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Fund Transfer Pricing

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FUNDS TRANSFER PRICING Student name Course Professor’s name University Of Johannesburg City Date


Abstract Today, many businesses have been profit-oriented. For a company to remain in the market for a long period, it must find ways in which it acquires funds which are in turn used to sustain it. The funds are often used to counter her competitors in various ways such as intense advertisements, giving more offers as well as providing quality and better services to her customers. The banking sector is a major department within the treasury filed have also not been left behind in the business world where stiff competition has become the order of the day. Today in comparison to the last few decades, there are so many banks existing in the market. This has contributed to stiff competition in the market therefore when a bank decides to provide better services to her customers, it benefits a lot and thus is not affected by the competition from other banks. The basic question which everyone ought to ask himself or herself is, how do the banks get funds to finance all those quality services? Such is a basic question which this paper examines closely to determine how banks can use funds transfer to make profits and thus remain profit centers. Introduction  According to Kawano (2005), “Fund transfer pricing is a way to value the margin contribution from each loan and deposit that a bank has on their books. The way each instrument is valued is by calculating a funds transfer charge on the asset side (loans) and funds transfer credit to the liability side (deposits)”.Often, people deposit funds in the bank to gain interest, some people choose to withdraw their finances from the bank due to some reasons and the bank also lends money to some individuals. The main business in the banking sector is money transfer and exchange, as stated out earlier, how banks get profits from this money exchange processes is a broad area of discussion. It is not an easy task for someone to take out his or her own money and use it to provide better services for the bank’s customers. It is the role of the bank to use her profits to provide better working conditions for her employees, to improve the services it offers to her customers and more importantly to ensure that it makes a profit. To achieve this, a financial institution must come up with the best ways through which maximum profit can be generated. Cravens (1997) outlines that banks have preferred pooling of funds from different customers or individuals in order to generate a large number of funds, the funds generated are then invested in various ways and different sectors of the economy, the investments are also managed by highly skilled professionals in order to ensure that they yield the maximum amount of profit. This kind of investment has proven to be less risky and it is easier to invest as sufficient funds are coming from different individuals. This paper is, therefore, seeks to examine various ways a banking institution can use to achieve the maximum profit possible as well as to ensure the financial institution remains a profit-generating center. =&0=& As stated previously, one of the basic outstanding bank transfer methods is giving loans to customers. When discussing banks giving loans to her customers, it is important to ask, where do banks get all these funds from. Posner (2015) answers the above question in his writing, he says, “Banks get all finances from the depositor’s money”. Some of the common loans offered by banks include: personal loans where the money acquired by a customer can be used to settle his or her own expenses such as electricity bills, rent and other basic human needs, education loans whereby students are given loans to support them during their studies at higher levels, mortgage loans where a customer may acquire a loan in order to build a home and loans against the insurance schemes. When a customer borrows any of the above-mentioned loans or any other type of loan. He or she is expected to return the borrowed amount after a specified period. In many instances, the specified time depends on the amount of money borrowed and the type of loan. During the return, the customer ought to pay an extra amount which is known as interest. Interest is the fee charged for the borrowed amount, the amount of interest incurred by an individual depends on several variables such as, the interest rate which is often constant depending on the type of loan borrowed, period and the amount of money borrowed. Different financial institutions have different interest rates, this difference in interest rates combined with other factors such as the quality of service that a bank provides to her customers can either make a given bank to have more customers or less. When a bank chooses to increase her borrowing interest loans it is a good idea to provide better services to her customers such as increasing interests on deposited money. By so doing it will have more funds to lend out thus making more profit. Besides, note that the amount of interest a bank charges on deposited funds is often lower than the amount of money charged on borrowed funds. The difference in interest is what constitutes the profit that a bank acquires from the money transfer. Also, to increase the profit margin, banks encourage the borrowing of funds from various individuals and organizations to pool all those profits together. =&1=& Over the last fifteen years, buying and selling of securities have attracted so many investors. Some of the major reason why the trend has risen so fast is, this way of trading involves little risk and it generates a lot of income when it succeeds. Banks wanting to remain profit centers have also indulged in the same money-making business to increase their chances of making more profit and also exploiting different areas within the market. According to Kwan (1998), banks often buy products at the stock market at a lower price, then sell them at a higher price. The difference between the selling price and the buying price which is referred to as the turn becomes the bank’s profit. Also, some banks have brokers who link sellers to buyers, in such a scenario, there is some percentage of money that the bank is paid. Putting all these together increase the profits that a bank gains from securities. =&2=& This is yet another efficient way through which banks generate a lot of profits and thus making them be profit centers. For the banks to generate more profit, more customers need to be involved so that when all little contributions are combined, the bank gets a substantial amount of profit. Customers using credit cards in their daily transactions are required to repay their balances within a specified time, usually after one month, when a customer fails to clear his or her debt, his account is charged some interest fee. The interest fee is the product of the periodic rate of the card (whereby, periodic rate is the average annual percentage rate divided by 365 days) and the average daily balance and the number of days in the billing period. Apart from that, when a customer shops using a credit card, some percentage of fee goes to the bank where the customer obtained the card from, the percentage of money that goes to the bank is termed as interchange rate. Another way that banks generate income by use of credit cards is, charging the application fee when a customer requests for a credit card. Through this, the profit margin of the bank rises especially when the number of customers using credit cards is high. =&3=& Shares play a major part not only in banks but also in other organization or corporations. To be a member of a given corporation, it is a basic requirement that an individual must have shares in that company. Investors usually buy shares from public companies. Since banks are also public companies and they are widely available, it makes it easy for investors to buy shares from the bank which is usually much cheaper. When banks sell those shares, they gain some money, therefore, the more shares they sell, the more profit the bank generates. =&4=& In our world today, almost everything has become money-oriented. Each service given to an individual is thus accompanied by some given amount of fees usually called the service fee that one ought to pay. Each day, banks and other institutions receive customers who seek specific services. The banking sector has realized this fact, it came up with strategies to make some profit out of it. Each day, different people go to the bank to either open an account, withdraw money, deposit money or even to process a loan. For those customers to be attended to, there is usually some amount of money that one ought to pay. Ranging from processing fees to loan fees, there exist different kinds of fees which a customer incurs. To the customer’s perspective, the fee might seem negligible because it is small, but when all these fees from different customers are consolidated, the bank ends up with a lump sum of money. It is good to note that banks need more money to settle their bills, pay their employees, pay all their expenses and more importantly ensure that they remain profit-centered. Despite the fees that a customer may incur, banks provide personnel whose main role is to provide guidelines and directions to customers on how certain activities should be done such as depositing a large amount of money, opening a bank account, acquiring an ATM card and other basic services. When this is done, it becomes easy for a bank to have more customers thus through the pooling of funds, the profit margin of the bank increases incredibly. =&5=& This is another way through which most banks make money. The banking industry just like any other sector has some policies which provide guidelines and thus making it easier for various banks which may be under different managements to relate well with each other. In many cases, commercial banks are much involved in lending money to their customers. Sometimes, a bank may lend a lot of funds such that there is less amount of money that can support various activities within the bank. In such a scenario, a bank may choose to borrow money from another bank. The money lent attracts some percentage of interest which must be paid upon repayment. When there is a steady flow of funds from the customers into the bank through various ways such as payment of borrowed funds or even through deposits, it makes it possible for a bank to lend money to another bank. However, this kind of lending is usually short-term, sometimes it is just for a day or even for a month. This happens because the borrower bank may not have enough funds to use during its daily transactions or sorting out its bills. So, instead of borrowing from external sources whose interest may be a little bit high, the borrower decides to borrow money from another bank to benefit from low borrowing interest. By so doing, the borrower bank can save more funds which could have negatively affected their balance sheet. Therefore, such kind of money transfer profits both banks since it becomes a source of earning or saving for the two banks. When a bank has more assets than it requires, there is no need for those assets to remain dormant without generating any form of income for the