GRETZ TOOL COMPANY SUPPLEMENTAL CASE SOLUTION
Salau Abdul Malik Olarinoye Nurul Huda Binti Yahya 810115 810572
Razlina Binti Romli
Aliana Shazma Amir Binti Amir Nur Diyana Binti Zamro
SUBMISSION DATE : 1 MARCH 2013
SOLUTION FOR QUESTION A
The way that could be taken by Citigroup in facilitating Gretz flow of funds are as follows: Loan
Citigroup may act as a creditor to Gretz to provide short-term loans in any currency required by international money market.
Citigroup may also provide a medium-term loan to Gretz in any currency required by international credit market. In ...view middle of the document...
The company in this case mentioned that it is operated in medium term. iv. Liquidity risk this company should consider the potential value of bonds to decline at time they are for sale because it is not consistently as active market for the bonds. The determination of which currency to borrow depends on the information which in terms of British pounds sterling, it may results on the different currency. Moreover, the convertion need to be made and as well as the risk should be taken into consideration. In term of Japanese Yen, it is low in interest but in medium term,as for a long term basis, it will keep fluctuating.
SOLUTION FOR QUESTION C
Some condition that might be considered by Japanese subsidiary of Gretz are : 1) Political short-term gain increasing interest rates can give the economy a long-run boost. Under normal conditions, most economists think a cut in interest rates will only give a short term gain in economic activity that will soon be offset by inflation. The quick boost can influence elections. Most economists advocate independent central banks to limit the influence of politics on interest rates so as it happen in Japan. 2) Deferred consumption When money is loaned by Japanese delays spending the money on consumption goods. Since according to time preferences theory people prefer goods now to goods later, in a free market there will be a positive interest rate.
3. Inflationary expectations: Most economies generally exhibit inflation, meaning a given amount of money buys fewer goods in the future than it will now. The...