Finance

Identify at least three problems facing the FED in achieving its goals of monetary policy and give your recommendations on how to deal with each of the problems you list.
The Federal Reserve which is commonly referred to as FED is the central authority to the US money and banking system.  It utilizes the monetary policies at its disposal with the aim of ensuring that prices, foreign exchange rates as well as long term interest rates remain stable.  Stability in these three areas is beneficial in as far as investment is concerned and they trigger economic growth.  (McConnell and Brue, 2004). Other objectives of FED include ensuring that the inflation rate is kept relatively low and the employment levels boosted.  The monetary policies adopted include the open market operations, manipulating of the reserve requirement and discount rates. The open market operations refer to the buying of US treasury as well as the federal agency securities with the aim of influencing the money supply and demand. OMO is the most applied tool due to its flexibility in influencing money demand. Fed also ensures that the financial sector remains stable while protecting the interests of the customers due to the realization of the importance of money supply in the economy. (www.federalreserve.gov).  

One challenge that faces FED as it tries to ensure economic growth through the various monetary policies is the fact that realizing one aim results to another problem or rather poses a different challenge.  Selling government securities with the aim of increasing the money supply in an economy may trigger increased inflation by some margin. Increasing the employment levels also triggers inflation which Fed tries to counter in the first place.  To ensure that the impact of such inflation is contained, it is imperative that Fed sets its target appropriately so that a compromise is attained.  Attaining one objective at the expense of the other should be well addressed.

Timing issues which emanates from the fact that there is a time lag between when Fed realizes or rather recognizes a problem and decides to react by selecting an appropriate monetary policy and when the effect of the implemented policy is felt.  To ensure increased efficiency in the monetary policies, Fed must adopt effective tools or strategies of gathering information to ensure that immediate responses are made as demanded by the economy. (McEachern, 2005).

Fed structure is quite complex thus making the implementation of its policies difficult and cumbersome. This also contributes to the delayed implementation of monetary policies which has a negative effect in as far as attaining the core objectives is concerned. The board of governors of Fed are also too powerful and can be manipulated easily especially by the political leaders who have some vested interest. The establishment of an effective independent central bank would minimize the chances of political influences which compromise on the effectiveness of Fed. (Baumol and Blinder, 2008).

Identify and explain at least three ways that the Federal Reserve affects the banking system through open market operations (OMO).
As earlier noted, Fed uses the OMO monetary tool where US treasury and federal agency securities are traded to regulate the money supply in the economy. Buying of federal treasury and agency security is done when the aim of Fed is to reduce the money supply in the economy while selling increases money supply thus used in recessionary times. There can be permanent as well as temporary changes to Fed reserves when outright sales or purchases are made. A system repurchase method can be adopted to impose temporary changes.

Fed purchases government bonds from the public which increases the reserves of the commercial banks after it pays for them. Purchasing such reserves sees the banks increase their reserves in an amount equal to what has been paid for the reserves.  The same case happens when reserves has been purchased from the public. Fed can also sells government securities that are not being used to the commercial banks as well as the general public hence surrendering the securities to the banks or general public who can then draw checks against the deposits made. Through this approach Fed reduces the amount of money supply that is available for the commercial banks which also translates to reduced money supply in the entire economy. (www.federalreserve.gov).  

Purchasing of government bonds by Fed leads to the reduction of interest rates which encourages banks and households to dispose their reserves to Fed. The selling of such bonds lowers the prices of bonds while increasing the interest rates to make the bonds attractive to the general public as well as the commercial banks.  Fed also purchases or sells the treasury bonds or bills which affect their deposits by increasing or decreasing in size. This also affects the volume as well as growth of banks by allowing them to have increased reserves at their disposal thus more to lend to both commercial banks as well as households.  This leads to their increased growth as they make earnings through the interest charged.  The OMO also affects the lending processes as it affects the interest rates which are attached to the bank borrowings and loans. OMO regulates the money supply in an economy by either increasing it or decreasing it. (McConnell and Brue, 2004).

