Archive for 15/12/2014

Money, Banking and Finance APC312 Individual assignment

Weighting – 100% of the marks for this module

This is an individual assignment of about – 2,500 -3000 words.

The hand in date is: X January 2015

Please submit a hard copy to the Gateway by 3pm and the electronic version to Turnitin.

Requirements:

This assignment is in two parts.
Each part carries equal weighting.

Part A.
Discuss why banks need to be more regulated in terms of risks they face compared to other financial firms.

Part B
Critically analyse the competitive conditions in the banking industry.

The University policy on cheating collusion and plagiarism will be applied to this piece of work.

Guidance:

Students should approach this assignment as an academic essay, weighing the arguments for and against each issue, making comment on the literature and drawing logical conclusions. Referencing is a key requirement of the assignment to demonstrate wider reading and to underpin the discussions, ensuring they have sufficient depth.

Assignment- Financial Markets (APC 313) – January 2015.

Q1. (a) Explain what you understand by each of the following terms. In each case give an example relating to the financial markets to illustrate your answer.
• asymmetric information
• moral hazard
• quantitative easing (QE)
GUIDELINE:
Asymmetric information
– Please refer to page 196 of chapter 9. Define and explain the term “asymmetric information” related to financial market. Let say, relationghip between supplier and end-users of capital. ….
– The connection between asymmetric information and market faiure lines with risk. Please clarify this issue.
– Take examples from financial market supporting for above explainations

Moral hazard
Definition and explaination come from page 197 of chapter 9. Please clarify some main points:
– Moral hazrd refers to the situation whereby end-users obtain and use fund in different way or risker than expectation of lenders.
– Moral hazard is a very troublesome issue for regulators.
– Take example from financial market.
Quantitative easing
– Please refer to handout slides for definition, objective of QE, how does it work, ….
– Take examples.
(b) With close reference to your answer in part (a) above, discuss why there is a need to regulate financial markets.
– Please refer to page 7 & 8 of chapter 1 and 201 of chapter 9 to explain that regulation is the best way to protect participants of financial market.
– Please refer to page 8 of chapter 1 to explain that regulation is also understand the tool to achieve of financial stability of financial system because of contagion of dominic effect in financial market.
– Other reason should be supposed…..
Q.2 Distinguish between the spot and the forward foreign exchange rates. How are these rates related and determined in the foreign exchange markets ?
Spot rate
– refer to page 127 of chapter 6 for definition and explaination
Forward rate
– refer to page 128&129 of chapter 6 for difinition and explaination
Distinguish
– refer to page 129&130 of chapter 6
– exchange rate risk in attached file
– Others…
How these rate related and determined ….
– Please refer to chapter 7: page 146 – 150

Q3(a) Explain the operations and activities of the London Stock Exchange (LSE) market.
References:
– page 86-89 of chapter 4
– http://www.money-zine.com/investing/stocks/london-stock-exchange/
– http://finance.mapsofworld.com/stock-exchange/london.html
– http://www.londonstockexchange.com/home/homepage.htm
– …
(b) With close reference to the relevant theoretical and the empirical literature and your own financial data analysis critically assess the efficiency of this stock exchange market.
– Theory of EMH
– Literature review of EMH research in LSE
– Collecting share price of some stock listed in LSE: explain how information are affected on share price. Please refer to page 68-71 of chapter 4, understanding share price date to know how to explain
(c) How might recent upward surges in the FTSE 100 share price index be explained?
– Reference: part 4.3 The pricing of company shares page 72 – 77

Q (4) (a) Explain the operation and activities of the Money Market. Why is there a need for such a market?
Basic concepts & definition
• The term money market is a bit confusing , because money or currencies are not actually traded in Money Markets.
• Securities (eg treasury bills, government bonds) that are traded, are short –term and highly liquid , that is, they are close to being like money and can easily being converted into money.
• The Money Markets can therefore be characterised as having securities that trade in one year or less , are of large denomination and are very liquid.
• Note that Money market transaction are not taking place in any one particular locations/building- they are normally done electronically from various locations
• Money Markets securities have three basic characteristics in common:
• They are usually bought and sold in large volumes- usually in excess of $1million or frequently about $100 million (wholesale markets)
• They have low default risk and therefore low interest rates.
• They mature in less than a year- usually in less than 120 days.
The purpose of Money market
• Money Market provides a means to invest(warehouse) funds and to borrow large sums over a short period of time, at slightly better interest rates compared to banks, but without losing liquidity and fear of default. The only condition is that the transactions have to be large. This in turn limits the number of key participants in this markets to only a few .
Key players
• Governments/Central Banks- For example US Treasury, Bank of England- Sell Treasury/Government bills to fund national debts- Also buy /sell to control money supply.
• Large Businesses- Buy and sell securities( T-Bills) to manage finance/cash.
• Commercial Banks-Buy/sell (T-Bills) for their operations and for clients.
• Investment companies(brokerage firms)-trade on behalf of clients (normally lend)
• Finance companies- buy/sell to lend money to individuals ( normally borrow)
• Insurance companies-Maintain liquidity needed to meet unexpected demand.
• Pension funds- Maintain funds to buy stock/shares .
• Individuals – Via Money Markets Mutual funds.
The primary and secondary of money market
The need for and the purpose of The Money Market
• The Money Market essentially complement the banking industry. They exists because they can provide cost advantage over the banking industry.
• The banking industry primary exists so that savers-lenders could lend to borrowers- spenders. Banks earn profits by capturing economies of scale while providing this service.
• Cost advantage: Banks must put aside a portion of their deposits ( usually between 3-10% )in the form of reserves that are held without interest at the central banks (reserve ratio) . This means that it must pay a lower interest to the depositors compared to having the full deposit to lend.
• Also due to lack of competition in the banking industry ,interest rates are not normally subject to variations .
The Key function of Money Markets
• The key function of the money markets is the provision of a framework for the conduct
of monetary policy by the central banks/ bank
of England.
• Monetary policy normally consists of setting interest rate by the central bank in order to control inflation rate via reduction in demand; also setting interest rate in order to stimulate demand and employment.

(b) Explain how a central bank might use the Money Market to conduct monetary policy in order to target the rate of inflation.
Monetary policy
• Monetary policy Instrument – Policy rate of interest- determined in the UK by the Monetary Policy Committee on a monthly basis – they set the policy rate of interest to control the rate of inflation- Monetary policy Target. (Inflation Targeting).
• Mechanism: Changes in the policy rate are transmitted quickly to all other rates of return and quickly changes the short –term rates of interests for borrowing and lending and therefore ultimately influencing level of aggregate demand and rate of inflation in the economy.
Example: Conduct of Monetary policy in Practice via London Inter-Bank Offer Rate (LIBOR)
• Key players :
1. Central Bank/Bank of England (MPC) determines the Policy rate of interest.
2. Commercial Banks operate on the basis of fractional reserve ratio and must maintain these ratios(3-10% of liabilities/deposits) with the Central bank/BOE at all times.
IF there is a shortage in their ratio . They can borrow either
(a) from the BOE at MPC+ 1%
(b) from other commercial bank at the London Inter-Bank Offer Rate (LIBOR).
If they have surplus in the reserve, they can leave it in the BOE getting MPC-1% , or deposit it with other banks at LIBOR.
• Changes in MPC rate influences the demand and supply of interbank transactions, this in turn changes the LIBOR and return on all other instruments via arbitrage activities leading to a change in the short-run rates of interest in the market, which is the target of the central bank in this monetary policy operation.
• A rise in the Policy rate
• Suppose Central bank/BOE raises the Policy rate to reduce the inflationary pressures.
• This rise in policy rate will quickly rises the LIBOR via interbank transactions-
• The rise in the LIBOR will quickly increase the interest rates offered by the commercial banks/building societies in the market.
• The rise in the market rates of interest will reduce demand for loans /borrowing leading to fall in consumers’ spending and ultimately to fall in the rate of inflation.
Here is the way to explain how money market is used to conduct monetary policy to achieve target of inflation. BUT PLEASE DON’T COPY IN YOUR ASSIGNMENT

Guidance and Preparation Note:

1.Each question should be answered with reference to the key published academic literature and relevant financial data and evidence. Each part , excluding Q .3 (b) requires a focused answer within 500-600 word limit.

