Pages:3

  1. Discuss the theoretical arguments in relation to neoclassical and managerial motives of takeovers

The ‘neoclassical’ set of theories suggests that firms will engage in takeovers if this leads to an increase in wealth for the shareholders of the acquiring company. The increase in wealth may arise from the following areas

  • Economies of scale. M&A brings together two or more firms into one. Consequently, the merged entity increases its size, and as such the realization of economies of scale is envisaged.
  • Firstly, it is argued that lower interest rates are charged because larger firms are usually perceived as being less risky than smaller firms. Secondly, it is argued that the transaction costs involved in raising finance become proportionately lower as the amount of finance required increases.

However, the ‘managerial’ school of merger motives upholds the view that management will seek to maximize its on utility whether or not this is consistent with the maximization of shareholder wealth. Firms will maximize sales not profits. Firms maximize a sustainable growth level, at which profitability is constant. Moreover, in conditions of imperfect competition improvements in efficiency are likely to be offset by increases in costs due to management slack. Hence, mergers will probably not improve profitability, even if efficiency gains are expected to occur.

  1. To what extent do mergers and acquisitions (M&A) impact on the wealth of shareholders?

We live in a low inflation and low interest rate situation, so it is a big incentive for the corporates to take transformative decisions.  One of the main objectives of mergers is to maximize the shareholders’ value by the means of increase in dividends and increase in share prices, so the shareholders can enjoy the capital gains. But, is almost two third of cases, mergers produce wealth gains for target shareholders and more or less zero gains to acquirers. the cumulative abnormal returns (CAR) of target firm has been increased to 14.8% after merger and the bidding firm loose a significant 2.2%, whereas the combined firm neither created nor destroyed the shareholders’ value. Also, the long term performance is improved when mergers involve inefficient bidders, payment not just made by cash and earnings are not diversified. Shareholders of the acquiring company experience a marginal loss of voting power, while shareholders of a smaller target company may see a significant erosion of their voting powers in the relatively larger pool of stakeholders. Moreover, if equity is used as a method of payment instead of cash, then merger deals earn lower returns because of the fact that equity signal to the market that the equity is overvalued.

  1. Using one example, discuss how event study methods can be used to test hypotheses in Finance?

An event study is a statistical method to assess the impact of an event on the value of a firm. Finance theory suggests that capital markets reflect all available information about firms in the firms’ stock prices. Given this basic premise, one can study how a particular event changes a firm’s prospects by quantifying the impact of the event on the firm’s stock. Finance scholars have developed the ‘event study methodology’ to perform this type of analysis – in its most common form, with a focus on stock returns, in less used forms, with a focus on trading volumes and volatilities. The steps for an event study are as follow:

  • Definition
  • Criteria
  • Normal and Abnormal Return Measurement
  • Estimation Procedure
  • Testing Procedure
  • Empirical Results
  • Interpretation

Suppose that there are two factors that affect returns: Size and B/M (Book Equity, Market Equity). We do not know whether there is a stable or linear relationship, then what to do? Sort all returns into 10 deciles according to size. Compute the average return of the 100 portfolios for each period; this gives us the expected returns of stocks given the characteristics.

For each stock, study:

  1. What size decile the belong.
  2. Find in what B/M decile.
  • Compare the return of the stock to the corresponding portfolio return.
  1. Deviations are called “abnormal” return.

In 1989, Frank and Harris published a study that examined the effect of over 1,800 U.K. takeovers on shareholder wealth in the period 1955–1985. It shows that around the merger announcement date targets gain 25 to 30 percent and bidders earn zero or modest gains.

Pages:6

Case Questions

 

  1. What are the goals of the Harvard Management Company (HMC)? What are its investment horizon, sources of income/revenue, spending, and growth goals?

The goal of Harvard Management Company (HMC) is to provide active strategic management to the Harvard university endowment funds. Its investment strategy aims at adding value by engaging investment professionals who actively seek superior returns across a diverse array of asset classes. In the fiscal year 2000, the company oversaw the management of $19 billion, of which $15 billion was from the endowment funds. The primary sources of income for HMC was the endowment funds (25%), tuition fees (30%), gifts, and grants.

Moreover, as of 2000, the company’s active management strategy had produced a real return of 11.3% per year for the previous ten years. However, the expenses generated by this proactive strategy had been $93.1 billion; 49 basis points of total assets under management. The long term goal for the endowment was to distribute between 4% and 5% of the endowment to the schools within Harvard University, while at the same time preserving the real value of the endowment and allowing for real growth. Harvard spending had been growing at 3% after inflation. Therefore, it would require a real return between 6% and 7%.

  1. What are the differences between real and nominal returns? Why is HMC focusing on real returns? What other return/risk characteristics does HMC consider?

Nominal returns are what an investment generates before taxes, fees, and inflation. It is the net change in price over time. However, real yields are the actual value of returns after adjusting for inflation, income tax, and fees. The historical average rate of endowment gifts is 1%. Therefore, the goal of 4% and 5% distribution among the schools, and the continued spending of Harvard at 3% after inflation would require an investment real return goals between 6% and 7%.

To determine the relevance of an asset class for its portfolio, the HMC considered three characteristics: expected future real returns, the volatility of real returns, and the correlation of the real return on each asset class with the real return on all other asset classes. To estimate these characteristics, HMC historical data on real returns and the assessment of experts.

  1. What are TIPS? Describe its features. How are they different from regular Treasuries? How do they protect against inflation? When do TIPS underperform Treasuries; when do they outperform?

The U.S. Treasury Inflation-Protected Bonds (TIPS) are bonds whose principal and coupons grow with the general level of prices as measured by the consumer price index (CPI). Therefore, protecting investors from the decline in the value of money contemplated by inflation.

The Inflation-Indexed Notes are issued with maturities of at least one year, but not more than ten years. However, Inflation-Indexed Bonds have maturities of more than ten years. These securities are auctioned in terms of real yield. TIPS are structured in a manner that requires changes in the coupon of the based to change the monthly level of inflation. So technically, the principal value of the security on any date equals the value at the time of issuance.

TIPS pay interest every six months based on a fixed rate determined at the bond’s auction. However, the interest payment amounts can vary since the rate is applied to the adjusted principal or value of the bond. If the principal amount is adjusted higher over time due to rising prices, the interest rate will be multiplied by the increased principal amount. As a result, investors receive higher interest or coupon payments as inflation increases. Conversely, investors will receive lower interest payments if deflation occurs. TIPS have generated higher real returns than the U.S Treasury Bills (T-Bills). TIPS are designed to protect investors from the adverse effects of rising prices over the life of the bond. The par value—principal—increases with inflation and decreases with deflation, as measured by the CPI. When TIPS mature, bondholders are paid the inflation-adjusted principal or original principal, whichever is greater. T-Bills are not inflation-adjusted, so they outperform TIPS whenever inflation goes down, and underperform when inflation goes up.

  1. Why is HMC considering TIPS to add to their portfolio? How are TIPS returns correlated with other assets in HMC portfolio?

TIPS had offered real yield between 3.2% and 4.25%. By contrast, the real yields on T-Bills had been historically around 2%, while that on Treasury nominal bonds was about 3%. HMC believed that TIPS could be a good asset to hold in its portfolio. They thought that the real yield by TIPS suggested that a 2% real return was too low and that a better estimate was 3.5%. To study the volatility and correlation of real return on TIPS with other class of assets, HMC performed a mean-variance-analysis. The highest positive correlation witnessed was between TIPS and domestic bonds – accounted for 50% or 0.5. TIPS did not correlate with emerging markets. However, TIPS had a negative correlation with cash and foreign equity. The expected real return was 4% with a standard deviation of 3%.

  1. Examine the mean-variance analysis in Exhibits 5 and 6. What are the assumptions? How did HMC come up with these assumptions? What do the results of this analysis indicate about the inclusion of TIPS in HMC’s portfolio?

The HMC team performed several optimization tests to find the ‘efficient frontier.” Exhibit 5 showed allocation when portfolio weights for all the included asset classes, except Cash, were bound to lie between 0% and 100%; the constraint for Cash was set between negative 50% and positive 100%. Exhibit 6 shows allocation for all asset classes, except inflation-indexed bonds, were constrained to lie between 10% points above and below the weights of the HMC portfolio that was et before the inclusion of TIPS. In this exercise, the constraint for inflation-indexed bonds was set to 0% and 100%.

Overall, the mean-variance optimizations suggested that inflation-indexed bonds were an attractive asset to hold in a portfolio. Additionally, private equity, real estate, emerging markets, and commodities were also suggested to for long positions (expected to rise).

  1. Compare HMC’s asset allocation with other institutions’ (Exhibit 7). What are the similarities and differences?

From the mean-variance analysis, it was suggested that inflation-indexed bonds were an attractive asset to hold in a diverse portfolio. However, the results were not very conclusive. Therefore, HCM performed an analysis of other institutes and how they allocate their portfolios. From the study, it was suggested that HMC, in comparison to other institutes, had been short on cash and had higher holdings in foreign equities. HMC also had more considerable holdings in emerging markets. HMC had limited allocation in absolute returns, as compared to other institutes. Also, a long position in commodities was witnessed.

However, HMC had a high holding of domestic equities, so did other institutes. Additionally, allocation in private equities was as high as the average of other institutes.

  1. Evaluate HMC’s decision to add TIPS to its portfolio. Do you agree with this decision? Explain. What are the advantages and disadvantages of adding TIPS? Is 7% allocation appropriate? Explain.

After careful consideration of the mean-variance optimization results, and the portfolio of peer institutes, a new Portfolio Policy was recommended that would include a unique position of TIPS of 7%, and no shorting of cash, at the expense of smaller domestic equities and domestic bonds. In the new HMC portfolio, domestic equities will constitute 22%, down from 32% a year ago, and the U.S. bonds would add up to 7%, down from 11% last year. A 1% change was made to absolute returns, commodities, and high yield. TIPS were newly added at the expense of U.S. equities, which performed well in the past.

Nonetheless, it is thought that the new portfolio was a proper formation. Although U.S. equities performed well, they were open to risk and not adjusted to inflation. The standard deviation was very high for U.S. equities as well as for domestic bonds. Even though the inflation rate in the U.S. from 1997 to 1999 was not very high, TIPS still generated a decent return. After 1999 the inflation rate was expected to rise, hence making TIPS an even better option to hold in a diverse portfolio. The inflation factor was terrible for other domestic bonds that were not inflation-protected therefore it was suggested to limit its holdings in the portfolio.

  1. How has HMC asset class allocation changed from 1999 to 2019?

For the fiscal year ended on June 30, 2019, the return on the Harvard endowment fund was 6.5%, and the total value of assets was $40.9 billion. The allocation to public equities has increased (1999-2019) to 26%. A new asset class has been added, accounting for 33% of the total allocation, Hedge Funds. TIPS adds up to 6%, still a sustainable percentage. Allocation to private equity has been increased to 20%, which has generated a 16% return. Moreover, Natural resources have been added as a new asset class that adds up to 4%, which gave a negative 12.4% return. Cash holdings have been increased to 1% to 2%.

Nonetheless, HMC endowment allocation is relatively small to Venture Capitals (a high risk, high reward asset class), which would have generated significantly higher returns in 2018-2019.

 

Pages:8

Requirements:

1. The Not-for-Profit entity is Wildlife Conservation Society.
2. Research financial environment( Fund-raising environment, Registration requirements (Types of Registration) , Bank lending rates )Currency exchange rates, Inflationary conditions,Country risk )
3.Develop a fundraising strategy for the nonprofit organization
4.Forecast a three-year quarterly operating budget for the entity (spreadsheet with supporting assumptions)
5.Create a monthly Cash Flow Budget for year one (Spreadsheet with supporting assumptions)
6. Prepare a three-year annual pro forma Activity Statement and Balance Sheet (spreadsheet with supporting assumptions)
7.Calculate relevant financial ratios for the entity (current and forecast years)
8.Create scenarios for two possible investments and using discounted cash flow analysis evaluate each scenario
9.Identify two of the greatest risks that non-profit faces and assess their implications on financial performance using sensitivity analysis on your pro forma financial statements


Introduction

Our globe is an amalgam of enticing landscapes with majestic wildlife and vast biodiversity. Such creations have provided humanity not only the joy of witnessing eye-catching sceneries but also the much required ecological system for the sole purpose of survival.

Wildlife Conservative Society is a Non-Profit/Non-Government Organization to preserve, conserve, and protect ecologically intact places with the most exceptional biodiversity and resilience to climate change. It started over a century ago from the city of New York but has expanded to over 60 countries worldwide. Till now, WCS has managed to protect 372 areas globally, including terrestrial and coastal/marine; WCS has also assisted in establishing 268 national parks over the world. (Wildlife Conservative Society, 2019)

Mission:

To protect wildlife and wild places around the world through science, education, conservation actions, and inspiring people to value biodiversity. The mission can be further elaborated in two phases;(Wildlife Conservative Society, 2019)

  1. To conserve fourteen ecologically intact areas/region of land and sea;
  2. To hamper the decline of six species groups, including Big Cats, Elephants, Sharks/Rays, Apes, Whales/Dolphins, and Tortoises/Turtles.

