FINANCIAL INSTITUTIONS

FINANCIAL INSTITUTIONS

Case study 1.

Question 1.

The five C’s of credit

1. Capacity

Creditors should be confident that the debtor has the potential to pay back the loan based on the sum and terms offered. For business-loan transactions, the financial institution checks the firm’s past cash flow reports to assess how much revenue is anticipated from operations. Personal investors provide comprehensive details on the income they earn and the quality of their jobs. Capacity is often calculated by comparing the number and sum of debt payments currently incurred by the creditor against the amount of revenue or sales anticipated every month. In this particular case, Ultratech company is in a position of paying back their loan since they have assets that are either financed on a long term basis and others on a short term basis. This makes them be in a better position to pay their loan.

2. Capital

Lenders frequently analyze the amount of capital of the debtor when assessing their creditworthiness. Assets for a company-loan application comprises of private investment in the firm, dividend payments, and other resources under the management of the owner of the company. For private-loan applications, capital consists of deposits or balances of the interest-bearing account. The borrowers see money as an alternative way of repaying the outstanding debt if income or revenue is disrupted when the loan is still being repaid. In the case, Ultratech company has a massive amount of capital, and this will help them in paying back their mortgage.

3. Conditions

Factors apply to the loan terms given, and any other economic situation that may impact the debtor. Business borrowers evaluate factors like the relative strength of the economy as a whole and the intent of the loan. Funding for operating capital, machinery, or growth is common causes for business loan applications. Although these criteria appear to refer primarily to corporate applicants, individual borrowers are often assessed for their need for debt relief. Prevalent factors include home improvement, debt restructuring, or the funding of significant purchases. Ultratech company needs to fulfill all the necessary conditions, like giving out their securities and signing off their contracts.

4. Character

Character relates to the credibility or background of the creditor in financial affairs. The old saying that the previous action is the best indicator of future actions is one that lenders devoutly adhere to. Each one has its formula or methodology for assessing the character, fairness, and reliability of the debtor, but this evaluation typically requires both theoretical and practical approaches (Plata-Díaz, 2019). The more analytical include examining the educational record of the borrower and the background of employment, contacting personal and business references, and performing a formal interview with the creditor. More rigorous approaches include the analysis of the claimant’s credit history or ranking.

5. Collateral

Financial assets guaranteed by the debtor as a loan guarantee are recognized as a security. Company borrowers might use machinery or receivables to obtain a loan, whereas personal borrowers also contribute cash, a car, or home as security. Claims for a personal loan are more beneficial than those for an auto loan as the creditor will recover the asset if the borrower avoids paying the mortgage. Banks assess collateral empirically by its valuation and qualitatively by the perceived ease of insolvency.

Question 2.

1. As a financial expert, I will recommend for the loan since the company clearly shows that they are capable of paying back their loans, and from the previous loan history, they have paid all the creditors.
2. Factors that Ultratech company should consider are;
3. They should consider the terms of repaying the loan

Think about how long the funding plan has been designed to last. Lengthier loans can construct up a considerable sum of interest over some time, but narrower-term loans may require more considerable periodic compensation (Plata-Díaz, 2019). Remember the size of the annual bonus and how much you have to pay. Always take into consideration the proportion of each payment to interest and principal; look for loans with a more significant portion to capital to reduce the overall lengthy-term expense.

1. The interest rates

Before making any choice, add all the expenses associated with each funding process. Widespread borrowing expenses involve the rate of interest, initiation fees, and agent fees. Financing by investment will bear a lot of different costs.

For instance, money from venture capital might not be expected to be returned for years. By this point, the investor might anticipate being paid at a considerable amount of money at once. Financing via stock sales can result in a change in leadership and a shift in planned focus.

• Necessities of the lender financing

they should Consider the specific conditions imposed on applicants by each creditor and debtor. Pursue grants from sources that you adequately fulfill. Popular lending criteria contain criteria for credit ratings and necessary measures for financial ratios, like debt-to-equity or interest-to-equity ratios. Review the conditions imposed on the borrowers with separate creditors before the preparation of the mortgage application kit.