bank. Through inter-bank lending, the lending bank may decide to put forth her surplus products in the market or even loan the borrower bank those assets so that both the borrower and the lending bank can benefit from the assets. This is, therefore, the best way of the borrower bank turning the liability into profit while at the same time settling the debt incurred after possessing the asset. Turning non-performing asset into a profit-generating asset is another efficient way through which banks make a lot of profit since when a no-performing asset is not sold, it hinders the growth of the company in some way. This, therefore, shows that inter-bank lending is not only about money, but it also covers even other assets and technical skills (Agarwal, Chomsisengphet and Souleles 2018. It is an important practice for the banks as both the borrower bank and the lending bank benefit. =&6=& Fear is a common trait that all human being possess. Fear of the unknown, especially when they own some valuable commodities such as expensive jewelry, sophisticated documents such as title deeds, and other precious commodities. Sometimes, it is not a good idea to keep all those values within our own houses as they can be stolen, eaten by rodents, accessed by unauthorized individuals or even be destroyed by a natural disaster such as fire outbreak. Such fear thus makes most people seek for an intervention, during such a period of fear, banks come into our rescue. According to Hunt (2018), banks have developed the best ways and strategies of assuring her customers that all his or her valuables are safe and free from being accessed by an unauthorized individual. For one to obtain such kind of service, the bank has defined vaults of various sizes to cater to the needs of all those customers that need such kind of services. Customers are thus charged some amount of fees annually depending on their valuables. The fee paid by the customer is used for maintenance and monthly rental return. Usually, banks don’t require too much manpower to maintain a given value and thus the bank saves money which could have been spent in such areas. Often, customers who have allowed the bank to keep for them their valuable are happy since they do not need to fear about the safety of their documents and jewels anymore. Fortunately, on the other hand, banks use this as an opportunity to increase her profit and thus enable it to remain as a profit center. =&7=& When an individual or a company applies for a loan from a bank, there is usually a specific asset which is placed to the hands of the bank as a security. This means, if the borrower fails to repay the loan, the bank takes full control of that given asset, the bank has all rights even of selling the asset to get her loan back. Some of the securities that people place in the bank to borrow a loan may include: car, a title deed, or even precious jewelry and usually, the value of the security asset is higher than the loan being applied for. Sometimes, the borrower may fail to repay his or her loan within a specified period. The bank thus impounds on the asset given to it as the security and advertises it. Since the bank takes care of the collateral such that it has no damage, the bank can auction the product and in so doing recover the amount of money that had been previously borrowed. This also enables the bank to dispense the security asset and thus enabling it from incurring overhead costs for maintenance of the collateral (Dermine 2013). Sometime, the asset may be sold at a higher price than the defaulted loan, therefore, the extra amount of money becomes a profit to the bank. =&8=& The banking sector just like any other industry requires customers to run its daily activities. It is the customers who deposit funds which are in turn used by the bank to lend out to her borrowers, also the customers are the ones who borrow funds through which a bank gains interest charged on borrowed funds. Customers, therefore, play an important role in ensuring that the bank is stable, it has enough funds and it makes profits. The increase in the number of banks has led to an increase in competition in the banking sector. Each bank is devising new ways of attracting more customers and since the number of customers is relatively constant, only the bank with the best strategies can outcompete others. For a bank to make more profit, the number of customers transacting using that bank must be high. This is because when the number of customers is high, it is possible to pool together resources and make more profit. Therefore, it is beyond doubt that the amount of money a bank makes is directly proportional to the number of customers that the bank attracts. =&9=& Before an individual or a company starts up a business or any kind of investment. It has always been a good idea to seek advice from institutions that have been in the investment industry for long such as banks. Some of the basic areas which one must inquire before starting up a business are about finance. This means, how to use the limited amount of available resources to generate more income as well as manage well the generated income. Fortunately, most banks and other treasury sectors have such departments which provide financial advice to new and experienced investors. The writing of Liu, Sun, Wu (2019) outlines that, “For individuals to get such advice, they are usually required to pay some fees which are in turn saved as profits gained by banks or any other treasury department”. Financial advice is also applicable to companies which are seeking to explore markets for a follow-on public offering. In such a case, the bank plays an important role in giving advice to such companies in terms of the rate at which such at which such an issue should be priced in order for the company to earn the maximum possible profit, the bank also advises such companies on the number of shares the company should be issued and other important advisory services. Just as stated previously, for the bank to provide such kind of financial advice to individuals or companies there has to be a fee which is payable directly to the bank. If the bank attracts more individuals seeking financial advice and each individual or company pays some small amount of fees, the bank generates more profits when all these fees are consolidated together (Gerding  2015). =&10=& Over the last few decades, investment in real estates has attracted not only many organizations but also more investors. There are so many reasons why this trend has risen so high over the last few years but one of the main reason is, when an individual or a company successfully invests in a real estate, the value of the asset increases rapidly over a short period. This fact, therefore, assures the investors of more profit over a short period. According to Zhang et al. (2018 pg. 1333), real estate investment may include buying of lands, the building of modern buildings which can be rent out to tenants as homes, commercial buildings which can be purchased by companies or individuals for use in business and apartment buildings. Banks, therefore, may decide to purchase land cheaply and then sell it to the public or the government at a higher price thus making it generate more profit. Some banks also build commercial buildings and sell them to individuals willing to carry out business thus enabling the bank to make more money within a short period. Also, banks offer loans to her customers who would like to invest in real estate and then the bank become a shareholder in the investment real estate. Such are ways that banks generate more money making them remain profit-centered. =&11=& One of the outstanding treasury department which generate more income other than the bank is an insurance company. Many scholars have argued that there is a minor difference between insurance companies and banks. However, in this study, the banking sector and the treasury department dealing in insurance will be judged differently. Insurance is all about sharing of risk. Insurance is contract-based and it happens where the insured and the insurer agrees to share the risk, whereby should the insured suffer a loss for a property that was insured from unforeseen and financially devastating event, he or she does not lose the property completely. The insurer compensates for the loss thus making the insured incurs no loss. As stated earlier, insurance is contract-based, therefore there are certain guidelines or predefined conditions which guide the operation of all activities within the insurance company. These principles assure both the insurer and the insured of being beneficiaries from the contract. The contract defines clearly that when an individual would like to be insured by an insurance company he or she must suffer a significant amount of loss for the property insured, in many cases, the amount of money paid to the insurance company is done on monthly basis and is referred to as the premium. The amount of premium paid by an insured dependent on the value of the property that is being insured and the kind of unforeseen risk that is being insured against. When the devastating catastrophe occurs, the insurance company chirps in to cater for the losses incurred. However, there are five principles which guide how compensation should be done. Such principles include the principle of utmost good faith whereby the insured need to honestly provide correct information about the property being insured. Secondly, the principle of insurable interest whereby, for an individual to get compensated for the loss, he or she must have the insurable interest in the object of insurance. Thirdly, the principle of indemnity which states clearly that the main role of the insurance company is to compensate for the loss of the risk insured, it is not to benefit the insured in any way. Principle of contribution which states that if someone had insured his or her product in more than one insurance company, then during the occurrence of the risk, all the insurance companies must contribute to compensate for the loss. Principle of subrogation which states that when the insurer compensates for a given property, the ownership of any scrap changes to the insurer. Lastly, the principle of the nearest cause clearly defines which kind of losses can be compensated depending on the risk insured. It states that for compensation to take place, the loss must have been closely related to the risk insured against. Otherwise, the insured is required to pay an extra amount of money to benefit from compensation (Mishra& Mishra 2016). The basic question is, how these insurance companies make profits. Many are times when the risks insured against do not even occur. When such is the case, then there is no way that the insured can claim back his or her money, all those premiums paid by insured becomes the profit of the company. Moore et al. (2018) outline that in some cases, the amount of premiums paid is higher than the risks the company is legible to compensate. The difference in the amount of premium paid to the company and the amount of money paid out to cater for the losses becomes a profit to the insurance company. Lastly, according to the principle of subrogation, any scrap is owned by the insurance company after the loss has been settled. When all these scraps are sold, they generate a higher income to the insurance company.   