How WCS Operates:

WCS core operation spans over operating zoos and aquariums, assisting in conserving areas globally, educating and spreading awareness, collaborating with governments and institutes to help to stop the extinction of rare species, and carrying out research about veterinary science, wildlife health, and disease surveillance. (Wildlife Conservative Society, 2019)

To carry out the activities mentioned above, WCS has the following sources of revenue;

  1. Charities, donations, and grants from individuals, corporations, and governments.
  2. Revenue from the sale of Zoos and Aquarium tickets.
  3. Merchandising and sale of other promotional stuff.

Financial Overview:

Source: Annual Report 2019

Critical Aspect:

For the successful continuation of operations, WCS direly relies on external funding, which includes donations and grants from individuals, institutes, and governments. Hence, any hindrance in the external environment, which WCS doesn’t have any control over, can severely hamper the operations of the WCS. In 2019, revenue from other sources such as zoos and aquarium ticket fees, merchandise licensing, and royalties only accounted for 32% of the total revenue generation. (Wildlife Conservative Society, 2019)

Source: RedLAC

Therefore, for the management, it is of crucial importance to be well aware of external factors. The administration should know what the critical external factors are and how they can impact the funding.

Vital External Factors Impacting on Funding:

Economy:

Operations and profitability of every organization are heavily reliant on the performance of local and global economies. The same is the case with NGOs; even the impact can be more severe as the primary source of cash inflow for most of the NGOs, including WCS, is external donation and funding.

1.      GDP Growth:

Source: Economic Intelligence Unit (EIU)

GDP growth is one the critical parameter of the health of an economy; a country having a high and stable GDP growth can be more inclined towards donations and funding to NGOs.

As currently, due to COVID-19, GDP growths of all of the countries in the world have slowed down, and it is expected that the recovery will only be possible by 2021.

2.      Unemployment rate:

As similar to GDP Growth rate, increased unemployment can also trigger a shortfall in the anticipated donations and charities. A sharp hike can be seen in 2020, which is primarily due to COVID-19; however, the impact is expected to mild by 2021.

Source: Economic Intelligence Unit (EIU)

3.      Lending Rate:

Source: Economic Intelligence Unit (EIU)

Another critical aspect of raising funds is the lending and borrowing environment. Low borrowing rates can be beneficial for NGOs as it can significantly reduce the cost of borrowing money. In developed countries, historical and forecasted lending rates are lower than those of emerging countries like India, Ghana, and Nigeria. NGOs operating globally should take significant benefit from the vast differences between the lending rates of developed and developing countries while raising or borrowing funds.

4.      Country Risk:

Source: Economic Intelligence Unit (EIU)

Developing countries have higher lending rates to compensate for higher risk; there are several kinds of risks when it comes to investing and operating in emerging countries. NGOs that do operations in countries located in Africa and South Asia need to be extra cautious regarding their risks. These risks can be due to political uncertainty, law and order situation, weak financial institutions, and rampant corruption.

Another critical aspect which NGOs should consider while raising money for projects in developing countries is how they will ensure the transparency, as there is a lack of proper documentation and weaker system of controls in emerging countries which can increase the chances of mismanagement of funds.

5.      Other Aspects – Inflation Rate and Currency Exchange Rate:

Source: Economic Intelligence Unit (EIU)
Source: Economic Intelligence Unit (EIU)

Usually, inflation and currency exchange rate are interlinked with the country’s lending rate. Unexpected high or hyperinflation rates can make forecasting difficult for NGOs, which can result in variance in budgets; the currency exchange rate also plays a vital role when NGOs are investing money from a developed country in a developing country. Usually, it is beneficial for NGOs that do business and maintain books in USD and invest in developing countries, as 1 USD can have a higher purchasing power in these countries.

Registration Requirements – Legal Aspect

Establishing a Non-Profit Organization might seem like a simple task. Still, in actuality, it is indeed severely technical and requires a lot of support in terms of legal and financial aspects. If one wants to start an NGO or NPO in the United States of America, it has to acquire a 501c3 status.(Dr. Saumya Arora, n.d.)

501c3 status:

A “501 C” organization in the USA is a Tax-exempt entity that doesn’t have to pay any kind of taxes. The most common among these organizations is “501 C 3,” which are known Profitable Charity organizations; these organizations are exempt from Federal Income Tax and hence allow donors to deduce their taxable incomes. Such exemptions only occur in cases when the organizations are doing charitable operations related to education, literary, religious, environmental, et cetera. (Dr. Saumya Arora, n.d.)

An organization can claim the status of “501 C 3” by filing and submittingIRS Form 1023. A filing fee would be charged, which would depend on the past annual gross receipts of the organization. Previous financial records and a forecasted budget would also be required while filing for this status. (Dr. Saumya Arora, n.d.)

Potential Risk for Fund Raising

Non-Profit Organizations currently face several challenges amid slowing down of the global economy, increasing requirement of transparency, growing competition among NGOs, and rapid increase in global warming.

The sluggish economic growth of the world can hinder NGOs’ abilities to raise potential funds, which can hurt the anticipated and planned programs and events. In this current time, NGOs might face the challenge of a shortage of cash inflows. Another critical problem for today’s Non-Profit Organizations is to maintain transparency over the proper channeling and utilization of donations and funds. Amid rumors of increasing corruption and mismanagement of funds have pushed the legal institutions globally to improve the regulations over raising and usage of funds collected through donations and charities.

The rapid growth rate of global warming has further intensified the operating environment for NGOs working for the conservation of wildlife and wild areas. Amid such happening, NGOs need to fasten their efforts toward their environmental causes, resulting in increased needs of funds and donations.

In order to understand the implication of above mentioned two risks; we can take assistance from the forecasted financial of WCS. There are three hypothetical scenarios; a base case, when everything happens as planned and no severe risk takes place; risk case 1, it is a case when due to COVID-19, donations shrink by 30%; risk case 2, when due to extreme increase in global warming, WCS has to spend 30% more over its global conservation program.

Fund Strategy for a Non-Profit Organization

Non Profit Organizations can’t talk about their plans and programs to support their causes until or unless they also talk about how they would raise enough funds to operationalize those plans. These NPOs and NGOs even can’t succeed in availing significant funds without showcasing their past projects.  Every new successful program or event of an NGO is a promotional change to demonstrate its effectiveness and capability to take on more such projects. There is a global need for innovative ways to spend transparently for the causes like wildlife and wild regions conservation; much of the awareness has been created by international treaties, climate change conferences, and NGOs which are working for such purposes. The ability of any NGO to raise funds successfully direly depends on its capability to strategize and carry out effective programs, harvest partnerships with governments and critical institutes, and market itself efficiently. (Latin America and Caribbean Network of Environmental Funds, 2011)

1.      Know your potential audience

Before devising any successful fundraising strategy, it is of crucial importance that the NGO knows about potential investors or donors. Following is the funding mix for NGOs working for the cause of protecting the environment;

Source: RedLAC

 

2.      Understanding the wants of potential donors:

Organizations looking to raise external funds must study and analyze the needs and wants of potential investors and donors; much of the donors look for following aspects in an NGO while making the donation decisions;

  • Institutional stability
  • Transparency and integrity
  • Expertise
  • Alignment with the donors’ objectives

3.      Clarity over the mission and goals:

After understanding the potential donors and their respective needs, NGOs should work on internal assessments and should develop a clear mission and goals. The goals should SMART; specific, measurable, attainable, results-oriented, and time-bound. (Latin America and Caribbean Network of Environmental Funds, 2011)

4.      Forecasts and budgets:

The next step is to quantify your ambitions and make estimated forecasts and budgets. A forecast would help in telling investors what this program would be able to achieve in the end and how much capital would be required to implement the plan. (Latin America and Caribbean Network of Environmental Funds, 2011)

5.      Analyze the fundraising environment:

This includes having a substantial understanding of current scenarios, including economic, political, and social happenings. This will further help in finessing the fundraising strategy and objectives. (Latin America and Caribbean Network of Environmental Funds, 2011)

  1. Implement:

Now as the NGO has a clear understanding of;

  • who might be the potential donors
  • what are donors looking for in a donation opportunity
  • what it wants to achieve
  • how it will make the goals mentioned above and mission and how much it would cost
  • how the external environment is working

Once an NGO has a firm grip on all the aspects mentioned above, it can proceed further by approaching potential investors and donors. (Latin America and Caribbean Network of Environmental Funds, 2011)

 

 

Possible Cases of Investments:

Let’s consider two hypothetical investment scenarios for Wildlife Conservative Society.

Investment Scenario 1:

In this scenario, WCS’s management decides to establish another national park like Borx Zoo in another city of USA. In order to build such a gigantic park, WCS would require an investment of $1 billion which it plans to collect by a consortium of donors, organizations and government. As per estimates, it will require three years to construct this park and then it would be able to receive 2.5 million visitors in the first year of its operations which will grow annually by 2% for the rest of the projected tenure. Annual operating expense will increase at 3% whereas the park management would also have to incur capital expenditure nearly equal to 10% of the total annual revenue. Following are the details regarding this investment opportunity;

 

Investment Scenario 2:

In this scenario, the management doesn’t have a strategy to collect massive amount like $1 billion to construct a park like Borx Zoo as in scenario 1; the management only have $750 million from donations and charity. The management of WCS decides to build another aquarium like “New York Aquarium” in a city of USA. It will take a construction time of two years and will attract 1.2 million visitors in its first years which will further grow at 5% annually. Annual operating expense will increase at 6% whereas the park management would also have to incur capital expenditure nearly equal to 8% of the total annual revenue. Following are the details regarding this investment opportunity;

 

 

 

Financial Results of both the Scenarios:

Investment Scenario 1:

Investment Scenario 2:

 

Bibliography

Dr. Saumya Arora, n.d. How to set up 501(c) 3 non-profit in the United States, and what are its advantages?. Funds for NGOs.

Latin America and Caribbean Network of Environmental Funds, 2011. Fundraising Strategies Fundraising Strategies, Dar es Salaam: RedLAC.

Wildlife Conservative Society, 2019. WCS General Booklet, New York: Wildlife Conservative Society.

 

 

 

Pages:4

Requirements:

1000 word essay- efficient market hypothesis

It is a 1000 word essay regarding the topic: Efficient Market hypothesis. You have to explain the three forms of EMH – The weak form, semi strong form and strong form, and how to test the three forms with academic literature and empirical evidences. The attached PPT is the guideline/ structure for the essay. The information can be taken from the PPT. and use the key academic papers provided in the ppt. Harvard referencing format.


Answer:

Research suggests that most people tend to overreact to unexpected news and dramatic events. Bond and Thaller have initiated a study to find whether such behavior matters in the stock market. People indeed tend to give more weightage to recent information than prior data. One of the earliest observation in stock markets about overreaction was done by J.M. Keynes, who studied the daily variations in the returns of investments have more, and preposterous, effect on the stock mark (Keyens, 1964).  Moreover, a study done by William concluded that prices rely too much on earning capacity of the company, rather than on the long term dividend-paying capacity of the company (Williams, 1956).

Additionally, a study by Kleidon showed that the fluctuations in price are strongly correlated with the changes in earnings in the subsequent year, which depicts a clear pattern of an overreaction (Kleidon, 1981). Another study showed that the stock splits after an increase in volatility of investment returns is also linked to overreaction (Penman., 1983). For their findings, Bond and Thaller collected a portfolio of stocks that experienced extreme losses and extreme gains, for five years. They name it “winner’ and ‘loser.’ However, the portfolio was formed solely on past earnings on the investment. Hence, their study was based on three types of returns market-adjusted excess returns, residuals, and excess returns measured through CAPM. Moreover, the ‘loser’ portfolio is no different than the winner portfolio, in terms of the market value of equity, financial leverage, and dividend yield.

