Explain why investors may be attracted to high-risk investments such as exchange-traded derivatives, global funds, and other complex investment vehicles.
Recommendations: Why would anyone be attracted to a high risk investment? This is your opportunity to discuss risk and return. Keep in mind, additional risk does not necessarily mean higher return. It means that you have the potential for higher returns. This is a section in which you can, and should, discuss many aspects of risk and return, as they relate specifically to derivatives, global funds, and other complex investment types. For example, a young investor may be willing to take on risk, whereas a person nearing retirement might want to maintain wealth created over the years of investing. I will expect you to explore the numerous and specific reasons high risk investments are attractive to an investor at various stages of the life cycle.
Discuss the factors that determine how much risk you are willing to take on. What is your tolerance for risk? What is your time frame for investing? Discuss risk aversion (please note the correct spelling of that term). Discuss your goals. Discuss your investing preferences. There are many directions you can take on this topic, but the key is to cover all aspects of the topic completely and thoroughly.
Analyze the risk associated with exchange-traded derivatives, such as futures and options, and what brokers might do to minimize the risk to investors.
Recommendations: While this question may seem open-ended, it is not. There are very specific risks associated with derivatives. Research the risks associated with derivatives and clearly spell them out. I will expect in-depth technical discussion here.
Discuss the challenges related to regulating a complex global financial firm and make suggestions for regulatory improvements.
Recommendations: For this question, you can go back in history to discuss the legislation of the 1930’s and how this legislation prevailed until recently, and how the recent changes affected the markets. You can also discuss how the internet has changed communication and information flows and how difficult it is to regulate this on a global scale. Finally, make recommendations for regulatory improvements, or do you believe we have enough regulation? Do we have too much regulation? Any statements you make regarding regulations must be supported by your research and/or data, so simply stating your opinion without strong data to back it up will not be considered appropriate discussion.
Analyze the ethical violations of the company you researched.
Recommendations: This is relatively straight-forward; however, I do not want to see any more discussion about Enron, or Madoff, or some of the older ethical violations that have been discussed ad infinitum. Show me something new! I will be specifically looking for companies that are not a household name.
Also, some students in past classes have misunderstood this question, and think the ethical violations have to do with personnel or other human resource issues. That is not what this question is about! You are to investigate companies that have been cited for financial ethical violations. A misunderstanding of this question can result in a significant loss of points.
Discuss the consequences that you believe to be appropriate for the senior management of the firm you researched and the implications for brokers trading in high-risk investments.
Recommendations: This is not a general question, but relates specifically to the previous question. If you adequately research the ethical violations of your chosen company, you should be able to discuss the consequences that the senior management of that company have been subject to, and whether or not these consequences are appropriate, given the violations. Then you should discuss the implications that this specific case has for brokers and management of financial firms who may be tempted to engage in ethical violations.
Create a scenario where you believe the use of high-risk investments would be beneficial for the investor. Provide support for your rationale.
Recommendations: Look at what is happening in the market today and discuss how high risk investments could be beneficial to an investor. Here are some interesting observations for today: interest rates are low, oil prices are low, the stock market has declined year-to-date, this is an election year, and terrorism is on the minds of many. So many things are going on today. So, tell me how a high risk investment (or investments) may be beneficial. But be careful here! Be able to support your comments with good research. Good research is NOT wikipedia, or investopedia, etc.! In fact, points will be deducted for inappropriate research references.
Use four (4) external resources to support your work. Note: Wikipedia and other Websites do not qualify as academic resources.
