Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

ASSIGNMENT –PART 1

A.I.G. is often called the largest insurance entity in the world. A.I.G.’s total assets were $860 billion on 12/31/2008 (dwarfing any other insurance entity) with 116,000 employees, operating in 130 countries, with 71 U.S. based insurance companies, and 176 other companies representing non U.S. insurers and other financial services. Many regulatory issues are raised by A.I.G.’s structure: regulatory arbitrage in its multitude of companies and countries and its selection of a Gramm-Leach-Bliley regulator; its extreme unregulated systemic risk; and its complete lack of regulation of certain “insurance-like” components.

Review the paper titled: On the Financial Regulation of Insurance Companies written by Viral V. Acharya, John Biggs, Mathew Richardson and Stephen Ryan and answer the following problems. It is also strongly suggested you complete additional reading as is relvevant.

1. describe A.I.G’s business model and structure and why it was considered a systemic risk?

2. Identify and discuss the major factors which led to the failure of A.I.G.

3. describe how moral hazard and adverse selection materialized during the financial failure of A.I.G?

4. How did A.I.G and monoline insurers aid commercial and investment banks in avoiding capital adequacy requirements?

Assignment –part 2

Lehman Brothers Holdings was a global financial services firm which, until declaring bankruptcy in 2008, participated in business in investment banking, equity and fixedincome sales, research and trading, investment management, private equity, and private banking. On September 15, 2008, the firm filed for Chapter 11 bankruptcy protection following a technical run and a significant devaluation of its assets by credit rating agencies. Previously valued at over $60 per share, Lehman was now being traded in pennies. Your reading and research on the failure of the Lehman group would help you to answer the problems below and understand substantive reason for financial regulation.

1. Identify and discuss the weakness in Lehman’s governance practices.

a. What was the quality of the reporting to the Board by management;

b. What was Lehman’s treatment of internal limits and risk management mechanisms in an attempt to boost profitability?

2. What is leverage? Was Lehman leverage ratio consistent with that considered safe by regulators? What prevented Lehman from being able to safely and quickly deleverage?

3. List and discuss the financial events led to the erosion of Lehman’s capital base?

4. Define stress testing. What weaknesses & unusual practices were identified as it relates to Lehman’s stress testing.

The answers to both parts combined should not exceed 1500 words. Please provide answer written and bound on the date of presentation. No changes allowed once the presentation and discussions have taken place. Please provide answer written and bound on the date of presentation –October 28th no changes allowed once the presentation and discussions have taken place.

1. Why did the Federal Reserve rescue A.I.G but allowed Lehman Brothers to fail?

2. Does the rescue of institutions labeled ‘too big too fail’:

a. Strengthen the longer-term stability of financial services sector? If so how?

b. Encourage excessive risk-taking in the knowledge of an implicit ‘safety net’? If so describe why?

3. Discuss Lehman’s rationale for not hedging the illiquid aspects of its portfolio that were a result of its growth strategy.

4. Describe the business model of origination and distribution of mortgages. Discuss inherent risks brought by this model to Lehman, especially in light of the origination of subprime assets.

5. Discuss the im pact that Lehman’s compensation policies had on its subsequent failure.

6. How did Lehman’s liquidity challenges impact its capital adequacy position?

7. Define moral hazard and adverse selection?

8. Did A.I.G have any concentration risk? If so identify the type of concentration.
What impact can concentration risk potentially play in the solvency and liquidity of a financial institution? How does the A.I.G paper define systemic risk?

9. How did the subprime mortgage market impact A.I.G?

10. Define Counterparty Risk. Give 3 exs of how the Banking system is interconnected.

11. Define and describe Credit Default Swaps.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M92037

Have any Question? 


Related Questions in Basic Finance

1 what is the basic objective in a logistics design and

1. What is the basic objective in a logistics design and analysis study? Is it normally a one-time activity? 2. What is sensitivity analysis, and what is its role in systems design and analysis? 3. Why is it important to ...

1 how many teams of five students each can be formed in a

1. How many teams of five students each can be formed in a class of 15 students? 2. Calculate 4C 2 and 5C 3 . 3. If you are offered $20 to draw a red ball from a bag that contains six green balls, two blue balls, and two ...

1 why is it possible to consider anova as a special case of

1. Why is it possible to consider ANOVA as a special case of regression? 2. Give an example of when simultaneous, hierarchical, and stepwise multiple regression analyses might be used in research. 3. How is a log linear ...

Briefly explain whether you agree with the following

Briefly explain whether you agree with the following statements: a. "A bank that expects interest rates to increase in the future will want to hold more rate-sensitive assets and fewer rate-sensitive liabilities." b. "A ...

Answer the following questions as they relate to implied

Answer the following questions as they relate to implied volatilities. a. Can implied volatilities be expected to vary for options on the same stock with the same exercise prices but different expirations? b. Can implied ...

By introducing personal taxes into the model for capital

By introducing personal taxes into the model for capital structure choice, how did Miller alter the previous M&M conclusion that 100 percent debt is optimal? What happens to the gains from leverage if personal tax rates ...

A company is planning to add extra capacity to a plant

A company is planning to add extra capacity to a plant currently manufacturing 110 000 items per year. After an accurate sales forecast over the next few years, one is quite sure that the most likely value of the annual ...

In planning this course we first wanted to cover financial

In planning this course, we first wanted to cover financial topics that are important to virtually anyone. This week's final chapters go on to discuss corporate concepts of WACC, NPV, IRR and working capital decisions an ...

1 what concerns should an investor in a real estate

1. What concerns should an investor in a real estate syndication have regarding general partners? 2. What is the main difference between organizing a real estate venture as a corporation versus a general partnership? How ...

1 according to readygov what are the three basic steps

1. According to Ready.Gov, what are the three basic steps people can take to prepare for any type of disaster? 2. What are the seven key elements that can be used to measure the comprehensive nature of an evacuation plan ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro