finance discussion for weeek 6,8 and 9 and responses

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timer Asked: Jun 1st, 2018
account_balance_wallet $10

Question description

Answer the following questions/activity and make sure you follow all the instructions! Each question need to be answered with 300 words minimum and each response to other persons discussion post with 100 words each. The response to other students need to be written directly at them not in 3rd person and should include why or why you do not agree and what your thoughts about their discussion posts are, they also examples on how the initial discussion post should be done!!!

Answer the following questions/activity and make sure you follow all the instructions! Each question need to be answered with 300 words minimum and each response to other persons discussion post with 100 words each. The response to other students need to be written directly at them not in 3rd person and should include why or why you do not agree and what your thoughts about their discussion posts are, they also examples on how the initial discussion post should be done!!! Week 6 Initial question answer with 300 words min. Why do you think a debt instrument whose interest rate is charged periodically based on some market interest rate would be more suitable for a depository institution than a long-term debt instrument with a fixed interest rate? Other students discussions that need responses ( also example on how above question should be answered) Student #1 Nadine Why do you think a debt instrument whose interest rate is charged periodically based on some market interest rate would be more suitable for a depository institution than a long-term debt instrument with a fixed interest rate? The depository institution comprises of all the commercial banks, savings and loan associations, savings banks and credit unions. It has to face many risks in generating its spread income or the margin. These include credit risk, the risk from interest rate fluctuations, as well as the regulatory risk. The interest rate risks are those risks faces by the banks and depository institutions which arise from the changes in the interest rates and the market fluctuations. All the depositary institutions have to face this interest rate risk. Managers of a depository institution who have particular expectations about the future direction of the interest rate, seek to benefit from these expectations. Those who expect a rise in the interest rates prefer to borrow funds for a longer duration as they can enjoy lesser interest rate on borrowings, as compared to the market rate. But the risk exists in these interest rate predictions: A depository institution offers a debt instrument at 5% fixed interest rate for 5 years. Following are changes seen in the interest rates in the market in the consequent years: present year = 5% / 1st year = 4.5% / 3rd year = 4.2% / 4th year = 4% The above situation clearly shows how the depositary institution has to unnecessarily pay the interest at 5%, in spite of the market rates being low. This inherent risk of fluctuating interest rates is a part of the commercial transactions of these depository institutions. The depository institution will have to face adverse financial consequences, if a business strategy of taking buy and sell positions based on predicted market interest rates fails, and the expectations are not achieved. The above example of the interest rate fluctuations proves that it is very risky to depend on the predictions of the market interest rates. It is not always possible for the managers of the depository institutions to forecast the interest rates correctly. Therefore, the goal of the depository institution management should be to lock in a spread, or to mitigate a risk, as best as possible, and not to depend on the interest rates movements. Thus, to conclude, a debt instrument whose interest rate is changed periodically, depending upon the market interest rate, would prove to be less risky and suitable as compared to a long-term debt instrument having a fixed interest rate. References: BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM. (2018). Credit and Liquidity Programs and the Balance Sheet. Retrieved from https://www.federalreser ve.gov/monetarypolicy/b st_lendingdepository.htm Booth, L., Cleary, S., & Drake, P. P. (2014). Corporate finance: (All binding options and ebook version of this text in this edition are acceptable)(1st ed.). Wiley. Student #2 Yunfeng All depository institutions know that the money today is worthy than the money tomorrow, so when they calculate their loan rate, they not only need to consider the cost and profits but also need to think about the risks and demand of the market. In fact, inflation rate and fed fund rate play important roles when depository institutions calculate their loan rate. With times goes on, inflation rate and fed fund rate always change each year. Even though depository can use active strategy to speculate the future inflation rate and fed fund rate, there still will be some errors exist. Because no one can predict future rate, when depository institutions charge long-term fixed loan rate to their clients, they must face fund risk and inflation risk and those risks will affect the corporation`s future net revenue. However, if depository institutions can charge their clients based on market interest rate, the institutions can adjust their loan rate immediately, it is a kind of way for the bank minimizing their interest risks. Even though, risk is equal to return and those risk might help money institutions make some future profits, the depository institutions still dislike uncontrollable risk, because those institutions like to shift those risks to others. Therefore, debt instrument whose interest rate is charged periodically based on some market interest rate would be more suitable for a depository institution than a long-term debt instrument with a fixed interest rate Reference Booth, L., Cleary, S., & Drake, P. P. (2013). Corporate Finance (pp. 5053). N.p.: Wiley. Week 8 Initial question answer with 300 words min. What are the limitations of Michael Porter’s Five Forces Model? What improvements would you make? Other students discussions that need responses ( also example on how above question should be answered) Student #1 Nadine COLL APSE What are the limitations of Michael Porter’s Five Forces Model? What improvements would you make? Porter’s model of Five Competitive Forces has been subject of much critique. Its main weakness results from the historical context in which it was developed. In the early 80s, cyclical growth characterized the global economy and thus, primary corporate objectives consisted of profitability and survival. A major prerequisite for achieving these objectives has been optimization of strategy in relation to the external environment. At that time, development in most industries has been fairly stable and predictable, compared with today’s dynamics. In general, the meaningfulness of this model is reduced by the following factors: 1. In the economic sense, the model assumes a classic perfect market. The more an industry is regulated, the less meaningful insights the model can deliver. 2. The model is best applicable for analysis of simple market structures. A comprehensive description and analysis of all five forces gets very difficult in complex industries with multiple interrelations, product groups, by-products and segments. A too narrow focus on particular segments of such industries, however, bears the risk of missing important elements. 3. The model assumes relatively static market structures. This is hardly the case in today’s dynamic markets. Technological breakthroughs and dynamic market entrants from start-ups or other industries may completely change business models, entry barriers and relationships along the supply chain within short times. The Five Forces model may have some use for later analysis of the new situation; but it will hardly provide much meaningful advice for preventive actions. 