Explain how changes in reserve requirements and the discount rate affect the operations of banks and other depository institutions.
The discount rates are monetary policy tools that can be used by Fed to influence the money supply and demand in the economy with the aim of influencing economic growth. Discount rates or discount widow can be defined as the rates charged by Fed to commercial banks which in turn affects the amount of money such banks or financial institutions have thus their lending capacity.  The major types of the depository windows by Fed are the primary, secondary and seasonal credits which have varying interest rates. (www.federalreserve.gov). The discount rates attached to primary credit are generally higher than those attached to other short term discounts in the market.  Interest rates charged on secondary credit are also higher than the primary credit interest rate while the seasonal credit discount rates are the average of selected market rates.  When Fed increases the discounts rates it discourages commercial banks from borrowing money from it but a reverse effect is felt when the discount rates are lowered.   The amount of money in an economy is increased when banks are encouraged to borrow funds from the Federal Reserve.  The reserve requirement refers to the amount of money or funds that financial institutions are expected to deposit with Fed against their securities.  The amount set as reserve requirement is determined by the board of governors of Fed as guided by the American law and it is held in terms of vault cash.  Increasing the reserves requirement rates leads to increased required reserves of what the financial institutions are expected to keep with the Fed and this translates to reduced ability to lend money to both banks as well as household thus reducing the money supply in an economy.  The reserve is also true. (www.federalreserve.gov).

Explain why the FED cannot set intermediate targets in terms of both monetary aggregates and interest rates.
Fed cannot set intermediate targets in terms of both monetary aggregates and interest rates.  The means of achieving the monetary policies remain unclear although the policies are themselves clear. (www.federalreserve.gov).  To assess how effective this is, the operational as well as intermediate targets are set. Intermediate targets include the monetary aggregates as well as interest rates. The monetary aggregates are believed to have a stable relationship with the economy and are influenced by the manipulation of the supply balance at the Federal Reserve. When Fed increases the reserve requirement ratios it becomes unattractive to hold money in form of bonds as compared to other money market instruments. This translates to reduce money supply or slow growth in the money stock.  It is generally accepted that the growth in the money stock.  It is generally accepted that the growth of money should be equal to the rate of nominal GDP growth rate.  This is the same as the real GDP growth rate that is required to ensure desirable employment levels plus the intended inflation objective.  Obtaining this is difficult given unpredictable variations in velocity or the relation between growths in nominal GDP making the use of monetary aggregates as a means to guide the monetary policy a challenge. The interest rates have also been found to be surrounded by many uncertainties such as taxation, changing consumer behaviors as well as economic development. (www.federalreserve.gov). These factors make the interest rates unfavorable in guiding the monetary policies.

  Most companies are interested in knowing how their current or future debt will impact their profitability or if it would impact profitability at all.  Some ways of doing this is by conducting some regression analysis on historical data.  Regression analysis can determine if there is a relationship between different variables and can also help to forecast what the future might bring if the pattern continues.  Although regression analysis is a valuable tool it is not the only tool that is used and is often used in conjunction with other types of analysis.  If we use the following data in Exhibits A and B we can see how debt can potentially impact profitability.  Exhibit A is based on the industrial sector and B is based on the food sector.

Analysis
    At first glance, it is clear that as current liabilities increased so did gross profit.  This could be an indication that current liabilities were being used to buy more products or find ways to decrease the cost of producing a product.  Current liabilities are liabilities that need to be paid off within one year of occurrence.  This information can also be an indication that liabilities are being obtained effectively.  The same can be said for non-current liabilities.  A cursory glance shows that as non-current liabilities increase so does gross profit.  Non-current liabilities can be loans such as business loans and mortgages that are due to be paid more than a year from occurrence.  The increase of this as well as the increase in gross profit can indicate a direct correlation.  This is indicated in the following excel results and scatter graph.
Correlation Current Liabilities vs. Gross Profit                    0.847380003
Correlation Non-Current Liabilities vs. Gross Profit                    0.829432866


  The correlations of non-current liabilities and current liabilities to gross profit have a strong positive relationship.  In correlation analysis it is understood that the closer to 1.0 a relationship is the stronger the relationship.  In this case .847 and .829 respectively indicate very strong positive relationships meaning that as one increases it is likely that the other would increase as well.  The results can tell a company’s management that they should increase their liabilities to increase gross profits however it can also be shown that analyzing only one or two variables in the data can be too simple of an analysis.  Sometimes more than one variable in data needs to be analyzed to provide more accurate results.  In the graphs below we see a simple correlation analysis of return on assets and equity to non-current liabilities and current liabilities.  The two graphs are but a sample of the results and similar results would be seen if comparing the two types of liabilities with return on equity.



