Financial Analysis Final Project Spring 2021

Financial Analysis Final Project Spring 2021

Financial Analysis Final Project Spring 2021 Final Assignment description:

This comprehensive project enables you to apply numerous concepts regarding banking and financial services discussed throughout the module and apply them directly to real world situation. (2,000 words)

TASK 1 (1,200 words) 60 marks

A diversified financial conglomerate has four units (subsidiaries), with each unit focussing on its own specialisation:

 Insurance Operations

 Consulting for pension funds (managing long-term bond portfolios for some pension funds)

 Mutual fund operations

 Commercial bank operations

As a financial analyst for the conglomerate’s holding company based in the U.S., you have been asked to assess all of the units and to indicate how each unit will be affected as economic

conditions change, as well as which units will be most affected.

In the past few months, all economic indicators have been signalling the possibility of a recession. Stock prices have already declined, as the demand for stocks has decreased

significantly. It appears that a pessimistic outlook will last for at least a few months. The trading volume of stocks is expected to decline. Economic conditions are already somewhat stagnant and are expected to deteriorate further in future months. Thus, long-term interest rates will likely decline. During the next few months, firms will not consider mergers, new stock issues, or new bond issues.

Answer these questions:

1. Identify the units that will be less adversely affected by the recession. You believe that

the units’ different characteristics will cause some of them to be affected to a more

significant extent than others are.

(20 marks)

2. Consider the typical sources and uses of funds at each unit. Explain the risk of each type

of operations based on its typical sources and uses of funds.

(20 marks)

3. How would recent, existing or potential regulations affect each unit’s performance?

(20 marks)

TASK 2 (800 words) 40 marks

Answer only one of the following:

1. Obtain a life insurance quotation using the online website of your choice. Fill in information about you (or a family member or friend) and obtain a quotation for a £350,000 / $500,000 life insurance policy (or equivalent of your local currency).

• What are the monthly and annual premiums for the various term lengths? (5 marks)
• Next, leaving all other information unchanged, change your gender. Are the premiums the same or different? Should they be the same? (5 marks)

• How would different risk factors affect the insurance premium?(10 marks)

• What are the benefits and drawbacks of risk pricing? (20 marks)

2. Go to the website of the California Public Employees Retirement System www.calpers.ca.gov/page/investments. Answer the following questions:

• How are the fund’s assets allocated? What is the fund’s current market value? (5 marks)

• Look at the fund’s most recent investment report. What is the fund’s rate of return? Has its rate of return increased or decreased in the last year? What caused the changes? (10 marks)

• What is the fund’s philosophy of corporate governance? What governance actions has it taken recently? (10 marks)

• Assume that the pension fund is currently underfunded. As a consultant to this fund, you have been asked to search for solutions to prevent underfunding in the future. Explain your recommendations. (15 marks)

3. Assess today’s mutual fund performance using the website www.bloomberg.com/ or an alternative website on mutual funds.

• What is the best-performing mutual fund for this year to date (YTD)? What is the net asset value (NAV) of this fund? (10 marks)

• What is the five-year return on this fund? Compare this mutual fund’s performance with the industry norm? (10 marks)

• What reason is given for the particular level of performance? (10 marks)

• Do you think mutual fund rankings change frequently? Why or why not? (10 marks)

4. Summarize an article in the Financial Times or alternative source that discussed a recent change in managerial strategy by a particular commercial bank.

• Describe the change in managerial strategy. (10 marks)

• How will the bank’s balance sheet be affected by this change? (10 marks)

• How will the bank’s potential return and risk be affected? (10 marks)

• Based on the article and your further research, what are the reasons for the bank’s decision to change its strategy? (10 marks)

5. Refer to the ‘Simple Deposit Multiplier Model’ and the transmission mechanism of monetary policy, answer the following questions:

• You read a story in the press that there are growing fears of a credit crunch. What impact might this have in terms of the simple deposit multiplier? (10 marks)
• Low interest rates may, or may not, signal that a central bank is pursuing an “expansionary” policy. Do you agree or disagree with this statement? Explain your answer. (10 marks)
• In early 2016 as the Bank of Japan began to push policy interest rates negative, there was a sharp increase in sales for homes in Japan. Why might this be, and what does it mean for the effectiveness of negative interest rate policy? (20 marks)

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