Bush the usa signed the sarbanes-oxley act

Discuss the reasons why the Cruickshank Report was ordered and the main findings of the report. The word count for this element should.

1. Estimates of unemployment for the upcoming year have been developed as follows:

Calculate the expected unemployment rate and the standard deviation.

• AssumingNewBank’s target ROE is 5%, how much net fee income must it generate to meet this target?

• After making payments for three years, one of the mortgage borrowers defaults on the mortgage. NewBank immediately takes possession of the house and sells it at auctionfor $175,000. Legal fees amount to $25,000. If no loan loss reserve was established for the mortgage loans, how is this event recorded?

2. The following is an extract from an article published on November, 21st 2016 on the U.S. News website: "Of all the possible 2017 IPOs, a public offering from ride-hailing giant Uber, valued at nearly $70 billion, would doubtlessly be the biggest of the year. Uber CEO Travis Kalanick has spoken of pushing back an Uber IPO for as long as possible, but a recent merger of Uber China with bitter Chinese rival Didi Chuxing could pave the way for a 2017 offering. This makes a 2017 IPO more likely since China was a huge profit suck for Uber. Still,Uber lost over $1.2 billion in the first half of 2016. "Uber needs to get expenses and losses under control quickly," says K C Ma, professor of finance at Stetson University."

Discuss the reasons for and against an investor subscribing Uber's shares if and when the company decide to seek a stock market listing. The word count for this element should.

A Bank manager is setting targets for the upcoming weeks about the amount of Savings deposits it needs to raise. The Bank's current balance sheet includes the following items:

Assuming the manager wants a duration gap of 4.00 years, what level of Saving Accounts should the bank raise? Calculate in approximate $mill and assume that any difference between assets and liabilities is held as cash (duration = 0).

3. A bond portfolio manager administers a $100 million portfolio. The portfolio currently has
   a duration of 6.5 years. The manager wants to shorten the duration to 5 years using T-bill futures. T-bill futures have a duration of 0.3 years and are trading at $990 (face value =$1,000). How can the fund manager achieve this objective?

4. In 2002, following the bankruptcy of Enron, the United States introduced the Sarbanes-Oxley Act, commonly referred to as SOX. Discuss the aims, main requirements and penalties contained in the Act.  The word count for this element should be 450-550 words

• money transaction systems;

• personal banking services;

• to put in place the right institutional incentives;

• to deliver effective competition scrutiny;

1. Services to Personal Customers.

In this category, investigation was done into saving products, current accounts, mortgages, personal loans and credit cards.

• Will the things change for the better in future?

Unfortunately, the answer to the first question was a unified ‘no’ for all the three categories. Money transaction services were being conducted in the UK through many unregulated networks, most of which were being controlled by the few large banks were also dominating the services to personal customers and SMEs.

Current Situation

Currently, checking accounts are number one liability for a bank because the bank owes this money to the customer. This is the reason why checking accounts are being paid lower interest rate and have become the cheapest fund source for banks.

• Time Deposits are large denomination accounts whose value exceeds $100,000. Investors can sell such time deposits through the secondary markets even before their maturity and are an alternative to T-Bills.

Current Situation

Now, borrowings are not categorised as deposit accounts. Banks are at liberty to borrow from the Federal Reserve or even from other banks. 

Bank Capital

Investment banking sector, in the current global scenario is on a tight leash and cannot say that it is business as usual. This is no longer the option available to the investment banking industry as times have changed drastically: there is a growing interest in utilities, digital technologies and the ecosystems, as investment banks all over the world are looking beyond their own perimeters and are trying to accelerate creation of new capabilities, (Cch, 2013). Broadly, the challenges being faced by investment banks include –

Macroeconomic Risk

Of all the urgent concerns, an outdated IT system is the most significant concern for the global investment banker. An investment banker’s inability in investing securely in an agile system which can enhance the digital and mobile banking, can result in a significant loss when confronted with the risk of a cyber theft. According to industry experts, reports the Operational Risk & Regulation Magazine, the burden created by multiple legacy systems because of mergers in some banks has already started causing problems of authority. Investment banks are also facing serious competition from various disruptive innovators who have come to the position of providing their customers with seamless information across a variety of channels, (Cch, 2013).