    It is clear that these correlations are more volatile and unpredictable therefore it can be said that there is a negative correlation between them but there is not a strong correlation between liabilities and return on assets or equity.  If we did a formula in excel for these we will get the following results:

Correlation Return on Assets vs. Non Current        -0.088362265
Correlation Return on Assets vs. Current            -0.026411956
Correlation Return on Equity vs. Non Current        0.078610395
Correlation Return on Equity vs. Current            0.135380361

    The results show that there is a weak negative correlation between return on assets and liabilities and a weak positive correlation between the return on equity and the liabilities.  The return on assets is greatly dependent upon the profit of the company and according to the correlation as the non-current and current liabilities increase so does the profit.  Therefore it can be deduced that liabilities have an impact on the return on assets and on equity.  However due to the volatility of the information it can be said that there is a weak relationship between them and management should not put much faith in this analysis.

  If we move on to the Food sector we can also notice some correlations between the current and non-current liabilities and the gross profit, return on assets, and return on equity.

    As we can see here there is a strong positive correlation between liabilities and gross profit but as we move into some other information such as Return on Equity and Assets we get into weak correlations.  The graphs would look similar to the ones in the Industrial sector and the same conclusions could be drawn.  The simple regression analysis showed a strong correlation between two variables.  Multiple regression analysis can show us if there is a relationship between multiple variables in this case gross profit as it related to non-current and current liabilities.

    A quick analysis in excel yields the following results:
  In these results we can see many different things going on.  For both examples the gross profit was the dependent variable and non-current and current liabilities were the independent variables.  The analysis is to determine if there is any relationship between the liabilities and the gross profit and it will show us if the analysis is reliable or not.  If we take a look at Significance F we will know if the model we used is significant enough or not based on the value.  In these cases the values are .0786 and .000629 and a significance level of .05 or less is considered significant and from .05 to .10 it is marginal meaning it may or may not be significant.  As we can see the .0786 from the industrial sector indicates marginal significance but the .000629 from the food sector indicates a high level of significance.
    Next we would take a look at the coefficients and if they are positive than we have a positive relationship but if they are negative than the relationship is negative.  We can also see that sometimes outliers can move the information towards one way or another.  Outliers are the information that is not normal and usually only happen on occasion.  In this case those outliers would be a significant revenue loss due to a natural disaster or a lawsuit or even a significant revenue increase due to a natural disaster or lawsuit and this is something that would not be expected to occur during the normal course of business.
    Companies like to know what is driving their profits, let’s face it if a company did not make a profit they would not be in business very long.  If a company can know what makes their profits go up and down then they can make adjustments as needed and in a timely manner.  Regression analysis gives them one way of doing this.  Simple regression analysis can tell you if there is a correlation between two variables and in our examples we used gross profit and liabilities both current and non-current.  A simple analysis showed that there was a strong relationship between gross profit and liabilities however there was a weak relationship between liabilities and return on assets and equity.  We compared a dependent variable to one independent variable but in multiple regression analysis you can compare a dependent variable to multiple independent variables.  If we had the necessary data we could have also compared certain expenses such as advertising along with the liabilities to see if they had any type of relationship with gross profit.  We need to also take into consideration the impact of various variables on the income statement or balance sheet from an accounting viewpoint.  In accounting, the assets and liabilities affect the balance sheet.  When a liability increases normally cash increases due to obtaining a loan or the inventory can increase due to the purchase of inventory on account or by using cash from a loan.  If we consider these factors then we might not expect a strong relationship between liabilities and gross profit.

