 Team Assignment - Cesim SimulationEdgar Dale’s Cone of Experience:  Summary
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Written report: The submission is to be typed and should not exceed five-pages, summarizing your strategies and the experiences that your team have learnt. The page format: single space, Times New Roman with font 12, and a margin of one inch on each side. Please attach your final company's financial reports in an appendix. You are expected to have run a grammar and spelling-checking program through the document before it is submitted. If you do not comply with these basic rules you will receive a penalized mark. Due Date: The project report is due at 11a.m. on Friday 7 November 2014. Assignments are expected to submit in both hard and soft copy to the School of Business Administration’s Faculty Assistant or the lecturer at the Faculty Office.
“Fail to prepare, then prepare to fail”  Market Outlook Practice Round 1: Economy After drifting onward without a clear direction, the economy seems to be on an upward path. This view, shared by the majority of economists, is breathing new life into the wary consumer, and better times seem ahead. Consumer confidence figures have been on an upward trajectory for months now and increasingly positive reports have been flowing in from the SME sector. Key export markets are behind much of the newly found trust in better times; basic materials and IT sectors have been particularly strong. Housing is still expected to remain tepid, but some more attractive housing markets might see price increases. Larger corporations have also shown increasing interest in mergers and acquisitions as more opportunities seem to surface. Transaction flow is expected to increase at least 20 per cent from last year. The currency is expected to appreciate against the US dollar due to consolidating growth prospects. Financial sector The fresh inflow of good news about the economy has not taken the financial sector by surprise; traditional lending and borrowing has been performing admirably for some time. While the previous year was good in terms of overall profitability, this year is expected to be even better. Credit losses are likely to be history very soon. On the investment side neighboring markets, the sources of strong export demand, appear to be attractive target markets; new funds and partnerships can be used to tap into these sources of organic growth. General labor disputes from last year have come ashore the banking sector; banks can expect rising costs and expressive rhetoric from labor organizations who have promised to double down on banks that do not take their personnel issues seriously. Policy actions One matter of great importance to the banking sector has been the ascent of the new regulatory framework. While the key industry groups have spent considerable time and effort in educating the regulatory officials of the needs banks have, some of these wishes have fallen into deaf ears and leaner times lay ahead. Come next few years, banks are required to put up more quality capital to support their base of risky assets. Of additional note are the fresh policy actions by the state to consolidate the expected growth path; a small decrease in the corporate tax rate has been enacted and more importantly, the monetary authority has kept its very accommodative policy stance. Practice Round 2: Economy The hardships from few years ago are really in the distant past now; the stock market has seen new all-time highs and the incumbent party had no troubles securing their seat in power. The strength of the economy has slightly drifted from export markets to the steaming domestic economy. The previous holiday market was stronger than ever with retail sales posting a year-on-year increases of up to 11 per cent. Consumers seems highly confident in the future and this is clearly reflected in the demand for mortgages and consumer loans as households are going after the latest consumer electronics and durable goods with increasing amounts of debt. Housing market is really going strong and is expected to post at least 10 per cent increases after few slow years. FX markets seem to have been worried by inflation rearing its ugly head but measures by the central bank are likely to keep the currency well bid. Financial sector There has been increasing interest in structured products amongst ever broader clientele. Banks, much like a wide range of boutique firms, have brought to the market an influx of new innovations. Some of the elements in these products have really been a hit in marketing and brought new customers to whomever have offered them. Credit losses are expected to be negligible due to the strength of the economy and low unemployment. The strong economy is expected to drive demand for almost all products and services. There appears to be an opportunity to grow robustly with a set of aggressive policies. However, few foreign competitors have recently established presence in the market, which will put some pressure on pricing across the line; increased competition is expected at least in consumer loans and investment services. Policy actions The new administration buoyed by their election success is following on their promises of lower taxes for the working families and new tax incentives for small businesses and aspiring start-ups. Corporate taxes, however, are likely to remain at their current level. Furthermore, the implementation of the new banking regulations will continue and even stricter standards are required