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FINC20019 Money and Capital Market Analysis Assignment

   

Added on  2020-05-28

11 Pages2774 Words86 Views
Finance
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Running head: MONEY AND CAPITAL MARKET ANALYSISMONEY AND CAPITAL MARKET ANALYSISName of the StudentName of the UniversityAuthor’s Note
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1MONEY AND CAPITAL MARKET ANALYSISTable of ContentsIntroduction......................................................................................................................................2Ponzi Scheme...................................................................................................................................2Background of the Bernard Madoff case.........................................................................................3Timeline of events...........................................................................................................................4Findings of institutions and investors affected................................................................................7Outcome of the case in terms of recommendations and implication for future...............................7Reducing the chance of occurring again..........................................................................................8Conclusion.......................................................................................................................................9References......................................................................................................................................10
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2MONEY AND CAPITAL MARKET ANALYSISIntroductionThe purpose of this report is to highlight on the Ponzi Scheme and the case on theBernard Madoff relating to this scheme. This study exploits the Ponzi scheme crash forestimating the impact of negative economic shocks on the criminal result. Ponzi scheme refers tothe financial scheme created in the year 1920 and has been named after Charles Ponzi in the US.This scheme offered high returns to the costumers with the aim “Doubling the cash within threemonths”. This paper also elucidates on the findings of institutions and investors impacted. Theoutcome of this case in terms of recommendation and implication for future is also discussed inthis report. Ponzi SchemePonzi Schme is basically a fraudulent investing scam that promises higher return rateswith less risk to the investors. In this scheme, the returns are usually paid to the depositor eitherfrom their own cash or from the money paid by subsequent investors (Frankel, 2012). Theorganization that is engaged in this Ponzi scheme focuses to attract new clients for makinginvestments. This new income has been utilized in paying returns to the investors, marked asprofit from genuine transactions. This scheme mainly relies on the constant investment flow inorder to give returns to older depositors. There at times when these schemes commence operations in terms of rightful investmentvehicles that includes hedge funds. This hedge funds easily degenerate into Ponzi scheme if theyfail in legitimately earn expected returns (Rantala, 2012). The investors within this scheme mightface huge difficulties when they try to take money out of investment. Even the promoter’s tries
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3MONEY AND CAPITAL MARKET ANALYSISto reduce withdrawals by providing new plans to depositors in which the cash cannot be takenout for specific time period in exchange of higher returns. Bernard Mandoff’s financial fraud had been one of the biggest lasting Ponzi scheme. Heimplemented same strategy as that of Charles Ponzi (Aliber & Kindleberger, 2015). As formerchairman of NASDAQ stock market and founder of wall street firm, he had drawn promisingresult and also guaranteed proper rate of return. He did not disclosed the origin of money thatcame in business and went. Background of the Bernard Madoff caseBernard Madoff had started his organization in the year 1960 as stock trader with thetotal amount of $5000. His business started to develop by taking assistance from accountant.Madaff operated Ponzi scheme under the investment advisory business for near about 40 years.He took the assets of clients, transferred their cash to his personal accounts and even mailedfictitious statement of their account for hiding ruse. However, when his clients withdrew theirfunds, he utilized obtained capital from other depositors in paying out redemptions. Madoff soldhis commodity to his clients as hedge fund (Deason, Rajgopal & Waymire, 2015). Even he didnot met with his investors and refused in divulging any data pertaining to his company’spractices. In 1980, the market creator division of Madoff traded up to 5% of total volume that ismade on NYSE. The scheme mainly began in 1990. In the early 1990, he suffered losses withEuropean bank. Despite admitting this losses to his customer, he started in giving false returns.The analysis of Madoff case was basically performed by Markopolos, before this schemecollapsed. He started to send report to SEC in the year 2000 about the operations of Madoff. Bythe year 2005, Markopolos gave detail about Madoff fund in the letter to SEC titled “The largest
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