    Another thing to consider would be the over analyzing of historical data.  Sometimes the information is black and white meaning that there is not an underlying reason for why the results are as such however in an effort to understand the data and predict the future, management can find themselves running into the problem of subjecting the data to analysis that is not necessary.  Regression analysis requires the use of a series of data and not just one or two years since it holds true that the more data that you have the more accurate the results.  If this had been done in this case we would have seen a weaker correlation between the gross profit and liabilities.  The data can also show that liabilities were being increased and used to directly impact the revenue of the company.  Say for instance a loan was taken out to upgrade machinery that allowed a company to produce products faster and more efficiently.  This could mean that more products were being sold, increasing revenue, lowering costs, and thereby increasing the profit.  The same can be said if the company used the increase in liability to purchase land, a building, or some other asset that would take time to begin to impact the profit margins.  For example, a company takes out a loan to purchase a building for a new division they wish to set up that will generate more revenue however the first few years they will not see much revenue coming from the new division because they would be in the planning and setup stages.  This could lead to an up and down trend of revenue and profit that would change the data based on the actual information.
    
    Another factor that comes into play when using regression or any type of analysis is the misinterpretation of the results.  If 1.0 was considered to be the threshold of significance this would change the interpretation of the data.  Also there could be a misinterpretation of whether or not the analysis is significant or not in trying to determine a relationship.  If we were to assume that the data indicates a low level of significance then we might discount the results and not give them any merit.    Regression analysis can be used to tell us many different things but with any analysis the significance comes from the interpretation of the results.

After reading and analyzing the case (in Bartlett, Ghoshal & Beamish, 2006, p. 665-682), it is quite apparent that the primary issue is the company's lack of unified goal and command. Their current set-up is the kind courting internal disagreements. Devolution of functions is, on the most part, productive for a company, especially for an international one like BRL Hardy. However, what complicates their situation is the company's underlying history. Since BRL Hardy is a merged company, it is but expected that there would arise a sort of factionalism immediately after the merger. This is a very probable scenario, and, in my opinion, top executives of both the merged companies were ill-prepared in handling this situation.

Factionalism that arose right after the merger was not successfully contained, thus, the lack of unity in command that stretches up to the present. It is mentioned in the case that some company supervisors, for instance Christopher Carson, Managing Director for Europe, would at times incur the disapproval of the Managing Director, Steve Millar, for differences in priorities. Millar himself said that “confrontation can be healthy as long as it is constructive”(as cited in p. 672) but it is in my opinion that disagreement is bad for the company if it continually happens as in this case at hand. This is also evident in the company's disagreement on the issue of  Kelly's Revenge and Banrock Station labels. The case cited that Paul Browne, the appointed Operations Manager by Carson, promoted Kelly's Revenge, Carson's brainchild, while the Australian headquarters wanted Banrock Station. This particular situation is clearly indicative that the devolution of corporate functions have gone way out of hand and the central office is slowly losing control of its branches. It also speaks greatly of the company's missing focus and goals. Following devolution, the decision to pursue market growth, recognition and profitability was handed over to the branch managers and I must concede, it is rightly so.

However, the problem that arises is the fact that overall company goals are often times set aside in pursuit of the branch's specific goal. It is true that those on nearest the market know its characteristics and trends but it still remains that decision and command should come from above, or at least from one final and irrefutable decision-maker. This is what the company is missing – a strong central decision base.

2. What recommendation would you make? And why?
Given the aforementioned analysis, it is highly recommendable that the company's top executive re-analyzes their decision to decentralize. The company must set the limits on the decisions that could be made by managers. However, it should likewise provide greater implementing strength on those decisions made from above. While it remains that devolution of powers, functions and responsibility is the best way of administering a large international company, there must exist a ready set of guidelines when it comes to the decision-making. This is in pursuit of greater company cohesion, unity in goals and better administration. It is also necessary to keep an open line of communication. Better communication channels all the way up to the top executives and vice versa would be beneficial to the company as a whole. This would likewise assist the company in achieving a unified stance which the company still haven't attained as proved by the constant bickering and disagreements running along factional lines – boundaries that understandably arose from the fact that the company is a merged company but should nonetheless be eliminated. All in all, it is in my opinion that once the company was able to establish a unified goal and command, much of the scenarios that currently infest it would be resolved and the chances of it happening again would be reduced.

