The National Credit Rating Agency downgraded the credit rating of Grand Limited by two levels from BB to B+. The credit rating agency was concerned about the company’s ability to refinance portions of its debt. Both B and B+ are considered “junk” bonds and are below the BBB−category, which is the lowest grade that many pension and mutual funds are allowed to hold. a)Discuss whether the credit rating agency is a stakeholder from Grand’s perspective. b)Discuss any bias that Grand might have when it issues its financial statements.
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The National Credit Rating Agency downgraded the credit rating of Grand Limited by two levels from BB to B+. The credit rating agency was concerned about the company’s ability to refinance portions of its debt. Both B and B+ are considered “junk” bonds and are below the BBB−category, which is the lowest grade that many pension and mutual funds are allowed to hold. a)Discuss whether the credit rating agency is a stakeholder from Grand’s perspective. b)Discuss any bias that Grand might have when it issues its financial statements.
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- Which of the following regulatory restrictions is uniquely applicable for "critically undercapitalized" banks: OA. Cannot accept broker-placed deposits without regulatory approval O & Will be placed into conservatorship or receivership if it its capital level is not increased within a certain time limit. OC. Must have a Tier 1 to risk adjusted assets ratio of at least 3%. OD. Faces no significant regulatory restrictions O E. Has limits on dividends and management fees it is allowed to pay and limits on the maximum asset growth rate among other restrictionsSergei Leenid, CFA, is a long-only fi xed income portfolio manager for the Parliament Funds.He has developed a quantitative model, based on fi nancial statement data, to predict changesin the credit ratings assigned to corporate bond issues. Before applying the model, Leenid fi rstperforms a screening process to exclude bonds that fail to meet certain criteria relative to theircredit rating. Existing holdings that fail to pass the initial screen are individually reviewed forpotential disposition. Bonds that pass the screening process are evaluated using the quantitative model to identify potential rating changes.Leenid is concerned that a pending change in accounting rules could aff ect the results ofthe initial screening process. One current screen excludes bonds when the fi nancial leverage ratio (equity multiplier) exceeds a given level and/or the interest coverage ratio falls below a givenlevel for a given bond rating. For example, any “A” rated bond of a company with a fi nancial…Washington Mutual was a US Bank which went bankrupt at the end of 2008 due to a number of risk management issues. Read the case noted in the link below and answer the following questions: https://www.thebalancemoney.com/washington-mutual-how-wamu-went-bankrupt-3305620 A. Explain credit risk from an individual and a loan portfolio management perspective and discuss how they relate to this case. B. Demonstrate how the credit risk management issue(s) in the Washington Mutual case can be resolved through the application of a risk management model. C. Discuss how this model can mitigate future credit risk issues for Washington Mutual. The following will apply: • The document should be presented in a format that covers all the requirements above and in a format that is presentable. • Ensure that you write each question then write your answer that correspond below each question. Your essay should also include an introduction and a conclusion.
- a). Companies pay rating agencies to rate their bonds, and the costs can be substantial. However, companies are not required to have their bonds rated in the first place; doing so is strictly voluntary. So, why do they do it? b). Do bond ratings agencies have any conflict of interest when they rate bonds? Clearly explain your answer.You are required to identify and give reasons for the appropriate classification of the debt instruments A and B below: Part A.Macaroon holds certain debt investments to collect their contractual cash flows of interest and principle. The funding needs of the company are predictable and the maturity of such financial assets is matched to Macaroon’s estimated funding needs. Macaroon performs credit risk management activities with the objective of minimising credit losses.In the past, Macaroon has sold some of its debt investments when the credit risk of the financial assets increased beyond the acceptable levels of risk as documented in the company’s investment policy. In addition, infrequent sales have occurred as a result of unanticipated funding needs. The managers reports to key management personnel focus on the credit quality of the financial assets and the contractual return. Part B.Macaroon holds certain debt investments with specified contractual cash flows of interest and…Washington Mutual was a US Bank which went bankrupt at the end of 2008 due to a number of risk management issues. Read the case noted in the link below and answer the following questions: https://www.thebalancemoney.com/washington-mutual-how-wamu-went-bankrupt-3305620 Explain credit risk from an individual and a loan portfolio management perspective and discuss how it relates to this case.
- The following accounts receivable information pertains to Growth Markets LLC. What is the total uncollectible estimated bad debt for Growth Markets LLC?171.One of the elements addressed in the Dodd-Frank bill was authority over nonbank financial institutions that face bankruptcy. A)True B)False 172.The Dodd-Frank bill established the Consumer Financial Protection Bureau to help consumers understand the financial impact of Social Security. A)True B)False 173.Explain the trade-off between rate of return and liquidity. How do banks affect the trade-off? 174.What is maturity transformation? Explain the difference between maturity transformation by depository banks and by shadow banks. 175.Explain how shadow banks, which don't take deposits, can have bank runs. 176.Explain the two main causes of banking crises. 177.What caused the banking crises in the 1990s in Finland, Sweden, and Japan? 178.Describe the financial contagion that occurred during the Irish banking crisis in 2008. 179.Why are banking-crisis recessions so bad? 180.Explain the difference…Fallen Company commonly issues long-term notes payable to its various lenders. Fallen has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Fallen has elected to use the fair value option for the long-term notes issued to Barclay's Bank and has the following data related to the carrying and fair value for these notes. Any changes in fair value are due to changes in market rates, not credit risk. Carrying Value 0000 Fair Value December 31, 2020 $54,00000 $54,00000 December 31, 2021 44,00000 42,50000 December 31, 2022 36,00000 38,00000 Instructions a. Prepare the journal entry at December 31 (Fallen's year-end) for 2020, 2021, and 2022, to record the fair value option for these notes. b. At what amount will the note be reported on Fallen's 2021 balance sheet? c. What is the effect of recording the fair value option on these notes on Fallen's 2022 income? d. Assuming that…
- Match the terms in the left-hand column below with the descriptions on the right. 1. Percentage of credit sales method a. Required to recognize bad debt under GAAP 2. Direct write-off method b. Estimate of bad debt expense based on the age of outstanding receivables 3. Allowance method c. Estimate of bad debt based on credit sales 4. Percentage of accounts receivable method d. Required to recognize bad debt under tax lawAccording to IFRS 9, explain how Lawson should deal with (i) the expected credit loss and (ii) the interest revenue in respect of the above mentioned bond investment held by Martin Company.Which of the following is NOT true? swaps (CDS) and collateralized debt obligations (CDO), later identified as two instruments that played a major role in the market failure of 2008. The Dodd Frank Act bans risky proprietary trading activities Under the Dodd Frank Act, a large financial institution can hold lower capital reserves because it has better reputation than a small financial institution. Under the Dodd Frank Act, a central bank will not tolerate TBTF and will fail large banks in a future crisis. The Dodd Frank Act provides finance customers protection.