U.S. Policy in the Middle East A Brief History

The first time a Western power got soaked in the politics of oil in the Middle East was toward the end of 1914, when British soldiers landed at Basra, in southern Iraq, to protect oil supplies from neighboring Persia. At that time, the United States had little interest in Middle East oil or in any political designs on the region. Its overseas ambitions were focused south toward Latin America and the Caribbean, and west toward East Asia and the Pacific. When Britain offered to share the spoils of the defunct Ottoman Empire after World War I, President Woodrow Wilson declined. The United States creeping involvement in the Middle East began later, during the Truman administration, and continued through the 21st century. Truman Administration: 1945–1952 During World War II, American troops were stationed in Iran to help transfer military supplies to the Soviet Union and protect Iranian oil. British and Soviet troops were also stationed on Iranian soil. After the war, Russian leader Joseph Stalin withdrew his troops only after President Harry Truman protested their continued presence and threatened to boot them out. While opposing Soviet influence in Iran, Truman solidified America’s relationship with Mohammed Reza Shah Pahlavi, the Shah of Iran, and brought Turkey into the North Atlantic Treaty Organization (NATO), making it clear to the Soviet Union that the Middle East would be a Cold War hot zone. Truman accepted the 1947 United Nations partition plan of Palestine, granting 57 percent of the land to Israel and 43 percent to Palestine, and personally lobbied for its success. The plan lost support from U.N. member nations, especially as hostilities between Jews and Palestinians multiplied in 1948 and Arabs lost more land or fled. Truman recognized the State of Israel 11 minutes after its creation, on May 14, 1948. Eisenhower Administration: 1953–1960 Three major events defined Dwight Eisenhower’s Middle East policy. In 1953, President Dwight D. Eisenhower ordered the CIA to depose Mohammed Mossadegh, the popular, elected leader of the Iranian parliament and an ardent nationalist who opposed British and American influence in Iran. The coup severely tarnished America’s reputation among Iranians, who lost trust in American claims of protecting democracy. In 1956, when Israel, Britain, and France attacked Egypt after Egypt nationalized the Suez Canal, a furious Eisenhower not only refused to join the hostilities, he ended the war. Two years later, as nationalist forces roiled the Middle East and threatened to topple Lebanon’s Christian-led government, Eisenhower ordered the first landing of U.S. troops in Beirut to protect the regime. The deployment, lasting just three months, ended a brief civil war in Lebanon. Kennedy Administration: 1961–1963 President John F. Kennedy, according to some historians, was not very involved in the Middle East. But as Warren Bass points out in â€Å"Support Any Friend: Kennedys Middle East and the Making of the U.S.-Israel Alliance,† Kennedy tried to develop a special relationship with Israel while diffusing the effects of his predecessors’ Cold War policies toward Arab regimes. Kennedy increased economic aid for the region and worked to reduce the polarization between Soviet and American spheres. While the U.S. alliance with Israel was solidified during his tenure, Kennedy’s abbreviated administration, while briefly inspiring the Arab public, largely failed to mollify Arab leaders. Johnson Administration: 1963–1968 President Lyndon Johnson focused much of his energies on his Great Society programs at home and the Vietnam War abroad. The Middle East burst back onto the American foreign policy radar with the Six-Day War of 1967, when Israel, after rising tension and threats from all sides, pre-empted what it characterized as an impending attack from Egypt, Syria, and Jordan. Israel occupied the Gaza Strip, the Egyptian Sinai Peninsula, the West Bank, and Syria’s Golan Heights—and threatened to go further. The Soviet Union threatened an armed attack if it did. Johnson put the U.S. Navy’s Mediterranean Sixth Fleet on alert but also compelled Israel to agree to a cease-fire on June 10, 1967. Nixon-Ford Administrations: 1969–1976 Humiliated by the Six-Day War, Egypt,  Syria, and Jordan tried to regain lost territory by attacking Israel during the Jewish holy day of Yom Kippur in 1973. Egypt regained some ground, but its Third Army was eventually surrounded by an Israeli army led by Ariel Sharon (who would later become prime minister). The Soviets proposed a ceasefire, failing which they threatened to act â€Å"unilaterally.† For the second time in six years, the United States faced its second major and potential nuclear confrontation with the Soviet Union over the Middle East. After what journalist Elizabeth Drew described as â€Å"Strangelove Day,† when President Richard Nixons administration put American forces on the highest alert, the administration persuaded Israel to accept a cease-fire. Americans felt the effects of that war through the 1973 Arab oil embargo, during which oil prices rocketed upward, contributing to a recession a year later. In 1974 and 1975, Secretary of State Henry Kissinger negotiated so-called disengagement agreements, first between Israel and Syria and then between Israel and Egypt, formally ending the hostilities begun in 1973 and returning some land Israel had seized from the two countries. These were not peace agreements, however, and they left the Palestinian situation unresolved. Meanwhile, a military strongman called Saddam Hussein was rising through the ranks in Iraq. Carter Administration: 1977–1981 Jimmy Carter’s presidency was marked by American Mid-East policy’s greatest victory and greatest loss since World War II. On the victorious side, Carter’s mediation led to the  1978 Camp David Accords  and the 1979 peace treaty between Egypt and Israel, which included a huge increase in U.S. aid to Israel and Egypt. The treaty led Israel to return the  Sinai Peninsula  to Egypt. The accords took place, remarkably, months after Israel invaded Lebanon for the first time, ostensibly to repel chronic attacks from the  Palestine Liberation Organization (PLO)  in south Lebanon. On the losing side, the  Iranian Islamic Revolution  culminated in 1978 with demonstrations against the regime of  Shah Mohammad Reza Pahlavi. The revolution led to the establishment of an  Islamic Republic, under Supreme Leader Ayatollah Ruhollah Khomeini, on April 1, 1979. On November 4, 1979, Iranian students backed by the new regime took 63 Americans at the U.S. Embassy in Tehran hostage. They held on to 52 of them for 444 days, releasing them the day  Ronald Reagan  was  inaugurated  as  president. The  hostage crisis, which included one failed military rescue attempt that cost the lives of eight American servicemen, undid  the Carter presidency  and set back American policy in the region for years: The rise of Shiite power in the Middle East had begun. Reagan Administration: 1981–1989 Whatever progress the Carter administration achieved on the