Asianic Brewery, a company based in Hong Kong, produces various malt beverages such as beer, iced tea, bottled water, hard liquor, and carbonated soft drinks. Its products are sold on a very limited scale and it owns about 15% of the alcohol market. Because of this, the company seldom buys and instead opts to lease major equipments. One of the major equipments that it leases is the bottle washer. A bottle washer keeps bottles clean and free from contamination prior to bottling beer and other beverages.

A lease is basically a contract between the lessor or the owner of the asset and the lessee, the party seeking use of the asset. Through the lease, the lessor grants the lessee the right to use the asset. In exchange, the lessee makes periodic lease payments to the lessor. A lease, then, is a form of financing to the lessee provided directly from the lessor in order to enable the lessee to purchase the use of the leased asset.
In Asianic’s balance sheet, PFRS suggests that the lease appears only as a disclosure but should include the total of future minimum lease payments under non-cancellable operating leases for specific periods, i.e. not later than one year, later than one year but not later than five years, and later than five years. Asianic should also disclose the total of future minimum sublease payments expected to be received under non-cancellable subleases at balance sheet date, lease and sublease payments recognized as an expense in the period, with separate amounts for minimum lease payments, contingent rents, and sublease payments. A general description of the lessee’s significant leasing arrangements should also be disclosed. This should include the basis on which contingent rent payable is determined, the existence and terms of renewal or purchase options
and escalation clauses, and restrictions imposed by said lease arrangements. (PRFS, IAS/PAS 17-13)

As such, since the lease of the bottle washer is of significant in terms of amount and term, Asianic should disclose this information in its balance sheet. Add to the fact that as a brewing company, a bottle washer is no doubt one of its major equipments. However, since this is an operating rather than a finance lease, no liability is to be recognized on Asianic’s balance sheet.  

The ascend of Silvio Napoli up the corporate ladder of Schindler was swift enough to give him greater responsibilities than most managers possess at the age of 33. The business plan to enter the Indian market was a strategic one – one which meant greater presence of Schindler in the market elevating its market share and revenues. There were several challenges though, in the process that presented themselves like two-edged swords to Napoli and company. Napoli was in-charge of the project and had to be accountable for the happenings in India to Alfred Schindler and the VRA.

Amongst the various personal and business issues, the key issue that was of the highest concern for Napoli while setting up the plan in India was the fact that the project had over-run its development time and had not yet registered its first sales in spite of the business plan conjuring sales of 50 elevators in the first year. The cost of importing the raw materials and the plant to set up the manufacturing facilities was of an even greater concern for Napoli. Already lagging behind in the costs and the time targets, Napoli had to conjure up things so that within the next 4 months he would be in a position to begin selling in the Indian market.

It is true that he had a team of exceptional managers under him, however, this did not help him fight the uncertainties laden with the project – standardization was one standard that was not consistent for the company. There were more instances of customized orders for plant components than there were for standard parts and the import of the raw materials of those required extra costs and led to the $10 million business plan becoming increasingly costly for the Schindler (Silvio Napoli…India, 2009). It was important for Napoli to manage the development time and the cost of setting up the facilities in India through negotiation and planning – perhaps this function was marred due to his personal problems that kept him and his family on the run.

Recommendations
In the light of the facts presented in the case, it would be highly advisable for Napoli to be prepared to answer Bonnard regarding the progress in India stating clearly the facts and realities that he has faced in the Indian market.

The fact that there were unanticipated problems in the Indian market – mistakes made by subordinates and market dynamics not working out the way predicted – made it difficult for Napoli to achieve the targets set out for him by the VRA. Considering the cost overruns, there should be a revision of the business plan that was presented to the Board earlier. Bonnard and the directors should review the reasons that were the source of the overruns and advice Napoli on the basic alternatives. Napoli, who is still a young manager who has a lot to learn from experience, needs to go one step ahead with the cost overruns and re-draft the costs by negotiating with the locals.