Criminality: Cyber Attacks

Standard deviation is the square root of variance. To calculate standard deviation, it is required to first calculate the variance and then take its square root.

The Standard Deviation formula is –

x (with a bar over it) = the arithmetic mean of the data

N = the total number of data points

σ = √[ (30-14.5)^2 + (18-14.5)^2 + (8-14.5)^2 + (2-14.5)^2 / 4 ]

σ = √[ (15.5)^2 + (3.5)^2 + (-6.5)^2 + (-12.5)^2 / 4]

The standard deviation is 10.55

Answer: 2(b)

Net Income of NewBank for its first month of operations is 0.75% simple interest which the bank earns on the commercial loan of $25 million. The Average Total Assets are taken as the average of the (beginning Total Assets at the start of the relevant period + ending Total Assets at the end of the relevant period) / 2. In the case of first month of NewBank, the opening total assets and the ending total assets are same, hence the average will remain the same as the total assets. Hence,

ROA = Net Income for first month / Total Assets

ROE = Net Income / Average Stockholder equity

Net Income of NewBank for its first month of operations is 0.75% simple interest which the bank earns on the commercial loan of $25 million. The Average Stockholder Equity is taken as the average of the (beginning Total Stockholder Equity at the start of the relevant period + ending Total Stockholder Equity at the end of the relevant period) / 2. In the case of first month of NewBank, the opening Stockholder Equity and the ending Stockholder Equity is same, hence the average will remain the same as the total Stockholder Equity. Hence,

In case NewBank wishes to fulfil its target of 5% ROE on the basis of its existing Shareholder Equity, then working on the formula shown above, NewBank will have to achieve the following Net Income for a month –

ROE = Net Income / Average Stockholder equity

At the end of third year of mortgage, each mortgage will have a balance of $238,845.62. This will mean that each mortgage has paid $11,154.38 towards its outstanding. Hence, the total mortgage outstanding at the end of third year will be $23,884,562. The Balance Sheet of NewBank at the end of three years of operations, after settling the case of the default mortgage, will be

Answer: 2(c)

Relatives and friends, having surplus funds may be willing to lend money for the venture or may even take up an equity stake in the company.

• Small Business Administration (SBA)

In case the promoter has a credit card, it can build in line of credit. Although, this option is one of the costliest ways for financing the company, under exceptional circumstances a promoter can use them as a source of finance for a start-up business.

• Leasing Companies

Under certain conditions, vendors and suppliers may become willing to sell the material to the business on credit.

• Small Business Investment Centers (SBICs)

Investment bankers take stakes in companies which are in the public domain. This option is only available to those small businesses which possess a strong growth history and have a strong growth potential.

• Private Placement

In case I wanted to invest the lottery amount of $2,275 received by me on 15 Jan 2017 into the next available IPO, I will have the option of choosing from four IPOs which were offered to public on 26 and 27 of Jan 2017. The details of my earnings from them are sown in the table below.

Table – 02: Income from IPO’s from Issue Date to 03/24/2017

On the downside, Uber is facing three challenges. First, Uber’s fleet size is dependent on the size its rental car companies. Second, the renting process is under regulatory threats. Third, use of credit card in certain sectors is posing a financial challenge. On the first point, Uber is being pushed into a corner by those companies from whom it rents cars on large scale. On the second point, the rental companies are not adhering to the law of the land and the regulators are black listing Uber as it is the licensed holder for providing the cab service to the users. On the third point, credit card penetration in most of the countries is low and slow and Uber cannot be forced to close the option and go for cash payments only although other companies are open to the cash option, Uber will have to bring in this additional option for customers, especially in the developing countries where customers need a ride amidst the inadequate public transportation, (Barkoczy et al, 2010).

