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9. A corporate treasury working out of Austria with operations in New York, simultaneously calls Citibank in New York City and Barclays in London. The banks give the following quotes on the euro simultaneously.

Citibank NYC

Barclays London

$0.8464-74/

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Keith Leannon
Keith LeannonLv2
28 Sep 2019

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Assignment Scenario:

As a new marketing associate with Barclays Bank, you are tasked with writing a critical essay summarizing what transpired during the investigation conducted by the United States Department of Justice into the abuse of the London Interbank Offered Rate (LIBOR) interest rate regulated by the British Banker’s Administration. This essay, if chosen by your new employer, will be the report presented to the Board of Directors.

Write a 2–3 page, (not including a title and references page), double spaced, critical essay responding to the checklist items. For assistance with your Assignment, please use your textbook and library research resources. The instructions for you to execute this task are as follows:

Directions for completing this Assignment:

1. Read the “Barclays Bank: Banking on Ethics” case study: case study is below..

2. Learn how to write a critical essay: I will make the changes if need be..

3. Use APA format and citation style, provide a title page and references, and do not forget to use in text citations with their accompanying references so as to avoid plagiarism.

4. In your critical essay that includes your thesis, arguments, support, and conclusion, respond to the following:

Checklist:

● Describe the level of ethical development the executives at Barclays demonstrated

when manipulating the LIBOR interest rates.

● Did Barclays Bank neglect social responsibility? What could they have done to be more socially responsible?

● What actions regarding Corporate Social Responsibility (CSR) could Barclays have engaged in after the scandal broke to set things right and ensure that such an event would not happen again?

● Describe what level of morality would have been demonstrated if executives at Barclays asked themselves, “Even though manipulating the LIBOR will increase company profits, is it the right thing to do in the long run?”

● Explain the importance of ethics and social responsibility in marketing as a result of your case study analysis.

Case study

Chapter 3

On February 28, 2012, the United States Department of Justice announced a criminal investigation into abuse of the LIBOR, an important interest rate regulated by the British Bankers’ Administration. Four months later, London-based Barclays Bank was fined more than $440 million by United States and English financial regulatory agencies for knowingly manipulating the LIBOR to its own advantage. The political and economic uproar that followed the exposure of Barclays’ actions led to several resignations (including that of Barclays’ CEO Bob Diamond) and further criminal investigations. Former governor of New York Eliot Spitzer called the incident “the mega-scandal of mega-scandals,” while journalist Robert Scheer christened it “the crime of the century.” The LIBOR, short for “London Interbank Offered Rate,” is the interest rate banks pay when they borrow money from each other. To calculate this rate, up to 20 influential British banks report their own proposed bank-to-bank lending rates. The highest and lowest rates are trimmed off, and the remaining rates are averaged, creating the LIBOR. A low LIBOR often points to financial stability, while a high LIBOR indicates that banks lack confidence in each other’s economic health. What Barclays was fined for was proposing artificially low bank-to-bank rates to make itself appear more stable than it actually was. However, further investigations indicated that Barclays colluded with other banks—and perhaps even the British government—to impact the LIBOR itself. An unnaturally low LIBOR would suggest greater economic stability than actually existed, misleading investors and loan-seekers in a potentially volatile market, and thus creating profit for the banks involved in the collusion. The rate manipulation carried out by Barclays affects not only London banks and business executives, but also small businesses and individuals—perhaps even you yourself. Because it has historically been considered trustworthy and economically accurate, the LIBOR is used all around the world as an interest rate and financial instrument benchmark. Everything from currency values (including the United States dollar) to multimillion-dollar corporate debts to home mortgages to individual student loans depend on the LIBOR. While it may not seem like it, each of these is a product that is marketed and sold. As loans and exchanges of varying types are banks’ primary sources of profit, banks compete to exchange these products within a market. At the consumer level, consider how many car and credit card commercials you have seen advertising a low interest rate. Hundreds of trillions of dollars’ worth of these financial products have been sold based on the LIBOR—a rate that may not in fact accurately reflect the world’s shaky economic standing. Journalists and economic analysts have been quick to reject the ethicality of Barclays’ actions. As information about the LIBOR scandal broke, TIME contributor Christopher Matthews wrote, “[Barclays’ alleged collusion] speaks to the moral compass, or total lack thereof, of the world’s financial professionals...the public and the government no longer trust the industry to set its own standards for acceptable behavior.” In a piece for