Though nothing much can be done to avoid the importing costs, Napoli can ensure that there are fewer instances of customized orders or the facilities are transformed to make it customizable. This decision will be based on the finalization of the feasibility of the two options and thus will require expert advice and analysis – something Napoli is authorized for but would definitely be more worth coming from Alfred and Bonnard.
Thus, Napoli needs to discuss the situation with his managers, clearly stating the exact time and cost overruns he is expecting from his team, try to get the best from his five managers and rely on expert opinion and judgment regarding the final steps to be taken in India. It is a matter of great importance for Schindler to realize the project that is under Napoli in order to get a firm hold in the Indian market and thus Napoli needs to talk to people and seek solutions that will have a backing of experience and knowledge.

Gonzales Family,
We are pleased that you have allowed us to assess your needs and that you have trusted us with your personal information and situation.  Enclosed you will find an assessment of your needs based upon this information.  All assessments are categorized for your reading ease and can be adjusted if any of your family’s situations have changed.

One of the main problems facing families and individuals today is a lack of planning and coming to us for help was the first step in this process.  We are here to help you make easy transitions in ever changing life issues and to hold your hand if necessary to assist you in making things as easy as possible.

It is recommended that you read over the information as a family and that you call us with any questions that you may have.  We are happy to answer any questions you may have and we will do so free of charge.  Any adjustments to your assessment will be carried out as soon as possible if there are any changes to be made.  My business card is included as well as my personal telephone number, please use my contact information at any time.  We have enjoyed preparing this information for you and we wish you all the success in the world.

Sincerely Yours
Executive Summary
Purpose: To assess the needs of the Gonzales family and to make financial recommendations based on their needs and current situation.

Key Recommendations:
The family must obtain life and disability insurance to alleviate the risk of losing an adult member of the family.
The family must use the current assets of Mr. Gonzales’ mother towards investing to make sure there is money to take care of her in the near future.
The family must stick to a budget to ensure that all of their financial goals are met.
The family can make plans to repay the loan but in the event that Mr. Gonzales’ mother’s health deteriorates, they will instead use this money towards the family’s immediate needs.

Goals and Objectives
Based on the information given in the interview, your goals and objectives are defined below:
    Save enough money to comfortably retire.
    Pay for the education of your 2 children.
    Expand the business of Mrs. Gonzales.
    Take care of Mr. Gonzales’ mother.
    Buy a bigger home or expand the current one to suit their needs.
    Pay off the credit cards.
    Replace the old car with a newer one.
    Provide for the family in the event of death.
    Pay back loan from Mr. Gonzales’ mother.

Risk Profiling
The children are daughter, Lillian aged 14 and son, Matthew aged 16 therefore there are 2 years before money needs to be spent on university for Matthew.  There would need to be enough in the account to pay for the first year of Matthew’s university and then enough going into the account to pay for his second year.  After his second year, there would then need to be enough to pay for Lillian’s university.

This means that for 2 years in the beginning there would need to be enough money to cover Matthew’s university and then for 2 years it would cover both children’s university.  The last 2 years will only be for Lillian’s university.  For the schooling of the kids, you would have a high risk tolerance since you need money in short period of time for Matthew.

Since Mr. Gonzales is currently 47 he has another 18 years before he retires.  Mrs. Gonzales has another 25 years to reach retirement since she is currently 40 years old.   There are 18 years left for the retirement of Mr. Gonzales therefore there is enough time to generate enough in retirement savings.  The risk here would be moderate.

Mrs. Gonzales’ business will require funds in the beginning to expand it so that it can begin to generate a minimum of $50,000 of yearly income.  The business should have insurance to cover any unforeseen occurrences and to cover risk.  If the business fails, the family loses any potential income from the business as well as the money used to invest in the business.  The risk of a business failing is high.

The family has no life insurance on the mother, father, or grandparent this means a very high risk if one of them should pass away.   If either parent dies, the grandparent will then become a big burden on the remaining spouse causing them to possibly quit working and stay home to take care of them.  This is a loss of income that can be used to help sustain the family.  The risk is high since there is absolutely no life insurance on any adult in the family.