Nonetheless, the result showed that the ‘loser’ portfolio of the 35 stocks outperformed the market indexby more than 19.6%, thirty-six months after the portfolio was created. However, the ‘winner’ portfolio gave poor result than the market index by 5%; the difference of extreme portfolio was 24.6%. Furthermore, the overreaction effect was skewed – that is, it was much larger for ‘loser’ than for ‘winner.’ Most of the surfeit returns were calculated in January of each year. In month 1, 13, and 25, the ‘loser’ portfolio’s returns were 8.1%, 5.6%, and 4.0% respectively. Additionally, Bond and Thaller found that most of the overreaction has happened during the second and third years. Every December, both the portfolios are formed on the basis of previous residuals. Persistently, ‘loser’ portfolios earn higher returns in January, and the ‘winner’ portfolio earn comparatively fewer returns. This January phenomenon may occur because investors may wait years before comprehending dropping returns and the seasonal trends of the market. ‘Loser’ portfolio was less risky as well (THALER, 1985)

 

The Efficient Market Hypothesis (EMH) is an investment theory that elucidates that an investor might get lucky by achieving higher returns in the short run. Still, in the long term, he cannot obtain a return on his investment more significant than the market average. The main idea of the theory is that a stock price always reflects its real value. Moreover, Efficient Market Hypotheses gives no merit to technical analysis. The reason is that technical analysis is solely based on historical data of the stock, which, if Efficient Market Hypotheses holds, is reflected in the current price. Technical analysis is based on the investors’ anticipation of predictable patterns based on past performance. However, Efficient Market Hypotheses that even the investors’ sentiment is reflected in the current price.

Additionally, previous prices and returns have no relation to future returns and price. Therefore, there is no point in adopting technical analysis. According to Efficient Market Hypotheses, the best approach an investor can choose is to invest in a low-price passive portfolio.

Furthermore, fundamental analysis is based on a company’s financial information such as the income statement and balance sheet to evaluate the stock price. Under the assumptions of strong Efficient Market Hypotheses, information is depicted in the stock price. There information known to private and the public are the same, and there is no superiority. In this scenario, fundamental analysis has no use. Because the stock price already reflects the intrinsic value. Under the assumption of semi-strong Efficient Market Hypotheses, the information knows to the public is already reflected in the stock price. The company’s financials are aligned with the stock price. So there is limited merit to fundamental analysis in such cases. However, under the assumption of weak Efficient Market Hypotheses, only the market information is reflected in the stock price. If a company announces a big deal or its annual reports, it is immediately reflected in the stock price. With such a scenario, there is room for fundamental analysis to work when it is based on an information advantage. With the merits of both the techniques discussed, one can formulate that if Efficient Market Hypotheses assumptions hold, then fundamental analysis has more potential as compared to technical analysis.

The strong form version of Efficient Market Hypotheses has little merits. But, The Strong form efficiency is reflected in a study done on active investment funds, by Michael Jensen, who evaluated the performance of 115 investment funds. The study indicated that 58 out of 115 funds gave below the market returns. The deviation of ten years’ back from the line market average was -2.5%. The strong form efficiency holds the belief that no data, whether private or public, can alter the returns for an investor because they are already contemplated in the price. Inside information can help an investor in the semi-strong form of Efficient Market Hypotheses, but in case of strong Efficient Market Hypotheses, holding on to private information will do no good.

Even though under the assumption energetic form efficiency, all the information is displayed, there are still some ways to perform better than the market. For example, analyzing companies with a low P/E ratio produce higher returns. Moreover, the neglected firm effect implies that companies that are analyzed by market analysts are often priced wrongly. The January effect studied by Bond and Thaller showed that portfolios tend to have higher returns in January.

References

Keyens, J. M., 1964. The General Theory of Employment, Interest and Money, London: s.n.

Kleidon, A. W., 1981. “Stock Prices as Rational Forecasters of Future Cash Flows, s.l.: Graduate School of Business, University of Chicago.

Penman., J. A. O. a. S. H., 1983. Variance Increases Subsequent to Stock Splits: An Empirical, s.l.: Graduate School of Business, Columbia University.

THALER, W. F. M. D. B. a. R., 1985. Does the Stock Market Overreact?, s.l.: s.n.

Williams, J. B., 1956. The Theory of Investment Value, s.l.: Amsterdam .

 

 

Pages:4

A Critique

Summary

During the 1970s, the dim periods of administrative abundance, globalization was obstructed by intense limitations forced by governments on outpourings from their capital markets. The United StatesandUnited Kingdomorganisationstackled a portion of these limitations by contriving equal credit understandings.Whereby United Statesorganisationssubsidisedshares of United Kingdomorganisations in the United States and United Kingdom organizations subsidized backups of United States organizations in the United Kingdom, subsequently avoiding cross-fringe movements. Be that as it may, these courses of action were perplexing and dependent upon legal wheeling and dealing. The swap turned out to be a rather simple solution to the issue.

Organisations in the two nations were getting progressively globalised and required financing for their worldwide ventures. Thus, a back-scratching plan emerged whereby a United States organisation with activities in the United Kingdom would give dollars to a United Kingdomorganisation’s auxiliary in the United States. Simultaneously, the United Kingdom parent organisation would provide funds for theUnited Statesorganisation’s backup in the United Kingdom.

Rather than loaning monetary standards back and forth,the newly conceived swap acquired the ideal outcome by a direct trade of proportionate measures of two financial standards and a reverse trade of equal measures of similar monetary standards in the 10 years, balanced when the estimation of money. The first swap was finished a couple of months after the fact, in August 1976.

Contribution

The article has incorporated a practical element into an otherwise theoretical topic. Apart from discussing the concepts of both ‘Swaps’ and ‘Parallel Loans’ it provides a detailed insight into the application of both the ideas in the practical financial world by elaborating on a real-life example. Another exciting thing that I believe this article has brought forward is a different way of looking at the existing financial instruments. By laying particular emphasis on how the concept of Swaps was derived by crucially analysing, it has established that there are no limitations to financial instruments by moulding the current financial instruments.There is a universe of different ways of producing new and useful instruments. It establishes that the financial world has unlimited possibilities.

Strengths and Weaknesses

The article, in my opinion, is particularly strong while discussing the background and the context that led resulted in a need for a new instrument to be created. It further provides excellent arguments on the technical fronts of parallel loans and swaps. Weighing down the technicalities of swaps against parallel loans, it has successfully demonstrated how the swaps are much less risky and convenient than parallel loans. However, I believe it has a few shortcomings too. Although it has established how swaps are a better alternative to parallel loans, it fails to analyse the downsides of swaps. It has argued that during the 1980s, swaps and other derivative instruments rose to prominence. Still, unlike for how it provided a practical example leading to the creation of swaps, it fails to back this claim with any actual example of successful and foolproof use of swaps.

The informational role of open interest in the futures market

Summary

This article inspects the long term relationship between open interestandfutures markets. It turns out that the open interest rates of the futures markets for products that can be stored havebeen samefor futures prices for a long time, yet we cannot say the samefor the non-storable futures markets. Besides, the futures prices will, in general,be a factor for open interest for storable products over time, butmay not work oppositely.

Open interest is a significant marker of trading movement exceptional to futures and alternative markets and has as of late got much consideration in writing. The examination of the long termaffiliation in inspired by the volatility of future values and also open interestin the writing. Notably, future prices are nonstationary. Correspondingly, earlier examinations have additionally given proof to nonstationary properties of open interest for some futures markets. The article explores the conceivable prolongedrelations among futures values along with open interest, giving extra proof to the effect of open interest on the stable portion of future prices. Next, if there is a long term correlation between open interest and future prices, it is additionally researched iffuture rates move open interest for the long term or the short term. The long term connection test between open interest and futures price gives immediate proof on the long-lastingconnection amongst open interest for futures markets. The discoveries of this examination ought to have significant ramifications for futuresto advertise efficiency.

The outcomes recommend that the open interest date cannot be a sufficient measure to anticipate futures prices over the long term, an outcome encouraging the thought of futuresshowcase methodological and smart planning. The discovery holds for both storable and non-storable futures as showcased in the analysis. The discovery shares the same data between futures prices and open interest streaming after the previous to the last-mentioned for storable futures markets. For the non-storable futures markets, additionally keeping this assumption up, as open interest for these agreements might include relevant long-run data onfutures prices. The significant ramifications are that showcased members will most likely be unable to utilisespecialised investigation using open interest to foresee future conduct of futures costs reliably.

Contribution

The article has proved to be of immense use to financial professionals. It has provided a thorough statistical investigation which helps in drawing the relationship between long term and short term futures prices, which might be helpful in future for reference purposes. Apart from merely providing statistical evidence to establish an association between futures prices and open interest rates, it has demonstrated how the role played by open interest rates is crucial and essential for the futures market and the futures pricing.

Strengths and Weaknesses

The article has no particular weaknesses; it is as thorough and analytical as is it can get. In portraying the relationship between long and short term futures prices and open interest rates, it doesn’t just use theoretical knowledge. Instead, it backs its hypothesis by a detailed statistical analysis spanning over 10 years consisting of not just stocks, but essential commodities too. It provides an extensive discussion regarding the data and methodologies used. I believe the article is genuinely magnificent.

Pages:5

Sequence and Series Questions

Geometric Series.

We use the following formula

Sn=a1(1−rn)/1- r   where r ≠ 1

Example. Let’s suppose we have a chess board. A chess board has total of 64 squares (8 * 8). IF we add rice grains on first square, two rice grains on the second square, four grains on the third square and eight grains on the fourth, the sequence continues until all the squares are filled with certain amount of grains. Now find the total number of grains required to fill the chess board squares with the given sequence.

Solution. To find the sum of grains we use Geometric progression formula given above. In the given scenario, a1= 1, r = 2 (double the amount when we move to next square), n = 64 (total number of squares).

Putting values in the formula = 1 (1 – 264)/1 – 2

= 264 – 1

=  18,446,744,073,709,551,615

 

A geometric series is a series of numbers in such a manner that the numbers after the first is obtained by multiplying the previous number by a constant number. To find the sum of a finite geometric series the above formula is used.

In this scenario, the number of grains increases by 50%, that is we have to multiple the next number with a constant number i.e 2 until the whole 64th square.We do not multiply 54 by two because there is no next number and we multiply 2 until 63 only.

1.1. Series Question

Formula.  Un = U1 Un-1

Example. With the given sequence 12,6,3,1.5,0.75… Find the 10th number in sequence and the general Un term.

Solution. By using the formula above.

Un = 10. (½) n-1

Or, Un = 23*2-1(n-1)

Un = 23 * 2n + 1

Un = 23+1-n

Un = 24-n

To find the 10th number in sequence.

U10 = 24-10

= 0.015

 

  1. Future value of Compound Interest

Formula. FV = PV (1 + r/n) tn

Example. If you deposit an amount of $5000 into a saving account that has 7% annual interest, compounded monthly. You keep your money in the bank for 10 years and then withdraw it. And, your friend deposit the same amount at the same bank but withdraw the amount after 8 years.

Calculate the total amount you will and your friend will have after you both withdraw.

Solution.

Using the above formula, here PV is $5000, r = 7% or 0.07, n = 12 (months in a year), t = 10(yours) and 8 (for your friend).

If we put the values

FV = 5000 (1 + 0.07/12) 12 * 10

= 10,044.31

After 10 years, you will have $10,044.31 in your bank account.

FV = 5000(1 + 0.07/12) 12*8

= 8,736.2524

While your friend will have $8,736.25.

The thing is, compound interest unleashes its power with time. The more time passes, the stronger it becomes. “Compound interest is a magic”

Even tough, you and your friend has save the same amount, given the same interest rate, but your friend withdrew the amount just 2 years before you and look at the difference of amount he has lost.

  1. Future Value of Annuity

Formula.  FV = A ((1 + r)n– 1)/ r

Where; r is interest rate

A is the annuity amount and n is the number of periods

Example.  You are paying a student loan of $1000 each month, for the next 12 months. The monthly interest rate in 13%. What is the future value of the payments that you are making?

Solution. To know the future value of your payments, use the above formula.

FV = 1000((1 + 0.13)12 – 1) / 0.13

$11,1000

After 12 months, you’d have paid total amount of $11,100 in your student loan. Because each month the amount of interest passes an incremental increase. First month you pay 1,130, the next month you pay 1,130*1.13 = 1276.9. The month after that 1442.89 (1276.9 * 1.13).

Formula.  A = P ((r (1 + r)n – 1 ) / ((1 + r)n – 1) )

P = loan payment

A = Periodic repayment amount.

n = number of repayments.

i = interest rate.

Example. You borrowed $10,000 at a rate of 6%. You want to repay it in five equal instalments over five years, with the first repayment one year after you out the loan. How much should each repayment be?

Solution.  With equal amount of payments each year, you will have to

A = 10,000 * 0.06(1.06)5 / ((1.06)5 – 1)

= 2373.96

You will pay $2373.96 each year for five years.

Even though you pay the same amount each year. But, with each year you pay less interest because the total amount of loan decreases. In the first year you pay an interest of $600. In the second year, you pay interest of $493.56 because the interest is charged on $8226.04 (10,000 – 2373.96). For the third year you pay an interest of 380.74.