1. The extra financing requirements

If you’re talking about funding your company by savings, look at all the implications of your choice before moving forward. Private investors also demand a shareholding in a company, which they plan to repurchase at a certain amount after some time of fast growth. Moreover, unless you repurchase the ownership interest, the shareholder will have a great deal of impact on management and economic choices (Pénicaud, 2019). Selling shares to fund a corporation has its own set of critical factors, including the risk of losing management power in the future and being the target of a takeover by a more prominent company.

1. The necessity for control

By relinquishing part ownership of your company, you are, to some degree, relinquishing control. To ensure that they can still outsource all other shareholders, most company owners will maintain 51 percent control of the company while selling the remainder 49 percent. If you need to have total or essential power of your company, be convinced to reduce the number of assets that you ended up spreading.

1. Borrowing necessities

There are a variety of different items that borrowers can look at when determining whether to grant a loan. In contrast to an overall financial background check, lenders would also like to see some hard data on the article. Variables they may weigh include several issues as your equity-to-equity ratios, your fixed fee expenditures, your general business strategy, and a variety of others. Such criteria can also be rigorous, which is why the company needs to prepare its funding strategy in advance.

• The present business structures

Another aspect that influences the opportunity cost of debt (or issuing equity) is the market framework. For instance, if the company is officially organized as a corporation, this can hinder the selling of investment. If you are looking to obtain your equity capital by government means like the sale of international market shares, you will need to declare your company a public company officially.

Case study 2

Question 3.

1. The best option for investment for Ahmed is that he can invest directly in the dividend-payingg stocks shareholders who are confident spending their money straight into securities, as compared to investments in investment funds, may build a daily revenue stream by purchasing in earnings-paying stocks. Well-established companies listed on the New York Stock Exchange also pay unvarying dividends. Carbon or financial firms also pay a high profit, as do public services. Once you choose your investments well, you will enjoy the best of all worlds: daily dividends reviews and a significant rise in stock prices.
2. The best option for Saeed to invest in is on the real estate A choice for establishing an annual income stream is to invest in property investment rental homes. This requires significant cash in advance, and you must be able to manage the property at a professional standard. You do have the option of hiring an agent to manage the assets, but this will reduce your profits. It is also necessary to have a friend who handles land management. Although mortgage interest will add up to your income, you do have the option to sell the property for substantial profit if the economy is good for sales.

Question 4.

1. The best option for investment for Adil is investing in a sole proprietor business. Since Adil is an employee from a private sector, he will be in a better position to take care of his business.
2. The net present value that Zamsam needs to deposit

NPV= FV/(1+r) ^n

NPV= 25,000/ (1+5%) ^5

NPV= 25000/1.276

NPV=RO 19,588

1. Investment in treasury funds in the USA of debts like bonds and bills.

Case study 3.

Question 5.

The formula for yield on treasury bill

(FV-PP)/FV*T

= (100-99.6)/100*(360/182)

=0.004*1.978

=0.0079

Question 6.

The monetary and fiscal policy tools can be used to prevent the spread of COVID-19; the infection is transmitted by the current coronavirus. The economic policy may only play a small role in the temporary, as the binding limitations are more on the technical side. The task is to provide the right incentives for companies, as well as support for federal agencies, to perform research, investigate medicines, and develop vaccines. All this expenditure is necessary, existential and costly, but still low in macro and discretionary terms, less than 1% of the GDP.

Case study 4.

Question 7.

1. The financing options for Muscat contracting company is the equipment financing Once you collect a loan from your company, your creditor must finance the entire purchasing price of your company. After making a small down payment of between 10% and 20%, you will take ownership of the machinery and quickly put it into operation (Karjaluoto, 2019). Then you will make planned payouts to your creditor, which will be implemented to the consistency of your mortgage (and to any extra interest and fees levied for trying to take the loan). With a good credit score, you could be eligible for $0 down funding. Nonetheless, if at all necessary, you can make a down payment to reduce your planned expenses and reduce the total cost of borrowing.
2. The traditional services that commercial banks can offer companies when they engage in international trade include;

• Distinct banking — Banks usually provide a variety of services to help people handle their finance.
• Commercial banking — Many banks provide banking services to company owners who have to distinguish between personal and professional finances.
• Online banking — The ability to manage your money remotely of your desktop, laptop, or mobile is becoming increasingly relevant to customers. Financial institutions will usually provide online business services.
• Loans; Mortgages are a popular banking service supplied and come in all different shapes and sizes. Some specific forms of loans issued by banks involve like personal loans.