Israeli-Palestinian front stalled over the next decade. As  the Lebanese civil war  raged, Israel invaded Lebanon for the second time, in June 1982. They advanced as far as Beirut, the Lebanese capital city, before Reagan, who had condoned the invasion, intervened to demand a cease-fire. American, Italian, and French troops landed in Beirut that summer to mediate the exit of 6,000 PLO militants. The troops then withdrew, only to return following the assassination of Lebanese President-elect Bashir  Gemayel  and the retaliatory massacre, by Israeli-backed Christian militias, of up to 3,000 Palestinians in the refugee camps of Sabra and Shatila, south of Beirut. On April 18, 1983, a truck bomb demolished the U.S. Embassy in Beirut, killing 63 people. On October 23, 1983, bombings killed 241 American soldiers and 57 French paratroopers in their Beirut barracks. American forces withdrew shortly after. The Reagan administration then faced several crises as the Iranian-backed Lebanese Shiite organization that became known as Hezbollah took several Americans hostage in Lebanon. The 1986  Iran-Contra Affair  revealed that President Ronald Reagans administration had secretly negotiated arms-for-hostages deals with Iran, discrediting Reagan’s claim that he would not negotiate with terrorists. It was not until December 1991 that the last hostage, former Associated Press reporter Terry Anderson, was released. Throughout the 1980s, the Reagan administration supported Israel’s expansion of Jewish settlements in occupied territories. The administration also supported Saddam Hussein in the 1980–1988 Iran-Iraq War. The administration provided logistical and intelligence support, believing wrongly that Saddam could destabilize the Iranian regime and defeat the Islamic Revolution. George H.W. Bush Administration: 1989–1993 After benefiting from a decade of support from the United States and receiving conflicting signals immediately before the invasion of Kuwait,  Saddam Hussein  invaded the small country to his southeast on August 2, 1990.  President George H.W. Bush  launched Operation Desert Shield, immediately deploying U.S. troops in Saudi Arabia to defend against a possible invasion by Iraq. Desert Shield became Operation Desert Storm when Bush shifted strategy—from defending Saudi Arabia to repelling Iraq from Kuwait, ostensibly because Saddam might, Bush claimed, be developing nuclear weapons. A coalition of 30 nations joined American forces in a military operation that numbered more than half a million troops. An additional 18 countries supplied economic and humanitarian aid. After a 38-day air campaign and a 100-hour ground war, Kuwait was liberated. Bush stopped the assault short of an invasion of Iraq, fearing what Dick Cheney, his defense secretary, would call a â€Å"quagmire.† Bush established instead no-fly zones in the south and north of the country, but these did not keep Saddam from massacring Shiites following an attempted revolt in the south—which Bush had encouraged. In Israel and the Palestinian territories, Bush was largely ineffective and uninvolved as the first Palestinian intifada roiled on for four years. In the last year of his presidency, Bush launched a military operation in Somalia in conjunction with a humanitarian operation by the  United Nations. Operation Restore Hope, involving 25,000 U.S. troops, was designed to help stem the spread of famine caused by the Somali civil war. The operation had limited success. A 1993 attempt to catch Mohamed Farah Aidid, the leader of a brutal Somali militia, ended in disaster, with 18 American soldiers and up to 1,500 Somali militia soldiers and civilians killed. Aidid was not captured. Among the architects of the attacks on Americans in Somalia was a Saudi exile then living in Sudan and largely unknown in the United States: Osama bin Laden. Clinton Administration: 1993–2001 Besides mediating the 1994 peace treaty between Israel and Jordan, President Bill Clinton’s involvement in the  Middle East was bracketed by the short-lived success of the Oslo Accords in August 1993 and the collapse of the Camp David summit in December 2000. The accords ended the first intifada, established Palestinians’ right to self-determination in Gaza and the West Bank, and established the Palestinian Authority. The accords also called on Israel to withdraw from the occupied territories. But Oslo did not address such fundamental issues as the right of Palestinian refugees to return to Israel, the fate of East Jerusalem, or what to do about continuing expansion of Israeli settlements in the territories. Those issues, still unresolved in 2000, led Clinton to convene a summit with Palestinian leader  Yasser Arafat  and Israeli leader Ehud Barak at Camp David in December of that year. The summit failed, and the second intifada exploded. George W. Bush Administration: 2001–2008 After deriding operations involving the U.S. military in what he called â€Å"nation-building,† President George W. Bush  turned, after the terrorist attacks of September 11, 2001, into the most ambitious nation-builder since the days of Secretary of State  George Marshall, who helped rebuild Europe after World War II. But Bush’s efforts focused on the Middle East, were not very successful. Bush had the world’s backing when he led an attack on Afghanistan in October 2001 to topple the Taliban regime, which had given sanctuary to al-Qaeda, the terrorist group responsible for the 9/11 attacks. Bush’s expansion of the â€Å"war on terror† to Iraq in March 2003, however, had far less international support. Bush saw the toppling of Saddam Hussein as the first step in a domino-like birth of democracy in the Middle East. But while Bush talked democracy in regards to Iraq and Afghanistan, he continued to support repressive, undemocratic regimes in Egypt, Saudi Arabia, Jordan, and several countries in North Africa. The credibility of his democracy campaign was short-lived. By 2006, with Iraq plunging into civil war, Hamas winning elections in the Gaza Strip, and Hezbollah winning immense popularity following its summer war with Israel, Bush’s democracy campaign was dead. The U.S. military surged troops into Iraq in 2007, but by then the majority of the American people and many government  officials were widely skeptical of the motivations for the invasion. In an interview with The New York Times Magazine in 2008—toward the end of his presidency—Bush touched upon what he hoped his Middle East legacy would be, saying: I think history will say George Bush clearly saw the threats that keep the Middle East in turmoil and was willing to do something about it, was willing to lead and had this great faith in the capacity of democracies and great faith in the capacity of people to decide the fate of their countries and that the democracy movement gained impetus and gained movement in the Middle East. Sources Bass, Warren. Support Any Friend: Kennedys Middle East and the Making of the U.S.-Israel Alliance. Oxford University Press, 2004, Oxford, New York.Baker, Peter. President George W. Bushs final days, The New York Times magazine, August 31, 2008.