Conclusion In conclusion, for a company to survive the competition in the business world it has to develop the best strategies which will help it outcompete other organizations. To develop these strategies such as providing the best working condition for her employees or even providing quality services to her customers, finance is required. The company must, therefore, come up with the best ways to use the minimum resources possible to generate more profit which will cater to the company’s expenses. As discussed above, two major treasury departments that are: insurance companies and banks use various techniques to maximally generate profit thus enabling them to remain profit centers.


Reference List Kawano, R.T., 2005. Funds transfer pricing. Journal of Performance Management18(2), p.35. Dermine, J., 2013. Fund transfer pricing for deposits and loans, foundation and advanced. Journal of Financial Perspectives1(1). Cravens, K.S., 1997. Examining the role of transfer pricing as a strategy for multinational firms.  VIEW SOLUTION

Solutions: Ch31 Impacts – Government Borrowing

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=&0=& =&1=& =&2=& When governments are borrowers in financial capital markets, which of the following is least likely to be a possible source of the funds from a macroeconomic point of view? A. central bank prints more money B. increase in household savings C. decrease in borrowing by private firms D. foreign financial investors Answer: A  Reference: Explanation: Type: Multiple Choice =&3=& A country’s economic data indicates that there has been a substantial reduction in the financial capital available to private sector firms. Which of the following most likely had the greatest influence on this economy? A. especially large and sustained household saving B. increased borrowing by private firms C. reduction in influx of funds for foreign financial investors D. especially large and sustained government borrowing Answer: D  Reference: Explanation: Type: Multiple Choice =&4=& If a country’s economic data shows private savings of $300 million, government spending of $350 million, tax revenue of $400 million, and a trade surplus of $75 million, then what does investment equal? A. $775 million B. $475 million C. $275 million D. $700 million Answer: C  Reference: Explanation: Type: Multiple Choice =&5=& If a country’s economic data shows private savings of $500 million, government spending of $300 million, tax revenue of $400 million, and a trade surplus of $100 million, then what does investment equal? A. $600 million B. $500 million C. $700 million D. $900 million Answer: B  Reference: Explanation: Type: Multiple Choice =&6=& If a country’s economic data shows private savings of $400 million, government spending of $250 million, tax revenue of $400 million, and a trade surplus of $175 million, then what does investment equal? A. $550 million B. $425 million C. $800 million D. $375 million Answer: D  Reference: Explanation: Type: Multiple Choice =&7=& If a country’s economic data shows that private savings equal $250 million, government spending equals $400 million, taxes equal $350, and the trade surplus equals $150 million, then what does investment equal? A. $50 million B. $75 million C. $450 million D. $350 million Answer: A  Reference: Explanation: Type: Multiple Choice =&8=& If a country’s economic data shows that private savings equal $300 million, government spending equals $400 million, taxes equal $300, and the trade surplus equals $100 million, then what does investment equal? A. $150 million B. $175 million C. $200 million D. $100 million Answer: D  Reference: Explanation: Type: Multiple Choice =&9=& If a country’s economic data shows that private savings equal $350 million, government spending equals $375 million, taxes equal $300, and the trade surplus equals $125 million, then what does investment equal? A. $50 million B. $150 million C. $425 million D. $600 million Answer: B  Reference: Explanation: Type: Multiple Choice =&10=& In the national savings and investment identity framework, an inflow of savings from abroad is, by definition, equal to: A. private sector investment. B. the trade surplus. C. the trade deficit. D. domestic household savings. Answer: C  Reference: Explanation: Type: Multiple Choice =&11=& From a macroeconomic point of view, which of the following is a source of demand for financial capital? A. savings by households and firms B. foreign financial investment C. domestic household private savings D. government borrowing Answer: D  Reference: Explanation: Type: Multiple Choice =&12=& The U.S. economy has two main sources for financial capital; _______________________ and ____________________________. A. private savings from U.S. households and firms; inflows of foreign financial investment. B. private sector investment; government borrowing C. private savings from U.S. households and firms; government borrowing D. private sector investment; inflows of foreign financial investment from abroad Answer: A  Reference: Explanation: Type: Multiple Choice =&13=& If the quantity of financial capital supplied is equal to the quantity of financial capital demanded then, the national savings and investment identity is written as: A. (M – X) – S = (G + T) – I B. S + (M – X) = I + (G – T) C. S + (G – T) = I – (X – M) D. S = (X – M) – (G – T) Answer: B  Reference: Explanation: Type: Multiple Choice =&14=& When a government records a budget surplus, the national savings and investment identity is written as: A. S = I + (G – T) + (X – M) B. S + (M – X) + (T – G) = I C. S – (G – T) = I – (X – M) D. S + (T – G) = 1 + (X – M) Answer: B  Reference: Explanation: Type: Multiple Choice =&15=& When a government records a trade surplus, the national savings and investment identity is written as: A. S = (G – T) + (X – M) – I B. S – (G – T) = I – (X – M) C. S = I + (G – T) + (X – M) D. S + (G – T) = I – (X – M) Answer: C  Reference: Explanation: Type: Multiple Choice =&16=& A __________________ often results in an outflow of financial capital leaving the domestic economy and being invested in the global economy? A. trade surplus B. trade deficit C. fiscal deficit D. twin surplus Answer: A  Reference: Explanation: Type: Multiple Choice =&17=& A prolonged period of budget deficits may lead to ___________________. A. outflows of financial capital abroad B. lower inflation C. lower economic growth D. increasing exchange rates Answer: C  Reference: Explanation: Type: Multiple Choice =&18=& A ___________________________________ can lead to disruptive economic patterns and heavy strains on a country’s banking and financial system. A. prolonged period of trade surpluses B. sustained pattern of large trade deficits C. prolonged period of budget surpluses D. sustained pattern of large budget deficits Answer: D  Reference: Explanation: Type: Multiple Choice =&19=& Which of the following is least likely to be the result of economic disruptive patterns caused by a prolonged period of government budget deficits? A. high inflation B. substantial inflows of foreign financial capital C. increasing exchange rates D. strains on a country’s financial system Answer: C  Reference: Explanation: Type: Multiple Choice =&20=& An increase in government borrowing can: A. allow private investment to expand. B. crowd out private investment in physical capital. C. increase the incentive to invest in technology. D. cause a substantial decrease in interest rates. Answer: B  Reference: Explanation: Type: Multiple Choice =&21=& A reduction in government borrowing can: A. decrease the incentive to invest. B. increase the interest rate. C. crowd out private investment in human capital. D. give private investment an opportunity to expand. Answer: D  Reference: Explanation: Type: Multiple Choice =&22=& When the interest rate in an economy increases, it is likely the result of either: A. a decrease in the government’s budget surplus or an increase in its budget deficit. B. a decrease in the government budget surplus or its budget deficit. C. an increase in the government budget surplus or a decrease in its budget deficit. D. an increase in the government budget surplus or its budget deficit. Answer: A  Reference: Explanation: Type: Multiple Choice =&23=& When the interest rate in an economy decreases, it is most likely as a result of: A. an increase in the government budget surplus or its budget deficit. B. a decrease in the government budget surplus or its budget deficit. C. an increase in the government budget surplus or a decrease in its budget deficit. D. a decrease in the government budget surplus or an increase in its budget deficit. Answer: C  Reference: Explanation: Type: Multiple Choice =&24=& An increase in the government’s budget surplus will cause the interest rate to: A. either increase or decrease. B. remain the same. C. increase. D. decrease. Answer: D  Reference: Explanation: Type: Multiple Choice =&25=& A decrease in the government’s budget surplus will cause the interest rate to: A. decrease. B. increase. C. either increase or decrease. D. remain the same. Answer: B  Reference: Explanation: Type: Multiple Choice =&26=& If the government initiates an expansionary monetary policy at the same time that its budget deficit decreases, then the interest rate will ______________________. A. increase B. either increase or decrease C. decrease D. remain unchanged Answer: C  Reference: Explanation: Type: Multiple Choice =&27=& If the government initiates an expansionary monetary policy at the same time that its budget deficit increases, then the interest rate will __________________. A. remain unchanged B. either increase or decrease C. increase D. decrease Answer: B  Reference: Explanation: Type: Multiple Choice =&28=& A ____________________________ is one economic mechanism by which government borrowing can crowd out private investment. A. deficit decrease B. smaller trade surplus C. larger trade surplus D. higher interest rate Answer: D  Reference: Explanation: Type: Multiple Choice =&29=& If a government’s budget deficits are increasing aggregate demand when the economy is already producing near potential GDP, causing a threat of an inflationary increase in price levels, then the central bank may react with: A. a contractionary monetary policy. B. an expansionary monetary policy. C. a discretionary monetary policy. D. a loose monetary policy. Answer: A  Reference: Explanation: Type: Multiple Choice =&30=& If the U.S. economy is producing at a level that is substantially less than potential GDP and the government’s budget deficits are increasing aggregate demand, then ____________________________ is not much of a danger. A. a tight monetary policy B. an inflationary increase in the price level C. international financial investment D. the central bank’s contractionary monetary policy Answer: B  Reference: Explanation: Type: Multiple Choice =&31=& If the U.S. government’s budget deficits are increasing aggregate demand, and the economy is producing at a level that is substantially