The housing market isn’t as bad in Australia as it is in other countries therefore the value of the home should be reasonable and the risk of its value falling is low.

Current Financial Situation
According to the statement of cash flows (see Appendices) the family has a positive cash flow of $344.17.  According to the balance sheet the family has a net worth of $847,300.  Debt to equity ratio is .569.  The current ratio is .656.

Tax Planning
Income taxes need to be paid per annum therefore there should be quarterly payments made.  After each month Mr. and Mrs. Gonzales should add their incomes together and make sure to put aside the correct amount of income tax aside into a different account.  This money will gain a small amount of interest over a 3 month period.  Mr. and Mrs. Gonzales should invest into a superannuation to make sure they can take advantage of the tax deduction.  Each year the family should itemize their deductions to see if they would be more than the standard deductions given.  College or university expenses can also be a source of tax deductions so the couple should make sure to take advantage of this.  The businesses can be incorporate so that the tax rates will not be as high as the individual rates.

Liquidity Management and Personal Financing
Liquidity management is extremely essential due to the various goals that the family wants to accomplish.  The family needs a budget drafted and they have to learn to stick to the budget if they want to fulfill their goals and objectives.  Investments should be long term and short term to cover any intermittent needs.

Personal Investing
Paying for university for the children is a form of personal investing.  The children will learn skills that will enable them to obtain better careers and jobs to sustain high living standards.

Housing and Home Ownership
The taxes paid on the interest of a home loan are tax deductible and the home in itself is an investment since it normally appreciates in value.  This can be a good investment as long as the market is stable.  Home ownership is an asset.

Wealth Protection – Risk and Insurance
One thing that is guaranteed in this world is death.  The main way to prepare for death would be to obtain insurance for that purpose.  All adults in the family should have some form of life insurance.  Also the last thing a family needs is to either lose an income producing member through death or accident.  Therefore accident and/or disability insurance can become important as well.

Superannuation
At some point in everyone’s life, they must retire from working due to old age, health reasons, etc.  The family must foresee the need to retire and know that the government has provided superannuation includes pensions that will assist them in their retirement years.

Social Security
In Australia, social security payments will be available if they are truly needed after undergoing a means test to determine needs.  If the family invests wisely enough they will not need any social security payments.

Estate Planning
The family does not have any means by which to divide up their assets should something happen to one or both of them.  Estate planning is essential so that assets are not ceased by the government and divided according to their standards.

Conclusion and Recommendations
It is our recommendation that the family do the following:
    Purchase life and disability insurance.
    Purchase homeowner’s insurance that includes flood insurance.
    Stick to their budget.
    Use the money that the grandparent has to invest along with the $130,000 loan.  We recommend they have a diversified portfolio that includes bonds, mutual funds, insurance, certificates of deposit, and annuities.
    Pay down their credit card debt using any extra money on a monthly basis.
    Sell the home and purchase a cheaper one that includes the space they need.  Use the proceeds from the home sale to pay off the car.
    Sell the old car of Mrs. Gonzales and use the proceeds to purchase a newer car along with money from their personal account.
    The family needs to use the money of the grandmother to pay for the business expenses.  This is an investment on that money and should be used as such.
    The family needs to draw up a will.

The stock portfolio will be used to make sure their children have money to pay for their university expenses.  Stocks are aggressive and since their children have 2 years before they will be in university they need to act now.  The bonds are for a long term investment that is guaranteed to pay out at maturity.  Floods occur in the area more frequently than not and this risk needs to be minimized, this can be done by purchasing flood insurance.  The grandparent is a member of the home and therefore, her assets are the assets of the family and should be invested to assist the family with any expenses or goals.  A good investment will lead to having enough money to care for the elderly grandparent when the time comes.

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In the case study titled “ABB’s Relay Business: Building and Managing a Global Matrix”, the author attempted an examination of the success and challenges that occurred as a result of the decision to merge two medium scale telecommunications companies - Asea and Brown Boveri. The merger was necessitated by the depression in the utility equipment market. As a result of this, the chairmen of both companies met and decided it was in the best interest of the two companies to come together in forming an allegiance that will place them in a position where they can operate on a global scale. The merger was completed in 1987 when Asea Brown Boveri was birthed and the former chairman of Asea chosen to be the leader of the transition process.

