1. Banking Business In order to understand how the governance of RBS influenced the performance of the bank in the period 2000-2008, the fundamental incentives and responsibilities of banks in general must be known. Banks are financial institutions that are licensed to be the receiver of deposits (Investopedia). RBS is by foundation a commercial bank and is thus mainly concerned with management of deposits as well as supply of loans to individuals. In return, the bank uses the deposits for lending activities to earn a profit.
The Federal Reserve keeps control of the nations money supply. (Schiller) They provide currency to banks who loan out all of their money in order to generate interest. Banks loan out their money(excess reserves) in order to generate interest which earns them a profit. These banks would then be taxed by the government which finances the government. Banks have a reserve requirement, which is set by the fed.
The accounting techniques used to influence Enron’s financial statements were a combination of many different complex tactics. The first tactic was using ghost companies (SPEs) which they would transfer money to and from and different banks which would issue these ghost company loans(Cahan, 2009). The end result was an extraordinarily complex set of financial statements which disguised the loans as cash flow, using their “independent SPEs” to incur Enron’s losses on paper and “create” profits. “Mark to market” allowed it to increase the value of present assets held by the company (e.g., long -term contracts for the sale of energy) by estimating future market prices (Joseph, 2003). Enron, as a public company that was faced pressure from outside, market pressures and sources of governance.
When examining the balance sheet of a typical company you would see categories such as inventory, accounts payable, or accounts receivable, in a commercial bank balance sheet under assets you would find areas like loans and investments, and under liabilities you would find categories such as deposits and borrowings. This is a large factor in which separates the final statements of commercial banks and the final statements of your everyday company. Commercial banks accept various types of deposits from their clients; they then provide those funds to borrowers such as homeowners and small businesses, in which they can receive interest on these loans. They gain profit from the difference between the rate they pay for funds and the rate that they receive from the borrowers. The goal of the bank is to create a flow of funds so from the many deposits, the bank can lend out to a wide variety of borrowers and this creates the flow of funds, which is crucial in the banking system.
Accrual basis accounting is used by the large businesses in the United States, Canada, and in most foreign countries for the statements is prepared according to the generally accepted accounting principle (GAAP). Most businesses use the accrual statements like the GAAP to get loans from banks and get a better focus on the company’s business for the future. So the accrual accounting is necessary for small companies and a private company that what to focus on their outlook for the future. Some company’s prefers not to use the accrual basis for it is costly and some do use it for it shows the loss and profit of the
Identify the possible causes of conflict which may arise in this situation. A cause of conflict would be that it is not fair on the taxpayer because they do not have say in the company; this is because they only own a minority share. The taxpayers are giving their money to bail out the banks and in return they may not receive a sufficient return on their share. Once again the taxpayer is being forced to bail out a major bank without it being in the interest of the taxpayer. This links in with an argument from shadow chancellor Ed Balls who claims that Nick Clegg’s proposal has not been thoroughly thought through, because it is not in the long-term interests of the taxpayer.
For consumers, interest rates represent the available funds they are willing to borrow to satisfy today’s needs. For businesses they represent the cost of borrowing money to invest in the growth of a company. Interest rates affect the economy. As the Fed raises or lowers short-term interest rates, banks may raise or lower the interest rates they charge borrowers, including the prime rate (Northrop Grumman, 2009). Changes in the prime rate may affect the whole economy.
Cost of capital can help define the acceptability of investment opportunities. Besides, the cost of capital can scheme the corporate finance arrangement. Generally, the best way for designing the corporate finance structure is based on information of changing of the capital market. So, manager can figure out information like accounting reports and their cost of capital to market. By using the information, manager can use cost of capital for restructure the market price and earning per share in order to bring advantage for company.
To go public is defined as the process of selling ownership in a company to the public. And the companies use investment banks to raise money by selling shares of stock to investors so that the company can then use the money to grow their operations. Pros Going public is a quick way for a company to get access to a lot of money. The benefits of going public are that it raises money from the company and makes it easier for employees to cash in and out of their shares. There are several main advantages of going public.
The article “The Cashless Society Almost Here and With Some Very Sinister Implications” contends that the government is currently setting in place a global disaster that will push us into a cashless society. How would a cashless economy be different from our paper money and coin system? The author, Patrick Henningsen, demonstrates that the world as we know it will be dramatically different. The ease of electronic systems has made using paper money unpopular. While swiping your credit card at your local retailer seems like a good idea, there is a much deeper implication of a cashless society.