Finance Financial Management And Price Earnings Ratios Finance Essay - Free Essay Example

Sample details Pages: 18 Words: 5543 Downloads: 2 Date added: 2017/06/26 Category Finance Essay Type Argumentative essay Did you like this example? Price earnings ratio (P/E ratio) is the ratio between market price per equity share and earnings per share. Earnings per share is calculated by dividing the net profit after taxes and preference dividend by the total number of equity shares. Earnings per share (EPS) is the portion of a companys profit allocated to each outstanding share of common stock. Don’t waste time! Our writers will create an original "Finance Financial Management And Price Earnings Ratios Finance Essay" essay for you Create order Note that EPS can be from the last four quarters (trailing P/E) or the sum of the last two actual quarters and the estimates of the next two quarters, but it is important to note that the P/E ratio is a measure of investors expectations as to future earnings and not for current earnings. In many cases, the ratio of a stock price to earnings per share or the price which must be paid for each pound of the firms earnings is used as basis for comparing the investment characteristics of different shares. A share price on its own tells us little or nothing about its investment value. Two companies with identical prospects, assets and aggregate equity value may have different share prices quite simply because one firm has fewer shares outstanding than the other. This may be the result of a company having fewer shares issued at a higher price than the other or it may mean that a company paid out fewer dividends in order to finance its past growth through retentions, while the other company p aid out higher dividends and raised capital by issuing more shares to fund its investment programmes. In other words, two identical companies can have different prices as a result of the number of shares outstanding. Since EPS and share prices can be affected by the number of shares outstanding P/E will neutralize the impact of these differences. By dividing the stock price by earnings per share a simple way has been found of standardizing share prices that otherwise cannot be meaningfully compared. For example, the Barclays PLC which is a major global financial services provider is currently trading (Po) at 315p a share and the Earnings per share expected in the next four quarters (E1) are 34.99p per share. The P/E ratio for the stock of Barclays PLC will be equal to 9 times (315p/34.99p). In our case, which Barclays PLC is currently trading at a multiple (P/E) of 9 times, the interpretation is that an investor is willing to pay 9 pounds for each pound of current earnings. ) a) ii) In order to identify and briefly discuss the theoretical determinants of P/E ratio the Gordon growth model will be utilized. The Gordon growth model, named after its inventor Myron Gordon, makes the dividend valuation model easier to use by combining it with additional assumptions, which will be given later in our discussion. Shares are valued on the basis of the payoffs which they are expected to generate for investors. In principle the value of the payoff expected from holding a share is simply the present value of the cash flows anticipated by investors. What investors expect to get out of any share they hold are dividends (Dt) and the proceeds (PN) from the sale of the share at the end of the planned holding period (N). The present value of the expected cash flows (the dividends expected and the proceeds from the sale) is determined by using a discount rate which is equivalent to the rate of return which investors can earn on investments in other shares of similar risk (r). The v alue of the share (Po) may be determined by using a model of the following nature: A simple valuation equation can also be developed for the shares of a firm that retains some of its earnings to finance investment as long as its assets, earnings and dividends can be expected to grow at a constant rate (g). This produces the following model, referred as the Gordon Model (see Gordon, 1959).- where D1 = D0 (1+g) This model suggests that the price of share is a function of the dividend expected in the next period (D1), the rate of growth of dividends (g) and the discount rate (r). By specifying the dividend, in terms of earnings per share (E1), the retention ratio (b) and the payout ratio (1-b) the above model can be demonstrated as below: Some insights into why price-earnings ratios can be expected to vary from firm to firm can be derived form a consideration of the previous model. This particular model suggests that the prospective P/E ratio will be higher the lower the discount rate (r), the greater the expected rate of growth (g), and the lower the retention ratio (b). In the case that the expected growth rate (g) is the same as the historical growth the prospective P/E ratio can be adjusted to obtain a ratio based on the last reported earnings: At first sight it is evident that there is an inverse relationship between the P/E ratio and the retention ratio (b), but this cannot be true since firms can not influence their P/E ratios by manipulating their retention ratios. Stockholders will pay more per pound of earnings the greater the proportion of earnings paid out in dividends all else being equal, but any reduction in retention will lead to a fall in investment, which will lead to a decrease in the expected rate of growth of dividends. The constant growth model has become the most widely employed theoretical model because of its simplicity. The simplicity of the constant growth model is a reflection of the assumptions on which the model is based, and the awareness of these assumptions is essential for the recognition of its weaknesses and strengths. It is assumed that: all investment is financed from retentions and a constant proportion of earnings is retained in each time period; the rate of return on the firms investments is constant over time, as the rate of return on existing assets; and the cash flow produced from investments is constant in perpetuity. QUESTION 2 a) iii) The differences in P/E ratios reported in the financial press cannot all be explained by the determinants of the P/E ratios identified by the valuation models. For example, one of the reasons for those differences can be the differences in the accounting methods employed by firms. The valuation models are based on an idealised notion of expected earnings per share; the firms expected cash flows minus an allowance for depreciation, calculated on an economic basis, while observed P/E ratios, reflect more pragmatic definitions of earnings. It is well known that differences in accounting methods have a significant impact on earnings per share but do not have any impact on share prices (the market sees through the effect of accounting differences). Generally, differences in earnings per share arise from differences in accounting methods which lead in differences in reported P/E ratios. Those firms employing depreciation policies with high charges have lower reported earnings per share (si nce depreciation is charged against revenues as an operating expense) and higher price earnings ratios than firms using straight line depreciation. Another factor that might influence the value of the companys reported P/E ratio is transitory changes in earnings. Beaver and Morse (1978) at a later study realised that the observed spread of P/E can be explained by the difference between equilibrium and actual earnings. Changes in earnings which are of temporary nature will not lead to proportionate change in the share price but to higher P/E ratio if negative transitory earnings occur and lower P/E ratio if positive transitory earnings occur. As a result, firms with low earnings will have high P/E ratios, without being growth firms at all. QUESTION 2 b) The sample of shares chosen to discuss and explain the possible reasons for the differences in the reported