less than potential GDP, then: A. higher interest rates will crowd out private investment. B. government borrowing is likely to crowd out private investment. C. an inflationary increase in the price level is a real danger. D. the central bank might react with an expansionary monetary policy. Answer: D  Reference: Explanation: Type: Multiple Choice =&32=& If the government’s budget deficit increases while the economy is producing substantially less then potential GDP and expansionary monetary policy is implemented, then any ________________ from government borrowing would be _____________________________ from that monetary policy. A. higher interest rates; largely offset by the lower interest rates B. lower interest rates; largely offset by the higher interest rates C. increase in interest rates; reduced by private sector investment D. inflationary increase in price level; crowding out private investment Answer: A  Reference: Explanation: Type: Multiple Choice =&33=& If a government decides to finance an investment in ________________ with higher taxes or ____________________ in other areas, it need not worry that it is crowding out private investment. A. roads and bridges; increased borrowing B. water supply and sewers; by raising capital spending C. public physical capital; lower government spending D. hydroelectric dams and windmills; government R&D Answer: C  Reference: Explanation: Type: Multiple Choice =&34=& In most developed countries, the government plays a large role in society’s investment in human capital through _________________________. A. direct spending B. the education system C. tax incentives D. private sector R&D Answer: B  Reference: Explanation: Type: Multiple Choice =&35=& In a market-oriented economy, private firms will undertake most of the _____________________________, and ________________ should seek to avoid a long series of large budget deficits that might crowd out such investment. A. economic growth activities; monetary policy B. economic growth activities; fiscal policy C. investment in human capital; monetary policy D. investment in physical capital; fiscal policy Answer: D  Reference: Explanation: Type: Multiple Choice =&36=& When a business firm makes an investment in physical capital, what is that investment subject to? A. state and local government incentives B. economic output and productivity C. political orientated incentives D. the discipline of the market Answer: D  Reference: Explanation: Type: Multiple Choice =&37=& Because of the difference between the discipline imposed by market competition and the discipline imposed by political decisions, which of the following is most likely? A. reduced government borrowing to avoid crowding out private investment B. difficulty managing public investment so it’s done in a cost effective way C. government budgets will exactly shadow the rate of private investment D. tax budgets increase without a corresponding drop in private investment Answer: B  Reference: Explanation: Type: Multiple Choice =&38=& An additional investment in human capital, especially for the low-income nations of the world, will likely directly increase which of the following? A. productivity and economic growth B. increased levels of R&D spending C. consumer orientated spin-offs D. highly qualified teachers Answer: A  Reference: Explanation: Type: Multiple Choice =&39=& A government will likely ____________________________ to encourage investment in technology R&D by private firms? A. reduce R&D grants to nonprofit organizations B. reduce R&D grants to universities C. spend more on R&D in government laboratories D. implement fiscal policy establishing tax incentives Answer: D  Reference: Explanation: Type: Multiple Choice =&40=& Which of the following is least likely to benefit the civilian economy? A. R&D carried out in government laboratories B. R&D aimed at producing new weapons C. direct private sector R&D spending D. tax policy promoting civilian R&D spending Answer: B  Reference: Explanation: Type: Multiple Choice =&41=& If David Ricardo’s theory holds completely true, then any change in budget deficits or budget surpluses would be completely offset by which of the following? A. a change in currency exchange rates B. a sustained pattern of trade imbalances C. a corresponding change in private saving D. a dependence on inflows of capital Answer: C  Reference: Explanation: Type: Multiple Choice =&42=& Ricardian equivalence means that: A. changes in private savings offset any changes in the government deficit. B. changes in exports offset any changes in the government deficit. C. changes in imports offset any changes in the government deficit. D. changes in investment offset any changes in the government deficit. Answer: A  Reference: Explanation: Type: Multiple Choice =&43=& Suppose you are analyzing data for an economy in which Ricardian neutrality holds true. If the budget deficit increases by 50, then: A. investment will increase by 50 B. investment will decrease by 50 C. private savings will decrease by 50 D. private savings will increase by 50 Answer: D  Reference: Explanation: Type: Multiple Choice =&44=& Suppose you are analyzing data for an economy in which Ricardian neutrality holds true.  If the budget surplus increases by 100, then: A. private savings will increase by 100. B. private savings will decrease by 100. C. investment will increase by 100. D. investment will decrease by 100. Answer: B  Reference: Explanation: Type: Multiple Choice =&45=& A government deficit has increased from 30 to 50. The country’s trade deficit is 100 and private savings equal 65 and investment equal 90. If Ricardian neutrality holds true, after this change in the government’s budget, private savings will equal: A. 40. B. 105. C. 95. D. 85. Answer: D  Reference: Explanation: Type: Multiple Choice =&46=& A government deficit has decreased from 100 to 60. The country’s trade deficit is 120 and private savings equal 80 and investment equals 100. If Ricardian neutrality holds true, after this change in the government’s budget, private savings will equal: A. 120. B. 70. C. 40. D. 140. Answer: C  Reference: Explanation: Type: Multiple Choice =&47=& If an economy has a budget surplus of 400, private savings of 1,200, and investment of 1,600, what will the balance of trade in this economy equal? A. 0 B. deficit of 1,600 C. deficit of 1,200 D. deficit of 400 Answer: A  Reference: Explanation: Type: Multiple Choice =&48=& If an economy has a budget surplus of 1,500, private savings of 3,000, and investment of 5,000, what will the balance of trade in this economy equal? A. deficit of 500 B. surplus of 500 C. surplus of 1,500 D. deficit of 1,500 Answer: B  Reference: Explanation: Type: Multiple Choice =&49=& If an economy has a budget deficit of 600, private savings of 2,000, and investment of 800.  What is the balance of trade in this economy? A. deficit of 600 B. deficit of 2000 C. surplus of 2000 D. surplus of 600 Answer: D  Reference: Explanation: Type: Multiple Choice =&50=& When government policy moves from a budget deficit to a budget surplus and the trade deficit remains constant: A. savings will increase if investment remains constant. B. investment will increase if savings remain constant. C. savings will decrease, no matter what happens to investment. D. investment will decrease if savings remain constant. Answer: B  Reference: Explanation: Type: Multiple Choice =&51=& When government policy moves from a budget surplus to a budget deficit and the trade deficit remains constant: A. savings will decrease no matter what happens to investment. B. savings will decrease if investment remains constant. C. investment will increase if savings also remains constant. D. investment will decrease if savings also remains constant. Answer: D  Reference: Explanation: Type: Multiple Choice =&52=& A government bu with a budget deficit and a trade deficit. During the year, the government changed its policy and is now running a budget surplus. If all other factors hold constant, this change in policy will cause: A. the exchange rate to decrease and the trade deficit to increase. B. the exchange rate to increase and the trade deficit to decrease. C. the exchange rate and the trade deficit to decrease. D. the exchange rate and the trade deficit to increase. Answer: C  Reference: Explanation: Type: Multiple Choice =&53=& A government began 2013 with a budget surplus and a trade deficit. Due to the onset of recession, the government changed its policy and is now running a budget deficit. If all other factors hold constant, this change in policy will cause: A. the exchange rate and the trade deficit to increase. B. the exchange rate and the trade deficit to decrease. C. the exchange rate to decrease and the trade deficit to increase. D. the exchange rate to increase and the trade deficit to decrease. Answer: A  Reference: Explanation: Type: Multiple Choice =&54=& Which of the following is not a consequence of an increase in the government’s budget deficit? A. private savings increases while holding everything else constant B. exports increase while imports and all other variables are held constant C. imports increase while exports and all other variables are held constant D. investment falls while holding everything else constant Answer: B  Reference: Explanation: Type: Multiple Choice =&55=& If a government experiences an increase in its budget surplus, which of the following possible outcomes will likely result? A. investment falls while everything else holds constant B. exports decrease while imports and all other variables are held constant C. imports increase while exports and all other variables are held constant D. private savings decrease while everything else holds constant Answer: D  Reference: Explanation: Type: Multiple Choice =&56=& A moderate increase in a budget deficit that leads to a _____________________ is not necessarily a cause for concern. A. combination of less foreign capital and banks that are bankrupt B. moderate increase in a trade deficit and a moderate appreciation of the exchange rate C. a series of large budget deficits D. shift in aggregate demand so far to the right that it causes high inflation Answer: B  Reference: Explanation: Type: Multiple Choice =&57=& In the U.S. economy, the offsetting effects of private saving compared to government borrowing are typically noted as being represented by which of the following ratios? A. much less than one-to-one B. slightly less than one-to-one C. slightly more than two-to-one D. much more than two-to-one Answer: A  Reference: Explanation: Type: Multiple Choice =&58=& _______________________________ can set the stage for international financial investors first to send their funds to a country and cause an appreciation of its exchange rate and then to pull their funds out and cause a depreciation of the exchange rate and a financial crisis as well. A. Trade balance B. Twin deficits C. Trade deficits D. Crowding out Answer: A  Reference: Explanation: Type: Multiple Choice

