Reference no: EM133303654

Scenario One

After experiencing a few years of modest success, your company (Indiana, Inc.) wants to expand operations, but it needs to borrow a considerable sum of money from its commercial bank to perform this. In this regard, it has been determined that borrowing will be undertaken within the next few weeks if the interest rates are reduced from their current level, but borrowing will be delayed if the interest rates remain the same or are increased from their current level. The bank always follows the lead and direction of the Federal Reserve when it comes to the interest rates it charges for loans, so analyzing what the Federal Reserve does is crucial to making the right decision to borrow now or borrow later.

Below are three separate hypothetical actions that the Federal Reserve could take that would impact the commercial bank's interest rates. Follow the specific directions for each hypothetical, and respond to each one in separate paragraphs. Also, number your paragraphs to coincide with the number of each hypothetical you are writing about.

1. The Federal Reserve has decided to sell treasury bonds on a regular basis over the next few weeks. Identify by name and describe in detail the specific tool that is being used by the Federal Reserve, and then based on what it is doing, explain whether you would recommend borrowing at this time or waiting until later, and explain why.

2. The Federal Reserve has just advised the commercial banks that it must increase the percentage of the money it keeps in its vaults from 10% of all deposits to 12% of all deposits over the next few weeks. Identify by name and describe in detail the specific tool that is being used by the Federal Reserve, and then based on what it is doing, explain whether you would recommend borrowing at this time or waiting until later, and explain why.

3. The Federal Reserve has just lowered the interest rate that it charges commercial banks that seek to borrow money directly from the Federal Reserve from 5% to 4%, and this will remain in effect over the next few weeks. Identify by name and describe in detail the specific tool that is being used by the Federal Reserve, and then based on what it is doing, explain whether you would recommend borrowing at this time or waiting until later, and explain why.

Scenario Two

Assume you have recently been hired as the new manager of EyeTech Company, an innovative company that sells specialized eye care equipment, primarily to Ophthalmologists, Optometrists, Eye Surgeons, Clinics, and Hospitals. You have decided that in an effort to increase sales, EyeTech will use one form of price discrimination for at least one year. There are typically three different degrees of price discrimination to choose from First Degree, Second Degree, and Third Degree.

1. Explain in detail the meaning of First Degree Price Discrimination, Second Degree Price Discrimination, and Third Degree Price Discrimination.

2. Assume that each degree of price discrimination can be successfully implemented by EyeTech Company. Select the degree of price discrimination that you believe will be the most successful in improving sales, and explain why. (Note that you can only select one specific degree. Do not select more than one degree or a combination of degrees)

3. To also gain more insights into EyeTech's primary consumers and their demand for EyeTech's products, you have decided to use one of the four strategic tools for managers highlighted in the Module Three Lecture to better understand consumer demand. Identify and describe the tool (one only) you believe would provide the best insights into EyeTech's primary consumers, and explain why you believe this particular tool would be the best one to use.