Systemic Risk College Essays Samples For Students

Introduction

The financial crisis of 2007/9 was the worst in the U.S. since the Great Depression of the 1930s. It was the cause of the failure of some of the biggest financial institutions including Washington Mutual which was closed in 2008, and its assets transferred to JP Morgan. In 2008, the crisis reached its peak with loans dropping dramatically to the lowest levels to be witnessed in a half a century. For example, new loans to large borrowers fell by 47 percent in the fourth quarter of 2008 as compared to the previous quarter and by 79 percent relative to ...

Q1.
This simplest explanation for this is that when the economy failed, Bear Sterns spiked the mortgage of people’s houses, which gave the company a negative name and thus led to investors ceasing loans to the firm.
In more complex terms, Bear Sterns tied itself up in numerous derivatives dealings that involved subprime-based investments. Other banks caught on to the amount of “toxic waste”, i.e. The subprime-based investments that the firm held and they stopped making short term loans that Bear Sterns desperately needed to remain liquid. As a result, Bear Sterns was forced to start selling off ...

Question 1

Analyze the relationship between the marginal cost of capital and foreign investment analysis.
Marginal cost of capital is the cost connected to raising an additional unit of capital. The marginal cost of capital depends on the type of capital that will be used and the associated risks. Marginal cost of capital is important in foreign investment analysis because it is used to determine foreign projects that are to be undertaken and those that are to be rejected. A foreign project can only be accepted if its rate of return is greater than the marginal cost of capital. It ...

Question 1: What are the advantages of leads and lags over direct loans?

Leads refers to acceleration of the time of making foreign currency payments while lags on the other hand refer to delaying the time of making foreign currency payment. It is aimed at increasing the working capital or reducing foreign-exchange exposure. Lags and leads are achieved by modification of credit terms extended in one currency to another. Most multi-national companies use leads and lags to reduce the exchange risk and to transfer the financing burden from one unit to another.
There are several advantages of leads and lags when compared to direct loans. An official note as a recognition of a ...

Special Topics

Question 1
Change in corporate control refers to transfer of the decision making authority of a company from one group of persons to another group. This power entitles individuals to make decisions concerning operations and strategic planning of the company, allocation of capital, acquisitions, marketing decisions and production decisions. Publicly traded companies are prone to corporate control changes when large investors, especially institutional investors and other companies, strive to seize control from existing shareholders and managers. Change of corporate control can be effected through; tender offers, negotiated offers and proxy fights .
Negotiated offers are the process by which ...