=&59=&  =&2=& Talona’s government has decided to fund its increasing budget deficit by raising capital in the international financial capital markets. Discuss the most likely outcomes that are closely associated this type of fiscal policy. If the funding for a larger budget deficit comes from international financial investors, then a budget deficit may be accompanied by a trade deficit. In some countries, this pattern of “twin deficits” has set the stage for international financial investors first to send their funds to a country and cause an appreciation of its exchange rate and then to pull their funds out and cause a depreciation of the exchange rate and a financial crisis as well. Reference: Explanation: Type: Essay =&3=& Identify the negative macroeconomic outcomes that a government risks when it continues a sustained pattern of large budget deficits over time. A sustained pattern of large budget deficits over time risks causing several negative macroeconomic outcomes: a shift to the right in aggregate demand that causes an inflationary increase in the price level; crowding out private investment in physical capital in a way that slows down economic growth; and creating a dependence on inflows of international portfolio investment which can sometimes turn into outflows of foreign financial investment that can be injurious to a macroeconomy. Reference: Explanation: Type: Essay =&4=& The Tulu Island economy is experiencing an inflow of foreign investment capital associated with a trade deficit. Foreign investors are making long-term direct physical capital investments in Tulu’s business community at a record pace. Relate whether there is cause for concern in this case, and briefly explain your answer. If a nation is experiencing the inflow of foreign investment capital associated with a trade deficit because foreign investors are making long-term direct investments in firms, there may be no substantial reason for concern. In this case, the inflows of foreign investment capital and the trade deficit are attracted by the opportunities for a good rate of return on private sector investment in an economy. Reference: Explanation: Type: Essay =&5=& Talona’s economy is experiencing an inflow of foreign investment capital associated with a trade deficit. Foreign investors are avoiding making long-term direct physical capital investments in Talona’s firms. Relate whether there is cause for concern in this case, and briefly explain your answer. In this case, the is cause for concern regarding the danger that arises in particular when the inflow of foreign investment capital is not funding long-term physical capital investment by firms, but instead is short-term portfolio investment in government bonds. Foreign financial investors will be on the alert for any reason to fear that the country’s exchange rate may decline or the government may be unable to repay what it has borrowed on time. A relatively small piece of bad news about an economy can trigger an enormous outflow of short-term financial capital Reference: Explanation: Type: Essay =&6=& Briefly explain what a change in any part of the national saving and investment identity points out. A change in any part of the national saving and investment identity points out that if the government budget deficit changes, then either saving, private investment in physical capital or the trade balance—or some combination of the three—must change as well. Reference: Explanation: Type: Essay =&7=& From a macroeconomic point of view, identify all of the possible sources for funds available to governments when they are borrowers in financial capital markets. When governments are borrowers in financial capital markets, there are three possible sources for the funds from a macroeconomic point of view: (1) households might save more; (2) private firms might borrow less; and (3) the funds might come outside the country, from foreign financial investors. Reference: Explanation: Type: Essay =&8=& In algebraic terms, contrast the national savings and investment identities noted below: 1) Private savings + Trade deficit + Government surplus = Private investment 2) Private savings = Private investment + Government budget deficit + Trade surplus. 1)  S + (M – X) + (T – G) = I 2)  S = I + (G – T) + (X – M) Reference: Explanation: Type: Essay =&9=& Identify and briefly discuss the underpinnings of economic growth, including examples. The underpinnings of economic growth are investments in physical capital, human capital, and technology, all set in an economic environment where firms and individuals can react to the incentives provided by well-functioning markets and flexible prices. Examples include government spending on publicly owned physical capital like roads or water systems, on education that creates human capital, or on research and development that creates new technology. Reference: Explanation: Type: Essay =&10=& Briefly discuss the macroeconomic benefits of a highly educated and skilled work force and then explain how government could do more to encourage increased R&D activities. A highly educated and skilled workforce contributes to a higher rate of economic growth, and especially for the low-income nations of the world, an additional investment in human capital seems likely to increase productivity and growth. Government could spend more on the R&D that is carried out in government laboratories, as well as expanding federal R&D grants to universities and colleges, nonprofit organizations, and the private sector. Fiscal policy can also support R&D through tax incentives, which allow firms to reduce their tax bill as they increase spending on research and development. Reference: Explanation: Type: Essay =&11=& Explain why it is hard to draw a general lesson about how much government investment in physical capital will benefit the economy. Contrast a firm making an investment in physical capital with the government financing an investment in public physical capital. It is hard to draw a general lesson about how much government investment in physical capital will benefit the economy, because government responds to political incentives as well as to economic incentives. When a firm makes an investment in physical capital it is subject to the discipline of the market: if the firm doesn’t receive a positive return on its investment, the firm may lose money or even go out of business. Managing public investment so that it is done in a cost-effective way can be difficult, because the discipline imposed by political decisions is different than the discipline imposed by market competition. If a government decides to finance an investment in public physical capital with higher taxes or lower government spending in other areas, it need not worry that it is crowding out private investment. However, if a government decides to finance an investment in public physical capital by borrowing, it may end up increasing the quantity of public physical capital at the cost of crowding out investment in private physical capital.

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Solved: Ethical Culture, GM Case Study

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Ethical Culture, GM Case Study Student’s Name Institutional Affiliation =&0=& =&1=& About 800, 000 of general motor’s cars had engine shut down due to failure of the ignition switches. It often occurred when the vehicles were in motion hence most accidents were caused resulting into several deaths. For years, general motors never discovered that the problem was with their ignition switches. A lot of funds were compensated for the deaths caused. Despite GM discovering the cause for the accidents caused were due to faulty ignition switches, the information was disclosed for about fifteen years. Research reveals that the cause for the information disclosure was dur to ethical lapse in the corporate company. It took more than a decade for the government to discover that more than 2.6 million cars got damaged and caused accident due to faulty ignition switches. There was liaise with the federal prosecutors to announce a fine of 900 million US dollars to end the criminal investigations. Besides, they were to adhere to some terms and conditions for the coming three years. There are main events that occurred during the recall =&2=&  In February 2002, Engineer Ray DeGiorgio who specialized in ignition switches designed an ignition switch. According to the quality assurance team the standards of the gadget did not meet GM’s specifications. However, the switch was later used in Saturn Ion and later in Chevrolet Cobalt despite it being identified that it was below the standards. The switch was then used in Saturn Sky, Chevrolet HHR, PontiacG5 and Solstice. In 20005 a Chevrolet Cobalt owner, Amber Rose, got involved in an accident and died. Investigations showed that the frontal crash resulted from faulty switches which changed positions from the run to accessory hence resulting into cut off power to the airbags, steering and brakes. It led to a fatal accident. To resolve the situation, Engineer Ray signed a redesign of the ignition switch but in his redesign the part number is not changed. It led to uncertainties as to whether the changes were made or not. The alleged redesigned switch was used in cars from 2007. In 2013 the National Highway Traffic Safety Administration (NHTSA) declined to open investigations as to why Cobalt and Ion did not have proper air bags regarding several accidents that occurred during that period. NHTSA claimed that GM concealed important information hence preventing them from going further with the investigations. A new CEO, Mary Barra, discovered in 2013 that there was an issue with the ignition switches in GM. Around February 2013, GM recalled 1.6 million cars to repair spoiled ignition switches, the number later grew to 2.6 million cars. General Motors received a fine of $35 million by US government for failing to reveal the cause of the problem early enough. GM paid then fine and admitted to give a report on the government’s demands and its safety operations in good time. In June 2014, Barra released a report which were investigations conducted by prosecutor Anton. Barra stated that regarding the investigations, 15 employees were retrenched and five have undergone penalties due to their actions. The CEO agreed to compensate fund to victims who reported companies as from the first day of August. It was discovered that defective switches resulted into 275 injuries and 124 deaths and each victim’s family will be compensated at least 1 million dollars. The company had 625 million dollars for the compensation process.