 

Pages:4

Financial futures and options are subcategories of financial derivatives that are primarily used for trading financial risks associated with the price fluctuations of different assets.( Statistics Department, International Monetary Fund, 1998).  Before 1972, the utilization of futures and options was fundamentally limited to assets about agriculture; however, with time, traders started to take advantage of this financial instrument in their tradings of foreign currency, interest rates, and stocks, etc.(William L. Silber , 1985).  As the term refers, derivatives are instruments that derive their value from the performance of their underlying assets; unlike debt instruments, no principle amount is advanced to be repaid later, and no interest rate is charged.( Don M. Chance, PhD, CFA, 2019). This paper will further assess the similarities and differences between the subclasses of financial derivatives, futures, and options.

Future contracts are instruments through which two parties mutually agree to trade a specific asset at a fixed price on a predetermined date in future – as both of the parties are bound to complete this transaction, future contracts fall in the subcategory of financial derivatives known as “Forward Commitments.” ( Don M. Chance, PhD, CFA, 2019). On the other hand, financial options also fulfill the same objective as of future contract,s but here the instrument provides the right but not the obligation to complete the transaction to the buyer of the instrument; hence, categorizing under the subcategory of financial derivatives known as “Contingent Claims.” ( Don M. Chance, PhD, CFA, 2019)

Besides the similarity that both of these instruments grant the opportunity to trade a particular asset at a predetermined price in the future, other commonalities between these two instruments also exist. Just like other financial instruments such as stocks and bonds, both – future and option can be traded on standardized exchanges and over the counter (OTC) markets.(Ernst Juerg Weber , 2008). Derivatives, which are regulated, are traded on exchanges whereas customized derivatives trade on OTC markets; standardization of a financial derivative contract means that the terms and conditions are specified explicitly by the exchanges. (Jaffee, Dwight M., 1986). Another similarity between the two financial instruments is that both provide the holder an opportunity to multiply the power of the cash; hence, making them leverage instruments. Here leverage precisely means that the buyer of the derivative can make more profit by buying a future or an option on a similar move on its principal asset than the buyer would have if he had purchased the same underlying asset with the same cash.(C. Sherman Cheung Clarence C. Y. Kwan Patrick C. Y. Yip, 1990).

Although both futures and options may appear similar on the surface, there exist few stark differences between both, which is essential to understand before getting into the trading of these instruments.

The fundamental difference between the future and option is that the parties involved in the future contract have to buy and sell the underlying asset at a scheduled date, making futures as legally binding agreements. (Flesaker, Bjorn, 1993). Whereas, the buyer of the option has the right but not an obligation to exercise the deal, and it relies on the inclination of the buyer that whether he would want to trade the underlying asset or not. The second key difference between the future and the option is standardization. ( Don M. Chance, PhD, CFA, 2019). Futures contracts are highly standardized and regulated as per the requirements and regulations of exchanges where they are traded. Hereby standardization, it is meant that features of future instruments like the specification of underlying assets, date and time of expiration, conditions of settlement and delivery, the quantity of the underlying asset, etc. are usually regulated and standardized. (Park, Hun Y; Chen, Andrew H., 1985). On the contrary, option instruments are flexible and customized as per the requirements and desires of the trading parties. Having a substantial level of standardization makes the futures more liquid than the option agreements.(BRADFORD CORNELL MARC R. REINGANUM, 1981).  Future contracts also enjoy a central clearing facility from the trade exchanges; moreover, these exchanges also offer protection against losses and defaults to holders of the instruments. ( Don M. Chance, PhD, CFA, 2019) . Option contracts are generally traded at over the control market which is not as regulated as proper future trade exchanges; hence, making option contract less liquid than its counterpart. (MENACHEM BRENNER GEORGES COURTADON MARTI SUBRAHMANYAM, 1985)

Another dimension where future and option differ from each other is the level of risk. As the buyer of the future has the obligation to complete the deal and has to buy or sell the underlying asset even if the price movement is against his benefits; whereas, the buyer of the option has the right but not any forceful binding to exercise the deal, if the price movement of the underlying asset is against his benefit, the buyer won’t fulfill the agreement and reduce the amount of losses he has to bear. As to conclude, a future instrument doesn’t provide any floor or ceiling to the potential loss or gain the buyer can achieve; however, an option agreement can bring unlimited gains to the buyer, but it does protect from losing the unlimited amount of money.( Don M. Chance, PhD, CFA, 2019)

The last distinction this paper will discuss is the advance payment. While getting into a futures contract, the buyer doesn’t pay any money upfront at the time of entering the agreement but has to pay for the underlying asset in the future eventually. Whereas, in option contract, the buyer of the instrument has to pay a premium to the other party as this premium payment grants the liberty to the buyer to not exercise the deal later; hence, compensating the other party for taking the risk. If the buyer of the option contract decides not the complete the trade at the exercise date, the premium amount he paid earlier would be the amount he would lose. ( Don M. Chance, PhD, CFA, 2019). Commission fee has to be paid for both of the instruments.

Both instruments, futures, and options, help the traders of the financial world in hedging the risk of uncertainty. With several similarities between them, there exist few stark differences which set them apart.

 

Bibliography

Don M. Chance, PhD, CFA, 2019. Derivative Markets and Instruments. s.l.:CFA Institute.

Statistics Department, International Monetary Fund, 1998. Eleventh Meeting of the IMF Committee on Balance of Payments Statistics. Washington , IMF.

BRADFORD CORNELL MARC R. REINGANUM, 1981. Forward and Futures Prices: Evidence from the Foreign Exchange Markets. The Journal of Finance.

  1. Sherman Cheung Clarence C. Y. Kwan Patrick C. Y. Yip, 1990. The hedging effectiveness of options and futures: A mean‐gini approach.

Ernst Juerg Weber , 2008. A Short History of Derivative Security Markets. The University of Western Australia.

Flesaker, Bjorn, 1993. Arbitrage Free Pricing of Interest Rate Futures and Forward Contracts: 1. INTRODUCTION. .The Journal of Futures Markets (1986-1998).

Jaffee, Dwight M., 1986. The Impact of Financial Future and Options on Capital Formation. The Journal of Futures Markets.

MENACHEM BRENNER GEORGES COURTADON MARTI SUBRAHMANYAM, 1985. Options on the Spot and Options on Futures. The Journal of Finance.

Park, Hun Y; Chen, Andrew H., 1985. Differences between Futures and Forward Prices: A Further Investigation of the Marking-to-Market Effects. The Journal of Futures Markets (pre-1986); New York.

William L. Silber , 1985. The Economic Role of Financial Futures. American Enterprise Institute for Public Policy Research.

 

 

 

 

 

Pages:20

Introduction

Banks in Malaysia performed well in 2019 as fintech disruptions are reshaping the industry and external disadvantages, as well as the uncertainty brought about Brexit and trade disputes among China and the USA. Outside causes do not only decelerated worldwide requests but also triggered fear of a recession and protectionism, affecting business confidence and ultimately affecting loan demand?

Rupeika-Apoga et al. (2018) found that despite these challenges, Malaysian banks have demonstrated reasonable takings and resource trait, with enough wealth shields to withstand likely pressures, despite falling profit borders and loan drawdowns.

Allawala, Allawala& Saadiq (2018) stated that there are around 12 investment banks, 16 Islamic banks, 25 commercial banks, and one global Islamic bank working in Malaysia. The growth rate of loans and revenue of these banks shown a remarkable number rise and helping the country`s economy. An expert from MIDF Amanah Investment Bank said that industry earning is raised to 3.5 this year as it has a slow down since 2018. We are also amazed to see the loan growth has also increased by 3% to 4%, which was less than 2% last year.

 

Ahamed & Mallick (2019) emphasized that said modest credit from industries has steered to lower-than-expected credit advance in the year, while mortgages and retail sales have remained stable, weakening overall performance. “Companies must either delay the release of approved loans or decide to repay existing loans due to economic uncertainty”. The revenue growth with the best performance of banks are AmBank Bhd, CIMB Bank Bhd, RHB Bank Bhd but the performance of Public Bank Bhd did not perform well in the market.

He said that relatively speaking, Islamic banks continue to outpace traditional banks, with double-digit growth in revenue this year. Also witnessed FinTech’s roots in traditional banking, including CIMB International, Hong Leong Bank, Affin Bank, and AMMB Holdings, and Technology Company Grab said they are interested in obtaining virtual banking licenses in the country.

Lipton & Pentland (2018) found that CIMB Group established an electronic bank in February in Philippines recently. Besides, around 50 non-banks can issue electronic money in Malaysia, of which four-quarters provide solutions for mobile pay, accounting for 86.6% of the sector’s deals. “Boost”, “GrabPay”, “Touchn Go (TnG)”were significant in Malaysia as e-wallets. The few names are “Lazada” wallets, “Samsung Pay”, “PayPal” TnG is 55% retained by “CIMB Group Holdings Bhd”.

Kerényi&Müller (2019) realized that in terms of monetary policy, the “National Bank of Malaysia (BNM)” reduced the overnight policy rate (OPR) from 27root points in May to 3% and cut the statutory reserve requirement (SRR) from 3.5% to 3.0 in November % to maintain the monetary policy. Sufficient liquidity in the financial system. The industry’s liquidity is still abundant, with an average liquidity coverage rate of 150% this year and payments more or less outpaced loan growth. He said that meeting the requirements of the Net Stable Fund Ratio (NFSR) stipulated by the State Bank is also a key factor for banks to accumulate deposits this year.

Wu & Duan (2019) stated that the bank’s choice of assets to buy will help stabilize asset quality and thus support the bank’s Lower credit costs. Given accommodative interest rates, household/retailer credit demand has been maintained amid weak corporate demand. Despite the more nervous capital market activity, another contributing factor to revenue is the elasticity of fee income. Fee-based elastic revenue comes from enhanced funding deedsby banks so they cut OPR capital in April.

Frost et al. (2019) pointed out that given that the normalization of interest net brim occurred intwo or three quarters, the OPR reduction of the State Bank had no significant impact. In 2020, the consumer sector will continue to support loan growth and the entire bank. He said that although the OPR may be further reduced in the first quarter of next year, it will not have a significant impact on bank earnings in 2020. The insurance industry remains stable.

Gnan &Masciandaro (2018) found that the takaful business’s insurance business income in 2019 remains relatively stable. An analyst with MIDF said that the acumenamount of domestic takafulis rising gradually. As of the first half of 2009, the takaful rate has risen from 9.3% in 2009 to 15.5% double-digit growth. He said Syarikat Takaful Malaysia Bhd continues to be the best performing company, with its saturation increasing by 30% to 35% and net profit rising by approximately 40%.

Hamza & Jedidia (2020) said the same could be seen in the general business area of ​​takaful, which performs better than the traditional business due to the low bottom, even local intake, and climbingcustomer knowledge. The growth of the business of Takaful in Malaysia is superior in typical insurance, adding that the market is also partly targeted by BN’s goal to increase the proportion of Islamic financial structure drive.

“Total, the insurance of life sector did well than the insurance sector in 2019 as general, as the latter is in a phased opening of auto and fire tariffs. Customs liberalization began past year, but other insurancesthat were scheduled to yield upshot is happens this year has been deferred to next year, leaving certain room for businesses participants. In the general insurance sector, due to low penetration and increased claims, the industry declined in the first half of 2019 (the first half of 2019), a year-on-year decrease of 1.4%.

Phan, Narayan, Rahman & Hutabarat (2019) realized that the General Insurance Association of Malaysia said the industry faces a double blow, namely low penetration, and rising claims. Malaysia’s overall insurance dispersionratio has lasted to stagnate between 54% and 55% over the past five years. However, he remains optimistic about the outlook amid solidlocal request, with the growth comes from takaful of family and life insurance.

It is expect people who are non-policy owners can take advantage of the renewal and the 3,000 tax deductions in takaful.

With prudent underwriting, he is also optimistic about the general insurance sector. He continues to focus on a growing portfolio of gainful products of insurance, such as partnerships, retail, and medium-sized trades in non-automotive businesses. The sector may further consolidate in 2020, and if the government redoubles its efforts to implement the regulation, all foreign insurance companies are expected to meet Malaysia’s 30% ownership requirements.

Mester (2019) stated that the intensified competition caused by the phase-out of debt in the general insurance industry might also lead to possible mergers and acquisitions between public insurance companies.

Tech ambitions in Malaysia

As a developing country in Southeast Asia with a population of over 30 million, Malaysia has experienced quite a few turbulent years. After the previous prime minister was involved in an international corruption scandal, Mahathir, 92, was unexpectedly re-elected as the country’s leader and promised to advance several essential reforms.

Nguyen (2016) found that Around 1 trillion ringgit of Malaysia with some domestic obligations encourage people to donate funds to these banks. There are many crow funding activities made by these banks in Malaysia.

Therefore, the way of Fintech paves its roads in Malaysia. Fintech helps the country to fight corruption and enhance the economy. The political leaders of the country started to realize the importance of technology and recognized the critical role in the country`s progress. The blockchain can also improve the economy of the country if taken into consideration by authorities.