Question 8.

1. Future value in a period of 6 years

FV= PV*(1+r) ^n

FV= 400,000*(1+5.5%) ^6

FV=400,000*1.3788

FV= 551,537.123

Geotech manufacturing company will receive RO551,537.123 at the end of the six years.

1. NPV= FV/(1+r) ^n

FV= RO400,000

R= 7%

N=10 years

NPV= 400,000/ (1+7%) ^10

NPV= 400,000/1.9672

The bond value is RO203,334.69. I would recommend purchasing the bond since it will appreciate it after some time.

Question 9.

1. The formula for calculating yield is

(FV-PP)/FV*T

FV= RO400,000

PP= RO399,850

T= 100 Days

(400,000-399,850)/400,000*(360/100)

150/400,000

=0.000375*3.6

= 0.00135

The yield on the commercial paper is RO0.00135

Since there is an offer of 7.5% on the deposits, then it is worth to buy the commercial paper offered by the Mazoon dairy products.

1. The real rate of return

(1+nominal rate)/ (1+inflation rate)-1

(1+7%)/ (1+2.5%)-1

1.07/1.025= 1.0439

1.0439-1

=0.0439%

=R05,000*0.0439

=R0219.51

Question 10.

I would advise George to invest his money in the form of shares since the surplus funds are invested in capital markets. Places where investments and savings are directed amongst vendors that have resources who need money. Entities with capital involve commercial and corporate investors, whereas those seeking capital are corporations, states, and individuals. Financial markets are made up of primary and secondary markets (Kozina, 2019). The two rising capital markets are the equity and bond markets. Financial markets tend to increase the quality of transactions. Financial markets bring together all of the who possess capital as well as those who pursue money and to provide a place where companies can trade securities. Financial markets are made up of providers and consumers of funds. Suppliers include individuals and organizations that support them retirement funds, insurance firms, charitable organizations, and anti-financial corporations that raise cash above their investing requirements.

Fund consumers include home and vehicle buyers, semi-financial businesses, and states that fund infrastructure construction and operating costs. Financial markets are being used to sell financial products, like equity and debt instruments. Capital is a stock that is a shareholding in a company (Hirnissa, 2020). Debt instruments, such as shares, are debt-bearing instruments. Such markets are classified into two separate categories: main markets where current equity and bond products are offered to shareholders and international markets that trade established securities. Financial markets are a vital part of a working capitalist economy since they transfer money from other people who have had it who needs it for constructive use.

References

Hirnissa, M. T., Zariyawati, M. A., & Fadilla, R. (2020). EXPLORATORY STUDY ON DETERMINANTS OF PROBLEM LOAN AMONG NON-BANK FINANCIAL INSTITUTION. Academia Industry Networks (002911676-U) Kajang, Selangor, Malaysia, 66.

Kozina, M., & Dusper, D. (2019). Assessing the Maturity of the Customer Experience Management: The Case of Financial Institution. In Central European Conference on Information and Intelligent Systems (pp. 233-240). Faculty of Organization and Informatics Varazdin.

Karjaluoto, H., Shaikh, A. A., Saarijärvi, H., & Saraniemi, S. (2019). How perceived value drives the use of mobile financial services apps. International Journal of Information Management, 47, 252-261.

Pénicaud, C., & Katakam, A. (2019). State of the Industry 2013: Mobile Financial Services for the unbanked. Gates Open Res, 3.

Plata-Díaz, A. M., de la Higuera-Molina, E. J., Garrido-Rodríguez, J. C., & Zafra-Gómez, J. L. (2019). Contracting out and social services: responses to the austerity machine, financial condition and political parties. Administration & Society, 51(6), 951-990.