price-earnings ratio belong to the banks operating in the United Kingdom. It is important to choose companies that are in the same industry since this is the only way that P/E ratio analysis can have any significant comparable meaning. The data gathered are presented in the table below: BANK SHARE PRICE EPS P/E HSBC 662.7p 63.43p 10.4 times Royal Bank of Scotland Group 44.66p 3.4p 13.1 times Lloyds Banking Group 62.88p 6.10p 10.3 times Barclays 315p 34.99p 9 times Price earnings ratios were calculated based on the companies current share price and the estimated earnings per share for year 2011. P/E ratios calculated this way are known as forward price earnings ratios. Forward P/E ratios can give investors a more meaningful result than do trailing P/E ratios that are calculated by dividing the current share price by the trailing earnings per share for the last 12 months. Trailing P/E ratio is a historic measure while forward P/E is more useful and informative. After all, it is the future that counts; you are paying what the company will do in the future rather than what the company did in the past. Another reason that forward P/E ratios are used in this case is that the P/E for Lloyds could not be calculated by using EPS of the past 12 months because the firm had a bad year. Lloyds suffered a loss of 0.5p per share and calculation of P/E based on this figure would give a meaningless result. The figures presented at the table above suggest that the market has more confidence in the ability of RBS to continue increasing its earnings, but at the other side it believes the outlook for Barclays is unpromising. A high P/E ratio indicates that investors are paying more for each unit of earnings, so the stock is more expensive compared to those stock with low P/E ratios. The P/E ratio is commonly used to assess the level of confidence investors have in a company. It represents the markets view of the companys growth potential. A high price-earnings ratio indicates that investors have a high level of confidence in a companys future prospects. As we can see from the table presented, RBS has the highest price-earnings ratio, indicating that investors of the Banking sector have a high level of confidence in the companys growth potential prospects, it might equally be considered to be overvalued depending on prevailing market circumstances. RBS has a P/E ratio of about 13, implying that investors are currently willing to pay 13 for every pound of earnings RBS generates. Similarly, Barclays P/E ratio of around 9 implies that investors are currently willing to pay 9 pounds for each pound Barclay makes. For a different perspective, try flipping the P/E ratio to an E/P ratio, commonly referred to as the earning yield. Like a yield on a bond, this number shows a companys annual earnings as a proportion of its market value. Buying one share of RBS at 44.66p, with EPS 3.4p equates to an earnings yield of 7.6% (3.4p divided by 44.66p). For Barclays, the earning yield is 11.1%, because each share, currently trading at 315p is expected to generate a 34.99p in earnings per share. In long run, Barclays investors theoretically should earn a better rate of return than RBS investors for each pound invested. Yet the true outcomes could be different. The question that arises is whether the difference in P/E ratios alone makes one company a better investment than the other. Fundamental problems exist with the P/E ratio. First, the share price (P) doesnt consider debt since it is the equity price of a business. That is fine with companies without debt, like Google or Microsoft but not for the companies chosen. For instance, business with a market cap of 5 billion, with 1 million of net debt on the balance sheet, has an enterprise value of 6 billion. If this company earns 500 million in profit in a given year, the P/E ratio will be 10; but in reality, investors should see 12. The logic embodied in the conventional wisdom that high P/E ratios are good and low P/E ratios bad, is given by the dividend growth rate equation at which dividends (D) is expressed in terms of EPS (E) and retention ratio (b). The firms required rate of return r, can be given as follows: where i is the firms expected rate of return on future investments. From this equation is obvious that for any given r and b, the smaller the fraction [E1/P0] is, the larger i must be. Since [E1/P0] is the inverse of the P/E ratio, a small [E1/P0] corresponds to a high P/E ratio. Therefore, all else being equal, the higher the P/E ratio, the higher must be the expected rate of return on future investments; or, more simply, a high P/E ratio such as RBSs corresponds to good future investment opportunities, while Barclays with the lowest P/E ratio doesnt correspond to good future investment opportunities. Remember the P/E ratios are calculated based on estimated (average) earnings per share. But actual values almost never equal the average. A firm can have a very high P/E ratio during a bad year and a very low during a good year, yet in both cases, the firm may not have changed fundamentally. A high P/E ratio of 13.1 times for RBS is the result of low earnings (3.4p) rather than high expected rate of return on future investment. Note that RBS with the s mallest share value (44.66), has a P/E ratio that is the highest due to very low EPS, the smallest of all companies. The conventional wisdom about P/E ratio can be altered also by the possibility that earnings are not reflecting the actual outcome. For example, a land sold would create large profits due to the large difference between its historic cost listed on its balance sheet and the current market value. Or, the firm recognizing a bad debt that has existed for several years. Another possibility that can alter the conclusions about P/E ratios is changes in the firms accounting procedures. For example, a change of how the firm estimates its inventory, from the First-in-First-out basis (FIFO) to the Last-in-First-out basis (LIFO), lead to a decrease of the firms reported earnings in times of inflation. A change in the measure of earnings can cause a change in the P/E ratio that really indicates nothing new about the value of the firm. It can also be suggested that risk will influence the P/E ratio to the direction of influence needs careful consideration. Responsible for differences between the reported P/E ratios is also the expected growth and the way it depends in part on the level of investment and in part on the profitab ility of the investment. Specifically, one can conclude that a lot more information is needed than just the P/E ratio to estimate the value of a share of stock. QUESTION 3: Rights Issues QUESTION 3) a) i) Almost all quoted companies in UK that wish to raise money do so by means of a right issue. A right issue offers existing stockholders the right to buy new shares in proportion to their existing holdings. Rights issues allow stockholders to maintain their interest or proportionate share, in the ownership of the company, by ensuring that new shareholders are not brought in the company to the disadvantage of existing shareholders. Existing shareholders can exercise or sell their rights to other investors who would like to subscribe to the issue. Specifically, RBS wish to raise 12 billion of new equity capital and will do so by means of a rights issue. RBS shareholders are invited to subscribe to the right issue with an entitlement of 11 new shares for every existing 18 shares they hold at an issue price (PS) of 200p. The subscription price the price of the new shares is pitched below the current market price of 372.5p (P0). The discount offered as an inducement to shareholders to subscribe to the new issue is equal to approximate 46.31% (d). The 200p subscription price is calculated as given below: Once RBS decided on the level of funds (F) to be raised and the subscription price (PS), the number of new shares (ÃÆ'Ã… ½Ãƒ ¢Ã¢â€š ¬Ã‚ N) to be issued can be calculated quite easily: 12 bil / 2 = 6 billion of shares And once the number of new shares to be issued is known, the number of shares [N(R)] which an investor must hold to be granted one right can be calculated: The number of shares outstanding prior to the right issue (N0) must also be calculated in order to determine the ex-rights price. The determination is given below: The ex-rights price will be a weighted average of the pre-issue price and the subscription price: the weights being given by the ratios of the number of pre-issue shares to the total number shares outstanding following the issue: So, 3.07 The market value of a right [V(R)] depends on the difference between the subscription price (PS) and the expected price of the share following the new issue (PX). 