General Motor’s actions towards the issue

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General Motor’s issue on defective ignition switches not only costed the company a lot of money but also tarnished its name to the public. Since the issues were related to ethics and culture, the company decided to review and publish its ethical codes. All employees were required to read, sign and follow the ethical codes of conduct failure to which punishments will be applied. By GM resorting to admit they had faulty switches, they chose on the engineering code of ethics other than profitability. Regarding GM’s failure in culture and leadership, the code of ethics had to cover the entire stakeholders involed in the company’s operations from the junior most to senior most positions. Their code of ethics addressed issues on integrity and the company’s terms and values. Among the code’s listed was the significance of speaking up in case there are corruption or misconduct issues. The company majors on safety, identification and resolving the problems encountered. Among the issues listed are accountability, conflict resolution, management of resources and reporting of misbehavior such as theft, violence and fraud. The speak up policy was meant to encourage the employees to report any misconduct they observe without fear of being harmed or retrenched. The company also resorted to improving vehicle safety. The employees had to understand the codes of ethics including the repercussions of committing crimes. They resorted that their first priority as a company will be safety.

Recommendations of possible solutions to GM’s problem

Studies show that ethics is controlled by culture. A large number of employees at GM decided to remain silent about the ignition switches which resulted to several deaths, this clearly shows that a company can have well laid out codes of ethics but no satisfiable integrity. It is not only enough to pass good laws regarding some policies in the company, but also important for employees to use their common sense and have a sense of humanity in them. Employees need to have good morals and the desire to do the right thing and be accountable. The leaders should be ready for any crisis and also be able to lead under the company under turbulence for the sake of positive transformation of the employees. Corruption is secretive, culture change is gradual. Problem acceptance is an important way of solving ethical issues in an organization. Deploying other stakeholders to investigate the company’s problems also helps identify the issues. Valukas’ report regarding the switch issues in GM shows a problem of silence and concealment. After it was discovered that the switches designed by engineer ray has a lower torque spec. the engineer was under pressure to deliver a less costly ignition switch and culture encouraged this behavior. In conducting investigations, witnesses from top most executive positions also need to be spotted.             General Motors learned a lot of lessons from the ordeal, they realized that a lot of effort and resources should be geared towards ensuring that the environment is ethically heathy and that employees have the right morals. Leaders living on assumptions that their employees will always do the right thing can result into discovery of misconducts later after a damage is made. Organizational leaders need to know their organizational culture, this can only be identified through proper communication. When communication is functional from the junior employees and up through the senior, discovering a problem would be easier. There could be information that a lot of employees are aware of but the CEO has no idea about them. Such matters can only be addressed through constant communication through meetings and emails. Employees also need to communicate any misconduct happening in the organization. A culture of integrity and honesty need to be nurtured in organizations. The only way this can be done is when the leaders do thorough inspection in the company and interact with employees at personal level. By creating a conducive environment and being approachable, knowing what is happening in the business will be made easier. After a mistake is identified, leaders should learn and adapt to the current situations of the organization. They ought to quickly notice possibilities and solutions to the crisis. They need to only expect trustworthiness if it is more inclined to viewing the positive side of the crisis. =&6=& It took about fifteen years for managers to release bad news about the faulty ignition switches in general motors. For the news to be out, the managers had to go back to history and understand how it all began. Emphasis of employees doing the right thing and being honest helps eliminate the chances of nurturing bad culture into the business environment. Organizations should concentrate more on their consumers safety other than profitability. They need not to wait until several cases are reported on the consequences of their actions for them to release their reports. Managers should be well prepared for tragedy and crisis and be able to survive through such atmosphere.

 

References

Wanasika, I., & Conner, S. L. (2018). General Motors: The ignition switch from hell. Journal of Case Studies36(2), 66-81. Cheng, Y. (2017, March). Examining the Business Outcomes of Media Coverage in the General Motor Recall Crisis: An Exploratory Study. In 20TH INTERNATIONAL PUBLIC RELATIONS RESEARCH CONFERENCE (p. 22). Maiorescu, R. D. (2016). Crisis management at General Motors and Toyota: An analysis of gender-specific communication and media coverage. Public Relations Review42(4), 556-563. Shepherd, I. J., & Vardiman, P. (2016). The General Motors Ignition Switch Incident Viewed Through a Proposed Economic Impact Severity Index. Journal of Management Policy and Practice17(1). Stephan, K. (2016). GM Ignition Switch Recall: Too Little Too Late?[Ethical Dilemmas].  VIEW SOLUTION

Solved: Ethical Culture, GM Case Study – General Motors Case study

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Ethical Culture, GM Case Study Student’s Name Institutional Affiliation =&0=& =&1=& About 800, 000 of general motor’s cars had engine shut down due to failure of the ignition switches. It often occurred when the vehicles were in motion hence most accidents were caused resulting into several deaths. For years, general motors never discovered that the problem was with their ignition switches. A lot of funds were compensated for the deaths caused. Despite GM discovering the cause for the accidents caused were due to faulty ignition switches, the information was disclosed for about fifteen years. Research reveals that the cause for the information disclosure was dur to ethical lapse in the corporate company. It took more than a decade for the government to discover that more than 2.6 million cars got damaged and caused accident due to faulty ignition switches. There was liaise with the federal prosecutors to announce a fine of 900 million US dollars to end the criminal investigations. Besides, they were to adhere to some terms and conditions for the coming three years. There are main events that occurred during the recall =&2=&  In February 2002, Engineer Ray DeGiorgio who specialized in ignition switches designed an ignition switch. According to the quality assurance team the standards of the gadget did not meet GM’s specifications. However, the switch was later used in Saturn Ion and later in Chevrolet Cobalt despite it being identified that it was below the standards. The switch was then used in Saturn Sky, Chevrolet HHR, PontiacG5 and Solstice. In 20005 a Chevrolet Cobalt owner, Amber Rose, got involved in an accident and died. Investigations showed that the frontal crash resulted from faulty switches which changed positions from the run to accessory hence resulting into cut off power to the airbags, steering and brakes. It led to a fatal accident. To resolve the situation, Engineer Ray signed a redesign of the ignition switch but in his redesign the part number is not changed. It led to uncertainties as to whether the changes were made or not. The alleged redesigned switch was used in cars from 2007. In 2013 the National Highway Traffic Safety Administration (NHTSA) declined to open investigations as to why Cobalt and Ion did not have proper air bags regarding several accidents that occurred during that period. NHTSA claimed that GM concealed important information hence preventing them from going further with the investigations. A new CEO, Mary Barra, discovered in 2013 that there was an issue with the ignition switches in GM. Around February 2013, GM recalled 1.6 million cars to repair spoiled ignition switches, the number later grew to 2.6 million cars. General Motors received a fine of $35 million by US government for failing to reveal the cause of the problem early enough. GM paid then fine and admitted to give a report on the government’s demands and its safety operations in good time. In June 2014, Barra released a report which were investigations conducted by prosecutor Anton. Barra stated that regarding the investigations, 15 employees were retrenched and five have undergone penalties due to their actions. The CEO agreed to compensate fund to victims who reported companies as from the first day of August. It was discovered that defective switches resulted into 275 injuries and 124 deaths and each victim’s family will be compensated at least 1 million dollars. The company had 625 million dollars for the compensation process. 