The Nation, Robert Scheer said, “The modern-day robber barons pillage with a destructive abandon totally unfettered by law or conscience and on a scale that is almost impossible to comprehend.” Dennis Kelleher, president of nonprofit financial watchdog organization Better Markets, Inc. was perhaps most condemnatory of all: “What we probably need is to wipe out this entire generation of so-called banking leaders who apparently have no ethics or integrity.” While the total sum of the LIBOR scandal’s consequences are yet to be seen, Barclays’ actions may go down in history as a monumental failure in business ethics and corporate social responsibility.

A current account deficit commonly is accompanied by:

a) a financial account deficit and a government budget surplus

b) a financial account deficit and a government budget deficit

c) a financial account surplus and a government budget deficit

d) a financial account surplus and a government budget surplus

In hedging foreign currency receivables, the outcome from a forward position will be identical to the outcome from a money market hedge (also known as a spot transaction hedge) if

a) purchasing power parity holds

b) interest rate parity holds

c) either purchasing power parity or interest rate parity holds

d) both purchasing power parity and interest rate parity hold

An American multinational wants to hedge a euro receivable. Which of the following strategies does

NOT provide a hedge for the euro receivable?

a)buy put options on the euro with strike prices in dollars

b)buy put options on the euro with strike prices in pounds

c) buy call options on the euro with strike prices in pounds

d) buy call options on the euro with strike prices in dollars

In the spot market in New York, $0.80 may be exchanged for one Canadian dollar and $1.60 may be exchanged for one pound sterling. You may assume that bid and ask quotes are the same. If you can only exchange currency in New York, how many Canadian dollars would you receive in exchange for 1 pound sterling?

a) 0.5

b) 1.0

c) 1.6

d) 2.0

Observe the following dealer quotes for the euro in the New York spot market: The bid is $1.30 and the ask is $1.31. The dealer quotes for the euro in the Frankfurt spot market are the following: The bid is $1.28 and the ask is $1.29. Given these quotes, which of the following strategies would you employ to profit from an arbitrage opportunity?

a) Simultaneously buy euro in New York and sell euro in Frankfurt

b) Simultaneously buy euro in Frankfurt and sell euro in New York

c) Buy euro in Frankfurt and wait for euro to appreciate in Frankfurt before selling euro

d) Sell euro in New York and wait for euro to depreciate in New York before buying euro

It is February 2017. You have formed a consortium of Monash University finance alumni and your group, currently called Finance Fanatics, is planning a significant investment in six months. You will be required to contribute $40,000. Fortunately, you now have an excellent job working in financial markets and spent your undergraduate and postgraduate time trading shares rather than partying and so you have $40,000 invested in BHP shares (1,000 shares at $40 per share).

You would rather not sell your portfolio immediately because you are now on a high tax rate but plan to travel overseas in nine months by taking unpaid leave of absence and will earn less so you would prefer to sell the shares in the new financial year and pay less tax.

However, you are conscious that you are exposing yourself to the risk that the price of your BHP shares may fall. You are also saving money to go overseas and have calculated that if the value of your portfolio of BHP shares falls by more than 10% (to less than $36,000) you will have to postpone your travels. You also realise that if the value of the portfolio increases, you can afford to spend more time in London and New York. To manage this risk, you are considering three alternative strategies:

1. Write six-month call options on BHP shares with a strike price of $44.

2. Buy six month put options on BHP with a strike price of $36.

3. Write six month calls and buy six month puts to create a zero-cost collar.

Six month $36 puts and $44 calls are both currently trading at $3.

Ignore any interest accruing or paid on option premiums over this period.) For each strategy, evaluate how well it meets your investment target and determine the advantages and disadvantages.

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