1.07 QUESTION 3 a) ii) Rights issues are made at a discount, partly to make them look attractive and plus encourage stakeholders to subscribe, and partly against the risk of a fall in the market price during the offer period. Whether to invest in the rights or to sell them is the best choice for an investor will be analyzed furthermore. Assuming that a shareholder owns 900 shares of RBS, through the rights issue he can buy 550 shares at 200p (11 new shares for every 18 existing). Wealth Effects: the initial wealth with 900 shares at value P0 = 3.72 is: Initial Wealth = 900 * 3.725 Invest in the rights: This will happen only if the shareholder has the resources to acquire the additional shares and believes this is the best way to invest his money. Moreover a shareholder may invest in the rights because there are bi stamp or duty brokers commissions payable, and the desire to maintain ones existing share of voting power. Value of new investment = 3,352.5 + 1,100 = 4,452.5 The value of investment at the ex-rights price will be: Value of investment at PX = (900+550 shares) * 3.07 = 4,452.5 Thus, the impact on the shareholders wealth will be 0. Sell the rights This will happen if the shareholder wants to maintain his existing investment in the company in value terms. In the beginning the shareholder will lose from the fall of the share but he will cover from the loss through selling the rights. If the shareholder sells the rights, the value of his share at the ex-rights price will be: Value of shares at PX = 900 shares * 3.07 = 2,763 The declines in the shareholders wealth will be: Decline in shareholders wealth = 3,352.5 -2,763 = 589.5 The amount that the shareholder will acquire from the sale of the right at VR = 1.07 will be: Value from sale of the right = 550 shares * 1.07 = 589.5 Thus, the impact on the shareholders wealth will be 0 From the above analysis it is obvious that the shareholder wealth remains unchanged after the rights issue ether if e invests in the rights or sells the rights. The wealth of the shareholder will change only when the new issue leads to the re-appraisal of the firms value. This happens because issue of new shares at a discount leads to the fall in the value of existing shares thereby offsetting the value of the right. QUESTION 3) c) The Royal Bank of Scotland (RBS) announced a rights issue in order to raise 12 billion, which is considered the largest UK equity issue at that time. Under the terms of the rights issue, 11 new shares will be offered to existing shareholders for every 18 shares they hold. The subscription price is pitched well below the current market price of 372.5p. The discount offered as and inducement to shareholders to subscribe to the new issue is equal to 46.13%, well above the conventional level o f 15 to 20 per cent. The discount is pitched at this level in order to assure that the subscription price of 200p [372.5 (1-1.46310)] will remain below the market price over the offered period. The size of the typical discount drifted upward since the stock market at that time became more volatile and because of the size of funds needed to be raised. At first sight it might appear that the rights issue mentioned above is an attractive proposition for shareholders. The right issue allows the shareholders to increase their holdings of shares in the company at a discounted price, but a closer look at the mechanics of a rights issue reveals that it leaves the wealth of the shareholder unchanged, because the value of the existing shares falls, and this fall offsets the gains provided by the subscription. If the market price of the shares of RBS remains sufficiently above the subscription price of 200p the issue is likely to be successful, otherwise underwriters guarantee to take up any shares which the shareholders decline to acquire. Specifically, in the case of RBS, the bank agreed with its lead banks that fees would be 1.75 per cent of the proceeds of the average issue. These investment banks that lead the issue will only absorb some of the risk since most of it is passed onto the sub-underwriters of other merchant banks and institutional investors such as insurance companies for a fee of 1%. The question that arises is whether the company will be obtaining value for money for the underwriters fee of 1.75 per cent of the proceeds of the issue. In later study, Marsh (1980) found out that underwriting is highly profitable on an ex post basis. In 671 rights issues, only 35 led to losses with an average loss of 4.2%. In the case of RBS, the underwriters were left with unsold shares of less than 5 per cent since 95.11 percent of the shares offered had been taken by the investors. The remaining 299.4m shares were sold at profit by the underwriters, at a price of 230p a share, raising an additional 688.6m (299.4 m sha res times 2.3p) As Merret, Howe and Newbould (1967) comment in one of their first studies, the underwriting charges in the case of rights issues seems somewhat excessive for the minimal risks actually borne bye the underwriters. To incorporate the effects of risk mentioned above the underwriting contract should be viewed as a put option (Marsh 1980). RBS, the issuing firm is in the same position as an investor holding a put option, while the underwriter of the right issue is considered as the writer of a put option. The potential losses or gains of the underwriter are equal to the potential gains and losses of the issuing firm. Marsh found that the cost of underwriting produced an average excess return to the underwriters of 0.7 percent and only in 14% out of 539 underwritten issues the value of the put option element of the underwriting agreement appears to be greater than the fees charged. It seems logical to conclude that underwriting fees are used to compensate for other services provided by the merchant banks, for which explicit charge is not being made. Underwriting cannot be considered too expensive if this is the case. The profit and loss associated with an underwriting agreement as a function of the share price are illustrated in the figures below: (a) PROFIT LOSS FOR RBS UNDERWRITING FEE (+) profit Market share price (-) loss 0 (b) PROFIT LOSS FOR UNDERWRITERS UNDERWRITING FEE (+) profit (-) loss 0 QUESTION 3) d) Alex Porter of Collins Stewart views that investors should take up the rights offered by RBS because buying shares at 200p is incredibly cheap since the 2009 estimated earnings per share of 37p and a price-earnings of 9 indicate that the price of share will be raised to 333p (374p x 9). RBS rights issue seems as an attractive proposition for shareholders since they are given the right to subscribe to additional shares at a discount above the conventional level of 15% to 20%. On the other hand, RBS has employed a large price discount (46.31%) and faces the risk of the dilution of earnings, dividends and assets. The lower the subscription price the larger the number of shares that must be sold in order to raise the fund required by the company. In the case of RBS, 6 billion shares must be issued in order to raise 12 bil of equity capital. There is a fear that the increased claims of the firms earnings, dividends and assets will lead the stock market to react adversely to this dilution. An adverse