Banking and finance assignment
1.1 Identify the following characteristics of the debt issuance:
I) Principal amount offered to the public SGD100 million
II) Interest rate 3.8% per annum
III) Payment arrears Semi-annual
IV) Number of years the debt will be active 10 years
1.2 Calculate the following financial ratios:
I) Current ratio Current Asset / Current Liabilities 1816593 / 365758 = 4.97
ii) Quick ratio Current assets – Inventory (0) / current liabilities 1816593 – 0 / 365758 = 4.97
iii) Interest coverage ratio EBIT / Interest Charges 127528 / 25603 = 4.98 iv) Return on equity (ROE) Net profit after Tax / Shareholder 's Equity 548938 / 5888230 = 0.09
1.3 Based on the ratios you have calculated in 1.2, discuss whether you would lend money to the issuer. A healthy current and quick ratio indicate that the company(s) is financially sound and we should assume going concern and that its funds are very liquid. A 4.98 interest coverage ratio suggests that the company(s) should have no problem paying interest payments and fulfilling the loan. Although the ROE is weak, as a lender, we are not concerned with the profits of the shareholders, but simply if the company(s) can repay the loan and interest charges.
2. Provide a concise summary of the causes of the 1997 Asian financial crisis and the resulting damages. Students are advised to link concepts taught in class to their answer.
Strong growth was typical of economies in the South East Asian region in the years leading up to the currency crisis (Mckinnon 1997). Significant increases in stock and land prices in the region fueled foreign investments and lending, creating an economic boom. This lasted until the mid-1990s when growing competition and a weakening Japanese yen slowed economic growth and reduced asset prices (Moreno 1998). These events triggered collapsing currencies starting with the Thai baht.
I) Principal amount offered to the public SGD100 million
II) Interest rate 3.8% per annum
III) Payment arrears Semi-annual
IV) Number of years the debt will be active 10 years
1.2 Calculate the following financial ratios:
I) Current ratio Current Asset / Current Liabilities 1816593 / 365758 = 4.97
ii) Quick ratio Current assets – Inventory (0) / current liabilities 1816593 – 0 / 365758 = 4.97
iii) Interest coverage ratio EBIT / Interest Charges 127528 / 25603 = 4.98 iv) Return on equity (ROE) Net profit after Tax / Shareholder 's Equity 548938 / 5888230 = 0.09
1.3 Based on the ratios you have calculated in 1.2, discuss whether you would lend money to the issuer. A healthy current and quick ratio indicate that the company(s) is financially sound and we should assume going concern and that its funds are very liquid. A 4.98 interest coverage ratio suggests that the company(s) should have no problem paying interest payments and fulfilling the loan. Although the ROE is weak, as a lender, we are not concerned with the profits of the shareholders, but simply if the company(s) can repay the loan and interest charges.
2. Provide a concise summary of the causes of the 1997 Asian financial crisis and the resulting damages. Students are advised to link concepts taught in class to their answer.
Strong growth was typical of economies in the South East Asian region in the years leading up to the currency crisis (Mckinnon 1997). Significant increases in stock and land prices in the region fueled foreign investments and lending, creating an economic boom. This lasted until the mid-1990s when growing competition and a weakening Japanese yen slowed economic growth and reduced asset prices (Moreno 1998). These events triggered collapsing currencies starting with the Thai baht.
References: Ariff, Mohamed. Abubakar, Syarisa Yanti. 1999. The Malaysian Financial Crisis: Economic Impact and Recovery Prospects. 417-38 The Developing Economies. XXXVII-4 Casu, Barbara Chiodo, Abbigail J. Owyang, Michael T. 2002. A Case Study of a Currency Crisis: The Russian Default of 1998. The Federal Reserve Bank of St. Louis. Holley, David. 1997. Philippine Peso Succumbs to Weight of Thai Devaluation. Currency Exchanges. Los Angeles Times. Ito, Takatoshi. 1999. Japan and the Asian Financial Crisis: The role of Financial Supervision in Restoring Growth. Working Paper Series Vol.99-10. Jin, Ngiam Kee. 2000. Coping with the Asian Financial Crisis: The Singapore Experience. Institute of Southeast Asian Studies. ISSN 0219-3582 Mckinnon, Ronald Moreno, R. 1998. Responding to Asia 's crises, Economic Letter, No. 98-33, San Francisco: Federal Reserve Bank of San Francisco. Moreno, R. 1998. What Caused East Asia 's Financial Crisis?, Economic Letter, No. 98-24, San Francisco: Federal Reserve Bank of San Francisco. Nasa 'a, Marwa Al. Chan, Jessica. Lewis-Beck, Colin. 1999. Indonesia. University of Michigan Purdey, Jemma The University of Hong Kong. 2001. Asian Financial Crisis: Causes and Development. Hong Kong Institute of Economics and Business Strategy. ISBN 962-86056-1-5 U.S Securities and Exchange Commission Wolfe, Kathy. 1998 Strikes erupt against next phase of crisis. News article. EIR Volume 25, Number 23, June 5 1998. Zang, Malina Poshtova. 1998. Dow plunges 512 points: Historic losses wipe out market 's gains for 1998 as global turmoil mounts. CNN Money, News article. Markets and Stocks.