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=&3=& General Motor’s issue on defective ignition switches not only costed the company a lot of money but also tarnished its name to the public. Since the issues were related to ethics and culture, the company decided to review and publish its ethical codes. All employees were required to read, sign and follow the ethical codes of conduct failure to which punishments will be applied. By GM resorting to admit they had faulty switches, they chose on the engineering code of ethics other than profitability. Regarding GM’s failure in culture and leadership, the code of ethics had to cover the entire stakeholders involed in the company’s operations from the junior most to senior most positions. Their code of ethics addressed issues on integrity and the company’s terms and values. Among the code’s listed was the significance of speaking up in case there are corruption or misconduct issues. The company majors on safety, identification and resolving the problems encountered. Among the issues listed are accountability, conflict resolution, management of resources and reporting of misbehavior such as theft, violence and fraud. The speak up policy was meant to encourage the employees to report any misconduct they observe without fear of being harmed or retrenched. The company also resorted to improving vehicle safety. The employees had to understand the codes of ethics including the repercussions of committing crimes. They resorted that their first priority as a company will be safety. =&4=& Studies show that ethics is controlled by culture. A large number of employees at GM decided to remain silent about the ignition switches which resulted to several deaths, this clearly shows that a company can have well laid out codes of ethics but no satisfiable integrity. It is not only enough to pass good laws regarding some policies in the company, but also important for employees to use their common sense and have a sense of humanity in them. Employees need to have good morals and the desire to do the right thing and be accountable. The leaders should be ready for any crisis and also be able to lead under the company under turbulence for the sake of positive transformation of the employees.  Read Also: The complexity of maturation on the example of Katherine Anne Porter’s The Grave  Corruption is secretive, culture change is gradual. Problem acceptance is an important way of solving ethical issues in an organization. Deploying other stakeholders to investigate the company’s problems also helps identify the issues. Valukas’ report regarding the switch issues in GM shows a problem of silence and concealment. After it was discovered that the switches designed by engineer ray has a lower torque spec. the engineer was under pressure to deliver a less costly ignition switch and culture encouraged this behavior. In conducting investigations, witnesses from top most executive positions also need to be spotted.             General Motors learned a lot of lessons from the ordeal, they realized that a lot of effort and resources should be geared towards ensuring that the environment is ethically heathy and that employees have the right morals. Leaders living on assumptions that their employees will always do the right thing can result into discovery of misconducts later after a damage is made. Organizational leaders need to know their organizational culture, this can only be identified through proper communication. When communication is functional from the junior employees and up through the senior, discovering a problem would be easier. There could be information that a lot of employees are aware of but the CEO has no idea about them. Such matters can only be addressed through constant communication through meetings and emails. Employees also need to communicate any misconduct happening in the organization. A culture of integrity and honesty need to be nurtured in organizations. The only way this can be done is when the leaders do thorough inspection in the company and interact with employees at personal level. By creating a conducive environment and being approachable, knowing what is happening in the business will be made easier. After a mistake is identified, leaders should learn and adapt to the current situations of the organization. They ought to quickly notice possibilities and solutions to the crisis. They need to only expect trustworthiness if it is more inclined to viewing the positive side of the crisis. =&5=& It took about fifteen years for managers to release bad news about the faulty ignition switches in general motors. For the news to be out, the managers had to go back to history and understand how it all began. Emphasis of employees doing the right thing and being honest helps eliminate the chances of nurturing bad culture into the business environment. Organizations should concentrate more on their consumers safety other than profitability. They need not to wait until several cases are reported on the consequences of their actions for them to release their reports. Managers should be well prepared for tragedy and crisis and be able to survive through such atmosphere.

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References Wanasika, I., & Conner, S. L. (2018). General Motors: The ignition switch from hell. 

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Solved: Magic Timber Case Study

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Magic Timber Case Study Student Name Institutional Affiliation Course Due Date


An Analysis of investment plan at Magical Timber and Steel.

Introduction

An organization must be reliable and of good performance. The performance of wood companies require labor, resources and the market to sell off their products. With the constant rise in technology, companies have adopted new ways of processing. This has been achieved through the introduction of new machinery. A company with better technology will obviously produce quality goods. The cost of using outdated machinery in the company has risen since the outdated machines have proved to be slow, constantly breakdown making them very unreliable. Magical company is an example of such a company that is in the verge of adopting new machinery to their processing line with an aim of increasing production with a reduced cost (Gauri,2004).

Background information

Overall investment Strategies. Acquisition of new items in a company is part of the company’s investment. Typically, this involves making a decision to part with a large sum of money that can possibly cripple other company functions. However, it is worth noting that the volume of production shall have increased. This will be coupled with profit making and stability of a company in a competitive environment. The decisions of an executive member of a company do mean that either the company is steering to the right direction or to the wrong direction (Dimitras, Zanakis&Zopounidis, 1996). Companies are never willing to be closed down due constant running in losses. At this critical moment, the decisions that a company make will mean its closure or its profit-making culture.  Magical Timber, an Australian based company has a mission of reviving back to its feet of profit making in an environment that has became much competitive. This mission is to be accomplished through a series of decisions to upgrade the machinery in use. Magical which is currently owned by Davidson, has an intention of purchasing another finisher that will be faster and saving in running cost. Magical Company has had a good record of profit making over a couple of years. The purchase of a larger finisher ensured that the production capacity increased. An organization with calculated moves has better performance. The action of purchasing a larger industrial block enabled Magical to expand its services with a set up timber yard. Timber based industries require fast delivery of goods to the processing site and to the customers place of disposal. Magical purchased a Scania truck with an aim of solving the transport problem. Scania trucks are known for their capacity and strong engine making it a preferred solution to transportation of products for most companies (Kussuga, Lunning, Tiisekwa&Jacxsens,2017).

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Investments in a range of machinery was crucial for the success of Magical in the early years of its conception.  Coupled with a few employees they had. A starting company require few employees. This is beneficial as the salaries for many workers is used to expand the company. Multi-national companies started operating with three or four employees. This was a method adopted by Magical that saw their constant success over the years. Little or rather lack of competition will make the existing company to thrive. However, this is always short termed as more industries do venture into business with the same products (De Massis&Kotlar,2014). Timber is a requirement for building. The strategic position of Magical along the coastal lands and the population growth during the early years paved way for its triumph. A company success depends on the availability of manufacturing products and the market to dispose of their products. Market is key to success of a company. To maintain and remain in the competitive timber distribution industry, Magical timber and steel company needs to upgrade their machinery and to clear off their debts.

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Evaluation of the Case

Infrastructural development is important for growth of industries. Poor infrastructure has hampered industrial developments a great deal. Magical Industry has suffered a blow with poor infrastructures along their area of operation. This can be improved by building more offices, roads among other infrastructures that will ensure smooth operations in the company environs. Nevertheless, it is of great deal when a Scania truck is being used in a poorly maintained road. The maintenance cost is set to increase. Access to the market is also made difficult. Industries like Magical Timber require a well infrastructure for their operations (EL-Khalil,2015). The coastal regions are always economic productive when the tourism industry is performing well. The construction of hotels and other resting resorts is an attribute of a good tourism business. The decline in the tourism sector will result in the decline of infrastructural developments that the Magical Timber solely depend on to purchase their products. The success of Magical Timber strategies depends on the availability of market to dispose of their products. Magical has launched plans that will see their products increased and the customers will be able to have a range of products to get from the industry. Debts are harmful to a company’s success. A company operating in debts will automatically be liquidated. Sole strategy of multi-national companies is to cut off constant borrowing. This is harmful since it is always paying back with a large interest. Moreover, profit making of a company is not assured. It therefore means that, a company will be at an obligation to pay off their debts weather they make profits or run losses. Magical timber has suffered a big blow of operating on debts. The accumulation of debts has risen to the level of interfering with their daily operations (Gauri,2004). The owner, Davidson is left at a critical point of clearing off debts and bringing back the companies to its feet. The production machinery is important to a timber company. Purchasing this machinery require in-depth consideration. Again, the priorities of a company should be fulfilled from the most urgent to the less urgent. A timber company will put finishing machine at a first priority as compared to their managers car or something that is of less importance to the daily operations of the company. Though Magical started off by having its owners as the employees, it was a bad idea buying a new Scania truck that took a lot of money in the expense of machinery. Magical timber has second hand machinery that require constant maintenance. This is an additional operational cost. Competition among the companies producing the same product in the same locality is a normal scenario. Competition should be embraced by industries. It should not be a source of liquidation of another company. With sound and realistic strategies, a company is set to do better in a competitive environment. Magical Timber is facing competition from Wesfarmers limited. The company has come and taken all their clients. This has made Magical to supply only those products that are urgently needed by their customers. Davidson however, has come up with an idea of restocking the industry with the products that are only required by the consumers. A rare but very serious mistake a company can make is to allow its members to operate and borrow resources with the company name. This is never a good idea since it is the company that will be paying for these borrowed materials in case the members default in payment. Magical company anticipates to get back to 2009 when the net profit was $350,000. This will require Davidson to invoke the rules governing the company operations. The members should not be allowed to borrow on behalf of the company as they did before driving the company down to a net profit of only $140,000 in 2018 as compared to the 2016 net profit worth.