reaction implies that the investors are unable to differentiate between nominal and real changes and that the stock market is inefficient. The fall in earnings per share, as more shares have to be issued to raise the funds required, will be matched by the fall in share price. The fall in share price will be compensated by the increase in the number of shares, leaving the earnings yield of the stockholders overall stake in the company unchanged. As a conclusion I believe that Porters statement is misleading and creates a misunderstanding, since it implies a share price of 333p which is far greater than the expected ex-rights price of 307p calculated. The belief that the price of share will have a future value of 333p is very optimistic since the financial crisis of 2007 is considered by most economists the worst financial crisis since the great Depression to the 1930s. There is a fear that the European banking system may collapse as did large financial institutions in the United States. Specifically, S P no longer considers the UK banking sector to be one of the lowest risk and secure banking systems because of the countrys weak economic environment, the reputational damage experienced by the banking industry, and high dependence on state support programs. The risk profile of UK banks is affected by anticipated system-wide, domestic non-performing and impaired loans that will remain high throughout 2009 and 2010, linked to high levels of household and corporate debt. The uncertainty surrounding the banking industry must be taken into consideration in analyzing the statement of Porter which is in my opinion very optimistic. One, b efore deciding buying RBS shares offered at 200p, should consider whether RBS will remain in the following years, structurally strong, and a business that will continue making profits under the conditions discussed above. QUESTION 4: Options QUESTION 4) a) An option gives the holder the right to buy or sell on asset by a certain date for a certain price. The option that gives the holder the right to buy is called call option and the one that gives the holder the right to sell is called put option. The price in the contract is known as the exercise or strike price (x), and the date in the contract is known as the expiration, expiry or maturity date. The fact that distinguishes options from other contracts (futures of forwards) is that the holder does not have to exercise the right that the option gives him. For an option contract an investor must pay an up-front price, known as the option premium (c). In the specific question we are asked to explain why call option traded on Marks Spencer shares are trading in November than those trading in September. There are many factors that influence stock option prices, and the most important are given below: The current stock price (S0) The strike price (x) The time to expiration (T) The volatility of the stock price (ÃÆ' Ãƒâ€ Ã¢â‚¬â„¢) The risk-free rate (r) The dividends expected during the life of the option Specifically in order to give an adequate answer to the question involved, we will discuss what happens to the call option prices of Marks Spencer when one of these factors changes (the time to expiration) while the others remain fixed. Options are referred to as in the money, at the money or out of the money. A call option is in the money when sk, at the money when s=k, and out of the money when sk. Clearly the option will be exercised when it is in the money and the payoff will be the amount by which the stock price exceeds the strike price (s-x0), which is called the intrinsic value of an option. As the stock price increases, than call option becomes more valuable. Therefore the longer the time that a call has to run to maturity, the greater the scope for the price to rise above the exercise price. The probability to notice big variation between the share price at expiration and the strike price is higher, the longer the maturity period of the option. Another important element is that in call options there is a limit to what can be lost which is the call premium while the gains are unlimited. In other words, gains and losses are not symmetrically distributed for a call option. Although European call options usu ally become more valuable as the time to expiration increases, this is not always the case. Consider two European call options on a stock: one with an expiration date in one month, the other with expiration date in two months. If a very large dividend is expected in six weeks, this expected dividend will cause the stock price to decline, so that the short-life option could be worth more than the long-life option. QUESTION 4) b) A straddle is an option strategy that involves taking a position in both calls and puts on the same stock. Specifically, in a straddle, an investor buys a call and a put option which have the same exercise price and expiration date. When the share price at the time of expiration (ST) is greater than the strike price (x), the call option is exercised. The put option is exercised when the strike price (x) is greater than the stock price (ST). The exercise price of 210p has a call premium in November equal to 24.5 (C0) and a put premium equal to 22 (P0). The amount paid from the investor for this specific combination called straddle will be equal to: C0 + P0 = 24.5 + 22 = 46.5 The profit pattern is shown in the following table: Action ST CFT from Call CFT from Pull P/L CF0+CFT Exercise Put 130 0 (210-130)-46.5 33.5 Exercise Put 163.5 0 (210-163.5)-46.5 0 Exercise Neither 210 0 0 (46.5) Exercise Call 256.5 (256.5-210)-46.5 0 0 Exercise Call 290 (290-210)-46.5 0 33.5 Long Straddle -24.5 -46.5 -22 Profit or loss Put only Call only 163.5 210 256.5 Straddle ST This specific long straddle strategy will yield a profit if ST is above the upper breakeven point of 256.5 and below the lower breakeven point of 163.5. Between the two breakeven points (16.5, 256.5) the specific strategy will yield loss with a maximum value of 46.5. An investor might consider worthwhile to invest in a straddle if he believes that there are likely to be big movements in the stock price, and these beliefs must be different from most of the other investors. A straddle seems a natural trading strategy in the case that a big move is expected in the companys stock price because there is a takeover bid for the company or the outcome of a major lawsuit involving the company is about to be announced. In other words, someone may take a long straddle position if he thinks the market is highly volatile, but does not know in which direction it is going to move. This position is a limited risk a purchaser of a straddle may lose the cost of both options but there is an unlimited profit potential. In contrast, a short straddle position is highly risky because the potential loss is unlimited, while profitability is limited to the premium gained by the initial sale of the options since short straddle is a strategy that involves a simultaneously sell of a put and call option. QUESTION 4) c) A zero sum game is one where for every winner you must also have a loser. In other words for every person who turns a profit someone else must suffer a corresponding loss. Financial markets offer many examples of zero sum games. For example the writer of an option can only gain what the holder loses and vise-versa. Specifically, the profit of the writer is a mirror image of the holders loss. This situation is given in the following diagram: Profit graph for a call writer and investor Investor Buyer Long position Seller Writer Short position Profit Loss -c +c ST X When the share price at expiration (ST) is lower than the exercise price (x), the call option will not be exercised by the investor. The investor of the particular option will suffer a loss equal to the call premium (-c). This particular loss will be the profit to the writer of the call option (+c). On the other hand, if the exercise price (x) is not above the share price at expiration the profit of the investor [ST (x+c)] will be the loss of the writer [(x+c)-ST]. All the above are summarized below: Share price Investor Writer Both PL STX -C0 +C0 Æ’Ã ¢Ã¢â€š ¬Ã‚   STX ST-(X+C) [-ST+(X+C)] Æ’Ã ¢Ã¢â€š ¬