Ozili (2018) realized that according to the definition of the Journal of Innovation Management, “‘fintech’ is a new type of financial industry that uses technology to improve economic activities.”

Fintech companies include start-ups and traditional financial companies, all of which are trying to trade or improve the services of existing fiscal institutions, and the popularity of smartphones has boosted the industry’s growth.

Mavrakana&Psillaki (2019) found that in addition to startups, traditional financial institutions have also joined this industry revolution.Many banks have established their fintech innovation projects, seeking new ideas for success, and then changing the way people manage money.

Malaysia’s early incubator and investment company 1337 Ventures produced a map of Malaysia’s fintech ecosystem covering different market segments. From this picture, most of the country’s fintech companies are focusingon the field of payments and loans.

Nabilou (2019) stated that considering Malaysia’s demographic edifice more than half are Muslims, Islamic finance (financial transactions by Islamic regulations) also occupies an essential position in the country, with extensiveadvance ability.

Many articles point out that Malaysia’s fintech development is very uneven. Some segments of the market are left unattended, while others are a red sea. The company also recently launched a pre-incubation crash course specifically for the financial technology sector. The session lasts for four weeks and is a lecture by a senior local bank.

Borroni & Rossi (2019) found that in the field of e-wallets, KrASIA just stated on the e-wallet app launched by gaming company Razer and Malaysian giant Berjaya Corporation Berhad. At present, the deal has settled in more than 6,000 retail point offline. Although in Malaysia, the e-wallet field is already a market segment with many players, and there are even Chinese players-Alipay and WeChat Pay, Razer’s entry has caused waves. At the same time, Southeast Asia’s online ride-hailing platform Grab also entered the payment field last year, launched Grab Pay in Singapore, and grew its business to Malaysia in June this year.

Hartmann& Smets (2018) stated that price comparison sites are also popular in Malaysia, with significant players like“GoBear”and “iMoney” in Singapore. Both platforms provide users with identification and price comparison services for insurance and credit card financial products. Started in 2012, iMoney stated in ameeting in 2017 that although its business has covered entire Southeast Asia, more than half of the company’s revenue still comes from Malaysia.

Hakenes&Schliephake (2019) noted that they have a first-mover advantage in Malaysia for two years, so we have been growing. But in markets such as the Philippines and Indonesia, we are more or less in the stage of improving ourselves and covering so many areas,” said Lee Ching, CEO of iMoney Wei said.

1337 Ventures also lists those segments that are still the blue ocean today, including credit ratings, real estate websites, and capital market transactions.

The regulation of the Malaysian fintech industry is mainly related to financing and equity crowd funding.

 

 

Literature review

Cooperation or demise: what banks should do today, large banks are working with fintech companies in a type of styles. They want to shrink enduringcosts and defend their market share by providing clients with novel products in banking. But all failed. To work with fintech companies and truly realize value transformation, banks need to have a clear sympathy of the advance model, in addition to scope and licensing issues of the bank’s modernism, locating and retained technology purposes.

Nabilou (2019) stated that given the enormous variances in size and culture between banks, they also need to determine how best to work with Fintech companies. We believe that banks can unlock the full potential of fintech within their organizations in four steps. Banks have many groundbreaking concepts; the trail is to determine the right ideas from them and embed them in technology. The complexity, size, and isolation of banks themselves mean that it is often challenging to address this challenge effectively.

Develop a fintech framework that rewards innovation

Borroni& Rossi (2019) found that for banks, many innovation opportunities not only address structural cost challenges but also enable banks to achieve longer-term benefits. On the other hand, working evaluation and return series are frequently shorter. Therefore, when the economic environment is uncertain, it is understandable that people are concerned about agreeing on the surplus hazards of these prices of investment. Banks need to settle this internal issue. This means that banks requirements with clear plans in the context of fintech strategies.

Hartmann& Smets (2018) stated that process execution must be top-down while encouraging innovation and incorporating lessons learned. To support development, a framework for adopting innovation must be identified, with clear accountability, decision-making framework, and success criteria. Employees should be encouraged to come up with new ideas and innovative suggestions through internal social media. Also, the “hackathon” (note: technical creativity exchange activities involving corporate IT engineers) also provides a window for encouraging employees to propose and express concepts. We endorse that banks clarify the basis and processes of their intentions, and then segment related information with companies. Which like to share, causes of internal and external influences, end on processes and tolerance gages, and the drivers that support the innovation context.

Selecting the innovative business model to meet business needs

Hakenes&Schliephake (2019) noted that although there are many innovative business models currently in use, banks usually adopt one of the following three few types: central, not central, or mix of both. For the central model, the main novelty executive directs the focal advance unit to grow commercial answers. This prototype can identify not only specific innovation needs and provide new ideas and concepts for the organization, but also better coordinate work with the main tools executive and linkages with obtaining activities and supplier management and risk interests. However, one might think that the main innovation unit is far away from the corporate unit to know its wants fully. If the central pattern toils fine, Fintech companies can assist from the funding and architecture they provide. If the operation is not proper, the organization may face a longer decision-making cycle, and it will take more time to find the business initiator.

Kim, Park & Song (2016) found that the non-central classic is more common in local banks. Every unit of business controls its management process so that departments familiar with the business can catch real problems faster and find innovative institutions that can provide effective solutions. The disadvantages are duplication of work, the creation of social procedures, and a dearth of regularity. Although fintech companies work closely with many banks can work more quickly with business sponsors, it is challenging to link new ideas to business needs deprived the care and guidance of a chief unit. We like to say that, mix model is the best solution so far.

Campiglio et al. (2018) realized that we believe that a clear novelty units aids banks set the tenor and communicate the right point. At the same time, banks need clear leadership to defend innovation. We praise, however, that the void among purely innovative institutions and commercial teams wishes be as close as workable. Therefore, consider it necessary to ensure the transparency of the end-to-end innovation adoption process. The parties involved in acquiring bank innovation projects currently have little understanding of end course everything, so the confusion faced by fintech companies can be imagined.

Mavrakana&Psillaki (2019) researched that our research shows that when banks seek assistance from fintech companies to drive innovation, their preferred interaction strategy is a collaboration. Through cooperation, banks can work together to develop new technical standards for future adoption. We also pointed out in the analysis that in terms of internal product development, big banks in the region of Asia-Pacific. They are fixated than banks in the many different areas, especially in the field of digital payment. They use banks to provide services to customers who have insufficient banking services.

Junejo, Shah & Bachani (2019) noted that banks in North America tend to invest in new product development, and many large US banks choose to invest in fintech startups. European banks usually take a stable method, and they may be extra to incorporate M & A into fintech strategies. Generally, just a few of the 54 banks globally surveyed conducted extensive cooperation with fintech companies through collaboration, development of independent fintech products, investment in innovative companies, or acquisition of innovative companies.

Chol, Nthambi & Kamau (2019) found that banks have initiated or participated in numerous incubators, accelerators and programs for training to gain early entrée to tools and flair without having to rely too much on fintech companies. For fintech companies, such arrangements make it easy to get the capitals, funding,data, and social breaks they need to trail their products or services prototypes. The way to integrate with FinTech companies is not unique. However, while banks want to rely on fintech companies to drive innovation, it is often difficult for them to successfully implement new and innovative technologies, regardless of the type of integration they choose.

Zhao (2018) stated that the sooner the whole bank accepts creative ideas, the faster it will achieve sustainable change. Banks should wisely value many integration copies and select a hybrid model that can support their novelty standards and lasting development plans.

Malaysia is becoming a promising fintech market in Southeast Asia.

Kephart et al. (2018) stated that as a developing country in Southeast Asia with a population of more than 30 million, Malaysia have experienced quite a few turbulent years. After the previous prime minister was involved in an international corruption scandal, Mahathir, 92, was unexpectedly re-elected as the country’s leader and promised to advance several significant reforms.

Natarajan, Krause & Gradstein (2017) realized that when analyze the data for the years 2013 to 2017 we see how they are really very significant. In terms of investment in fintech startups in the Malaysia, $6.7 billion was raised compared to $ 4.4 billion in the rest of Europe. In terms of employment at the end of 2017, the UK already employed more than 60,000 people in this sector, more than in Singapore, Hong Kong and Australia combined, generating more than £ 6.6 billion last year. In Spain, we barely exceed a thousand employees.
Safarzyńska & van den Bergh (2017) found that focusing on the main risk that I mentioned at the beginning of this article: minimizing regulatory risk. To this end, in 2013 they began to work within a legislative and supervisory framework that would allow them to create bodies adapted to the new business models developed by fintech companies.

Nyborg (2016) realized that Fintech companies include start-ups and traditional financial companies, all of which are trying to replace or improve the services of existing financial institutions, and the popularity of smartphones has boosted the industry’s growth.

Rahman (2018) found that in addition to startups, traditional financial institutions have also joined this industry revolution: many banks have established their fintech innovation projects, seeking new ideas for success, and then changing the way people manage money.

Kopp, Kaffenberger&Jenkinson (2017) researched that Malaysia’s early incubator and investment company 1337 Ventures produced a map of Malaysia’s fintech ecosystem covering different market segments. From this picture, most of the country’s fintech companies are put in the field of payments and loans.

Tsai & Kuan-Jung (2017) realized that considering Malaysia’s demographic structure-more than half are Muslims, Islamic finance (financial transactions following Islamic regulations) also occupies an essential position in the country, with considerable growth potential.

Rupeika-Apoga et al. (2018) found that the increase in Fintech newcomers in the sector does not have to provoke panic attacks on banks due to the challenges posed by the radical transformation of all their technological infrastructure in order to compete. The perpetual popularity of “us against them” debate does not provide an accurate picture of the relationship between Fintech innovators and banks. Let us make it clear, banks are the cornerstone on which our economies rest, they are the ways in which most Fintech companies operate, and they will not disappear in the near, even distant future.

Ahamed & Mallick (2019) emphasized that creating an essentially different way of seeing and focusing on the sector. Technology startups look at this landscape of financial services and, using the rationality of the internet, see poor customer service as a margin to introduce huge efficiencies. This logic has been applied to other sectors, such as music and telecommunications, which have also been transformed by new technologies and the internet. What a traditional bank can see as a threat in the digital age, its competitors can interpret as an opportunity.

Wu & Duan (2019) stated that many researchers also lists those segments that are still the blue ocean today, including credit ratings, real estate websites, and capital market transactions.

Regulatory environment

Frost et al. (2019) noted that the regulation of the Malaysian fintech industry is mainly related to financing and equity crowdfunding.

Gnan &Masciandaro (2018) found that Bank Negara Malaysia, which is also the country’s central bank, first released the fintech governing sandbox framework in 2016, which aims to create a friendly development setting for fintech and promote the advancement of Malaysia’s financial industry.

Hamza & Jedidia (2020) found that according to a 2016 report by Ernst & Young that explores fintech compliance and the regulatory environment, generally speaking, the role of the regulatory sandbox is to relax or even exempt existing private regulatory entities on a pilot basis.

Phan, Narayan, Rahman & Hutabarat (2019) realized that companies incorporated into the framework which have an advantage when it comes to personal and corporate customers. Of course, not all companies can become pilot units. The conditions to be met include, but are not limited to:

  • There are products, services or solutions that can genuinely be called innovations that can increase the convenience, competence, safety factor and value of services for finance.

Mester (2019) stated that prove that the company has adequately and correctly assessed the effectiveness, functionality, and associated risks of the product, service, or solution

  • Have the resources needed to conduct sandbox testing to mitigate and control the risks and losses associated with the products, services, and solutions provided by the company
  • Have a realistic business plan to commercialize their products, services or solutions in Malaysia after exiting the sandbox framework

Nguyen (2016) found that participating in the regulatory sandbox project can help companies acquire customers who would want to give money to a company that has not been approved or recognized by the regulator?” Adrian Yap, CEO of Money Match, a fintech startup in Malaysia, said in an interview. Money Match was approved by the National Bank of Malaysia in mid-2017 and is one of four companies that have incorporate in the regulatory sandbox framework to date.

Ozili (2018) realized that the fields of remittance and currency exchange have also open. And some big players in the market have also started to look for cooperation with us. It is beneficial to join the sandbox.”

Mavrakana&Psillaki (2019) found that the National Bank of Malaysia has also established a FinTech Empowerment Organization, whose website shows that the organization is “mainly responsible for formulating.They also help improving regulatory strategies to increase the penetration of innovative technologies in Malaysia’s financial services industry.

Nabilou (2019) stated that in 2015, Malaysia issued regulations regulating equity crowd funding activities, becoming the first country in Southeast Asia to promulgate relevant laws. Equity crowd funding refers to private companies selling part of their shares to investors.