4. The model is based on the idea of competition. It assumes that companies try to achieve competitive advantages over other players in the markets as well as over suppliers or customers. With this focus, it does not really take into consideration strategies like strategic alliances, electronic linking of information systems of all companies along a value chain, virtual enterprise-networks or others. Overall, Porters Five Forces Model has some major limitations in today’s market environment. It is not able to take into account new business models and the dynamics of markets. The value of Porters model is more that it enables managers to think about the current situation of their industry in a structured, easy-to-understand way – as a starting point for further analysis. One of the improvements of Michael Porter’s Five Forces Model that can be done are for example to combine the model with the other analytical models so as to gain insights in the industry both at macro and micro economical levels. References: Booth, L., Cleary, S., & Drake, P. P. (2014). Corporate finance: (All binding options and ebook version of this text in this edition are acceptable)(1st ed.). Wiley. Investopedia. (2018). Porter's 5 Forces. Retrieved from https://www.investopedi a.com/terms/p/porter.as p Martin, M. (2017, June 26). Porter's Five Forces: Analyzing the Competition. Retrieved from https://www.businessne wsdaily.com/5446porters-five-forces.html Student #1 Yunfeng COLL APSE What are the limitations of Michael Porter’s Five Forces Model? What improvements would you make? Michael Porter’s Five Forces Model is great tool to analysis companies` competition environment. After people use Porter’s Five Forces Model to analysis companies, they can easily go through realizing the company`s supplier power, customer`s buying power, competitive rivalry, threat of substitution and threat of new entry to understand the current position of the companies. However, Porter’s Five Forces Model still has two weaknesses. First, when people analyze the supply powers, they will always find ways to take advantages from suppliers. In fact, because the goal of this kind of model is to minimize company`s cost to get competitive advantages, so it ignores the symbiosis of some corporations. If a company`s suppliers do not can not exist in the market, they can not do business by themselves. For example, when Starbucks punchers coffee beans from famers, they not only aim at buying high quality products but also pay higher amount of money to famers to help both parties achieve a win-win situation, because this kind of strategy is good for both parties to have sustainable management. Second, this kind of model can not analyze emerging market. As matter of fact, even though emerging market have high profit margin because emerging market has high risks and people can not find many references about the new market, people can not analyze the company`s customers buying power and competitive rivalry, so people still can not use Michael Porter’s Five Forces Model to analyze the company. Even though Michael Porter’s Five Forces Model has two limitations, people can still use this kind of model to do analysis. When people face those two kind of limitations, they can combine with other kind of model which include SWOT, Canvas and Camel analysis to avoid those limitations. Week 9 Initial question answer with 300 words min. What factors contribute to an airline’s business risk? Would you consider this risk to be high, moderate, or low? Explain the basis of your assessment. Other students discussions that need responses ( also example on how above question should be answered) Student #1 Nadine What factors contribute to an airline’s business risk? Would you consider this risk to be high, moderate, or low? Explain the basis of your assessment. Operating leverage is the fraction of a company’s costs that are fixed. Firms with a lower fraction of variable costs and a higher fraction of fixed costs have a higher operating leverage, which means many costs can't be scaled down in periods of declining sales. This increases the risk of loss and makes operating profit less predictable. However, operating leverage is not necessarily bad. Though it magnifies losses when sales decline, it can increase profit in periods of sales growth. A business with high operating leverage benefits when sales go up because fixed costs remain the same as revenues increase. The phrase "leveraging fixed costs” refers to getting more production from the same fixed costs. Thus, a company with higher leverage generates bigger profits during these periods. However, the company must pay those same fixed costs even in a period of declining sales. Therefore, a company with higher operating leverage will experience bigger losses when sales drop. Furthermore, the variance of a company’s operating profit is a measure of its business risk. Many factors contribute to these fluctuations, including changing customer demand, pricing decisions, the positioning of competitors, government regulation, worker productivity and the cost of supplies. Some of these factors are external to the company, while others are the result of management decisions. Operating leverage is one of the largest contributors to business risk that management has the power to control. The airline industry for example exhibits high operating leverage. Their fixed costs include aircraft leases and wages for staff for their routes. These high fixed costs make profit (or loss) extremely sensitive to sales volume. Aside from operating leverage, competition within the industry is very intense. These factors make air travel a tough business that suffers periods chronic losses and sometimes drives airline companies into bankruptcy. References: Booth, L., Cleary, S., & Drake, P. P. (2014). Corporate finance: (All binding options and ebook version of this text in this edition are acceptable)(1st ed.). Wiley. Escalada, J. (2018). Operating Leverage & Business Risk. Retrieved from http://smallbusiness.chron.com/ operating-leverage-business-risk71952.html Student #2 Yunfeng 1. Oil price (low) 2. Government policy (high) 3.Customer service (moderate) In my opinion, every airline companies need to face three kinds of risks. First, because airline company`s veritable cost includes oil cost and international oil price aways change everyday, so the changes of oil price can be considered in one of important risks for the companies (Macrotrends, 2018). Second, government policies should be another risk for airline businesses. Recently, Chinese government launched new policy which request every foreign airline company acknowledge Taiwan should be a part of Chinese territory. If airline company do not follow the policy, Chinese government will not allow airline company continually doing business in China (Chan, 2018). Third, bad customer service could affect the company`s reputation. Because United Airline had really bad customer service in 2017, it causes customer got injury, so the company`s reputation is very bad and it causes the company`s ticket price is very low (Channick, 2017). If airline companies do not find a way to control those three risks, those risk will cause the companies a lot of problems. The reason why I believe the risk of oil price change is very low is that even though the increase of oil price will cause the company`s cost increase, the company still can go through increase ticket price to avoid this risks. On the other hand, Government policy plays an important role to affect the business management. After government launch new policies which can affect the whole airline industry, airline companies must find correct strategies to reply the policies, because this risk could directly impacts if the companies can continue do business in the country. In the end, because airline companies want to go through providing high quality customer service to increase the price of their tickets, when they do this kind of business, they should know the risk, so this risk is moderate. Reference Channick, R. (2017). United scores lowest among legacy airlines in customer satisfaction; JetBlue tops survey. In Chicago Tribune. Retrieved May 31, 2018, from http://www.chicagotribune.com/business/ct-airline-passenger-satisfaction-0426-biz20170425-story.html Chan, T. (2018). China wants to dictate how foreign airlines refer to Taiwan and the US is having none of it — this is how every major airline is responding. In Business Insider. Retrieved May 31, 2018, from http://www.businessinsider.com/what-do-airlines-call-taiwan-china2018-5 Macrotrends. (2018). Crude Oil Prices - 70 Year Historical Chart. In Macrotrends. Retrieved May 31, 2018, from http://www.macrotrends.net/1369/crude-oil-price-history-chart