this year. One issue of particular importance is the increased emphasis on quality reporting of risk and regulatory issues. This development is partly driven by the significant losses endured by a large US bank when it was uncovered that its risk management practices were not on a solid footing. The CEO said in a statement: “We have a range of models available all of which can be made to give just the answers you want.” The monetary authority has also turned few steps more hawkish and raised key interest rates to tame inflation expectations. In a released statement earlier they said: “In compliance with the mandate to keep long-term price inflation stable, our governing body has decided to raise interest rates by half a percentage point.” Practice Round 3: Economy The booming economy is showing subtly signs of slowing down even though the government has discounted talk of potential grave dangers ahead as nothing but “unsubstantiated rumors”. The key policy makers have pointed to booming real estate market where prices have risen as much 17 per cent this year as a proof of robust economy. On the corporate side, transaction activity has reached new highs; at the start of the year the financial markets welcomed the largest transaction so far as the German industrial conglomerate ABC AG merged with its French competitor. Importantly, these transactions are increasingly financed with elaborate highly leveraged conduits as high-yield markets are very flexible and larger valuations can be afforded to target companies. Transaction flow is expected to increase by at least 30 per cent driven by large and complex cross-border transactions. Financial sector Investments into Asia seem to be the one of the big themes arising this year. Two key trends are supporting this fresh direction in financial markets: firstly, there has been a change in power in China, which after some local geopolitical tensions went smoother than expected, and secondly many of the liberalization measures one day promised but never delivered have now taken steps to becoming reality. Investors are flocking after service providers who provide the best means to get their piece of the action. Developing talent for picking investment in far out Asian markets might not be advisable, but partnerships can be formed with few specialists to deliver best local expertise to customers at home. There has also been discussion on an implementation of a financial market tax levied on all financial transactions. The industry groups are opposing the measure, but the discussions are at a very early stage at this point. Policy actions The monetary authority underwent a change in leadership, and the new governor, Mr. Smith, chosen from amongst a group of highly respected economists and policy makers, has promised not to weaken the growth, now described as somewhat tepid, with too hasty actions. The opposition has exclaimed his actions as irresponsible before the overheating real estate market. FX markets have not ignored these remarks and the currency is expected to depreciate against the US dollar. Furthermore, government and key interest groups have reached a conclusion on talks to impose some new rules on training and education of investment service and product sales representatives and client advisers. Banks are expected to need to significantly raise stakes in this regard in the coming few years as the rules enter force. Round 1: Economy After drifting onward without a clear direction, the economy seems to be on an upward path. This view, shared by the majority of economists, is breathing new life into the wary consumer, and better times seem ahead. Consumer confidence figures have been on an upward trajectory for months now and increasingly positive reports have been flowing in from the SME sector. Key export markets are behind much of the newly found trust in better times; basic materials and IT sectors have been particularly strong. Housing is still expected to remain tepid, but some more attractive housing markets might see price increases. Larger corporations have also shown increasing interest in mergers and acquisitions as more opportunities seem to surface. Transaction flow is expected to increase at least 20 per cent from last year. The currency is expected to appreciate against the US dollar due to consolidating growth prospects. Financial sector The fresh inflow of good news about the economy has not taken the financial sector by surprise; traditional lending and borrowing has been performing admirably for some time. While the previous year was good in terms of overall profitability, this year is expected to be even better. Credit losses are likely to be history very soon. On the investment side neighboring markets, the sources of strong export demand, appear to be attractive target markets; new funds and partnerships can be used to tap into these sources of organic growth. General labor disputes from last year have come ashore the banking sector; banks can expect rising costs and expressive rhetoric from labor organizations who have promised to double down on banks that do not take their personnel issues seriously. Policy actions One matter of great importance to the banking sector has been the ascent of the new regulatory framework. While the key industry groups have spent considerable time and effort in educating the regulatory officials of the needs banks have, some of these wishes have fallen into deaf ears and leaner times lay ahead. Come next few years, banks are required to put up more quality