Banks have a reserve requirement, which is set by the fed. A reserve requirement is the minimum percentage of a bank’s total reserves that they are required to keep, for security reasons. (Schiller) The fed can change the reserve requirement to allow a bank to loan more/less money, which is used to control the economy. Many critics use this to determine that annual deficit spending has a negative impact on the economic stability of our country. The fed has to set a lower reserve requirement, which allows banks to loan out more money, which generates more interest, which could lead to periods of inflation and could have worse consequences if the government does not react quickly enough.
1. Why did accounting fraud occur at WorldCom? There were a number of reasons that led to the occurrence of accounting fraud at WorldCom but the main reason was to boost up the price of the WorldCom stock amid a slowdown in the telecommunications industry. As Bernard J. Ebbers, Chief Executive Officer, declared in 1997, “Our goal is not to capture market share or be global. Our goal is to be the No.
A powerful European banking agency could end the incestuous relationship between banks and regulators, while interfering much less with nations’ sovereignty than dictating their fiscal policies. Second, Europe needs eurobonds. The introduction of the euro was supposed to reinforce convergence; in fact it created divergences, with widely differing levels of indebtedness and competitiveness. If heavily indebted countries have to pay heavy risk premiums, their debt becomes unsustainable. That is now happening.
Loosening of Credit Proponents of negative interest rates suggest that when financial intermediaries choose between paying for deposits and receiving income from loans, they will choose the latter. In turn, businesses benefit from this greater amount of credit. Japanisation of the Eurozone However, we mustn’t lose sight of why this proposal is being mooted – to stave off the Eurozone’s deflationary issue. As such, will negative interest rates stem the tide? The answer to this question is simply not clear, but it primarily depends upon expectations of future inflation.
3) Consolidate debt. If a firm decreases the number of debt holders, it may be able to decrease the direct costs of bankruptcy should the firm become insolvent. 6. There are two major sources of the agency costs of equity: 1) Shirking. Managers with small equity holdings have a tendency to reduce their work effort, thereby hurting both the debt holders and outside equity holders.
The effects of a fall in consumer wealth will be to reduce confidence and consumer spending; equity withdrawal will slow down sharply – this has been a significant contributor to increasing AD in UK). Therefore, falling house prices will cause a fall in AD and is likely to cause a recession. This occurred in 1991 and 1992 when falling house prices caused a recession 2. Reduce House Price Volatility To prevent a house price crash, in the future, the government needs to reduce house price volatility and speculation. For example, the government could try these policies Encourage Fixed Rate Mortgages – Makes mortgages less sensitive to interest rate changes.
Strategic environment 1. Macro environment Political factor: In 1999, the Gramm-Leach-Bliley Financial Services Modernization Act repealed the Glass-Steagall Act which prohibited a bank from offering investment, commercial banking and insurance services. This revolution provided a legal basis for the diversified financial companies as well as the formation of the financial services industry. The Act promoted the one-stop financial solutions to the customers, saving both money and time. However, there existed huge technological and cultural challenges in the combination of banking, insurance and investment.
I conclude that although the abuse of the profession by investment institutions aggravated the financial crisis, accounting cannot be said to be a root cause. Second, I look at the potential of accounting to help with the resolution of the financial crisis. I argue that by enhancing the accounting standards and acting to eliminate weaknesses therein, accounting can play a significant role in aiding the global economy to recover. Several allegations have been made against the accounting profession, accusing it of precipitating the financial crisis. Of these, I believe two in particular depict the role of accounting in the financial crisis, these being the effects of fair values and the overly complex (and thus allegedly detrimental) nature of financial reporting.
In addition to that, the IMF looks at declines in real per-capita world GDP along with several global macroeconomic factors before confirming a global recession. “ There are several ways in which the monetary and fiscal policy have changed in Singapore to cope with the world downturn. Although the Singapore’s economic strategy was very efficient the GDP growth have slowed in the last 10 years. Other monetary and financial policy were improving the energy efficiency and offering more support to smaller business and those who need trade financing. On the other hand the post-world downturn outlook for Singapore included the risk of slower global growth.
Legality Financial reporting activities and standards Earnings management has been used as the manipulation of the current standard of financial reporting established by G.A.A.P. Earnings management is when companies inflate their earnings or revenues. We have seen this with WorldCom who altered capital expenditures instead of expensing them. Waste Management also did this when it extended the useful life of its trash trucks. Materiality is defined by the FASB as an omission that would affect a normal person by a misstatement such as using earnings management to skew the true earnings or revenue.