Borroni& Rossi (2019) found that according to a 2016 Invest Smart equity crowd funding report (Invest Smart is a project under the Malaysian Securities Commission’s Investor Protection Initiative), new regulations issued in 2015 include:

  • The number of investors investing in a single company must not exceed 5,000 Malaysian ringgits (8381.5 Yuan)
  • Investors enjoy a 6-day cooling-off period during which all investments can be withdraw by investor
  • The total amount of investors participating in equity crowd funding within 12 months must not exceed 50,000 ringgits (83815 Yuan)

Hartmann & Smets (2018) stated that the result is a wave of Fintech companies seeking to optimize particular segments of the financial value chain (be it in international transfers, loans or the payment process) and offering their specialized services to other companies and banks via API. A company that wanted to support musicians could, for example, do it through a technology firm like Kickstarter to provide loans, and another Currency Cloud type to make the payment. The success of these participants is due in part to their ability to focus on a very specific niche in the sector, rather than trying to compete at all levels. Banks, on the other hand, have always tried to take ownership of all aspects of the range of financial services, and this is where they find themselves struggling, as alternative participants offer more sophisticated services to clients within a specific niche.

Hakenes & Schliephake (2019) noted that despite their differences, Both Fintech participants and banks have a lot to gain by participating together. Fintech entities can benefit from the long history of banking operations and the base that banks offer. They are a vital part of the puzzle, as banks provide the financial instruments that Fintech companies offer packaged in different ways, while focusing on one specific use at a time. Banks can simultaneously gain value in new entrants, already either seeking to partner, or acquiring their advanced technology offerings. Using API capabilities provided in this way can help banks expand their services internationally, lower their development costs, and discover new modes of revenue without having to invest and create new structures. Fintech growth and pressure to open up access to financial data has been warned by the entire sector as the government continues to support Fintech entities and the development of the United Kingdom as the most groundbreaking financial hub. Not surprisingly, plans have recently been announced to create a consolidated and open API approach for banks. The government has pledged to launch a call for data on the best way to provide an open standard for APIs in the British banking sector and to ask whether further openness of data in banking could benefit consumers.

Kim, Park & Song (2016) found that the beginning of this process has been to talk about the products offered by banks, the next step is to know what Fintech companies are really interested in: fully opening transaction data from within banks. However, banks continue to be very cautious before giving external participants access to this type of data, and it will take many conversations before such a gesture becomes reality. These may not have been the breakthroughs we were initially hoping for when we started hearing about the open standard, but at least it’s a very good start. We have already seen how taking care of the API economy can endow the sector with a good dose of innovation, and with greater support, it will undoubtedly continue to produce new opportunities for both banks and alternative participants who are coming. The faith that the British government is showing that these effective newcomers will take the sector forward and into the twenty-first century further demonstrates that the alternative participants have done a wonderful job of showing their value to the sector.

Mavrakana&Psillaki (2019) researched that considering Malaysia’s demographic structure-more than half are Muslims, Islamic finance (financial transactions by Islamic regulations) also occupies an essential position in the country, with the considerable growth potential of finance.

Junejo, Shah & Bachani (2019) noted that for the past two years, Malaysia has become the leader in the fintech market, placing itself as the gateway for Chinese technology titans to the global market. Private investments in Malaysia fintech companies got $562 million in 2018, more than twice the investment recorded in 2017 ($246.3 million) and five times more than in 2016 ($ 135.6 million).

Currently, there are about 570 financial technology startups in Malaysia, as well as test settings and numerous industry-focused accelerators. The development of this trade is mostly due to the group of private investors with a position that keenly supports fintech companies. For example, the Malaysian government has established a fund of 500 million Malaysia dollars (about 64 million US dollars) for the development of the financial amenities sector for the next five years. Also, Malaysian authorities actively promote the event of an ecosystem of Fintech companies through the Foundation for Innovation and Technology (ITF).

References

Hamza, H., & Jedidia, K. B. (2020). Central Bank Digital Currency and Financial Stability in a Dual Banking System. In Impact of Financial Technology (FinTech) on Islamic Finance and Financial Stability (pp. 233-252). IGI Global.

Phan, D. H. B., Narayan, P. K., Rahman, R. E., & Hutabarat, A. R. (2019). Do financial technology firms influence bank performance?. Pacific-Basin Finance Journal, 101210.

Mester, L. J. (2019). Cybersecurity and Financial Stability; 2019 Financial Stability Conference–Financial Stability: Risks, Resilience, and Policy, 11.21. 19; Federal Reserve Bank of Cleveland and the Office of Financial Research, Cleveland, OH (No. 112).

Nguyen, Q. K. (2016, November). Blockchain-a financial technology for future sustainable development. In 2016 3rd International conference on green technology and sustainable development (GTSD) (pp. 51-54). IEEE.

Ozili, P. K. (2018). Impact of digital finance on financial inclusion and stability. Borsa Istanbul Review, 18(4), 329-340.

Rupeika-Apoga, R., Zaidi, H. S., Thalassinos, E. Y., & Thalassinos, I. E. (2018). Bank stability: The Case of Nordic and non-Nordic banks in Latv

Ahamed, M. M., & Mallick, S. K. (2019). Is financial inclusion good for bank stability? International evidence. Journal of Economic Behaviour& Organization, 157, 403-427.

Lipton, A., & Pentland, A. (2018). Breaking the bank. Scientific American, 318(1), 26-31.

Kerényi, Á.& Müller, J. (2019). Brave New Digital World?–Financial Technology and the Power of Information. Financial and Economic Review, 18(1), 5-32.

Wu, B., & Duan, T. (2019, June). The Advantages of Blockchain Technology in Commercial Bank Operation and Management. In Proceedings of the 2019 4th International Conference on Machine Learning Technologies (pp. 83-87).

Frost, J., Gambacorta, L., Huang, Y., Shin, H. S., & Zbinden, P. (2019). BigTech and the changing structure of financial intermediation.

Gnan, E., & Masciandaro, D. (2018). Do we need central bank digital currency? Economics, technology and institutions. Vienna: SUERF-The European Money and Finance Forum.

Mavrakana, C., & Psillaki, M. (2019). Do economic freedom and board structure matter for bank stability and bank performance?

Nabilou, H. (2019). Central Bank digital currencies: Preliminary legal observations. Available at SSRN.

Borroni, M., & Rossi, S. (2019). Bank Management after the Great Crisis. In Banking in Europe (pp. 1-22). Palgrave Pivot, Cham.

Hartmann, P., & Smets, F. (2018, September). The first 20 years of the European Central Bank: Monetary policy. In Brookings Papers on Economic Activity Conference Draft, fall.

Hakenes, H., & Schliephake, E. (2019). The Deposit Base–Multitasking and Bank Stability.

Kim, H., Park, K., & Song, S. (2016). Banking market size structure and financial stability: evidence from eight Asian countries. Emerging Markets Finance and Trade, 52(4), 975-990.

Campiglio, E., Deforms, Y., Mooning, P., Ryan-Collins, J., Shorten, G., & Tanaka, M. (2018). Climate change challenges for central banks and financial regulators. Nature Climate Change, 8(6), 462-468.

Mavrakana, C., & Psillaki, M. (2019). Do board structure and compensation matter for bank stability and bank performance? Evidence from European banks.

Junejo, I., Shah, A. A., & Bachani, A. (2019). Influence of Fin-tech on Customer Satisfaction: Empirical Evidence from Allied Bank of Pakistan. South Asian Journal of Social Studies and Economics, 1-13.

Chol, B. B., Nthambi, E. K., & Kamau, J. (2019). Influence of bank stability on the financial performance of commercial banks in South Sudan. American Journal of Finance, 4(1), 20-30.

Zhao, D. (2018, August). The Influence of Internet Finance on the Choice of Bank Technology Innovation Mode Based the Perspective of Technology Spillover. In International Conference on Management Science and Engineering Management (pp. 303-312). Springer, Cham.

Kephart, A. D., Howie, C. C., Glover, D. K., Nutter, D., Lewis, G. M., & Price, J. A. (2018). U.S. Patent No. 10,067,984. Washington, DC: U.S. Patent and Trademark Office.

Natarajan, H., Krause, S., & Gradstein, H. (2017). Distributed ledger technology and blockchain. World Bank.

Safarzyńska, K., & van den Bergh, J. C. (2017). Financial stability at risk due to investing rapidly in renewable energy. Energy Policy, 108, 12-20.

Nyborg, K. G. (2016). Central Bank Collateral Policy and Financial Fragility. Working Paper.

Rahman, Z. A. (2018). National financial inclusion strategies and measurement framework. IFC Bulletins chapters, 47.

Kopp, E., Kaffenberger, L., & Jenkinson, N. (2017). Cyber risk, market failures, and financial stability. International Monetary Fund.

Tsai, C. H., & Kuan-Jung, P. (2017). The FinTech revolution and financial regulation: the case of online supply-chain financing. Asian Journal of Law and Society, 4(1), 109-132.

Allawala, A., Allawala, A., & Saadiq Berhad. (2018, April 27). Five reasons why Malaysia’s Islamic banking sector is taking off. Retrieved from https://www.sc.com/en/trade-beyond-borders/five-reasons-why-malaysias-islamic-banking-sector-is-taking-off/

 

 

 

Pages:10

1.0   Introduction

 

Entrepreneurship is defined as that mind-set that gives someone the ability to see opportunity everywhere (co-founder of Sweeten) This can be a business idea and it can also mean the ability to see the opportunities in people that can help someone grow the company.

Mauritian economy encourages young entrepreneurs with great incentives.  SMEs contribution to the Gross Domestic Product (GDP) is 40 percent and accounts for 54.6 percent total employment in the country.

Pet Care is a good investment opportunity in Mauritian market as people love their pets, and they are willing to provide them with the standard quality of grooming and care when they are away or busy.

1.1 Opportunity Analysis

 

For the past decades, there have been many incentives and supports given to enterprises for the promotion of the SME sector in Mauritius. The Start-Up Scheme that provide financial support of up to a maximum of Rs. 100,000 to entrepreneurs to set up their enterprise.

The trends that effect the pet care industry includes the increase in disposable income of middle-income group and rising trend of nuclear families. Moreover, people are adopting more pets and demanding higher quality pet products and services (Market, 2019)

The Mauritius commercial bank had teamed up with the DCDM Research to investigate on the mindset of entrepreneurs, their behaviours and motivations with regards to same.

In Year 2016, the SME sector contributes approximately 40% to the GDP and employs around 300,000 people in the country (55% of total employment).

1.2 Company

 

This report provides not only the opportunity analysis, but also my affection for pets. I have always been a pet lover and the idea for pet care business originated from my passion for pet grooming and pet sitting. The goal is not just to start a business, but to form a work family who work with integrity and radical transparency with clients and provide services with excellence.

Mission

To provide innovative, high-quality, consistent, value-for-money, pet friendly service that will make your pet want to come back again and again.

Vision

Vision: To bring integrity and excellence in the pet care industry and become the number 1 service provider in Mauritius.

 

1.3 Key People and Skills

 

Pet Coach intends to open two branches, one in Balaclava and the other one in Trou aux Biches

Training pets require skills and time; therefore, the firmwill employ professionals with experience in dealing with pets but most importantly animal lovers. The veterinarians possess technical skills, e.g., first aid, wound stitching, sterilization of surgical instruments. The administrative clerk with top communication skills and administrative, two carers who have the know-how of Pets’ grooming and especially those who know the premises and safety measures of Pets (especially dogs). There will also be 2 drivers, one of which will be on part time basis, and the finance administrator in charge of all financials of the company.

 

2.0 External analysis

 

The World Trade Organization considers Mauritius’s investment apparatus as “open and transparent.” (Freedom, 2019). Mauritius’ GDP expanded by 3.4% in June 2019. While the GDP per capita reached 10,992.3 USD. Mauritius Consumer Price Index (CPI) for February 2020 was estimated to be 2.1%. Moreover, the Gross Saving rate of Mauritius was 6.8% in 2019. (CEIC, 2020). These macro indicators show the financial condition of Mauritius. Over 4 million pets are transferred by air, Millions of people are choosing to take their pets while they travel. According to LA Traveling magazine, Millions tend to marry later, and often spend a vast amount of money on their pets (Forbes, 2019).

Analysis

Political

A robust legal framework protects property rights and improves business acumen. Political stability will help pet coach in many ways including traveling, tax payments.

Economical

In terms of Business Confidence, Mauritius has moved up the ladder to 161.60 index points in 2019. The average compensation for labour has increased by 5.1 percent (Anon., 2019). The literacy rate of Mauritius is 93.16 percent (UNESCO, 2016), having educated and well-spoken staff and employees will prove to be beneficial tothe business.

