The Jones Bank Ltd has two departments. (a) a pension fund department, which invests money on behalf of clients and customers, by investing in bonds, shares and so on. (b) a merchant bank department, one of whose clients is the prestigious and dynamic Sampson and Brown Ltd, which is to offer a new tranche of shares to the investment community. Identify the potential conflict of interest between department (a) and department (b)

The Jones Bank Ltd has two departments. (a) a pension fund department, which invests money on behalf of clients and customers, by investing in bonds, shares and so on. (b) a merchant bank department, one of whose clients is the prestigious and dynamic Sampson and Brown Ltd, which is to offer a new tranche of shares to the investment community. Identify the potential conflict of interest between department (a) and department (b)

Business/Professional Ethics Directors/Executives/Acct

8th Edition

ISBN:9781337485913

Author:BROOKS

Publisher:BROOKS

Chapter8: Subprime Lending Fiasco-ethics Issues

Section: Chapter Questions

Problem 7.2EC

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he Jones Bank Ltd has two departments. a) a pension fund department, which invests money on behalf of clients and customers, by investing in bonds, shares and so on. b) a merchant bank department, one of whose clients is the prestigious and dynamic Sampson and Brown Ltd, which is to offer a new tranche of shares to the investment community. Required: Identify the potential conflict of interest. DISCUSSION In times of recession, it is the banks who ultimately decide whether a particular business survives or fails. There is a widespread view that banks should support small businesses come what may, as not to do so would be socially irresponsible. Give reasons for and against this view.
The board of a major bank is discussing their investment appraisal methodology as they have a new project under consideration. They have agreed that using the CAPM approach is sensible as they feel it likely that most of their shareholders have a well-diversified shareholding in the stock market as a whole. There has been some dispute about which risks constitutes specific risks in the bank and which risks are more systematic in nature partly driven by the nature of the bank's operations. Equally, no one seems quite sure what the required return derived from the CAPM formula actually represents. The finance director has produced the following data relating to the bank itself, the financial market and the new project it is considering: Data Required return on existing debt, 6.0% Cost of existing debt to the bank, 4.8% Return on short-dated gov secur's, 5.2% Return in the stock market (index), 12.8% Equity beta of the bank (levered), 1.35 Beta of the new project, 1.52 Asset beta of the…
The board of a major bank is discussing their investment appraisal methodology as they have a new project under consideration. They have agreed that using the CAPM approach is sensible as they feel it likely that most of their shareholders have a well-diversified shareholding in the stock market as a whole. There has been some dispute about which risks constitutes specific risks in the bank and which risks are more systematic in nature partly driven by the nature of the bank’s operations. Equally, no one seems quite sure what the required return derived from the CAPM formula actually represents. The finance director has produced the following data relating to the bank itself, the financial market and the new project it is considering: Data Required return on existing debt, 6.0% Cost of existing debt to the bank, 4.8% Return on short-dated gov secur’s, 5.2% Return in the stock market (index), 12.8% Equity beta of the bank (levered), 1.35 Beta of the new project, 1.52 Asset beta of…
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