Bankruptcy: credit default swaps is a financial swap that the seller of the CDs will compensate the buyer in the event of a loan or the other credit event.
Credit default swaps is a financial swap
Question 1.) Propose two applications of knowledge that you have learned in this course that you could apply to your current or future career.
- Answer A (put in your own words): Bankruptcy: credit default swaps is a financial swap that the seller of the CDs will compensate the buyer in the event of a loan or the other credit event. This is an important information because it was part of the financial crisis of 2008. Banks were able to create too much money and used it to push up house prices and speculate on financial markets. It is always important to know how to avoid bankruptcy.
- Answer B (put in your own words): Pension Plans: I really enjoyed reading this topic as well as everyone at some point in life have to retire and we should understand what type of benefit plan works for us. This really helped in understanding what type of benefits plans are available and what benefits they offer.
Question 2: Rate the three most important concepts that you learned in this course in order of importance (one being the most important). Provide a rationale for your ratings.
- Answer A (put in your own words): Short-Term Financing – I really enjoyed the discussion on short-term financing because I plan to open up a startup business once I graduate. The SBIC (Small Business Investment Companies) was very insightful and gave me valuable resources I can use to look for potential investors or to look into financing. SBA.gov has a list of sources and information that you need for a startup company.
- Answer B (put in your own words): Bankruptcy – It was very interesting to see how many successful companies that have been around for decades, file for bankruptcy due to the advancement of technology. For example, Toys R Us was one of the most successful retail stores within the U.S. It was sad to hear that they will be closing their stores due to their sales being down. Companies like this will have to compete with online shopping marketplaces such as Amazon.
- Answer C (put in your own words): Discount interest loan – I did not know that there are loans available in the USA which deduct interest in advance. I thought it may not be happening in a developed country but I was wrong. I do not recall taking such load but this knowledge does help me figure out if such loan makes sense or not. Based on the chapter and examples given, discount interest loan is most expensive for the end user. So unless calculations show otherwise, I would prefer avoiding such loan.
Question 3: Please put the following comment in your own words:
- Answer : Very nice response regarding concepts. However, regarding ethical behavior, I have learned so far that, ethical behavior is just a theory. In a capitalist world, everything comes down to risk/reward and that includes ethical behavior. So if top management believes that non-ethical behavior can be profitable when you count both risk and reward, they will find ways to justify it. If you read financial news, you find that every month, a company will pay huge fines regarding some charges but the company will decline to either accept or deny those charges. In most such cases, the company reaped benefits for unethical business practice and then paid some percentage as fine. Eventually, the CEO gets a higher bonus because it helped company’s bottom line. I feel that more than seventy-five percent of such unethical practices are profitable to the company. So there is no incentive for CEO to stop doing it. Think about BMW emissions scandal or Wells Fargo fake accounts scandals. These two were probably non-profitable in the end but they were carried out thinking that benefits will outweigh losses.