capital to support their base of risky assets. Of additional note are the fresh policy actions by the state to consolidate the expected growth path; a small decrease in the corporate tax rate has been enacted and more importantly, the monetary authority has kept its very accommodative policy stance. Round 2: Economy The hardships from few years ago are really in the distant past now; the stock market has seen new all-time highs and the incumbent party had no troubles securing their seat in power. The strength of the economy has slightly drifted from export markets to the steaming domestic economy. The previous holiday market was stronger than ever with retail sales posting a year-on-year increases of up to 11 per cent. Consumers seems highly confident in the future and this is clearly reflected in the demand for mortgages and consumer loans as households are going after the latest consumer electronics and durable goods with increasing amounts of debt. Housing market is really going strong and is expected to post at least 10 per cent increases after few slow years. FX markets seem to have been worried by inflation rearing its ugly head but measures by the central bank are likely to keep the currency well bid. Financial sector There has been increasing interest in structured products amongst ever broader clientele. Banks, much like a wide range of boutique firms, have brought to the market an influx of new innovations. Some of the elements in these products have really been a hit in marketing and brought new customers to whomever have offered them. Credit losses are expected to be negligible due to the strength of the economy and low unemployment. The strong economy is expected to drive demand for almost all products and services. There appears to be an opportunity to grow robustly with a set of aggressive policies. However, few foreign competitors have recently established presence in the market, which will put some pressure on pricing across the line; increased competition is expected at least in consumer loans and investment services. Policy actions The new administration buoyed by their election success is following on their promises of lower taxes for the working families and new tax incentives for small businesses and aspiring start-ups. Corporate taxes, however, are likely to remain at their current level. Furthermore, the implementation of the new banking regulations will continue and even stricter standards are required this year. One issue of particular importance is the increased emphasis on quality reporting of risk and regulatory issues. This development is partly driven by the significant losses endured by a large US bank when it was uncovered that its risk management practices were not on a solid footing. The CEO said in a statement: “We have a range of models available all of which can be made to give just the answers you want.” The monetary authority has also turned few steps more hawkish and raised key interest rates to tame inflation expectations. In a released statement earlier they said: “In compliance with the mandate to keep long-term price inflation stable, our governing body has decided to raise interest rates by half a percentage point.” Round 3: Economy The booming economy is showing subtly signs of slowing down even though the government has discounted talk of potential grave dangers ahead as nothing but “unsubstantiated rumors”. The key policy makers have pointed to booming real estate market where prices have risen as much 17 per cent this year as a proof of robust economy. On the corporate side, transaction activity has reached new highs; at the start of the year the financial markets welcomed the largest transaction so far as the German industrial conglomerate ABC AG merged with its French competitor. Importantly, these transactions are increasingly financed with elaborate highly leveraged conduits as high-yield markets are very flexible and larger valuations can be afforded to target companies. Transaction flow is expected to increase by at least 30 per cent driven by large and complex cross-border transactions. Financial sector Investments into Asia seem to be the one of the big themes arising this year. Two key trends are supporting this fresh direction in financial markets: firstly, there has been a change in power in China, which after some local geopolitical tensions went smoother than expected, and secondly many of the liberalization measures one day promised but never delivered have now taken steps to becoming reality. Investors are flocking after service providers who provide the best means to get their piece of the action. Developing talent for picking investment in far out Asian markets might not be advisable, but partnerships can be formed with few specialists to deliver best local expertise to customers at home. There has also been discussion on an implementation of a financial market tax levied on all financial transactions. The industry groups are opposing the measure, but the discussions are at a very early stage at this point. Policy actions The monetary authority underwent a change in leadership, and the new governor, Mr. Smith, chosen from amongst a group of highly respected economists and policy makers, has promised not to weaken the growth, now described as somewhat tepid, with too hasty actions. The opposition has exclaimed his actions as irresponsible before the overheating real estate market. FX markets have not ignored these remarks and the currency is expected to depreciate against the US