2.For Q.3(b) you need to review carefully key academic literature and published supporting empirical evidence , combine theory with evidence and your own financial data analysis ( including data on the traded share prices within the framework of the LSE market), to arrive at a conclusion. Normally this process can be done within a 1500 word limit plus an appropriate data appendix if required.

Assessment Criteria

1.Evidence of background reading and relevance of the material to the question posed.

2.Appropriate use of Harvard referencing system .

3.Depth of analysis based on relevant academic literature and empirical evidence.

4. Appropriate conclusion based on relevant analysis and
empirical evidence/ financial data provided.

Contemporary Developments in Business and Management (SIM337)

Assessment weighted at 100% assessing all module learning outcomes.
Activity:
Prepare a management report of 3,500 to 4,000 words* on an organization within the manufacture of textiles, manufacture of wearing apparel or
food and beverage service activities ** in a country or countries with which you are familiar. [An organization profile must be included in your submission as “Appendix 1”.]
This report should assess the impact of external business environmental factors on the organization and evaluate the organization’s responses. In the case of a large organization it is permissible to confine your report to part of the organization. An organization’s activities may range beyond the designated industrial sector in which case the focus of your report must be on the organization’s activities within the designated sector.
* This wordlimit does not include the executive summary, organization profile, tables, diagrams, appendices or references.
** Sectors C13, C14 or I56 respectively in the UK standard industrial classification (SIC) system or equivalent. See < >.
Task 1
Give a brief overview of the primary external influences to which the organization is subject and briefly explain the particular importance of each to the organization. This first task should contribute no more than one third of your overall report.
Task 2
Choose one of the following themes:
a) The changing competitive environment (Porter’s Five Forces)
b) Global political institutions
c) Technological change

In relation to your chosen theme
i. analyse its relevance to your chosen organization and how it influences policies and decision-making within your chosen organization or industry-sector.
ii. critically evaluate the effectiveness of the organization’s response.
iii. demonstrate some areas for improvement in the response of the organization.

Guidance notes:
Whatever organization you choose and whichever theme you chose, you must clearly demonstrate knowledge and understanding from research and reading wider than that contained in the module pack and core textbook. This is a REPORT and so must be presented in business report format and style. You must also structure your report to cover points i to iii above. This is an academic piece of work therefore you are expected to link theory and practice. You should take care to ensure that the work you submit has a high standard of presentation. This is an individual assignment. You must acknowledge your sources of information and evidence using the Harvard referencing system. All assignments are subject to the University’s regulations on collusion and plagiarism and must be submitted in electronic form for checking.

Summary Assessment Criteria
1. Relevance: Directly relevant to the requirements of the assessment. (10%)
2. Knowledge: A substantial knowledge of relevant material, showing a clear grasp of themes, questions and issues therein. (20%)
3. Analysis: Good analysis, clear and orderly (20%)
4. Argument and structure: Coherent and logically structured, using an appropriate mode of argument and/or theoretical model(s). (20%)
5. Critical evaluation: Contains distinctive or independent thinking; may formulate an independent position in relation to theory and/or practice. (10%)
6. Presentation: Well written, with standard spelling and grammar, in a readable style with an acceptable format. (10%)
7. Reference to literature: Critical appraisal of up-to-date and/or appropriate literature. Recognition of different perspectives. Good use of a range of sources. (10%)
(See marking scheme for more detailed guidance)

Commentary on the Assessment Criteria / Marking scheme

Relevance (weighting: 10%)
“Directly relevant to the requirements of the assessment”
You need to do what the assignment requires. Read the question or task carefully and do what it asks rather that what you would prefer to do. Keep focused on the task and avoid irrelevant material.