Dictator Benito Mussolini Free Essays

string(144) " political gain without having his actions being recorded back to him, therefore he highly influenced the organized crime group to his benefit\." Dictator Benito Mussolini rose to power in Italy in the year 1922 as a Fascist Dictator. Years earlier, Mussolini began his political career as a Revolutionary Socialist, but by 1919 he was able to mold the Italian government into a paramilitary Fascist dictatorship giving him full control of Italy by 1922. Mussolini forged the Italian government into a Fascist Dictatorship under his control where he abused his power and performed criminal and unjust activities. We will write a custom essay sample on Dictator Benito Mussolini or any similar topic only for you Order Now Before Mussolini came to power the Italian mafia was still an extremely prominent group within Italy. The organized crime society functioned in illegal ways through drug trafficking, human trafficking and extortion. After close observation, scholars noticed that Mussolini’s Fascism and the Italian mafia work in similar ways in that they try to control and manipulate people using their power and fear. Mussolini’s fascism and the mafia also have a similar way of dealing with corruption and gaining control of people. This furthermore demonstrates how Mussolini acted in a deceitful way similar to the Italian Mafia. He did this through his actions of bribery towards the mafia for his own political and personal gain, unjust and unfair treatment of people, and being intolerant of the beliefs of others through extreme acts. The mafia was an Italian crime organization that originated in Sicily Italy and was taken to the United States through Italian immigrants moving to the United States in the late nineteenth century. The Italian mafia is a network of organized crime groups based in Italy which evolved over many decades in Sicily. Until the middle of the 19th century Sicily was an island ruled by many different foreign invaders. People of Sicily began to unite in groups to defend others and themselves in order to live in peace and unity. The term Mafioso is translated to a member of the mafia, however originally the word had no association to criminal connections and was used to refer to a person who was suspicious of being connected to central authority. By the 19th century, many of these criminal organizations titled themselves as private armies, also known as the mafia. The mafia soon evolved into a corrupt group who committed felonies like drug trafficking, human trafficking, and extortion and eventually became one of the most violent criminal organization groups known today as the Sicilian Mafia. Fascism is defined as â€Å"a political philosophy, movement, or regime that exalts nation and often race above the individual and that stands for a centralized autocratic government headed by a dictatorial leader, severe economic and social regimentation, and forcible suppression of opposition†. Fascism places a very strong emphasis on patriotism and nationalism and is less focused on the wellbeing of the individuals rather than military power. People who object and criticize the nation’s main ideals such as war are harshly chastised as unpatriotic and against the nation and can result in many different punishments the worst being treason. Additionally, Fascism loathes the principles of economic equality and disdains equality between immigrant, citizen, and government.Mussolini started out as a soldier in WWI until he was injured, afterwards he became a leading promoter of fascism. He started originally as a revolutionary socialist, but as his power began to grow he started to grow the paramilitary fascist movement in 1919. In 1922 Mussolini became the prime minister. The black shirts were members of the Fascist regime who marched on Rome and made Mussolini their Fascist leader. Mussolini worked to progress the Paramilitary Fascist movement in Italy during the years of 1919-1921. He then harassed his new power to March on Rome, and ultimately become Prime Minister. Mussolini then began to seize dictatorial power and transform the government into what he wanted it to become. Additionally, Mussolini was intolerant to any other political or religious beliefs that differed from his, which led to extreme uses of violence and force upon people.Mussolini started his rule of Italy by turning the country into a Fascist Dictatorship that was to bow down to him and only him. Among the many other flaws in Mussolini’s ruling, the fascist guidelines he followed were intolerant to opposition and was therefore ill prepared to be a leader of a country. Mussolini had no way of dealing with adversity or different threatening groups, other than consolidating his power and demonstrating his strength through the government and law. Yet, the threat of the law was still not enough to keep Mussolini from doing the right thing. Mussolini began to use the Italian Mafia as an ally to not only come to power but to help maintain his ideals in the country where the mafia was most occupying. Although both Mussolini and the Mafia were intolerant to anyone with other beliefs â€Å"Mussolini still needed his Mafioso allies for a time, especially their aid in maintaining law†. This action is seen as the beginning of the numerous mischievous works that Mussolini gets himself mixed in with while he was in power. Aliening with a mafia organized crime group while in power is a sign of corrupt behavior and demonstrates his want for political gain without compromise or tolerance. The phrase â€Å"for a time† indicates an ulterior motive of planning to abandon the mafia after he has already benefited from the gain he had hoped the Mafia would help him achieve. Mussolini transformed the country of Italy into a Fascist Dictatorship which gave him the power to control everything and everyone in the country without retaliation. In order to keep the positive opinions of his people he used the Italian mafia to execute certain decisions made. He used the mafia to make his popularity rise in areas he was not pertaining to as much, â€Å"During the first two years of his regime compelling reasons to enter into collaborations with influential Mafioso, men who were capable of enforcing law and order in the countryside†. This furthermore proves the point of Mussolini using the mafia for political gain without having his actions being recorded back to him, therefore he highly influenced the organized crime group to his benefit. You read "Dictator Benito Mussolini" in category "Papers" This is an unfit and negative attribute for a leader of a country, this relates Mussolini much to the Italian mafia which functions in the same way. However, while neither case is okay in Mussolini’s case it is more important because his actions affects the entirety of Italy.One of the major components to Fascism is its intolerance and narrow-mindedness towards people in all aspects of their lives. A Fascist Dictatorship entitles Mussolini to do as he pleases, therefore when the Mafia did not assist him in his goal for unethical political gain, Mussolini’s retaliation become very strong. â€Å"Above all else Mussolini was determined to destroy any possibility of effective land occupations and to suppress banditism.