Proposed Solution

To every problem, there is a possible solution. The statistics of various companies show that they all have problems and challenges affecting their operations. From the mighty Amazon company to the tiny Magical Timber industry, they all have challenges they face. Problems are man created and can be solved through man’s own intervention. In a competitive market world, an organization will be tasked with coming up with ideas to remain relevant in the market (El-Khalil, 2015). Magical Timber and Steel should adopt Davidson ideas to be able to compete favorably with Wesfarmers limited. This can be accomplished by restocking of the timber yard with all the required products that a customer can sort for.  Consequently, reducing their debts to make the company operations run effectively. Debts can be cleared by selling off some of their shares. This will be a major blow though it is crucial. I would not advice for borrowing from another source to pay the current debts (Aithal,2017 p. 40-54). The new machinery will ensure high quality and capacity production of timber is realized. The Magical Industry statistics confirm the need to purchase the new Delta A390 machine. As compared to the cost of running the old finisher, the new finisher will be cost effective. The statistics shows that, with the old finisher, Magical Timber is set to spend $4000 yearly for its maintenance and the electricity it runs from. The production capacity will have increased when using the Delta A390 as compared to the Matrix 750. Magical will be forced to work on cost effectiveness to be able to pay of their debts and rise back to its profit-making history (De Massis&Kotlar,2014). The government support is crucial in the advancement and improvement of infrastructure. However, this might not be accomplished immediately due to the procedures take to realize a fully developed region. My research confirms that, infrastructural development can be a combined task between both companies operating in the same region. Tourism industry should also be at its best to help Magical company get back to its normal operations. Davidson can sensitize investors on the need to develop more restaurant and other features that are attractive to tourists.

Recommendations

Investment is crucial any industry that anticipates success. There is time to make losses and to make profit. Making losses should not be the end of an industry’s operation rather new strategies should be brought in place to cub the challenges. Magical Industry should therefore take on the risk of purchase of the new machine. This will be essential to their production. Investment is the key move of a company that requires success (Aithal,2017).

Conclusion

An industry needs a leader with ability to make decisions that will see the company never fall. This will require certain decisions to be made. These decisions may not be accepted by all the employees in the company. It is advisable to stick to them if they are the only savior of a falling company.

References

Perry, C. (1998). Processes of a case study methodology for postgraduate research in marketing. European journal of marketing32(9/10), 785-802. https://www.emeraldinsight.com/doi/abs/10.1108/03090569810232237 De Massis, A., & Kotlar, J. (2014). The case study method in family business research: Guidelines for qualitative scholarship. Journal of Family Business Strategy5(1), 15-29. https://www.sciencedirect.com/science/article/pii/S1877858514000114 Aithal, P. S. (2017). ABCD Analysis as Research Methodology in Company Case Studies. International Journal of Management, Technology, and Social Sciences (IJMTS)2(2), 40-54. https://www.sciencedirect.com/science/article/pii/S0305054899000696 Aithal, P. S. (2017). An Effective Method of Developing Business Case Studies based on Company Analysis. International Journal of Engineering Research and Modern Education (IJERME), ISSN (Online), 2455-4200. VIEW SOLUTION

Accounting

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 Sarbanes Oxley act is meant to reduce the degree of fraud by far in any organization through application of elements constituted in the act. In the case of Rite- Aid, corporate responsibility as highlighted in the act could have played a role in salvaging the company downfall. Corporate responsibility involves the senior executive of an organization taking individual responsibility for completeness and accuracy of the company financial report. The fall of Rite- Aid was preceded by series of unaccounted and unfair transactions, which clearly demonstrate lack of corporate responsibility among the CEO and other senior managements (En.wikipedia.org, 2019).  The other element highlighted in the act such as enhanced financial disclosure would have reduced the risk of fraud by greater depth, errors and fraudulent activities would have been detected in the early stages of the unethical practices and the problem rooted out before massive damage occur. The auditor’s independence in the case of Rite- Aid was ignored as Michael grass would frustrate the independent of the independent auditor. Independent auditing meant that the misstated financial statement provided to the shareholder would have been noticed as the auditor did his work. It is evident that the risk of fraud would have been reduced if the auditors were able to express their independent fair and true view of the company financial statement (Sec.gov, 2019) Q2 The first recommendation would be to ensure that there is no existence of conflict of interest among employees of the organization and especially the senior management. The decision the management makes at time are influenced by personal interest that arise in case of a conflict of interest. The internal control system within organization should be enhanced through establishment of an internal audit committee that should keep affairs of the company in control. Internal auditors are able to establish mistake within the organization the organization as well as keep things in order within the company. The success of company is mainly dependent on the laid down internal control systems that are used to provide oversight to all employees and the management of the organization. Another recommendation would be establishment of policies that ensure accurate, reporting and full disclosure of financial report to the shareholder and other interested parties within the organization. The establishment of whistle blower policy can also work a great deal in helping identifying fraud as well preventing future fraudulent activities to occur. The whistle blower policy involves the individual of an organization raising a red flag in case they notice any suspicious activity within the company operating and management system (pennlive.com, 2019) Q3 The recommendation highlighted above will positively affect the operation of business. With a good control system, a company is able to manage its affair in a matter that pleases the potential investors and access to investors’ fund may not be a problem. A proper internal control system also gives preference to customer’s (both international and local) satisfaction rather than focusing on profit alone. This satisfactory services are known to attract new potential customers as well as maintain the existing one. The recommendation outlined also point to the direction of company’s success; if the recommendation works properly the company will achieve a good rating among its competitors as well create a good brand image. This aspect of good ratings and good brand image also attracts the best performing and experienced chief executive officer and board members who are able to drive the company’s agenda to achieving the its objectives. The whistle blower policy notifies the company of any fraud and shareholders fund are protected meaning their investments gives a high return. The shareholder with guarantee of safeguarded fund and investment are able to pump in more fund into the company and hence keep the company afloat and with finances to explore many diverse investment opportunities managements (En.wikipedia.org, 2019).  References Sec.gov. (2019). SEC Announces Fraud Charges Against Former Rite Aid Senior Management. [online] Available at:  https://www.sec.gov/news/press/2002-92.htm [Accessed 11 Sep. 2019].. En.wikipedia.org. (2019). Sarbanes–Oxley Act. [online] Available at: https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act [Accessed 11 Sep. 2019] pennlive.com. (2019). [online] Available at: https://www.pennlive.com/news/2016/02/rite_aids_rise_and_fall_a_time.html [Accessed 11 Sep. 2019]

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ECON 201 – DATA EXERCISE #1

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DATA EXERCISE #1

Due at the end of week 2

Format of the Project:

The Data Exercise must be posted to the LEO Student Assignments as a Attachments are limited to a maximum two files in doc, docx., xls. xlsx., or rtf. formats. OTHER FORMATS ARE NOT ACCEPTABLE, will not be reviewed or graded. Please note that hand-written and scanned works, pdf. files, jpg. files, as well as files posted in google drive, will not be accepted or graded. The paper should be written in APA style Research Paper format. =&6=& =&7=& VIEW SOLUTION