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International Finance

International Finance. Global Financial Crisis are Implications of Ethical Dilemmas in Practice By Tahsen Alqatawni. Derivative (1 of 2) .

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International Finance

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  1. International Finance Global Financial Crisis are Implications of Ethical Dilemmas in Practice By Tahsen Alqatawni

  2. Derivative(1 of 2) A derivative is a financial instrument that derives or gets it value from other financial instrument (a bond, a currency or a commodity or stock) that is known as the 'underlying' instrument (Cutland, 2013).

  3. Derivative(2 of 2) • Since the early 90s, the globalizations are accelerating. This caused the world economy to serious structural shifts. These issues arise during increasing of competitive pressure. During that period, featured a lo of new financial instruments and the most important one it is the financial derivatives. • “trading in derivatives is a zero sum game: One derivatives trader’s gain is necessarily balanced by another’s loss”(Heinemann, 2011).

  4. Common Financial Derivatives (1 of 6) • Option: The purchaser of an Option has rights with out any obligations to buy or sell the asset during a given time for a specified price.

  5. Common Financial Derivatives (2 of 6) • Forward Contract: is a non-standardized contract between two parties. whoever, they are obligated to trade a security or other asset at a specified date in the future. • Future contract: is standardized, transferable, exchange-traded contract to buy or sell a standard quantity and quality of an asset or security at a specified date and price.

  6. Common Financial Derivatives (3 of 6) • Stripped Mortgage-Backed Securities (CMBS): A stripped mortgage that are split into principal-only strips and interest-only strips, which based in cash flow that derives exclusively from interest payments or principal payments on the underlying mortgages (De Rossi, 2010).

  7. Common Financial Derivatives (4 of 6) • A Swap: is the simultaneous buying and selling of the same security or obligation (e.g. Fixed-for-floating rate swap). The opposite of plain vanilla options are exotic options, which are more complex than the components of a traditional financial instrument (Borak, 2013).

  8. Common Financial Derivatives (5 of 6) • Structured Notes are hybrid combine of debt instruments and derivative elements that include several financial products, which not necessarily reflect the risk of the issuer. "The combination allows parties to identify, isolate, transfer, and otherwise manipulate risk in clearly defined ways"(Telpner, 2004). “Structured notes are beware of Wall Street’s latest 'safe' investment”( Revell, 2011).

  9. Common Financial Derivatives (6 of 6) • A hedge fund is a private investment vehicle target very wealthy investors, that promise great rewards. Whoever it may also use leverage, which present great risk and the huge potential rewards. "Hedge funds employ instruments such as derivatives to gamble with their clients“ (Whalen, 2007). In 2010, Allen stated “Hedge Funds Accused of Gambling with Lives of the Poorest as Food Prices Soar”.

  10. The Ugly Face of Derivatives (1 of 1) • The Financial derivatives turned into a source of gambling or risk taking, and expansion to very large volume. • According to the bank for international settlements (BIS)the volume of these derivatives increased by more than three times in the past few years(2011).

  11. Background(1 of 1) The current global financial crisis, it is result of unethical practices of the companies' leaders and their financial management “the existing issue came to be the determination of the blameful for disaster and financial managers, which act with their immoderate selfishness, and greediness was suspect of putting the global economic on the brink of an abyss” (Akif, 2011). Many unethical issues were arising during this crisis, such as they are putting shareholder wealth and small investor at risk.

  12. Unethical Dilemmas in Derivatives Practice(1 of 3) • The greed and selfishness are the most important characteristics of most financial managers. It was observing lack of ethics. • the financial company pushed the prudence and ethics aside as greed overcame good judgment among mortgage lenders nationwide. • The lack of a qualified ethical analysis is the major reasons of financial management mistakes (Heinemann, 2011).

  13. Unethical Dilemmas in Derivatives Practice (2 of 3) • Adopt a situational view of morality result of the modern economy, requires that we choose the course of action that maximizes instant profits, and supports any decision that maximizes individual financial profit (Russell, 2012).

  14. Unethical Dilemmas in Derivatives Practice (3 of 3) • When the economies are growth, ethics are seeing as an unimportant issue like luxury goods. However, at times when economic and financial crises happen the ethical issues turn out to be one of the most significant topics at the first item on the agenda (Akif, 2011).

  15. Annotated Bibliography(1 of 10) Akif, M. (2011). Global Financial Crisis from an Ethical Perspective. Research Journal of InternatıonalStudıes-Issue, 82. The author discussed how the unethical finance practice created the global economic crisis. In addition, the study explored the unethical issues were arising during this crisis, such as they are putting shareholder wealth and small investor at risk. The author suggested the solution for it would require a new mentality change of investor and financial mangers. Therefore, a part of solution lies in the formation of heavier arrangements.

  16. Annotated Bibliography(2 of 10) Allen, K. (2010). Hedge funds accused of gambling with lives of the poorest as food prices soar. The Guardian, 19. The article discussed how the growing role of hedge funds and banks in the commodities markets in 2010, during which time some of core the commodities price had fluctuated dramatically. Whoever, the author assumed Financial speculators had come under resumed fire from anti-poverty campaigners for their gamble on food prices. 

  17. Annotated Bibliography(3 of 10) Helleiner, E. (2011). Understanding the 2007-2008 global financial crisis: Lessons for scholars of international political economy. Annual Review of Political Science, 14, 67-87. The author discussed the global financial crisis economists explanation, and a reference to several market and regulatory failures as well as a macro-economic environment of poor credit during the précis's period. In addition, the role of global capital flows in fueling the U.S. financial bubble. Whoever, the economists accurately identified many of the risks associated with new models of securitization, as well as attending regulatory failures and the politics underlying them.

