Ethical dilemmas are everywhere in finance Research Paper

Ethical dilemmas are everywhere in finance - Research Paper Example An interesting aspect of this dilemma is to understand what is considered ethical and what is not. Finance by its very nature propagates the theory of maximization of profits. Why would anyone culminate a financial transaction if there was nothing to gain out of it? Now to decide how much to earn and by what means to earn is the most interesting facet of this dilemma. In theory, an organization is considered to be an entity that works for the benefit of its shareholders. The employees of the firm are thus assumed to be the representatives of this entity. They work on the various financial models to look for avenues which have minimum risk and maximum return. The financial theory also states that people are averse to taking risk. Hence, an investment in a risky proposition would mean that the investor is expecting an above average return. Riskier the proposition, higher the return expected. But the amount of risk to be taken is something that the investor needs to understand. Another concept in financial management is that of the Net Present Value (NPV). A firm should invest only in those assets or projects which have a positive NPV. All these concepts are interlinked with the fact that ethical dilemmas will continue to haunt the stakeholders at all points of decision making while running an organization. The various theories of finance can tell what the best options to maximize returns are, but ethics relate to the means that are used to achieve those ends. This is the most important aspect of this topic. The figures used in finance require an ethical basis to produce positive and sustainable results. Let us see how this dilemma exists in the present market. Discussion of Financial irregularities that lead to the recent global crisis (Kolb 2010) One of the stark examples of financial irregularity and unethical activities can be seen in the recent financial crisis of 2008 which is considered to be the biggest financial depression since the depression of 1930â₠¬â„¢s. This has been attributed to the emergence of complicated financial instruments called CDOs which are traded through investment banks. Investment banks, unlike the normal banks which give out loans and have adequate deposits to cover them, do not need to keep any deposits. They collect all the mortgage backed securities (MBS) and sell them to investors after securitization. Kolb (2010) explains the process of lending that takes place in the mortgage market in the figure below. The figure shows the origin to distribute model (OTD) which was being applied in the industry before the financial crisis occurred. As per this model, the originators of the loans were not there holders unlike in the normal banking loans scenario. Ethical dilemmas at borrower level (Kolb 2010 and Stich n.d) Kolb (2010) observed that most of the borrowers never had any intentions of paying their principal amounts. Ethical issues cropped at all the links in the model. The first level of unethical financial dealing started at the borrowers level itself. In a normal banking scenario a borrower has access to only those loans and interest rates which are commensurate with the risk he has been associated with by the lender ( the banker in this case). However, in the OTD model, the originator of the loan gives the borrower options of varied interest rates and EMI payments by overlooking their actual credit worthiness because the originator is

Coca Cola vs. Pepsi Cola Research Paper Example | Topics and Well Written Essays - 1000 words

Coca Cola vs. Pepsi Cola - Research Paper Example The Company recognizes the cost of postretirement benefits, which consist principally of medical benefits, during employees’ periods of active service. The Coca-Cola Co. is adopting a cash-balance pension plan for new and current employees. Under the cash-balance plan design, employees will receive annual age-heighted credits equal to a percentage of pay. Those credits will start at 3 percent of pay and increase with age. Employees’ cash-balance plan accounts also will be credited with interest. Coca-Cola’s move to a cash-balance plan comes at a time when many major employers are phasing out their defined-benefit plans and offering only defined-contribution plans. But Coca-Cola executives rejected such an approach. Coca-Cola, which last year reported $31.9 billion in operating revenue—up from $28.9 billion in 2007—is the third major employer to adopt a cash-balance plan since 2006, when Congress passed the Pension Protection Act. On the other hand a pension from PepsiCo is an important benefit that can help employees make the most of their retirement years. Add Social Security, any benefits payable from other PepsiCo plans as well as personal savings, and employees have the formula for a sound financial future. To be eligible to participate in a PepsiCo pension plan, one must be either a full-time employee or a part-time employee working at least 1,000 hours in a year at PepsiCo or a subsidiary of PepsiCo that sponsors the plan. The best part about Pepsi’s pension benefit is that it is provided to employees at no cost. Employees do not have to contribute any of their current compensation to receive a pension. There are no payroll deductions from their pay check and there are no out-of-pocket costs to pay. PepsiCo contributes amounts on employee’s behalf to the Plan for their exclusive benefit in accordance with Federal tax law. Measurement of Pension Costs and Obligations The determination of pension costs and ob ligations is based on the attribution of pension benefits to periods of employee service and the use of actuarial assumptions to calculate the present value of such benefits. Actuarial assumptions reflect the time value of money and the probability of payment. The following three key economic assumptions determine pension costs: The discount rate The salary scale The expected long-term rate of return on plan assets Pepsi’s Annual pension and retiree medical expense amounts are principally based on following components: (1) the value of benefits earned by employees for working during the year (service cost), (2) increase in the liability due to the passage of time (interest cost), and (3) other gains and losses as discussed below, reduced by (4) expected return on plan assets for their funded plans. Significant assumptions used to measure Pepsi’s annual pension and retiree medical expense include: the interest rate used to determine the present value of liabilities (dis count rate); certain employee-related factors, such as turnover, retirement age and mortality; for pension expense, the expected return on assets in their funded plans and the rate of salary