As expected from any merger, the new company, under the leadership of Percy Barnevik, planned a process that will bring about a radical change in the afore existing companies, Envisioned and equipped with the right frame of mind, Barnevik sought to bring about a much needed change that had brought the two companies together. His vision was informed by two major facts - that the declining trend in the power generation capacity will soon reverse itself and only companies that operate on a global scale can maximize this change that is about to occur and the fact that government hold much control and ownership of power companies and that only companies that have a strong national presence will eventually stay in business.

With the formation of the new company came a new philosophy. After painstakingly choosing the managers who will lead the company in the change process at different levels, Barnevik built an organization that was accommodating and allowed the workers in the company to work at their optimum level. The workforce was reduced in order to increase productivity and ensure that every worker brought value into the company. The new company was run on the principles of decentralized duty and personal accountability and there was a system that constantly checked if the company was still in alignment with the vision on which it was built. On the overall, the change process was successful and the new system introduced worked. Within four years of operation, the company grew internally and made acquisition of other distressed companies, becoming the giant in the industry.

The success of ABB can be attributed to some specific principles. The first is the autonomy given to the managers of the acquired companies which afforded them the privilege of controlling their resources and direct management of employees. Apart from this, the structure of the company allows freedom of expression of subordinate workers and all workers are carried along in the management process. Core to the company’s philosophy is the idea that team spirit and teamwork is necessary for organizational growth and a bias for accountability in order tom ensure the full participation of all employees. In the place of total restructuring, managers of the newly acquired companies report to certain departmental heads that play supervisory roles.

However, the newly introduced system had its own disadvantages. For instance, the company’s philosophy of decentralization created a sort of duplication of roles. Managers often had a problem with who to report to between the BA and the Head of Management of each country. Apart from this, there was managers experienced competition from within the organization in the sense that there were several companies in the same organization that produced the same products and competed in the same market. In addition to this, the idea of reporting to centralized bodies clashed with the founding principle of Barnevik company of ‘Better roughly and quickly than carefully and slowly”. Also, there was the problem of meeting set deadlines and participating in the company’s amalgamation processes that appears to be time consuming.

In solving these problems, my recommendations are as follows; that role of the central management body should be totally separated from that of the national management body. This can be done by clearly stating the extent of power and responsibility of the two positions. Also, companies that are involved in the same kind of production should ensure that they exchange ideas and technologies in order to maximize output. In this sort of situation, there should be a system that encourages the proper relations between companies that are involved in the same kind of production. Staffs may be occasionally transferred from one company to the other to help buffer the expertise that is lacking in the other company. Finally, the role of the central body should be reduced to a supervisory role in order to ensure faster decision making. Managers of companies should be left with the sole responsibility of making decisions. They should also be given the power to take matters in their hands if they perceive that the BA is taking more time than necessary.

It is always advisable that when one is making an investment decision, he or she should take the best option that is available. In this case, it is therefore necessary to invest in the best company that will give better returns in the future. I would recommend General Cigar Corp to buy shares at the British American Tobacco. The reason is that from the past history, this company has been expanding and is now operating in most of the countries all around the world. This means that there is security in this company and because of this security, more people will gain trust at the company and they would like to invest there. This would mean that the shares at the company will appreciate and this may be termed as a long term benefit to those people who invest there as they can get more profit. I would therefore advise you to invest in this company as compared to investing in Imperial Tobacco which has had a number of financial issues in the recent past. (Reuters, 2008 )

In conclusion, we can say that from the past analysis, the future is always very uncertain and this is the reason as to why we cannot assure that whatever we are saying must happen. However, from the trends of the organization, BAT has had diversity of portfolio bearing in mind that it is operating in over two thirds of the countries of the world. And since it is still expanding, there is a chance that will have an increased market share after acquisition of a number of companies such as Saks Fifth Avenue and Gimbels. It can be termed as a good bet to invest in bearing in mind that it is the world no. 2 company that sells cigarettes after Altria. (www.bat.com, 2006)