Question 1: Discuss the role that ethics plays in corporate finance. In addition, discuss if market forces reinforce ethical or unethical behavior.
In most corporations, the proper ethics lacks leading to innumerable scandals; Enron’s scandal remaining an all-time favorite quotation (Summer, 2007). Summer continues to argue that ethics has the role of aiding in critical decision-making especially as regards to some conflicting goals. Second, ethics has the role of ensuring objectivity in as far as financial reporting is concerned. Summer posits further that ethics enables equal treatment of shareholders, in addition to, ethical transfer pricing coupled with curtailing bribery. In cases where there are actual or suspected thefts or fraud, Summer asserts that, ethics dictates unearthing such acts and fervently condemning such acts. This, therefore, demands increased integrity.
Market Forces has a significant contribution in as far as ethics is concerned. The main reason is that there are more unethical choices made than ethical ones. For example, while dealing with for profit organizations, there is a higher propensity to indulge in unethical activities and cover ups like in the Enron case mentioned earlier (Summer, 2007).
Question 2: Facebook recently held an IPO (Initial public Offering). Discuss how this was executed and address the overall success of the offering. Be specific.
Mark Zuckerberg, the co-founder of Facebook sat among the elite of the corporate world while launching the Facebook IPO. Its launch held high expectations amidst technical malevolence in the NASDAQ servers. There were numerous accolades from elites of the corporate world, and its widely broadcast and publicity was met with superfluous attendance. Being that the launch was done in broad daylight; the expectations were high from both the public and the organization at large. However, the Facebook IPO later on came crumbling down with numerous scandals and malicious activities happening within the trading floor leading to many investors to shun actions. At inception, the share prices were at $ 38 and later traded at between $ 34 and $ 38 a share; a relative success. However, its numerous scandalous trading and lawsuit has found its share prices dwindling.
Question 3: Review the current term structure of interest rates for the U.S. government. Comment on the reasoning behind interest rates levels, and their current overall effect on the U.S. economy.
Recent term structure of interest rates for the US government shows a volatile term structure. Compared with the recent past, the term structure was at its peak during the periods 2004 and 2009. With rising cases of unemployment, volatile crude oil market that tends to skyrocket crude oil prices and an almost uncontrollable inflation rate, the term structure of interest rates has been marred by copious challenges. This means that there is a dwindling income for the government; thus their expenditures are seriously challenged. In addition to dwindling expenditures, there is also an increasing expectation that the government will cover areas where citizens cannot be able to handle like in areas of hospital bills and medication. This means that average maturity of holdings of securities is at a risk too; hence the need for close monitoring. However, in terms of long-term inflation anticipations, there is a stable trend; hence no reason to be exasperated. At least the US economy can be able to sustain itself and get past these misdemeanors.
Question 4: What is LIBOR? How is it set? Comment on the recent troubles involved with the LIBOR and its future prospects.
The term LIBOR, London Interbank Offered Rate, is the measure of the extent to which large banks would be required to pay to borrow money from their large counterpart banks on an unsecured basis (Waddingham, 2012). One aspect that is sure is that banks heavily rely on lending to businesses and customers; thus this is a vital indicator of the confidence within the banking industry.
LIBOR is calculated daily at around 11 a.m. using ten different currencies, whereby 15 loan maturities are quoted for every currency ranging from overnight and extending to approximately a year (Waddingham, 2012). For every maturity submitted by the panel of banks, they are ranked from the lowest to the highest. The lowest 25% are dropped similar to the highest 25%. The remainder is then averaged; thus becoming the reported LIBOR on that day.
Barclays’ LIBOR fraud caught the attention of the media leading to vehement condemnations of such activities (Waddingham, 2012). Barclays disguised its difficulties in money lending by pressuring its employees to submit low LIBOR, or make sure that they never had the highest quotes. This scandal led to in-depth investigations of other large banks’ conducts on the LIBOR. LIBOR’s future may be great if better ethical reporting standards are put in place.
Question 5: General Motors is currently teaming with the Chinese to help build autos in mainland China. Is this a sound capital investment decision for GM? (In the short-run or long run?). First research the issue, then provide your comments.
General Motors has recently made a decision to invest in mainland China with its brand name changing to China Motors. Although General Motors and China have had a long-term relation, it is the first proactive step that General Motors is making towards heavy investment in China. To some extent, this is perceivably a sound investment strategy for GM especially in the short-run. The main reason behind this notion is that China is an emerging and sustainable global economic giant; a force to reckon. However, long-term investment issues may arise especially given the fact that Chinese products are perceived to have higher piracy rates; hence decrease in perception on the world auto market for its motors from China plant(s).
Question 6: Review historical stock market returns. In view of these returns and the current economic climate, would you currently invest in the stock market? If so, what type of investments would you choose? Explain your reasoning.
The history of the stock market return in the US market is intriguing. Looking at the current stock market climate, it is easy to note that, although some market analysts are skeptical of the situation, the situation is suitable for investment. The best investment type would be to invest across the board on a balanced scale to distribute risks. However, in as much as risk distribution needs consideration, counterchecking historical performance of individual companies and the decisions they have made is necessary. This can be done by considering an organization’s stock beta values. Additionally, considering the capital investment, its loan values, and returns would provide vital indicators.
Sumner, J. (2007). Corporate ethics and the CFO: Balancing principles and profits in the public eye: The US perspective. CFO Publishing Corp.: United States. Retrieved from http://www.accaglobal.com/content/dam/acca/global/PDF-technical/corporate-governance/corporate_ethics_usa.pdf
Waddingham, B. (2012). LIBOR – calculation and manipulation. Barnett Waddingham Investment Consulting: London.