Financial Institutions Management Report - Semester Analysis

This report, focused on Financial Institutions Management, analyzes two key questions. The first question explores the prediction of U.S. interest rates, the suitability of different loan types (fixed vs. floating), and the impact of Canadian interest rates on the U.S. market. The analysis considers factors like economic growth, government spending, inflation, and household savings. The second question examines the problems associated with issuing too many shares in the stock market, including ownership dilution and capital structure impacts. It also outlines the role of securities firms, specifically underwriters, in the Initial Public Offering (IPO) process, highlighting their function as intermediaries and risk evaluators. The report concludes with predictions on U.S. interest rates and the role of underwriters in the stock market.

FINANCIAL INSTITUTIONS
MANAGEMENT

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................1
Introduction......................................................................................................................................1
Discussion........................................................................................................................................1
A. Prediction of U.S. Interest rates in the next year as per the provided information............1
B. Based on provided situation suitable type of loan.............................................................1
C. Change in forecasted upcoming trend of U.S. Interest rates.............................................2
Conclusion.......................................................................................................................................2
QUESTION 2...................................................................................................................................2
Introduction......................................................................................................................................2
Discussion........................................................................................................................................2
Problems of issuing too many shares in stock market............................................................2
Role of securities firm which are providing services as underwriter.....................................3
Conclusion.......................................................................................................................................3
REFERENCES................................................................................................................................4

QUESTION 1
Introduction
Rate of interest determined with several aspects like budget deficit, monetary policies,
household savings etc. in an economy. The question reflects that how future trend of interest rate
is predicted and shown about the appropriateness of kind of loan after considering provided
information. Apart from this, it shows that due to changing in interest rates of another economy
in which way future direction of U.S. Interest rates affected.
Discussion
A. Prediction of U.S. Interest rates in the next year as per the provided information
On the basis of given information, economic growth will stagnant or increase with the
low rate in upcoming periods. Along with this, reduction in government spending and enhance
inflation with 3 percent are also sign of declining demand of the loanable funds. When talking
about the supply side then, households not make more savings in the bank and other financial
institutions. In addition to this, Federal Reserve bank expects that current supply level of
loanable amount will remain constant in the next period. Due to which it can be assumed that,
supply should remain unchanged of the funds which are loanable.
After considering the above stated assumptions it can be said that, demand and supply of
loanable amounts should reduce and constant at the next year. Therefore, it has been predicted
that, future trend of U.S. Interest rates should decline or downward in the upcoming fiscal year
(Spaulding, 2017).
B. Based on provided situation suitable type of loan
As per the given information, rate of interest will fluctuate over the every month where it
may be increase or decrease. Further, if the interest rate improves then lead to create economic
burden on the people and firms. Under the fixed rate, the loan taker is free from fluctuating cost
burden of debt. Henceforth, fixed rate loan at the 8 percent interest is more suitable to make an
investment in comparison to the floating rate.
On the opposite of this, if it is expected that interest rate will fluctuate with the lower rate
in upcoming year then floating-rate loan will be the most appropriate. Under this, chances of
losing money will become negligible as compare to fixed-rate loan.
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C. Change in forecasted upcoming trend of U.S. Interest rates
When interest rate of Canadian economy is higher than US, in this case investors take
their savings back from US banks and financial institutions. Further, withdrawn amount will be
invested in financial institutions of Canada for earning the high rate of interest. At this position,
they have to convert US dollars into Canadian dollars where risk of exchange rate imposed. As
the savings withdrawn from US banks, level of supply of loanable funds also reduce with same
extent which lead create upward pressure on interest rates of US economy. Due to boost up
interest rates, growth of economy and budget deficit both have pressure on this rate in downward
trend. Therefore, still it has been forecasted that, there will not any change in the US interest rate
and decline in future years.
Conclusion
From the above question it can be concluded that, US interest rates will decline in next
year because of supply and demand of loanable funds should remain same and reduce
respectively. Further, as per the provided situation, fixed-rate loan is the suitable for making
investment in banks. Moreover, as per the condition of third part of the question, it can be
estimated that US interest rates will also decline.
QUESTION 2
Introduction
Stock market is the place where different kinds securities and commodities are traded
between two parties. The present report shows impact of issuing too many shares in the market
on the business firms. Beside this, it reflects role of an underwriter which is one kind of security
entity in stock market.
Discussion
Problems of issuing too many shares in stock market
When the company issue high number of shares in the stock market then very main
danger creates is that, ownership of the company diluted up greater extent. Apart from this, if it
issues preference shares then has to pay more amount of dividend which lead to decline net profit
and financial performance in the industry. Capital structure of the overall business also affects at
the end of an accounting period due to issuing more shares (Issuing More Shares, 2017). In
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addition to this, when stock is high in the market then may be possible that demand enhances.
Further, share prices improve along with high fluctuations which is other danger in overall stock
market.
Role of securities firm which are providing services as underwriter
In relation to securities, the underwriter is one part of the IPO procedure at the time of
issuing equity shares only in stock market. When the shares issues through IPO in market then
underwriters sign contract with respective firm for selling among public. Therefore, it plays role
of an intermediary between stock market and shareholders for trading. In addition to this, it is
one kind of firm which plays major role is to evaluate risk of the shares or securities (Jaberman,
2017). On the basis of associated risk with securities, the shareholders take decisions for making
investment in the shares.
Conclusion
It can be assessed from the present question that, issuing higher shares lead to create
adverse impact on capital structure, dilution of ownership, share prices and net income of the
company. Moreover, main role of an underwriter is intermediary party between public and listed
company at the time of Initial Public Offerings (IPOs).
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REFERENCES
Issuing More Shares, 2017. [Online]. Available through:
<https://www.yourcompanyformations.co.uk/learning-centre/how-to-issue-more-shares-
company/> [Accessed on 17th August 2017].
Jaberman, 2017. The Role of an Underwriter. [Online]. Available through:
<http://www.streetdirectory.com/travel_guide/29033/business_and_finance/
the_role_of_an_underwriter.html> [Accessed on 17th August 2017].
Spaulding, W. C., 2017. Interest Rates and Loanable Funds. [Online]. Available through:
<http://thismatter.com/economics/interest-rates-loanable-funds.htm> [Accessed on 17th
August 2017].
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