You are required to
(a) To explain using a theoretical model;
i. the events that led up to the Railway Bubble
ii. and the reasons for its crash
(b) Forecast a future bubble that could have a high risk of "crashing"
2. (a) Explain the stages of "Money Laundering" giving an example for each.
(b) For each stage of "Money Laundering", explain how various international / local regulations are set up to prevent Money Laundering. You must quote examples. related to two different countries (Oman + one Other Country).
3. Fresh Catch PLC is a company based in Sri Lanka exporting processed fish to the USA
Market. The management has decided to invest in a new machine, manufactured in the UK. The new machine will take one year to manufacture and ship to Colombo. The terms of the agreement are that Fresh Catch must pay for the equipment when it reaches the Sri Lankan Port , in one year's time.
Fresh Catch has already secured a project loan from "ABC" Bank with a maximum cap of LKR 723M to buy this machine. However, they are worried whether the project loan will not be sufficient to settle the foreign currency commitment in one years' time.
The equipment is priced at GBP 3m. The current exchange rate is 1 GBP = 230 LKR. The corresponding exchange rate for the LKR is extremely volatile and managers are concerned that the effective price could move dramatically.
The bank has advised that it will not sell GBP-Forwards for one year, nor is there a specific financial instrument to cover this payment.
The Finance Director has been offered the following suggestions:
• Fresh Catch could use a money market hedge
• Bank would charge an interest rate of 12% per annum for LKR Borrowings
• Bank would offer an interest for 7% per annum for GBP Fixed Deposits
You are required to
(a) Clearly advise the steps in money market hedging for Fresh Catch PLC, using numerical calculations.
(b) Explain the concept of ‘Currency Pegging' by evaluating an example of a pegging exercise adopted by a government. Your answer should include;
The Mechanism of pegging The Applications to the economy Advantages and Disadvantages
4. The Securities and Exchange Commission filed charges against Samuel Waksal, the fomer CEO of ImClone Systems Inc., for illegal insider trading. In its complaint, the Commission charges that Waksal received disappointing news late last December that the U.S. Food and Drug Administration would soon issue a decision rejecting for review ImClone's pending application to market its cancer treatment drug, Erbitux. The SEC further charges that Waksal told this negative information to certain family members who sold ImClone stock before the news became public and that Waksal himself tried to sell shares of ImClone before the news became public.
In its lawsuit, filed in federal court in Manhattan, the Commission seeks an order requiring that Waksal disgorge the several million dollars in losses avoided by those family members he tipped, and that he pay civil penalties and prejudgment interest. It also seeks an order permanently enjoining Waksal from violating the securities laws, and barring him from acting as an officer or director of a public company. Source -
Securities and Exchange Commission - USA
You are required to explain, using this example;
(a) The concept of Insider Trading and why the offence committed by SamuuelWaksal is classified as a criminal offence
(b) Types of preventive action implemented across the globe to minimize insider-trading practices.
Attachment:- Railway Mania.rar