† A major goal of Mussolini’s was to eliminate the mafia and all organized crime in Italy, he was the first leader of Italy to go to Sicily to take major action. The â€Å"determination† that Mussolini has to take vengeance on the Mafia shows that the way he acts is a sign of immaturity and very alike to the actions of an organized crime group would when faced with an issue. Although the attempted destruction of the Mafia would have been good for Italy, Mussolini’s actions were not totally righteous. An ulterior motive of helping himself through destroying the group that refused Mussolini’s offer for political gain demonstrates his intolerance towards groups and people that refuse or differ from him. Mussolini had previously used the Italian mafia to bend the law and help him in his Fascist regime, but when the Mafia soon began to stop these actions, Mussolini retaliated against the organized group through methods the mafia would use. However, as a leader of a country Mussolini should handle himself in a much more professional. â€Å"In the meantime, his hand strengthened by the electoral victory of 1924, Mussolini declared war on the Mafia. In May 1924, he made a triumphal tour of Sicily to consolidate his political gains of the previous month.† Mussolini’s almost immediate action of punishment and retaliation towards the mafia for not doing as he instructed demonstrates not only his power hungriness but also his intolerance to others in nearly every regard. By â€Å"consolidating his political gains† he is compelling the people of Sicily to support him and his administration otherwise they will face his consequences and punishments. The Mafia and Mussolini’s Fascism function in a similar way in regards to retaliation, both have a refusal to be controlled by another force or person.Mussolini was the first ruler of Italy to go on to the Mafia filled island of Sicily as well as attempt to create a plan to end the corruption. Mussolini was not taking care of the dangerous Mafia because of the well-being of the Italian people, but instead because they do not believe in his Fascist regime. The Mafia is not supportive of Fascism because it has a more negative effect on their business which makes them more of a target by the government. Mussolini wanted the Mafia imprisoned so, â€Å"Thousands of suspected Mafia criminals had been captured and tens of thousands of years of imprisonment had been handed down in penal sentence.† Since Mussolini turned the government in Italy to a now Fascist dictatorship he has the power and ability to commit their actions without any repercussions or laws in his way. Fascism entitled Mussolini to punish and imprison whomever he chose however, his actions demonstrate those similar to the Italian Mafia’s. When Mussolini began to capture Mafioso’s people noticed that, â€Å"When we passed through Sicily, the prisoners were crammed with these unfortunates. Later, I got to know youths of eighteen and nineteen years who said they were accused of crimes committed before they were born. † The action of imprisoning children and innocent people accused of crimes â€Å"committed before they were born† demonstrates a characteristic with Mussolini that shows an ulterior motive of not caring about the corruption the Mafia has caused but caring about personal and political gain. The Mafia has done torturous actions like this when people refuses them which demonstrates a common connection between how the two different groups function.Mussolini demonstrates his unfit behavior to be a leader of a country when he begins his retaliation against the Mafia. Because of their refusal, Mussolini treated the people in the Mafia with utter cruelty through his punishments towards the group for rejection of fascist beliefs. Mussolini imprisoned people through, â€Å"We were jammed into various stinking, crowded cells I was placed in a cell with already twenty or thirty prisoners belonging to the mafia or black hand and the widely known Sicilian society which the Mussolini government is said to have destroyed. † This obviously demonstrate the unfair and irrational treatments of people. History has shown the Mafia punishment or victimizing people through various different types of harsh punishment therefore when Mussolini imprisons people in such a difficult way the similarities between fascism and the mafia become extremely present.The march on Rome is another perfect example of Mussolini and The Mafia working in a similar conduct. Mussolini and the black shirts took control of Rome and the Italian government through force and turned it into the government that they wanted. The mafia functions very closely to that through their actions of force upon people. The illegal business conducted in the mafia has made the people within it rise to power with a high influence and heavy threats. Mussolini and the mafia have this aggressive power in common with one another demonstrating Mussolini’s unfit qualities to be a leader and the type of fascist regime he is dictating is like those of an organized crime group.Overall Mussolini turned the Italian government into a Fascist Dictatorship under his control and consolidated power in a similar to the Italian Mafias. Mussolini used the Mafia’s power for political and personal gain to help his own regime, then began to retaliate against the Italian mafia when they did not do as he had told. His retaliation was through ridiculous punishments demonstrating his lack of tolerance for opinions and beliefs differing from his own. Finally, the parallel resemblance between both the Mafia and Mussolini’s Fascism demonstrates the common connection between both parties in the way that they conduct themselves. How to cite Dictator Benito Mussolini, Papers

Charater of Sydney Carton in A Tale of Two Cities Essay Example For Students

Charater of Sydney Carton in A Tale of Two Cities Essay Tale Two Cities EssaysCharater of Sydney Carton in A Tale of Two Cities Sydney Carton, one of the main characters of the book, A Tale of Two Cities, is a drunken lawyer who works with Stryver on the trial of Charles Darnay.he doesnt care about anything. At first this man seems as if he is a lazy, good for nothing, alcoholic. he tells Lucie Manette he doesnt believe that his life is worth anything and feels as if it is pointless to even live anymore. When you first meet him during the court scene it looks as if he just rolled out of bed and was dragged to the courtroom. This one man sat leaning back, with his torn gown half off him, his untidy wig put on just sat it had happened to light on his head after its removal, his hands in his pockets, and his eyes on the ceiling as they had been all day. Something especially reckless in his demeanor not only gave him a disreputable look, but so diminished the strong resemblance he undoubtedly bore to the prisoner. However after he meets Luci e he falls madly in love for her. This marks a period of change for Sydney Carton. But he then knows that Charles Darnay is going to be married to her. He sill believes that his life is worthless but it seems as if hes a bit more willing to work and to do things for other people. Towards the middle of the book, A Tale of Two Cities, Carton professes his love for Lucie and he says For you, and for any dear to you, I would do anything. I would embrace any sacrifice for you and for those dear to you. And when you see your own bright beauty springing up anew at your feet, think now and then that there is a man who would give his life, to keep a life you love beside you.' He means that he would do anything for her, because he loves her so very much. He tells Josh Barsad that he is going to marry miss Manette, but then he backs out of it. At the very end of the novel you find out that Carton is about to go to the guillotine, but not for him. Charles Darnay was found guilty of treason an d was about to be executed. However, Darnay and Lucie are madly in love. Another thing, is that Sydney Carton and Charles Darnay look very similar to each other or doubles. This means that they could easily take each others place if they wanted to. Earlier in the novel Carton told Lucie that he would do anything for the man she loved. Well, Carton then dies in Darnays place. He wanted to do something that was important for other people, so he took his life instead of another. Lucie had succeeded in transforming him into a man of profound merit. It seems that Carton doesnt care about anything, but obviously he does. He cares for Lucie.