The interconnectivity between the world’s largest stock markets is based on the world’s interdependent global economy. No longer does one country exist without interaction with other countries. No longer are countries isolated from each other. Instead, countries rely on each other for everything from raw materials to the production of goods and services. This interdependence is reflected in the stock market and other facets of counties economic systems.
I believe that Japan has the most influence on the United States’ stock market. The correlation between Japan and the United States’ high market movements is high at most times. No one country is dominated by another country’s stock market. However, the United States does have significant correlation with the Japanese market trends. When there are natural or national disasters in one of these countries, the other country’s stock market is also affected (Siddiqui, 2009).
Fraud in Investment Hedge Fund Management
The Dollar Family Endowment is leaving a scholarship to Money University as a way of remembering their daughter. The family is giving $100,000 and would like the gift to perpetuate itself as a 50% scholarship to the recipient and tuition is now $40,000 a year. A hedge fund would be an ideal choice as the diversification can be spread throughout the world’s financial markets, especially at this time of an economic downturn in the United States and Europe. Hedge funds have been growing despite the global volatility. Careful selection of managers can help the family establish its legacy.
The most significant pitfall that a hedge fund can face is the number of managers in a multi-manager fund. Too many managers can affect the effectiveness of portfolio diversification. Funds that have a high number of managers, over 30 as an average, will find it difficult to monitor investment strategies. Statistical theory also demonstrates that the benefit of diversification drops off when there are more than 30 managers in a fund. An adequate number of fund managers appear to be between 15-20 (Gregoriou & Rouah, 2002).
Banks should be affordable to the consumer, offer ease of access, and have instantaneous results when money is managed by the customers. My bank has no minimum balance if the customer has direct deposit which makes it affordable. It also offers free balance transfer from savings to checking to cover potential overdrafts. Internet usage is easy, but transfers take one day to post. One change that I would make is to make transfers between a customer’s accounts immediately available and to post at once.
The United States’ commercial banks will continue to benefit over the next three years because investors around the world continue to be willing to hold US debt. The dollar continues to be treated as international currency. The current crises has helped to regulate the banking industry and called for increased accountability in the banking sector. Recessions have always allowed well-funded players to acquire quality assets at deep discounts. The US government’s intervention to support and repair financial services businesses in the US have been an example of the country’s determination to not allow the current crises to be a long-term detriment to the nation (United States commercial banking report, 2012).
Thrift institutions have unique risks compared to commercial banks in that they encounter increasing liquidity difficulties when there is a rise in short-term interest rates in relation to long-term rates. Thrift operations also have liquidity and solvency problems when the level of overall interest rates rise. The money availability issue is exacerbated by thrifts obtaining many of their funds through passbook savings deposits. In order to remain profitable, greater diversification in the maturity and types of assets and liabilities offered needs to be made in the thrift institutions. Another viable option would be to eliminate the interest rate ceilings on thrift institutions (Kaufman, 1972).
e-Activity: The thrifts today are doing well when compared to the savings and loan crises of the 1980s. The public has accepted that government regulation can be positive. Consumers have not panicked and trust that their deposits are safe. The public has left their money in the banks and trust the government’s insurance of their money. People still trust the banks to borrow money for their needs (frbsf.org).
Finance Company Operations
In determining which type of risk affects a finance company the most, liquidity, interest rate, or credit, it must be stated if the borrower is an individual consumer or a small or large business, as each carries different types of risk. For a consumer, credit is the biggest factor, which is why the standards have become stricter in the past five years. For small businesses, liquidity is the most important factor, as there are often a greater percentage of assets tied up in the business itself. For a larger business, the interest rate is the most important because it is the biggest impact on the larger amount of money being borrowed. In all situations, the risk must be assessed on an individual basis (Lopez Salazar, Contreras Soto, & Espinosa Mosqueda, 2012).
When a consumer borrows from a finance company, there is usually easier finance terms associated with the loan. When a loan originates from a commercial bank or thrift, there are government regulations which must be met. Some of these regulations include credit score and debt to income ratio. If I were applying for a car loan, the car manufactures finance company might be the best choice. The terms would be easier and the interest rate would be determined by them, not the government (Ibarra, 2009).
Mutual Fund Operations
Mutual funds are a tool to diversify investments. By taking an investment and splitting into different stocks, risk is reduced. The capital asset pricing model affects the index fund by the risk associated with the fund. The more risk a fund has, the greater the potential growth. However, the greater the risk, the greater the risk that the principal could be lost (Raei, Ahmadinia, & Hasbaei, 2011).
More oversight and regulation is needed regarding hedge funds. Ponzi schemes have been a problem in this country for about a decade. Many people have lost their life savings investing in plans that they thought were safe because they were misrepresented. Although hedge funds should still exist, there should be stricter penalties for people who defraud others. In order to be able to prove fraud, there needs to be a stricter way to regulate initial investments (sec.gov).
Gregoriou, G. N., & Rouah, F. (2002). Pitfalls to avoid when constructing a fund of hedge funds. Derivatives Use, Trading & Regulation, 8(1), 59.
Ibarra, V. C. (2009). Cash flow ratios: Tools for financial analysis. Journal Of International Business Research, 891-107.
Kaufman, G. G. (1972). A Proposal for Eliminating Interest-Rate Ceilings on Thrift Institutions. Journal Of Money, Credit & Banking (Ohio State University Press), 4(3), 735-743.
Lopez Salazar, A., Contreras Soto, R., & Espinosa Mosqueda, R. (2012). The Impact of Financial Decisions and Strategy on Small Business Competitiveness. Global Journal Of Business Research, 6(2), 93-103.http://www.sec.gov/answers/hedge.htm
Siddiqui, S. (2009). Stock markets integration: Examining linkages between selected world markets. Vision (09722629), 13(1), 19-30.
United States commercial banking report. (2012). United States Commercial Banking Report,(3), 1-56.