. Dick Fuld (James Woods), CEO of Lehman Brothers, is seeking external investment, but investors are...
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