  18. Annotated Bibliography(4 of 10) Russell, K., Dortch, M., Gordon, R., & Conrad, C. (2012). Ethical Dilemmas in the Financial Industry. Case Studies in Organizational Communication: Ethical Perspectives and Practices, 35. The author discussed the financial derivatives and responsibility, and how to deal ethically with financial risk. In addition, the study tries determined who is responsible for the risks generated on financial markets, and which aggregate level of financial risk does the  society have to carry. The study assumed the lack of a qualified ethical analysis is the major reasons of financial management mistakes.

  19. Annotated Bibliography(5 of 10) Heinemann, S. (2011). Financial Derivatives and Responsibility–How to Deal Ethically With Financial Risk. Finance & Bien Commun, (1), 45-56. The author discussed the financial derivatives and responsibility, and how to deal ethically with financial risk. In addition, the study tries determined who is responsible for the risks generated on financial markets, and which aggregate level of financial risk does the  society have to carry. The study assumed the lack of a qualified ethical analysis is the major reasons of financial management mistakes.

  20. Annotated Bibliography(6 of 10) Carrigan, M., & De Pelsmacker, P. (2009). Will ethical consumers sustain their values in the global credit crunch?. International Marketing Review, 26(6), 674-687. The study explores the impact the global recession had upon customers and marketers, and recognizes the evidence envelope concerns that the demand for ethical outputs will decline across global markets as the recession deepens. In addition, the author offers a balanced perspective on the importance of ethical consumers to global marketers. The study highlights a number of threats and opportunities that exist in the modern global recession, and the discussion illustrated with different examples of successful marketing ethics in action.

  21. Annotated Bibliography(7 of 10) Karaibrahimoğlu, Y. Z. (2010). Corporate social responsibility in times of financial crisis. Afr. J. Bus. Manage, 4(4), 382-389. The study examined the effects of the global financial crisis on the number and size of CSR projects, and why they failed to balance the expectations of relevant parties. Therefore, the author explored the reasons make the organizations choose not to engage in CSR projects. the study examined 100 randomly-sampled global companies. The study result found that there is a significant decline in numbers and extent of CSR projects in times of the global financial crisis..

  22. Annotated Bibliography(8 of 10) Lewis, V., Kay, K. D., Kelso, C., & Larson, J. (2010). Was the 2008 financial crisis caused by a lack of corporate ethics?. Global Journal of Business Research, 4(2), 77-84. The purpose study to answer the specific question that: was the 2008 Financial Crisis Caused by a Lack of Corporate Ethics?. the study discussed the unethical lending practices by major lending institutions, which destroyed the U.S financial markets, and eventually all major world markets. The author discussed how the financial company pushed the prudence and ethics aside as greed overcame good judgment among mortgage lenders nationwide, and how this company sold the crooked loans to inexperienced buyers.

  23. Annotated Bibliography(9 of 10) Friedman, H., & Friedman, L. (2009). The global financial crisis of 2008: what went wrong?. Available at SSRN 1356193. The purpose study to answer the specific question that: was the global financial crisis of 2008: what went wrong?. However, the author discussed how the entire world learned important lessons from this financial meltdown, and unethical action has many consequences on all financial world. The author explained how This debacle could not have take place if the parties involved had been socially honest and not driven by greed.

  24. Annotated Bibliography(10 of 10) Giannarakis, G., & Theotokas, I. (2011). The effect of financial crisis in corporate social responsibility performance. International Journal of Marketing Studies, 3(1), p2. The study discussed the effect of the financial crisis in Corporate Social Responsibility, and conducted an empirical analysis based on companies that implement Global Report Initiatives (GRI) reporting guidelines modifying the application level in a point score system. in addition, the study discussed the CSR performance and financial report during the financial crisis.

  25. References(1 of 4) Akif, M. (2011). Global Financial Crisis from an Ethical Perspective.  Research Journal of InternatıonalStudıes-Issue, 82. Allen, K. (2010). Hedge funds accused of gambling with lives of the poorest as food prices soar. The Guardian, 19. BIS, (2012). Semiannual OTC derivatives statistics at end June 2011. Bank for international settlements. Retrieved from:  http://www.bis.org/statistics/derstats.htm Borak, S., Härdle, W. K., & López-Cabrera, B. (2013). Exotic Options. InStatisticsof Financial Markets (pp. 101-118). Springer Berlin Heidelberg.

  26. References(2 of 4) Cutland, N. J., & Roux, A. (2013). Derivative Pricing and Hedging. In Derivative Pricing in Discrete Time (pp. 1-9). Springer London. De Rossi, G., & Vargiolu, T. (2010). Optimal prepayment and default rules for mortgage-backed securities. Decisions in Economics and Finance, 33(1), 23-47. Heinemann, S. (2011). Financial Derivatives and Responsibility–How to Deal Ethically With Financial Risk. Finance & Bien Commun, (1), 45-56.

  27. References(3 of 4) Revell, J. ( 2011, August 30). Structured notes: Beware Wall Street's latest investment. Retrieved from http://money.cnn.com/2011/08/29/pf/structured_notes_beware.fortune/ind ex.htm Russell, K., Dortch, M., Gordon, R., & Conrad, C. (2012). Ethical Dilemmas in the Financial Industry. Case Studies in Organizational Communication: Ethical Perspectives and Practices, 35. Telpner, J. S. (2004). A survey of structured notes. The Journal of Structured Finance, 9(4), 6-20.

  28. References(4 of 4) Whalen, R. C., & Mallaby, S. (2007). Risk-Return Profile. Foreign Affairs, 86(3), 162-164. THE END

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