Social


Poverty and inequality is not a serious challenge in Mauritius which means the residents are not too poor to afford pet care services. Moreover, the government of Mauritius contributes a lot to social inequality and social justice, enabling businesses and service providers a safe and secure environment, social benefits will help pet care expand its business further.

Technology


Smart cities and techno parks is another pillar, which the government believes can assist inturning Mauritius into an intelligent island. Pet Coach is a mobile pet care service provider and is directly associated with technological improvement in the country.

 

Legal


Intellectual property rights are protected in Mauritius by the Trademark act of 2002 (Bheenick, 2018) making it secure and safe for pet coach to purchase new assets. According to Mauritius workers’ law, 2019 monthly salary of an employee must not increase MUR 50,000 (except for some sections), and an employee shall not work more than 12 hours a week (Yuen, 2019). Pet coach will provide its employees all the required and legal incentives.

 

Environmental


Environmental protection Act of Mauritius is responsible for assessing and reviewing environmental regulation. Pet Coach will abide by the rules. Tropical cyclones can cause damage to property. However, there is a system of warnings and Pet Coach will adhere to the advice issued by local officials (Environement, 2019)

 

3.0           Industry analysis

 

Some of the noteworthy trends in Pet care industry:

 

Pet Parenting

Pet owners are treating and taking care of their pets, like family members. Pets provide companionship to their owners. Pet care and Pet products are associated with pet humanization because pet owners want to buy similar products and acquire the best services for their pets as they would for their child. Pet humanization gives rise to other trends in the pet industry. Few examples of pet humanization are per-friendly traveling service, therapy sessions, opulence grooming routine. (INTERNATIONAL, 0CTOBER 2016)

 

Pet Obesity

Obesity research done in the United States by the Association for Pet Obesity Prevention (APOP) found that almost 35% of the dogs and about 28% of the cats in the US are obese. The pet obesity is the cause of inappropriate human food provided by pet owners, not having a proper exercise routine, and too much eating. (INTERNATIONAL, 0CTOBER 2016)

 

Premium Products 

Pet premiumization means getting the premium level products for pets. Consumers who demand premium products and tools for their pets are middle class and urban living pet owners. (INTERNATIONAL, 0CTOBER 2016)

 

Source: Globeenewswire.com

 

3.1 SWOT

STRENGTHS

 

  • First-ever mobile application-based Pet grooming and Pet care platform in Mauritius
  • Managing the business will be easy as most of the time, pet-sitters will be traveling places, which reduces the operating cost.
  • No inventory; this reduced the cost of business.
  • Pet grooming tools and products are easily accessible on e-commerce platforms.

 WEAKNESSES 

 

  • Establishing a brand name for any new business is a hurdle. Marketing and Advertisement will help overcome this problem.
  • Initially, getting your business started could be very costly. Having a low budget will prove to be a big hurdle.
  • Having strong business links and PR (Personal relations) is essential. It might take time to establish ties with clients and locals.

OPPORTUNITIES

 

  • The increasing use of the mobile and internet will make it much easier to reach out to new customers, making it easy for business expansion.
  • Increase in Business confidence (Economics, 2019)
  • Turning passion into profit. Being a pet enthusiast could be profitable and a great opportunity for business.
  • Once the business has successfully made a brand image, then further franchising to other passionate pet groomers is another opportunity to grow business further.

 

THREATS

 

  • Increasing competition
  • The higher cost of services (Economics, 2019)
  • Volatility in the exchange rate
  • An already established business might start providing mobile-based facilities as well (copying our business idea)

4.0           Financial analysis

 

One thing is clear that there would always be a demand for organizations and individuals pet owners whose demand is extra coaching and grooming for their pets. That is the primary reason why Pet grooming and training will still be required. To start-up capital estimated for Pet Coach is 2.3 million MUR (USD 53,000), which constitutes of 1.3 million MUR loan from a bank and 1 million MUR is personal deposits and some loans (from relative and family members).

One of our primary goals of initiating the Pet Coach is to start a business that will survive off its cash flows without the need for financial resources from outside sources once the business is officially running.

4.1 Investment Outlay

Total number of employees 20 Employee wages per month 35,000 MUR
700K total
Advertising and Marketing
Billboards, Social media marketing
40,000 MUR
 

Transport (10 bikes and twotrucks)

300,000 MUR
670,000 MUR
Tools and equipment 100,000 MUR
Tax and legal payments

 

50,000 MUR
Inventory and warehouse 200,000 MUR
 Total 2 million MUR

Source: self-work

 

Generally, for Pet grooming and Pet sitting, prices are charged on an hourly basis, but Pet Coach’s pricing strategy is different. They will charge a flat fee for the service, except for, few cases which may require different pricing. E.g., Pet Coach will invoice 700 – 800 MUR for pet sitting. Additionally, if the client needs 24 Hours service or more than 24 hours, the charges will vary. Similarly, during holidays prices charged shall be a little higher than usual due to excess demand for service. Keeping in mind that there would be some clients who wouldn’t mind paying extra bucks for their pet routine and grooming and for that Pet coach has established a premium and tailored services, according to clients’ needs. The Payment policy will be entirely inclusive. Payments transaction shall be accepted via Bank Transfer, via Cheques, via Mobile Payment and Cash payment.

5.0 Exit

 

Pet caring is considered a “hot” opportunity for business start-ups. But, in a situation where the business doesn’t go as planned, the pet coach has an exit strategy.

  • Merge with an already established business. Sell 51% of the business shares and the controlling power.
  • Complete sell-off to another firm or business who will acquire the management as well as the capital of the business.

6.0 Conclusion

 

As per the report, it is concluded that Pet Coach is a viable business opportunity. Bringing a revolutionary and to the Mauritius market. It will prosper in the future as the business is technology-driven, and the targeted audience is expatriates and tourists. With extensive research and business strategies, Pet Coach has the know-how of consumer taste, preferences, and, most of all, customer needs. With PESTEL analysis on the front, the business will be sustainable in the long run producing more jobs to the locals and expansion of business opportunities.

 

Appendix

 

 

Potential of New entrance

 

§  Initial cost is low

§  Tools and products are easily accessible.

§  No barrier to entrance

 

Power of Customers

 

§  High customer loyalty

§  Pet coach has different service identity

§  No mobile pet grooming in Mauritius

Power of Suppliers

 

§  Higher number of suppliers

§  Similar products are available

§  E-commerce platforms provides variety of tools and equipment

 

Threat of Substitutes

 

§  Online available free platforms

§  Freelance pet care business

§  Veterinary shops

Competition in the industry

§  Pet industry is growing

§  People are fond of conventional pet shops

§  Well-known retailers

 

 

 

 

 

 

7.0 REFERENCES

 

Anon., 2019. Statitics Mauritius. [Online] Available at: ttp://statsmauritius.govmu.org/English/Publications/Pages/Prod_Comp_Yr08-18.aspx[Accessed 19 March 2020].

Bheenick, S., 2018. Mauritius – Protecting Intellectual Property. [Online]
Available at: https://www.privacyshield.gov/article?id=Mauritius-Protecting-Intellectual-Property[Accessed 19 March 2020].

CEIC, 2020. Economic Indicators Mauritius. [Online] Available at: https://www.ceicdata.com/en/country/mauritius[Accessed 9 March 2020].

Climate Change, M. o. E., 2017. Environmental regulations under EPA. [Online]
Available at: http://environment.govmu.org/English/legislations/Pages/Environmental-Regulations-and-Standards-under-EPA.aspx[Accessed 9 March 2020].

Economics, T., 2019. Mauritius Business Confidence. [Online] Available at: https://tradingeconomics.com/mauritius/business-confidence[Accessed 10 March 2020].

Economics, T., 2019. Mauritius Labour Cost. [Online] Available at: https://tradingeconomics.com/mauritius/labour-costs[Accessed 10 March 2020].

Economics, T., 2020. Mauritius Personal Income Tax. [Online] Available at: ttps://tradingeconomics.com/mauritius/personal-income-tax-rate
[Accessed 10 March 2020].

Environement, M. o., 2019. Environmental Law and Prosecution Division. [Online]
Available at: http://environment.govmu.org/English/Department%20of%20Environment/Pages/Environmental-Law-and-Prosecution.aspx[Accessed 19 March 2020].

FactBook, C. W., 2020. Mauritius Economy 2020. [Online] Available at: https://theodora.com/wfbcurrent/mauritius/index.html[Accessed 9 March 2020].

Forbes, 2019. Americans Spending Billions On Pet Travel And Boarding. [Online]
Available at: https://www.forbes.com/sites/michaelgoldstein/2019/02/22/americans-spending-billions-on-pet-travel-and-boarding/#6567b08724f7[Accessed 19 March 2020].

Freedom, I. o. E., 2019. Mauritius. [Online] Available at: https://www.heritage.org/index/country/mauritius[Accessed 10 March 2020].

Index, T., 2018. Mauritius Report. [Online] Available at: https://www.bti-project.org/en/reports/country-reports/detail/itc/mus/itr/esa/[Accessed 10 March 2020].

Institute, O. D., 2019. Mauritius Economic Conditions. INTERNATIONAL, E., OCTOBER 2016. Because they’re Worth It: Pet Care Global Overview, s.l.: s.n.

Markets, R. a., 2019 – 2025. MICE Tourism Market.

Ministry of Technology, C. a. I., 2019. Digital Mauritius 2030. [Online] Available at: http://mitci.govmu.org/English/Documents/2018/Launching%20Digital%20Transformation%20Strategy%20191218/DM%202030%2017%20December%202018%20at%2012.30hrs.pdf
[Accessed 10 March 2020].

 

Trade, D. f. I., 2015. Overseas Business Risk- Mauritius. [Online] Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/818828/Overseas_Business_Risk_-_Mauritius.doc[Accessed 9 March 2020].

UNESCO, 2016. countryeconomy. [Online] Available at: ttps://countryeconomy.com/demography/literacy-rate/mauritius[Accessed 19 March 2020].

Yuen, F. Y. S., 2019. Workers’ Right Act 2019. [Online] Available at: https://www.dtos-mu.com/mauritius-employment-law-update/[Accessed 19 March 2020].

 

 

COST OF CAPITAL – VOSSLOH

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pages:82074

CHAPTER 1– BACKGROUND AND RESEARCH

Vietnam Economy

Vietnam is one of the fastest-growing of all Southeast Asia’s emerging economies. With an annual growth rate of 7.1 percent in 2018, the country is well on its way to becoming a formidable economic powerhouse. (https://www.worldbank.org/)

Vietnam’s development over the past 30 years has been remarkable. Economic and political reforms have spurred rapid economic growth, transforming what was once one of the world’s poorest nations into a lower-middle-income country. Between 2002 and 2018, more than 45 million people were lifted out of poverty. Poverty rates declined sharply from over 70% to below 6% (US$3.2/day PPP), and GDP per capita increased by 2.5 times, standing over US$2,500 in 2018. (https://www.worldbank.org/en/country/vietnam/overview)


Vietnam has continued to expand its economy, growing the fastest in Southeast Asia in 2019, in part due to the US-China trade war. Manufacturing, tourism, and private consumption contributed to Vietnam’s strong GDP growth of 7 percent.(https://www.vietnam-briefing.com/news/us-china-trade-war-inspires-vietnam-growth.html/)

Overview of the modernization of Vietnam People’s Army

Vietnam has devoted significant budget to achieving military modernization targets focused on:

  1. The designing and manufacturing of new types of weapons and equipment.
  2. revamping of training methods
  3. procurement and retrofitting of existing weapons

China’s increased naval presence and territorial claims in the disputed waters of the South China Sea are the major factors compelling the Vietnamese Government to increase its military capabilities. Over the last decade, there has been a significant increase in the expenditure of the Vietnamese Military. Vietnam’s total arms imports between 2011 -2019 represented a 699% increase from the 2006-2010 period. In 2019, the Vietnamese Government allocated close to US$5.5 billion towards military spending, of which 32.5% is earmarked for the procurement of defense equipment.

 

Exhibit 1: Vietnam Military Expenditure 2010 – 2018

 

The lack of technology and low domestic defense capability has forced the country to import weapon systems from foreign OEMs to fulfill its military requirements.

(https://www.businesswire.com/news/home/20190418005440/en/Future-Vietnamese-Defense-Industry-2024-Defense-Budget)

Looking to the future, the modernization of Vietnam People’s Army is likely to be accelerated in response to China’s intensifying civil and military activities in the disputed waters of the South China Sea. The SEA region is experiencing some destabilization due to the Chinese governments’ aggressive actions in the South China Sea. Beijing insists it has sovereign rights to nearly all of the South China Sea, a strategic waterway through which about a third of all the worlds traded oil passes. The disputed waters – also claimed in part or whole by Vietnam, Malaysia, the Philippines, Taiwan and Brunei – have also become the stage for a struggle for regional dominance between Beijing and Washington, the world’s two largest economic and military powers. Vietnam considers itself a leading nation in SEA and is currently allocating both diplomatic and military resources to remain a dominant force and maintain its national interests. In their effort to strengthen its dominance, Vietnam is continuously developing its defense capabilities intending to create a long-lasting “Balance of Power” in the region.