Fleet Scarcity Downsizing Uber’s Business

However, experts are of opinion that Uber can make a difference in two areas, where they believe Uber will be able to alter the landscape of the cab industry in the developing countries. On the driver front, Uber is raising the driver compensation by 30% in 2016. Secondly, Uber is bringing up utilisation (utilisation is defined as the percentage of fleet that is out on the road) and occupancy (occupancy is the percentage of distance travelled with a passenger in the vehicle) assumptions to 73% and 52% for 2016, respectively. Thirdly, Uber is planning to delay the tariff increase due to a weaker economy in most developing countries till the second half of 2016. Uber has so far implemented only about half of the tariff increase officially sanctioned to it and is keeping the option of raising tariffs by 13% in case it becomes necessary to do so.

Answer: 3(c)

Operational Risk

Operational risk is defined by the Bank for International Settlements (BIS) as the risk of losses which result either from inadequate or from failed internal processes, people or systems or from any unavoidable external events. Although operational risk includes legal risk, it excludes any strategic or reputation risk. Operational risk widely occurs in banks because of human errors or technology mishaps. An operational risk can be the incorrect information filled in while clearing a check by an employee or leaking of confidential information because of malfunction in the system, (Barkoczy et al, 2010).

P = monthly payment

L = Loan amount

P = 250000*[0.00291*2.3910] / [2.3910-1)]

P = 1,250.50

P = 1,307.40

The Principal amount payment at this stage will be $829.12 per month, hence the interest income will be $478.28 per month.

Answer: 4(c)

The basic difference between Hedging and Speculation is that the former is a means of reducing risk, whereas the latter is involved in intentionally taking a risk for making a profit. 

Speculation is the process of buying and selling of an asset by incorporating considerable risk, in the hope of generating good returns due an anticipated change in the price level of the asset. Speculators look for opportunities in order to make huge profits, by taking advantage of the fluctuations in the price of the financial asset. The asset may be a stock, bond, commodity, currency, derivative or any other tradable item. A speculator will not trade in a random investment but would take a calculated and analysed risk. The risk may result in bearing the loss of initial outlay in a futures contract or it may turn into rewards, (Barkoczy et al, 2010).

Key Differences Between Hedging and Speculation

4. Hedgers are risk averse, who secure their investments by the hedging process. Speculators, being risk lovers, take deliberate risks and are responsible for providing liquidity to the market.

Conclusion

In this case study, the mortgage is initially done at 6% and after 4 months, the rate changes to 6.65%. In the first four months, the bank earns interest amount of $24,540 if the interest rate is 6.00%. Now, if the interest rate is increased by 65 basis points, the interest earning in the four months will become $27,216. Hence, the bank makes a loss of $2,676.

Answer: 5(b)

Answer: 5(d)

Aims of the Act

• To substantially increase the liability of the company’s management and other concerned officials, for violations committed regarding federal securities laws.

• To delegate additional responsibilities on attorneys for reporting securities law violations and any conflicts of interest.

• PCAOB will establish standards for audit quality control, independence, ethics and any other similar standards and rules which are related with the preparation of audit reports for public companies.

• PCAOB will inspect, investigate and also enforce compliances that are related to the registered public accounting firms and their associated persons, as well as the obligations and liabilities of the accountants.

• The report complies fully with the requirements given under Section 13(a) or 15(d) of the SE Act of 1934.

• Information contained in the report presents in a fair manner all material aspects, financial conditions and results about the operations of the company.

Barkoczy, S. (2013). Foundations of Taxation Law. (5^th ed.). North Ryde, NSW: CCH Australia Limited.

Barkoczy, S., Rider, C., Baring, J. and Bellamy, N. (2010). Australian tax casebook. (10th ed.). North Ryde, NSW: CCH Australia.