Tutor Answer

Raphael_M54
School: UT Austin

Hello! The final answers are ready. If you need anything changed or added, let me know.

Responses
Week 6
Discussion 1
Hello Nadine!
I found your post to be very insightful. I agree with you that interest charged periodically
helps depository institutions avoid a lot of risks. The institutions cannot predict the future rates
effectively. By using fixed interest rates on long-term debt, the institutions face the risk of losing
a lot of money. The institutions take the issue of changing rates seriously and mitigate them
through the use of periodic charges based on the current interest rates. It ensures that there is no
loss of funds which could affect operations within the organization. Therefore, the goals for the
institutions are to lock in a spread, mitigate risks and not to depend on the interest rates
movements as you stated.

Discussion 2
Hello Yunfeng!
I really enjoyed reading your post. I agree that it is important for the institutions to value
the worth of the money they currently have more than what they have tomorrow. Therefore, the
consideration of cost, profits, risks and demands is paramount to the institutions to consider
when lending. Changes in inflation and federal fund rates are ever changing and could affect all
the aforementioned considerations in different ways. The changes are uncontrollable risks which
will affect the institution negatively. Through the use of periodic changes, the banks are able to

control these risks and ensure that they do not get out of hand. They can monitor the risks and
ensure that they do not affect them in a negative manner in the long run.

Week 8
Discussion 1
Hello Nadine!
I enjoyed reading your post on Michael Porter’s Five Forces Model. The model is very
effective and has helped many institutions conduct business over the years. However, there are
several limitations that the framework still presents. Some of the limitations I agree with are the
assumption of classic perfect markets, its focus on simple market structures, assumption of static
market structures and its focus on competition. Also, I believe that the model is ineffective when
used on an organizational level rather than analyzing the whole industry. Globalization also
presents a challenge since it’s not easy to keep tra...

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Review

Anonymous
Wow this is really good.... didn't expect it. Sweet!!!!

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