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a) The first point would be to calculate the amount that will be at the savings account at the end of the 4 years and 9 months.
Where n=number of times the interest is compounded, p is the principle amount while t is the number of years.
The down payment will be $30,789
The down payment is 5.5% of the total value of the house and the mortgage required will be 94.5%.
Therefore, Jason will have to pay the insurance since the mortgage loan will be above 80% of the house value.
The required loan amount is 94.5%*$550,000=$519,750
The total payments made in 25 years will be $45,406*25
If Jason can pay $4,600, the number of months taken to repay the loan will be
CBA’s Money Laundering
The CBA money laundering scandal was initiated by people who made deposits in more than 100 branches of the bank (Eyers 2017). The customers deposited $9,900 which is less than $10,000 required to bring about suspicion. The scandal led to the decline in the shareholders’ value and the bank was no longer considered as the largest listed firm on ASX. CBA was accused by AUSTRAC for failing to detect and report the deposits (Eyers 2017). Also, there was a money laundering scheme that was perpetrated by 11 employees of the firm. The employees were accused of assisting four crime suspects who held accounts with CBA bank. One of the changes made after the scandal was the appointment of a new CEO. Also, the board of management was reshaped as a result of the scandal. The changes in the CEO’s position were made because the CEO failed to implement appropriate standards to avoid money laundering. In addition, CBA did not have effective policies to detect fraud. The shareholders of the firm also files a case in court seeking compensation for the value lost in the scandal. The value of the shareholders was affected after share prices fell by a large margin after AUSTRAC launched investigations related to the money laundering scandal (Eyers 2017).
Corporate governance refers to the process by which the management of the company takes the appropriate measures to ensure that the interests of the stakeholders are protected (Al-Haddad, Alzurqan, & Al_Sufy 56). Corporate governance is also used in organizations to ensure that the returns of the shareholders are maximized. Corporate governance can only be successful if the boards of board of directors, shareholders, and the audit committee have a strong relationship and work towards a common goal. Therefore, CBA’s board of directors, management should have been held responsible for the occurrence of the scandal. The board of directors should have implemented the appropriate mechanism to ensure that fraud is monitored and detected immediately (Al-Haddad, Alzurqan, & Al_Sufy 57).
There are three main parties that should be involved in the corporate governance of an entity. The three parties include the shareholders, the board of directors, and the committee for audit. The board should act in a manner that portrays no conflict of interest between the organization and their personal gain. The board of directors should also outline the moral guidelines that guide the CEO in managing the firm. The board is regarded as the custodian of the accountability of an entity. The functions of the board of management in relation to corporate governance include strategic planning, ensuring integrity of financial reports and controls, and ensuring that ethical standards are adhered to. Therefore, in the case of CBA, the board was responsible for the scandal since they should have put in place measures to detect money laundering (Al-Haddad, Alzurqan, & Al_Sufy 59).
The shareholders also have a role to play in the corporate governance of an entity. The shareholders are responsible for selecting the board representative. Therefore, while making the selection, the shareholders should ensure that the appointees have a record of integrity and competence in their former undertaking. The shareholders are also required to attend meeting convened by the company relating to the performance. The meeting provides the shareholders with an opportunity of highlighting some of the issues that need to be changed to improve performance (Al-Haddad, Alzurqan, & Al_Sufy 57). The shareholders in the case of CBA were not responsible for the laundering scandal since they do not take part in management. Therefore, if CBA had an effective control in place, the money laundering scandal would have been avoided since the managers would have implanted the appropriate strategies to prevent the loss of shareholders’ value. In addition, an effective corporate governance structure would have prevented the employees from taking part in the scandal.
Money laundering refers to the process of legitimating money that has been obtained using the wrong means such as drug trafficking, terrorism, and other crimes (Kumar 113). Money laundering reduces the attention that comes as a result of holding huge sums of money that cannot be accounted for. Money laundering takes place in the form of deposits in bank account and transfers to different accounts. The topic of money laundering received a lot of attention during the 9/11 attack where it was found to be one of the factors that contribute to terrorism. The revolution of technology and globalization has contributed to the upsurge of money laundering cases. Advanced technology has made it difficult for authorities to predict some of the money laundering plans. The act of money laundering has led to a weakened the fabric of the society through increased drug trafficking, public corruption, and terrorism Kumar 114).
Money laundering has various negative impacts on the financial system of a country. Money laundering contributes to tax evasions which affects the financial system by reducing the money collected by the government (Kumar 115). The reduced government collection reduces the supply of money in the economy since the government would have used the money to pay for contracts. Money laundering also affects international trade which is essential for the growth of the financial system (Kumar 115). The other impact of money laundering is the reduction of the money held by financial institutions. The resources are diverted from the productive entities in the economy to the non-productive activities. Money laundering may lead to the collapse of financial institution due to the loss of money. The vice of money laundering affects financial institution though the loss of key personnel since the entities can no longer accommodate paying huge salaries. Money laundering also leads to loss of good reputation that financial institutions have. Once money laundering activity involves a financial institution, people lose trust with the organizations which is the main reason for banks collapsing.
The main channels that promote money laundering include criminal activities such as smuggling, drug trafficking, and terrorism (Kumar 117). The money is used to finance the channels and, therefore, fails to pass through the financial system. The other channel that can be utilized to facilitate laundering of money is purchasing of land. Land is an asset that appreciates rapidly and its value is difficult to estimate (Kumar 117). Therefore, most individuals use black money to purchase land which they later sell and, therefore, the money appears to have come from a legitimate source.
The future value will be used to determine the value of each security at the maturity date.
For the commercial paper, the cash flow received at the end of its maturity will be
The final value of the commercial paper will be $100,000+$1,605=$101,605
For the corporate bond, the cash flow per year is $100,000*6%=$6,000
The future value of the cash flow
The dividends earned for the five years will be
Total dividends for the five years=$40,293
Therefore, James should purchase the corporate bond since it has a higher return compared to shares and commercial paper.
The period is one month and, therefore, the fraction for the year will be 1/(1/12)=12
The annualized return= (Value at the end/Value at the beginning)^1/n-1
Commercial paper= ($97,400/$97,000)^12=1.05-1
Common shares= (34.50/33.5)^12=1.704-1
Al-Haddad, Waseem., Alzurqan, Saleh., Al_Sufy, Fares. The Effect of Corporate Governance on
the Performance of Jordanian Industrial Companies: An empirical study on Amman Stock Exchange. International Journal of Humanities and Social Science.
Vol. 1 No. 4, 2011. pp 55-69
Eyers, James. CBA money laundering scandal: how it happened, 2017,
http://www.afr.com/business/banking-and-finance/financial-services/commonwealth-bank-safe-haven-for-criminal-activity-20170804-gxp54g. Accessed 24 January. 2018
Kumar, Vandana. Money Laundering: Concept, Significance and its Impact. European Journal
of Business and Management. Vol 4, No.2, 2012. pp.113-118.
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