 

Exhibit 2:

 

The opportunity for Israeli companies

Traditionally the Russians remain the dominant ally of the Vietnamese Government. However, due to the current economic situation in Russia and the fact that Moscow has further solidified its relationship with Beijing, the leaders in Hanoi are looking for alternative sources for Defence capabilities. It is expected that the Military Expenditure in Vietnam will rise to  US$5.8 billionby the end of 2020 and trend around this value in the coming years.

Exhibit 3: Vietnam Military Expenditure 2010 – 2025

Given the circumstances, Israel has become an attractive and reliable source for Vietnams’ defense technologies due to several key factors:

  1. Leading state-of-the-art technology
  2. The embargo on China (Israeli defense technologies is not accessible in China as opposed to Russian technology)
  3. Flexibility to provide tailor-made solutions and transfer of know-how programs.

As a result of the enhanced cooperation between the two countries, In 2015, Israel has officially opened its IMOD (Israel Ministry Of Defense) office in Hanoi with a designated Defence Attaché.In the last five years, Russia remains the largest supplier of military hardware to Vietnam, with a share of over 77.9% of Vietnam’s military imports. However, Israel has managed to become the second-largest exporter of military equipment to Vietnam, with over 9.1% of the market share followed by much larger countries such as Belarus, South Korea, and Ukraine, with 4.1%, 2.8%, and 2% respectively (see exhibit 4). In 2018, the two countries conducted the first-ever defense policy dialogue in Hanoi at the headquarters of the Vietnamese defense ministry. The meeting was co-chaired by Vietnam’s deputy defense minister and the director-general of the Israeli defense ministry. The dialog between the leadership of the two countries will open new opportunities for the Israeli defense industries such as establishing JV in Vietnam and allow Israeli companies to invest in the local market.

(https://thediplomat.com/2018/10/whats-in-the-new-vietnam-israel-defense-dialogue/)

An excellent example is the “Z111” project. The Israel Weapon Industries (IWI) has established a production facility in collaboration with the Vietnamese Ministry of Defence for the manufacture of “Galil” rifles for the Vietnam People’s Army. The goal was to replace the Kalashnikov rifles with in a project estimated at more than 100mUS$ investment. (https://www.israeldefense.co.il/en/content/production-galil-rifles-vietnam-has-begun)

Exhibit 4: Vietnam military’s share of importer’s total import 2018[1]

 

CHAPTER 2 – THE INVESTMENT

In 2018, Israel Global defense export surpassed $7.5 billion, while Asia and the Pacific region lead the way with 46%.https://www.israelhayom.com/2019/05/21/israel-wraps-up-second-highest-defense-export-year-in-past-decade/

Only Three Israeli companies are ranked in the top 100 global defense exporters of 2019: https://people.defensenews.com/top-100/

  1. Elbit Systems Ltd-global ranking 28, US$3.6 billion in revenue
  2. Israel Aerospace Industries Ltd – global ranking 37, US$3.6 billion in revenue
  3. Rafael Advanced Defense Systems Ltd – global ranking 42, US$2.6 billion in revenue

Elbit Systems

Elbit Systems is an international high technology company engaged in a wide range of programs throughout the world. We develop and supply a broad portfolio of airborne, land and naval systems and products for defense, homeland security and commercial applications. Our systems and products are installed on new platforms, and we also perform comprehensive platform modernization programs. In addition, we provide a range of support services.

Financial Snapshot

Profitability:

  • 5% profit margin in 2018
  • 7 profit margin in 2017
  • 6 profit margin in 2016

With a drastic increase in the cost of revenue, Profit declined for the year 2018. The cost of revenue should be controlled or decreased. The cost of revenue includes; the cost of production, distribution, and other services provided by the company.

 

 

Asset management ration

  • ROA 2018 (Net Income/ Total assets) = 3.2%
  • Total asset turnover (2019 revenue / average asset 2019) = 0.65

ROA 2017 and 2016 were 5.1% and 5.4%. During 2018, The total assets increased significantly. Includingproperty, plant, and equipment. Moreover, long term trade and unbilled receivables also increased during 2017 and 2018.

Total asset turnover, the ability of the company to use its assets for the generation of revenue, in 2018 was 0.57. An increase of 0.9 points in 2019 shows growth in sales/revenue.

Debt management

  • Long term debt / total assets:
    • 2018- 26.1%
    • 2017 – 19.2%

The increase in the Debt ratio puts the company at higher risk. Long term loans increased radically, in 2018. The company completed two acquisitions of the privately-owned U.S.company Universal Avionics Systems Corporation (Universal) and IMI Systems Ltd. (IMI)

 

The Investment: Establish a Factory in Vietnam

ELBIT Systems’future success depends on its ability to develop new offerings and technologies, to structure its businessthrough joint ventures, teaming agreements, and other forms of alliances, to reflect thecompetitive environment.Part of the company growth strategy includes its continued activity in mergers and acquisitions and jointventures with respect to businesses, assets and complementary technologies both in Israel and internationally – [ELBIT financial report 2018]

ELBIT Systemswill invest in Vietnam to take over market share and expand its sales potential in the SEA region. The company will establish a Factory to manufacture military-grade communication systems and electro-optic devices (2 out of the company 9 main activities). The factory will sell its products to Vietnam’s Ministry of defense with an option to expend to other countries in the Asian region.

Assumptions:

  1. Israel’s leading defense companies represent 70% of the market share in Vietnam divided equally at 23.3% per company (in the defense sector, the selling cycle is long, and the deals are not finalized annually. I have accumulated this estimation and spread the calculation on a period of 5 years
  2. Vietnam Military Expenditure 2020 – 2025 – US$5.8 billion (annually)
  3. Expenditure allocated for procurement of defense equipment: 32.5% = 1.9 US$5.8 billion
  4. Market share for Israeli defense exporting companies: 9.1% = US$171 Million
  5. Elbit potential market share in Vietnam –23.3% = US$39.9 Million
  6. Market share in Vietnam after establishing the factory (full operation): 35% = US$60 Million
  7. Israel defense export volume to Asia and the Pacific region 2018 – US$3.5 billion

ELBIT SYSTEMS – SWOT Analysis

Strength

·         Global leader in defense technology with strong reputation

·         As an Israeli company, enjoy the strong Bilateral relationship to export its technology to Vietnam

·         Strong financial capabilities

·         Competent workforce

Weakness

·         Culture barrier

·         Strong competition from US and Russian manufacturers

·         Limited infrastructure in Vietnam

·         Risk of changes in government approval regarding export licenses.

·         Changes in Exchange rate, if production cost is not denominated in USD

Opportunity

·         Could gain market power in the south-east Asia region.

·         Transfer of applicable activities and facilities

·         Tax incentive and land rental waivers from the Vietnamese government

·         Low Labor wages and production cost

Threats

·         Sanctions by theUSA

·         Rapid demographic and Social changes (World Bank report)

·         Costs to moving containers from factories to seaports are higher in Vietnam (World Bank Doing Business report)

·         Deterioration of diplomatic relations

 

 

 

The competition – current and future

  • Russia

    • Russia is the leading provider for Vietnam ministry of Defence with around 80% market share
    • Vietnam is the biggest customer of Russia in the ASEAN
    • Some of the Main programs in recent years included: 3 strategic submarines, the SU- 30 new fleets, missile systems and; battleships
    • Leading Russian exporting agency – ROSOBORONEXPORT
  • INDIA

    • The first Indian PM to visit Vietnam in 15 years in September 2nd 2016, with the arms to strengthening links with Southeast Asian countries through his “Act East Policy.”
    • A new $500 million line of credit for Vietnam from India to facilitate deeper Defense cooperation (including 2 missile programs)
    • Leading Indian exporting company – BHARAT-RAKSHAK
  • USA

    • The milestone visit by US President Barrack Obama to Vietnam on 22-25 May 2016 gave immediate and essentialresults as the US fully lifts its long-standing lethal arms embargo on Vietnam.
    • The lift of the defense embargo enables the penetration of the largest defense companies in the world to enter the Vietnamese market for the first time.
    • Leading Indian exporting company – Lockheed Martin, Boeing, Raytheon

 

 The Investment:

  • Investments >100M USD
  • CAPEX
    • Factory establishing cost – $100 million
    • Land – free (will be provided by the Vietnamese Government)

FINANCIAL PROJECTION

Total Investment $100 million

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 year 8
Revenue growing 10% 15% 20% 10% 20% 10%
                 
Revenue 39 39 42.9 49.3 59.2 65.1 78.1 86.0
Cost of revenues 27.3 27.3 29.2 33.5 37.3 41.0 49.2 54.2
Gross profit 12 12 14 16 22 24 29 32
Operation Expenses 7.8 7.8 4.3 4.9 5.9 6.5 7.8 8.6
Operating Income 4 4 9 11 16 18 21 23
Financial expenses, net 0.47 0.47 0.51 0.59 0.71 0.78 0.94 1.03
Income before taxes 3 3 9 10 15 17 20 22
Tax Income 1 1 1 1 2 2 2 2
Net Income 2.7 2.7 8.0 9.2 13.7 15.1 18.1 20.0

 

  • Year 1-2 Revenues only from exporting of equipment from Israel – 23.3% of the total market share for Israeli companies in Vietnam
  • Year 3-4 The factory is operating and starting to generate revenues. The operation of a local factory decreasesthe operating costs. The saving in operation cost, logistics, and Tax Increase the Net income of the company over the years from 7% to 15%
  • Year 5-6 The factory producing in full capacity (domestically) and allows ELBIT to take over 35% of the market share (from Israeli companies)
  • From Year 7 Products from the factory are being exported to other countries in the ASEAN region increasing the revenue by additional 20%

 

Net Profit Margin

Net Profit Margin for year 1 = Net income / Total Revenue

= 0.069 or 6.92%

For year 2: NPM =  6.92%

For year 3: NPM = 18.64%

For year 4: NPM = 18.66%

For year 5: NPM = 23.14%

For year 6: NPM =23.19%

For year 7: NPM = 23.17%

Net Progit Margin for year 8 = 23.2%

Avergae Profit Margin for projected years = 17.11 %

Required rate of return

  • ROI – Estimating revenue growthof 5% from year 8 = ROI in year 11

The Weighted Average Cost of Capital (WACC) is

WACC = % of Debt * cost of debt * (1-tax) + % of Equity * cost of Equity

= 10.75% * 6.30% (1- 23%) + 89.25% *10.58%

= 10.00%

Note: Country Risk premium of Vietnam is 3.55% and the Average Unlevered beta is 1.10

CAPM = Rf + β (market premium) + Country Risk premium

= 0.549% + 1.10(5.89%) + 3.55%
= 10.58%

 

RECOMMENDATION

After looking at the financials of Elbit, I’ve a recommendation as whether Elbit should invest in Vietnam or not? I realized that Elbit has put great effort into put this feel forward and backing out on it could reflect badly, but my recommendation is that Elbit should invest in Vietnam. The reason is that Elbit is the only Israeli’s company to operate in Vietnam, they could gain market power in the south east Asia region. The company’s financials indicates a good return on investment, however to achieve ROI of 15%, cost of revenue shall be lessen.Profit margins shows a consecutive growth in the projected years.  Furthermore, the WACC being low indicates low level of risk, also as Vietnam’s Risk premium is higher. Vietnam’s positive economic outlook and the friendly diplomatic relations with Israel (and other major countries) adds a lot to the positive outcome of this investment.

 

 

Links:

Vietnam defense:

https://www.businesswire.com/news/home/20190418005440/en/Future-Vietnamese-Defense-Industry-2024-Defense-Budget

https://tradingeconomics.com/vietnam/military-expenditure

https://www.macrotrends.net/countries/VNM/vietnam/military-spending-defense-budget

Defence market in Southeast Asia

https://theaseanpost.com/article/defence-market-southeast-asia

https://www.jstor.org/stable/25798074?seq=1

 

ELBIT:

https://elbitsystems.com/products/communication-systems/software-defined-radios/

elbit investments in india:

https://www.business-standard.com/article/news-cm/bharat-electronics-receives-orders-worth-usd-33-mn-from-elop-israel-119022500337_1.html

 

Vietnam-Israel Defense Dialogue

https://thediplomat.com/2018/10/whats-in-the-new-vietnam-israel-defense-dialogue/

https://www.newmandala.org/vietnam-israels-closest-asean-partner/

 

IWI FACTORY

https://www.israeldefense.co.il/en/content/production-galil-rifles-vietnam-has-begun

https://en.wikipedia.org/wiki/Z111_Factory

 

 

 

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