dollar. Furthermore, government and key interest groups have reached a conclusion on talks to impose some new rules on training and education of investment service and product sales representatives and client advisers. Banks are expected to need to significantly raise stakes in this regard in the coming few years as the rules enter force. Round 4: Economy After prosperous growth years, the economy is seeing in troubling signs; many economists are projecting a slight downtick in growth figures, but are nonetheless generally confident of policy-makers ability to steer the economy through a “soft-landing”. Housing prices are set to decline after year of solid gains that brought much hoped for spending power to consumers. They key metropolitan areas are still expected to hold previous year’s gains but some overheated local market might suffer declines. Financial sector The soft patch in the economy has raised some fears of possible credit losses that might mount in the near future. Industry observers are talking about emphasizing caution in lending decisions whereas banks themselves have been assuring the market of their robust balance sheets. Particular emphasis have lately been put on the troubles that emerged at the prestigious asset management firm Short Term Capital Management, a firm known for its leadership in quantitative finance. Knowledge in this case was found to be merely pretense, as the company filed for bankruptcy early in the year. Partners that have been distributing the firm’s products are likely to suffer some image losses and encounter dissatisfied customers. Technology is emerging as ever more important competitive aspect for banks. There are two important factors contributing to this. Firstly, few widely publicized incidents of operational risk management gone sour have raised interest to bank practices in this regard. Secondly, introduction of mobile apps, vast improvements in web services to cover even more products and innovations in basic bank systems have enabled far more room to develop competitive advantages. Customers are expected to put more emphasis on many of these issues as they choose their service provider. Moreover, costs are generally expected to decline as a result of new innovations. Policy actions Monetary policy is set to ease after remarks made by the central bank’s governing body. The move is intended to breathe new life into the stalling economy. However, fiscal policy is not expected to provide easing for now. Round 5: Economy The economy seems to have gone off the cliff, as last year’s poor economic performance has turned into something akin to a panic. Estimates for the change in real GDP have been revised on multiple occasions and are now showing a decline of at least 6 per cent. Domestic demand is holding up, but exports and investment demand are a real disaster. Key export-markets have are in the grips of a major downturn and are really hurting the big picture for the economy. Housing market appears to be in for demise as well; last year’s rosy forecasts did not realize and the prices fell more than 5 per cent across the spectrum. For this year, expectations are for at least a double-digit decline with remote areas leading the decline, but some more pessimistic forecasts are calling for an earth shattering event in housing markets. The once booming corporate market has practically shut down. Some relief is brought by the need for companies to raise financing but the outlook for the segment remains bleak at best. Financial sector Significant credit losses are starting to appear among businesses with weaker credit ratings and in consumer loans, as consumers are looking to make sure that they dutifully honor their mortgage payments. For those banks who have robustly financed export firms, losses from business sector might build up more than on average. As a result of the free fall in equity markets, there is very little interest amongst the households towards investment products in general. However, fixed income funds are likely to see relative buoyancy due to lesser perceived risk levels. For banks that have aggressively offered structured products, some troubles might be on the horizon. Using history as one’s guide, strong risk management controls have usually been effectual in limiting losses that eventually fall on the bank. Interest for borrowing among the SMEs is very limited at best, and banks are expected to be unwilling to lend to customers with poor credit rating; banks should be careful not to fall victims of adverse selection. Policy actions The parliament has seen feelings running high as demands have been laid to look for those responsible for the current crisis. At this juncture, a compromise has been reached to set up a committee to investigate the causes and duly report its findings at a later date. The monetary authority has proceeded with significant easing of policy to counter the deflationary trends that have taken hold of the economy. In a released statement they stated: “We are committed to doing the utmost to ensure the proper functioning of the banking and payment systems, and in accordance with our mandate to preserve price stability, we are lowering interest rate with a full percentage point, to a level that might be warranted for a long period of time.” At first glance it seems like the measures by the central bank have not been enough to the FX markets since liquidation of foreign assets is pushing the exchange rate higher against US dollar. |
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