Explain the stages of money laundering

Reference no: EM132913212

Corporate Business Finance

The Crash

In 1845, the Bank of England tightened its monetary policy by raising interest rates, which has a tendency to pop economic bubbles as capital is no longer as cheap as it once was and now higher-yielding bonds become more attractive to investors again. Soon after, in 1846, the railroad stock index peaked and began to drop rapidly due to the combination of higher interest rates and growing investor realization that many railroads were not as profitable or even as viable as stock promoters made them appear to be. Railroad stocks proceeded to sink by 50% from 1846 to 1850 a plunge that was exacerbated when railroad companies called in the remaining 90% of the money that they had lent to stock investors as a part of their promotional scheme . Once-comfortable middle class and affluent investors who had sunk their life savings into railroad stocks were financially-ruined after the bubble popped.

The popping of the railroad stock bubble, revelations of widespread fraud and poor financial planning caused a vast wave of railroad companies to fail and abandon their ambitious plans. Nearly one-third of railroads that were authorized by Parliament were never even built. Railroad development slowed considerably in the years following the Railway Mania and the only new lines that were constructed during this time were done so by larger companies. Railroad development continued to grow in the 1850s and 1860s, but nowhere near at the feverish pace of the 1840s.

An article by Jessie Colombo - 19th April 2012

You are required to

• To explain using a theoretical model;
• the events that led up to the Railway Bubble
• and the reasons for its crash

• Forecast a future bubble that could have a high risk of "crashing"

• (a) Explain the stages of "Money Laundering" giving an example for each.

(b) For each stage of "Money Laundering", explain how various international / local regulations are set up to prevent Money Laundering. You must quote examples related to two different countries (Oman + another country).

• Fresh Catch PLC is a company based in Sri Lanka exporting processed fish to the USA Market. The management has decided to invest in a new machine, manufactured in the UK. The new machine will take one year to manufacture and ship to Colombo. The terms of the agreement are that Fresh Catch must pay for the equipment when it reaches the Sri Lankan Port , in one year's time.

Fresh Catch has already secured a project loan from "ABC" Bank with a maximum cap of LKR 723M to buy this machine. However, they are worried whether the project loan will not be sufficient to settle the foreign currency commitment in one years' time.

The equipment is priced at GBP 3m. The current exchange rate is 1 GBP = 230 LKR. The corresponding exchange rate for the LKR is extremely volatile and managers are concerned that the effective price could move dramatically.

The bank has advised that it will not sell GBP-Forwards for one year, nor is there a specific financial instrument to cover this payment.

The Finance Director has been offered the following suggestions:
• Fresh Catch could use a money market hedge
• Bank would charge an interest rate of 12% per annum for LKR Borrowings
• Bank would offer an interest for 7% per annum for GBP Fixed Deposits

You are required to

• Clearly advise the steps in money market hedging for Fresh Catch PLC, using numerical calculations.

• Explain the concept of ‘Currency Pegging' by evaluating an example of a pegging exercise adopted by a government. Your answer should include;
The Mechanism of pegging
The Applications to the economy

Advantages and Disadvantages

• The Securities and Exchange Commission filed charges against Samuel Waksal, the fomer CEO of ImClone Systems Inc., for illegal insider trading. In its complaint, the Commission charges that Waksal received disappointing news late last December that the U.S. Food and Drug Administration would soon issue a decision rejecting for review ImClone's pending application to market its cancer treatment drug, Erbitux. The SEC further charges that Waksal told this negative information to certain family members who sold ImClone stock before the news became public and that Waksal himself tried to sell shares of ImClone before the news became public.

In its lawsuit, filed in federal court in Manhattan, the Commission seeks an order requiring that Waksal disgorge the several million dollars in losses avoided by those family members he tipped, and that he pay civil penalties and prejudgment interest. It also seeks an order permanently enjoining Waksal from violating the securities laws, and barring him from acting as an officer or director of a public company. Source - Securities and Exchange Commission - USA

You are required to explain, using this example;

• The concept of Insider Trading and why the offence committed by Samuuel Waksal is classified as a criminal offence

• Types of preventive action implemented across the globe to minimize insider-trading practices.

Attachment:- Corporate Business Finance.rar

Reference no: EM132913212

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