Finance Exam Harvard Case Solution & Analysis

Finance Exam Case Study Solution

For Problem 1-3 Refer to Spreadsheet

Problem 4 Bank Networks

The bank 3 would be on run since the total deposits it collects from the customer are around $100 dollars. Meanwhile, among $100 dollars it keeps cash at bank $33, and lends $8 to two banks which equals to $16. Furthermore, it also makes long-term investment in the technology productivity. Indeed, later the banks also borrows around $16 from two other banks; bank 1, and bank 3, $8 from each of the banks. So, the total amount that bank has in cash is $50, but the deposits that customers have in the bank is $100.

Consequently, it can be determined that banks obligation of the bank is $100 to the depositors, but the bank has only $50. So, if the all depositors request for the fund withdrawal, then the bank would not be able to make payment to the customers and this would lead to uncertainty among depositors, and it would lead to bank run. On the other hand, the large portion of the deposits have been invested in the long-term investment that could not be liquidated easily, so it is highly anticipated that the bank would be on the run.

Finance Exam Harvard Case Solution & Analysis

Problem 5 Ponzi

The company would break even in the month of July when it would have employees that would produce one product each with worth of $10000, whereas the company also has fixed wage of $12000 per month. Consequently, having revenues of $40000, and the engineering compensation cost would be $15000 to all engineers along with $12000 as wages to company per month so total expense to the company would be around $27000, thusthe company would have total revenue of $40000.

The company would incur net losses in the first two months, but then afterward it would start generating net income. This strategy is much better then idea of salary per month that is fixed and company has to pay at any cost. However, this idea is flexibleforthe company to manage the engineers, and earn huge profits by eliminating extra costs, and allow the employees to have knowledge to make proper decisions. Meanwhile, there is potential problem.

Problem 6 Conflict of Interest

  • The basic function of the investment bank is to make strategies for their clients to make investment in particular stock or company. So, for an investment bank the research department is much more than anything else. Meanwhile, it can be determined that research department is the backbone of aninvestment bank, so disallowing the research department would not be the best option for the bank to address the conflict of interest or the principal agent problem. Indeed, if the bank’s research department would not be their own, then conflict of interest would still exist.
  • Similarly, the bank should also provide information to the readers for the potential conflict of interest regarding the research department and to let them know the impact of these leakages to the company, investors, and clients.

On the other hand, disallowing investment banks to owing their own research department would be fruitless since, the conflict of interest would not be addressed. Meanwhile, training of the employees and setting the performance oriented bonuses, and incentives might reduce the conflict of interest in the banking system...............

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