Task one is to “Give a brief overview of the primary external influences to which the organization is subject and explain the particular importance of each to the organization.”
Task two is in relation to a chosen theme to:
i. “analyse its relevance to your chosen organization how it influences policies and decision-making within your chosen organization or industry-sector.”
ii. “critically evaluate the effectiveness of the organization’s response.”
iii. “demonstrate some areas for improvement in the response of the organization.”
In task one you need to cover a range of external business environment factors but emphasis should vary according to the degree of relevance. In task two more in-depth analysis, evaluation and recommendations are required.

Knowledge (weighting 20%)
“A substantial knowledge of relevant material, showing a clear grasp of themes, questions and issues..”
You need to demonstrate your knowledge of the relevant material. Demonstrate to your reader that you really understand the material and that you are not merely paraphrasing. A good use of applications and examples will be essential in doing this.
“Under this criterion we are looking to see that you understand what is meant by the range of external business environmental factors and understand in some depth the relevance of the chosen theme. ‘There will be a tendency to give facts and definitions either as direct quotations or paraphrased but students need to demonstrate a real understanding by applying and illustrating the concepts. For example……..”

Analysis (weighting 20%)
“Good analysis, clear and orderly.”
You need to give a good analysis (explanation) and avoid too much description. Description is relatively superficial whereas analysis gives a deeper explanation.
“Students will tend to describe what is meant by ………..and so on. What is needed here is analysis (explanation).For example, when considering the potential impact of food-safety regulations it is not sufficient to merely say that the regulations will impact on a firm’s operations we need some explanation of how they could impact on such a firm.” This applies to task one but even more so to task two.

Argument and Structure (weighting: 20%)
“Generally coherent and logically structured, using an appropriate mode of argument and/or theoretical model(s)”
Your argument needs to be clear, coherent and logical and you should use relevant theoretical models and evidence in support of your argument. Avoid mere assertion. Make sure that you understand what your argument is and avoid merely stringing together a series of points.
“Assertions need to be substantiated either by reference to authoritative sources or by evidence and logical argument. For example, a statement about a firm’s competitive advantage would need to be substantiated by a reference to an authoritative source or evidence and argument. “This could give it a competitive advantage over rivals because………………”
Weaknesses in this area would be indicated by marking comments such as ‘Substantiate!’, ‘Why?’, ‘How? and so on..”

Critical Evaluation (weighting 10%)
“Should contain some distinctive or independent thinking; should begin to formulate an independent position in relation to theory and/or practice.”
This is particularly relevant to task two where recommendations should be based on and should flow from the analysis and evaluation.
To gain these marks you need to be demonstrating your own judgement rather than just relying on the judgements of others. For example, “‘A’ considers that………. ‘B’ considers that……. On balance this report reaches the following conclusion…………”
The requirement of this assignment cannot be completed relying on the work of others so any reasonably successful paper must have a fairly high level of originality.

Presentation (weighting 10%)
“Well written, with standard spelling and grammar, in a readable style with acceptable format.”
An “acceptable format” for a report will be relatively formal in style with headings and sub-headings
(See “A Simple Guide to Report Writing”.)

Reference to Literature (weighting: 10%)
“Critical appraisal of up-to-date and/or appropriate literature. Recognition of different perspectives. Very good use of source material. Uses a range of sources.” You need to demonstrate a good use of a range and quality of up-to-date materials. Literature use limited to the main text and/or superficial/out-of-date www sources will score badly.

In addition, all work must be referenced correctly using the Harvard style. Marks will be subtracted for poor referencing and more serious cases of plagiarism or collusion will be reported to the University of Sunderland Faculty of Business and Law Infringement Panel. (See a guide to Harvard referencing.)